a perfect storm - lessons from the british empire

A Perfect StormLessons from the British Empire

Thomas J. Rones

Questions at Beginning of Research

• Why did the Industrial Revolution happen in Britain?

• The 1689 Bill of Rights secured property rights, was this the key event that caused the Industrial Revolution?

Thesis

• What is responsible for a countries wealth?

Government Institutions?

Something Else?

• Lessons for Emerging Economies from the British Empire?

Historical Background Johannes Gutenberg begins work in 1436

Impact of the Printing Press

Supply of books

Cost of book production

Price of Books

Estimates of the real price of Dutch books, 1460-1800

Literacy Rate

Per Capita Book Consumption

Annual per capita consumption of books, 1454-1500 to 1751-1800

Variation In Ideas

Variation in Genres

Speed & Distance that ideas are spread

# of Books per Edition

Number of books printed per edition, 1450-1600

The Evolutionary Revolutions

Increased LiteracyIncreasing Velocity in Spread of Ideas

Scientific rEvolution

Political Revolution

Financial Revolution

Industrial rEvolution

Agricultural rEvolution

Pre-condition Identification by Wilde Connection to My Research – Cause of the Pre-Condition Factors of Production Affected (CELL)

End of medieval economic structuresFinancial Revolution & Property Rights

Land

Labor

Capital Expenditures

Larger Workforce due to less disease and lower infant

mortalityScientific Revolution Labor

Agricultural Revolution – 1650 to 1850 – Norfolk 4 course

systemAgricultural Revolution Land, Labor

Spare capital for investment Financial Revolution –Bank of England 1694 Entrepreneurial Risk

All required resources close together Size of Britain as an island and size of Empire All 4 factors

New Technology Increases and cheapens production Scientific Revolution All 4 factors

Colonial Trade Networks Political Stability – 1667 Treaty of Breda Entrepreneurial Risk

Culture of hard work, risk taking and the development of

ideas.All four Revolutions Entrepreneurial Risk

The 1689 Bill of Rights secured property rights, was this the key event that caused the Industrial

Revolution?

Scope

Historical Background

TradeProperty Rights

Finance Energy

Adaptability of Property Rights?

• “Britain’s economic ascent began after Parliament established institutions enabling property rights to adapt to changing economic

conditions and enabling land and resources to be reallocated towards more productive uses” (Bogart, Richardson, 1996)

Property Rights

Parliamentary Power Solidified with:

• 1689 Bill of Rights

• 1701 Act of Settlement

• 1707 Act of Union

Intellectual Property Rights

• Learning By Doing (Bessen. p. 202): New Technology pattern

Early Growth

Great Knowledge Sharing

Many Firms

Few Patents – Can’t Profit from Patents alone

To Profit: Implement Innovations for cost advantage

Maturity

Little Knowledge Sharing

Consolidation

Many Patents - Market for Patents Develops

To Profit: Big Firms Have Patent Portfolio Strategy

Do Property Rights Have Anything to do With Prosperity?

Take the Top 10 Countries by GDP Per Capita (PPP)

Compare to International Property Rights Index

Comparative Advantage

Britain Was First:Finance, Trade, Energy

Financial Innovations

Country Bankers

Stock Market

Government Bonds

Fractional Reserve Banking

Paper Currency / Money Supply

Country Bankers

1672 Stop of the Exchequer

1693 King William Needs to Raise Money

Creditors

(Wealthy)

Debtor (Govt)

SurvivalOf Govt

Fractional Reserve Banking/Monetary Policy, Government

Bonds/Paper Currency

1694 Bank of England Founded

Stocks were the means by which bonds were created

Wealthy Landowners buy shares in Companies (Bank of England, South

Sea, East India)

These Companies lent to the government in

Exchange for Special Privileges

How it Worked

Trade

• Was the transatlantic slave trade a driving force behind the industrial revolution?

Scholars Disagree

Scholars in Favor Argue:

Manufacturing Supply &

Demand Cycle

Overseas Demand

Invest In Technology

To Increase ProductivityWhich lowers costs

And new markets become feasible

(Supplier Induced Demand)

Scholars Against Argue:

Domestic Explanations such as Population Growth

Colonial Trade Network Unprofitable

London 1700

London 1800

London 1860

Energy

First Empire to leverage coal as an energy source

Organic Economies - Constrained by output of:1) Wood for heat energy 2) Humans/Animals for mechanical energy

Heat Energy

• Populations moving to urban areas

• Factories & Homes needed Energy Source for Heat

Mechanical Energy

Steam power for:• Factories

• Transport

Energy

Choice of coal over other energy sources due to social, technological,

and economic factors

Why did the Industrial Revolution happen in Britain?

A Perfect Storm –Innovations in Property Rights,

Finance, Energy, Trade(?)

Lessons for a Modern Day Country:

Property Rights: Political Stability to Attract FDI

• Specialize in Comparative Advantage:

Finance, Trade, Energy

References

• Carruthers, B. G. (1999). City of capital: Politics and markets in the English financial revolution. Princeton, NJ: Princeton University Press.

• Clark, G. (2007). A farewell to alms: A brief economic history of the world. Princeton: Princeton University Press.

• Hearfield, J. (2008). National Debt and Population. Retrieved from www.johnhearfield.com/History/Banking.htm

• The Richest Countries In The World - WorldAtlas.com. (2016, September 19). Retrieved from http://www.worldatlas.com/articles/the-richest-countries-in-the-world.html

• Roser, M. (2016) – ‘Books’. Published online at OurWorldInData.org. Retrieved from: https://ourworldindata.org/books/ [Online Resource]

• Wilde, R. Causes and Preconditions for the Industrial Revolution. Retrieved from http://europeanhistory.about.com/od/industryandagriculture/fl/Textiles-during-the-Industrial-Revolution.htm

• Wrigley, E. A. (2010). Energy and the English Industrial Revolution. Cambridge: Cambridge University Press.

Any Questions?