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The industrial revolution (IR)

The industrial revolution was a structural transformation from an agrarian economy to an industrial economy. It was a long-term phenomenon and it can only be compared to the transition from a hunter-picker economy to an agrarian economy (neolithic). Industrial transformations were experienced by England between 1760 and 1830 in the context of the new factory system. The effects of an isolated technological advance were a big increase in population and in income per person. After 1800, income rose sharply in many countries, creating a great divergence. There were changes in: social structure and capital accumulation institutions (Neo-institutionalism): Constitution and Property Rights science: Scientic Revolution (Galileo, Torricelli, Boyle, Hook, Papin...) cultural explanations The power of new ideas: liberalism in England legal and scal equality individual property rights individual freedom entrepreneurship freedom freedom of movements: goods, people and capital Why did the Industrial Revolution take place in England? It was the unique country with the following pricing structure of production factors: High Wages Strong incentives to substitute labor Cheap Energy Sources for energy and capital Capital English labourers were the ones that received the highest amount of silver grams per day, followed by the Holland ones. Thus, they were the most costly workers. In addition, there was high coal production in the north-east. Energy prices: Beijing had the most expensive ones, followed by Paris, London, Amsterdam, Strasbourg and Newcastle. In London, wood was more expensive than coal. Manufacturing moves from cities to elds. In cities guilds (gremios) were limiting, whilst in elds there were cheaper raw materials and workers (there was a piecework pay). Comparative advantages
Guild Putting out system Factory High quality, highly skilled labour (disincentive to adopt technology for labor saving) Low quality, low prices Capital

From putting-out system to factory system:


Putting-out system X X X Lower investment in xed capital Lower risk and more versatility to demand changes / shocks Lower wages (by item) Lower control of labor Higher transport, vigilance and transaction costs Supply inexibility in front of changes in demand X X X Factory system Higher investment in xed capital More risk and less ability to quickly adapt to demand changes / shocks Higher wages (by time) Higher control of labor Lower transaction and transport costs More specialisation and mechanisation opportunities

The decision depended on entrepreneurs ability to control labor and productivity (depending on technology). There were two technological revolutions, each of which appeared in different places, times, and affected different industries / brought different changes. (See table below).
1st. Technological Rev. Time period Country Energy source Industry Changes - Introds. 17901830 UK Coal-steam power Textiles, iron Factory 2nd. Technological Rev. 1870 1970 USA and Germany Electricity and Internal combustion engine Steel, chemistry Modern Coporation

What is the difference between an organic-based economy and an inorganic-based economy? The former uses ow energy sources, such as the power of wind or water; the latter uses stock energy sources, i.e. coal. During the IR there were more production factors and an increase in efciency. New methods for organising the production were introduced thanks to the factory, where there is the principle of labor division. This new organisation implied the centralisation of production, therefore higher xed costs. To bear the huge xed costs there was a need for a larger market: ECONOMIES OF SCALE. I. Factory system: greater capital needs (buildings, machines...) II. Central Bank: (a) began as a private bank devoted for nancing the state (UK 1697) (b) privilege of the emission of paper currency (c) bank of banks III. Stock market: nancing large companies (rstly, the railway companies and telegraphs) [The transport revolutions reduced transaction costs, facilitating communication: railways and telegraphs]

Patterns of consumption
Real earnings in Britain increased, during 1781-1855, from L120 to L190. Working hours in Britain have been reduced in the long-run from 3200 hours to 1800 hours per year. Income per capital increased from 1760 to 1850 a 57,8% and full employment real earnings increased in the same period a 23,9%. Engels was the rst to criticise the living conditions of the population:
I have seen wretchedness in some of its worse phases both here and upon the Continent, but until I visited the wynds of Glasgow I did not believe that so much crime, misery, and disease could exist in any civilized country. In the lower lodging houses ten, twelve, sometimes twenty persons of both sexes, all ages and various degrees of nakedness, sleep indiscriminately huddled together upon the oor. These dwellings are usually so damp, lthy and ruinous, that no one could wish to keep his horse in one of them

Figures

Chadwik also criticised the diseases caused among the labouring classes:
Various forms of epidemic, endemic, and other disease [are] caused chiey amongst the labouring classes by decomposing animal and vegetable substances, by damp and lth, and close and overcrowded dwelling [that] prevail amongst the population in every part of the kingdom, whether dwelling in separate houses, in rural villages, in small towns, in the larger towns as they have been found to prevail in the lowest districts of the metropolis.

However: infant mortality decreased 10% civil rights index decreased 66% literacy rate increased 13% life expectancy increased a 15%, the national average was 41,7. Rural Surrey 45,1 Manchester 25,3 London 36,7 Hypothesis of the IR: Changing patterns of consumption were important and dragged new manufacturing and industrial sectors People worked more because they wanted to acquire new products that were available in the market More household members participated in market activities and replaced goods produced by them with goods purchased in the market In a context of great demographic growth (6M to 13,1M) income per person did not fall!! The IR sown the bases that allowed for great improvements in the standards of living of humankind in later periods.

Composition of the working-class expenditures, 1788-92

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