by Knick Harley

The Industrial Revolution changed Britain’s economic structure. Nick Crafts put a different perspective on just how the transition took place

The Crafts-Harley work on the Industrial Revolution put forward two main findings. First, evidence that Britain grew more slowly and, thus, was richer in the 18th than previously thought. Second, a general equilibrium framework highlights key features driving change.

The Industrial Revolution has shades of meaning. Two are fundamental. First, that the growth of an urban factory-based textile industry made Britain the ‘workshop of the world’. Second, that it set in motion, “the most fundamental transformation of human life in the history of the world recorded in written documents” by creating “modern economic growth” (Eric Hobsbawm). Prior to the 18th century, Malthusian dynamics governed the standard of living where population decline increased the standard of living, but population growth increased poverty. In contrast, in 19th century Britain, a rapidly rising population experienced improving standards of living. The mid-Victorians and historians concluded the factory system caused this transformation.

Our view developed out of two important quantitative estimates of British growth. In 1939, the German economic historian, Walther Hoffmann published an index of industrial output that was updated and translated in 1955. In 1962, Phyllis Deane and W. A. Cole provided estimates of national income from 1700. Both showed rapidly acceleration coinciding with the rise of textile factories. Calculations based on these estimates indicated that industrial growth was widely spread in the economy.

Nineteenth century calculations (by Deane and Cole) were based on censuses from 1841 which included detailed occupational information. This provided estimates of national income and research at the time assumed that both food consumption and the output of non-governmental services grew at the same rate as population.

Nick Crafts re-assessed these estimates. He first observed inconsistency between the 18thcentury agricultural series and rising real wages and falling food prices prior to 1740. His correction showed more rapid growth prior to 1740 which eliminated the late 18thcentury acceleration of agricultural and per capita aggregate growth. Next, he criticized the previous growth estimates for the early the 19th century which depended on deflation of current income level estimates.

Nick’s conclusions were that although previous estimates for agricultural growth were reasonable, they considerably overestimated the growth of services and manufacturing. His best guess for services (42% of income in 1820) was that labour productivity increased at 0.5 per cent per year. For manufacturing he adopted Hoffmann’s index.

I re-examined Hoffmann’s index which aggregated the industries for which he had data (about half the total during the Industrial Revolution) on their relative weights, implicitly assuming the undocumented industries grew at the same rate. This inadvertently doubled the weight given to the extraordinary growth of cotton and over-estimated aggregate growth.

These data adjustments underpin the Crafts-Harley estimates of British national income. Our revised national income exceeds the previously accepted estimate by some 70% in the early 18th century and show no acceleration in per capita terms prior to 1830. The doubling of population between 1760 and 1830 without Malthusian decline indicates that Britain was entering modern economic growth, but the process was underway before the 1760s. A second implication of the new estimates was that technological improvement was concentrated in the new growth industries and in agriculture.

The Industrial Revolution changed Britain’s economic structure. Improvements in textile and iron technology stimulated manufacturing production, much of it for export. Population growth with limited land supplies also drove structural change. Despite impressive increases in agricultural productivity, feeding growing numbers involved a shift towards manufacturing to finance food imports. Flexibility of resource allocation played a major role. Nick showed that unlike most European countries where agricultural labour productivity lagged, in Britain the proportion of the labour force and of output in primary production remained approximately equal.

The labour market adjusted quickly, presumably due to the proletarianization of agriculture

In the late 1980s, my colleagues, John Whalley and Tom Rutherford, developed computational general equilibrium (CGE) models which we used to explore growth and structure consistent with 1770 historical data. The model confirmed that key manufacturing innovations lowered prices stimulating demand and urban factory development. As a result, these industries’ expansion had a muted impact on the growth of British standard of living. Lower textile prices benefited domestic consumers, but textiles made up a modest portion of overseas budgets. Falling prices drove exports, but as Nick suggested, falling terms of trade eroded potential welfare gains.

The overriding conclusion of the Crafts-Harley view is that understanding the transition to modern economic growth cannot be based primarily on the experience of British of urban factory manufacturing in the classical Industrial Revolution. Britain began its transition before the Industrial Revolution. Much of the structural transformation was driven by exports brought about by unique country specific advances that became entrenched by protracted warfare preventing foreign emulation. However, the industrialisation that this brought about had limited impact on British welfare. The nature of British agriculture with its land-less workers, enhanced structural mobility and accelerated change.

About the author

Knick Harley is Emeritus Fellow at St Anthony’s College, Oxford