The Spread of Industrialization and Economic Thought in the 19th Century

Posted on Sep 6, 2024 in Social sciences

Economic Thinking of the Epoch

The 19th century was extraordinarily fruitful in terms of economic thought. Here, we present a synthesis of the ideas of economists considered most relevant to the spread of industrialization.

Thomas Robert Malthus (1766-1834)

Head of a Chair in Economics, Malthus anonymously published his influential brochure, Essay on the Principle of Population, in 1797. This work argued against the possibility of improving economic conditions for society due to the constraints of population growth. Malthus highlighted the trend of growth limitations as population approached resource limits. His argument was based on what would later be formulated as the law of diminishing returns of land. He believed assisting the poor was counterproductive, as it removed the incentive to work. His ideas influenced the New Poor Law of 1834, which restricted aid to the poor. He later published Principles of Political Economy in 1836.

David Ricardo (1772-1823)

A prominent figure of the classical school, Ricardo mastered banking and finance, accumulating a fortune by the age of 26. His seminal work, Principles of Political Economy (1817), presented several key theories:

• Labor Theory of Value: The value of goods is determined by the labor required to produce them. If one object requires twice the labor of another, it possesses double the value. However, the production of the same good can necessitate varying amounts of labor.
• Land Rent: Based on the law of diminishing returns, the most fertile lands yield wheat at a lower cost but sell it at the same price as less fertile lands. The difference between cost and price constitutes land rent.
• Wages: Ricardo distinguished between natural wages (necessary for worker subsistence) and market wages (determined by labor supply and demand).
• Comparative Advantage: Trade between two countries can be mutually beneficial even if one country holds an absolute advantage in producing all goods.

Jean Baptiste Say (1767-1832)

In 1803, Say published Treatise on Political Economy, outlining his fundamental ideas. He built upon Adam Smith’s work, emphasizing industry in the context of the industrial revolution. Say pioneered the recognition of the entrepreneur’s importance in organizing and combining factors of production. He was the first to posit that the quantity demanded for a good depends on its price, and his discussions on the relationship between demand, cost, and price laid the groundwork for later contributions by Cournot and Menger. His most renowned contribution is the “law of markets,” which states that all production necessitates prior expenditure.

John Stuart Mill (1806-1873)

Influenced by his father, James Mill, a friend and disciple of David Ricardo, John Stuart Mill produced Principles of Political Economy (1848), a rigorous economic manual summarizing and systematizing classical theories while offering his own contributions. Notably, he presented a nuanced view of the stationary state, not perceiving it as inherently negative.

Karl Marx (1818-1883)

The leading proponent of scientific socialism (in contrast to utopian socialism), Marx’s major works include The Communist Manifesto (co-authored with Friedrich Engels, 1847), A Contribution to the Critique of Political Economy (1859), and his magnum opus, Capital (1867). Drawing on the ideas of predecessors like Ricardo and Sismondi, Marx’s work presented a comprehensive alternative to classical political economy. His fundamental economic theses were:

1. Labor Theory of Value: Expanding on Ricardo’s concept, Marx introduced the notion of “socially necessary labor time” (subject to change with technological advancements).
2. Exploitation of the Proletariat: Workers receive wages lower than the value they create, generating surplus value appropriated by the capitalist.
3. Concentration of Capital and Elimination of Competition: Mechanization and enterprise growth lead to the concentration of capital and the elimination of competition, ultimately triggering a general crisis that would dismantle the capitalist system.

Theories About the Expansion of the Industrial Revolution

Walt Whitman Rostow (1916-2003)

A respected figure among liberals, Rostow held significant political influence during the Kennedy and Johnson administrations. His 1960 book, The Stages of Economic Growth: A Non-Communist Manifesto, outlined a five-stage model of economic growth:

1. Traditional Society: Characterized by subsistence agriculture, low productivity, and limited technological development.
2. Preconditions for Take-off: Increased productivity, specialization of labor, surplus generation channeled into foreign trade, improved infrastructure, social changes, and the emergence of an entrepreneurial class.
3. Take-off: Rapid technological advancements in agriculture and industry, increased productivity, mass migration from rural to urban areas, new market creation, increased investment, and imbalances between economic sectors.
4. Drive to Maturity: Sustained economic progress, diversification, increased labor specialization, widespread technological innovation, and investment levels between 10% and 20% of national income.
5. Age of High Mass Consumption: Shift towards consumer durables, services, and a higher standard of living.

Alexander Gerschenkron (1904-1978)

Gerschenkron is best known for his thesis on “late industrialization,” arguing that less developed countries can achieve rapid economic development by adopting existing technologies. In his book, Economic Backwardness in Historical Perspective (1962), he elaborated on the “advantages of backwardness”:

1. Industrialized countries experience inertia, leading to slower innovation and equipment replacement, eventually resulting in obsolescence.
2. “Backward” countries can bypass lengthy development processes by leveraging existing technologies and foreign capital.

Gerschenkron emphasized that developing countries cannot solely rely on imitating existing models; they require specific institutional instruments to effectively assimilate and utilize advanced technologies.

Sydney Pollard (1925-1998)

A prominent economic and labor historian, Pollard offered a novel perspective on industrialization processes. He argued for a regional approach, emphasizing that economic activity primarily develops within national markets, even if it transcends national borders.

Industrialization in Various European Countries

The 19th century witnessed the spread of industrialization and the growth of trade, two interconnected phenomena.

Belgium

Becoming a kingdom in 1830, Belgium was among the first European regions to adopt the British model of industrialization. Several factors contributed to its rapid industrial growth:

1. Proximity to Great Britain facilitated technology and information transfer.
2. A long-standing industrial tradition, particularly in textile manufacturing in Flanders.
3. Abundant natural resources, including coal, iron, lead, and zinc deposits.
4. Strategic location, established trade routes, and openness to foreign investment and entrepreneurship, exemplified by William Cockerill’s successful steel company.

France

France’s industrial growth model is often considered atypical. While Britain underwent its industrial revolution, France grappled with social upheaval and a series of wars. Low population growth, influenced by low birth rates, characterized 19th-century France. Despite experiencing an agricultural revolution, significant increases in production and productivity only occurred in the latter half of the century. Lacking abundant coal reserves, France relied on imports for a third of its consumption. Low population density resulted in slow urban growth and a limited domestic market, impacting industrial development. However, when considering GDP per capita, France’s economic performance becomes comparable to other European countries. By 1913, the French enjoyed a standard of living on par with or exceeding that of other continental Europeans.

Germany

Germany was a latecomer to industrialization. At the beginning of the 19th century, it comprised a fragmented collection of independent states. By 1913, the German Empire had become Europe’s most powerful nation. This rapid transformation was marked by:

• The formation of the Zollverein (Customs Union) in 1833, creating a unified economic area.
• Rapid growth in coal mining in the Ruhr region from 1870 onward, fueling the chemical and steel industries.
• Large-scale, vertically integrated corporate structures, often characterized by cartels (agreements between companies to limit competition).
• Close ties between industrial enterprises and financial institutions.

Italy

Italy was another late industrializer. Before unification in 1861, only certain regions exhibited signs of economic modernization. Geographic challenges and significant distances between the North and South hindered the development of an integrated domestic market. The North focused on export-oriented industries, constrained by limited coal and other natural resources. In contrast, low agricultural incomes in the South hampered industrial development. Unification facilitated the establishment of a common currency, tax system, and basic railway infrastructure, laying the foundation for future growth. In the late 19th century, German and Swiss capital fueled industrial expansion.

Expansion and Economic Growth in the United States

United States, which began its history as a country independent in 1787, experienced throughout the 19th century a spectacular economic growth, to the point that by 1890 had already become the world’s first industrial nation. The most characteristic features of its dazzling growth were as follows:

A population in constant growth, which went from less than 4 million inhabitants in 1790 to 40 million in 1870 and more than 100 in 1915. United States was the destination of most of European emigrants

A continuous motion towards the West, fruit of a territorial expansion by force of colonization, the usurpation or the purchase, in addition to incorporating new and abundant resources, influenced the creation of a collective consciousness “border”. The income and the wealth they grew even more rapidly than the population, and the abundance of resources

B the relative scarcity of labour and their high cost produced a rapid technological progress, the existence of an inexhaustible market inside was the condition that needed to develop the American economic system, and as a result became possible production in large series of wide consumption objects such as lawn-mowers, weapons, sewing machines, bicycles, typewriters

C in a country as large, communications were decisive, and even though in the first decades of the 19th century was undertaken a process of construction of canals to facilitate communication with the interior, the arrival of the railroad stopped him and replaced… As we know, the railway, as well as means of transport which facilitates and cheapens communications, is itself a source of demand for different materials, which is a great stimulus for a multitude of industries and especially for the steel industry.