Typo in Directed Technical Change and the British Industrial Revolution

I hate reading my papers after they're published as there is usually some mistake somewhere. Unfortunately, I have to read them to do more research. I just found a typo in our 2021 paper in JAERE. Equation (8) should look like this:

In the published paper, there is a missing Gamma in the second term. 

I also noticed a couple of issues in the text of "Energy quality" published in Ecological Economics in 2010. One is in the introduction and is debatable: "Fuel and energy quality is not neccessarily fixed". This should be or instead of and or are instead of is. But it really isn't important. Then on p1475 we have "How does these measures". Again, not important.

Of course, the error in JAERE is not very important as the third term above is correct in the published paper.

Fourth Franqui Lecture: Energy and the Industrial Revolution

The video of my fourth Francqui lecture on the energy and the industrial revolution is now on Youtube:

 

The opening graph of population and GDP per capita in the United Kingdom since 0CE combines data from the Maddison Project at the University of Groningen and data produced by Steven Broadberry. The energy data in the next graph was compiled in a 2007 publication by Paul Warde. The graph of energy use in Europe since 1500 and the graph of the composition of energy use are from "Power to the People" by Astrid Kander, Paolo Malanima, and Paul Warde.

The next section of the presentation gives a high level summary of Daron Acemoglu's theory of directed technical change and applies it to the two case studies. The first is my paper coauthored with Jack Pezzey and Yingying Lu, forthcoming in JAERE, on directed technical change and the British industrial revolution. The second is my 2012 paper coauthored with Astrid Kander on the role of energy in the industrial revolution and modern economic growth. As I mentioned in the lecture, we didn't know much about the theory of directed technical change when we wrote this paper and it didn't influence our research. Yet we can explain the results in terms of the theory.

The graphs that open the section on the British industrial revolution use data from Broadberry and Warde as well as from Robert Allen's book on the industrial revolution (the price data). The painting of the Iron Bridge is by William Williams.

Opening the section on Sweden is a photo of the Aitik copper mine. We used data from the Historical National Accounts of Sweden and Astrid's PhD research. If you are wondering how the value of energy could be as large as the GDP in 1800 in Sweden this is because energy is an intermediate good. GDP is value added by labor and capital with land included in capital usually. Gross output of the economy is much larger than the GDP. A huge amount of economic activity was dedicated to producing food, fuel, and fodder.

The solar panels that open the concluding section are in Japan. I've forgotten where.

Traditional Views, Revisionist Views, and Counter-revisionist Views on the Industrial Revolution

Following up on my post on our paper about the Industrial Revolution , I thought some more context would be useful. The traditional view of the Industrial Revolution was that the availability of resources of coal, iron ore, and earlier water power in Britain were crucial factors that lead to the Industrial Revolution occurring in Britain and not elsewhere. Of course, these weren't sufficient - industrialization didn't happen in China - and so institutions also seemed to be important. But in recent years economists have emphasized the role of institutions and downplayed the role of resources more and more. This is what I call the revisionist view. Tony Wrigley and Robert Allen are key exponents of a counter-revisionist view, reemphasizing the role of resources, though not ignoring the importance of institutions. Our paper is a mathematical and quantitative exploration of the counter-revisionist view.

Economists and historians are divided on the importance of coal in fueling the increase in the rate of economic growth in the Industrial Revolution. Many researchers (e.g. Wilkinson, 1973; Wrigley, 1988, 2010; Pomeranz, 2000; Krausmann et al., 2008; Allen, 2009, 2012; Barbier, 2011; Gutberlet, 2012; Kander et al., 2013; Fernihough and O’Rourke, 2014, Gars and Olovsson, 2015) argue that innovations in the use, and growth in the quantity consumed, of coal played a crucial role in driving the Industrial Revolution. By contrast, some economic historians (e.g. Clark and Jacks, 2007; Kunnas and Myllyntaus 2009) and economists (e.g. Madsen et al., 2010) either argue that it was not necessary to expand the use of modern energy carriers such as coal, or do not give coal a central role (e.g. Clark, 2014).

Wrigley (1988, 2010) stresses that the shift from an economy that relied on land resources to one based on fossil fuels is the essence of the Industrial Revolution and could explain the differential development of the Dutch and British economies. Both countries had the necessary institutions for the Industrial Revolution to occur but capital accumulation in the Netherlands faced a renewable energy resource constraint, while in Britain domestic coal mines in combination with steam engines, at first to pump water out of the mines and later for many other uses, provided a way out from the constraint. Early in the Industrial Revolution, the transport of coal had to be carried out using traditional energy carriers, for instance by horse carriages, and was very costly, but the adoption of coal-using steam engines for transport, reduced the costs of trade and the Industrial Revolution spread to other regions and countries.

Pomeranz (2001) makes a similar argument, but addresses the issue of the large historical divergence in economic growth rates between England and the Western World on the one hand and China and the rest of Asia on the other. He suggests that shallow coal-mines, close to urban centers together with the exploitation of land resources overseas were very important in the rise of England. “Ghost land”, used for the production of cotton for the British textile industry provided England with natural resources, and eased the constraints of the fixed supply of land. In this way, England could break the constraints of the organic economy (based on land production) and enter into modern economic growth.

Allen (2009) places energy innovation center-stage in his explanation of why the industrial revolution occurred in Britain. Like Wrigley and Pomeranz, he compares Britain to other advanced European economies of the time (the Netherlands and Belgium) and the advanced economy in the East: China. England stands out as an exception in two ways: coal was relatively cheap there and labor costs were higher than elsewhere. Therefore, it was profitable to substitute coal-fuelled machines for labor in Britain, even when these machines were inefficient and consumed large amounts of coal. In no other place on Earth did this make sense. Many technological innovations were required in order to use coal effectively in new applications ranging from domestic heating and cooking to iron smelting. These induced innovations sparked the Industrial Revolution. Continued innovation that improved energy efficiency and reductions in the cost of transporting coal eventually made coal-using technologies profitable in other countries too.

By contrast, Clark and Jacks (2007) argue that an industrial revolution could still have happened in a coal-less Britain with only "modest costs to the productivity growth of the economy" (68), because the value of coal was only a modest share of British GDP, and they argue that Britain's energy supply could have been greatly expanded, albeit at about twice the cost of coal, by importing wood from the Baltic. Madsen et al. (2010) find that, controlling for a number of innovation related variables, changes in coal production did not have a significant effect on labor productivity growth in Britain between 1700 and 1915. But as innovation was required to expand the use of coal this result could make sense even if the expansion of coal was essential for growth to proceed. Both Clark and Jacks (2007) and Madsen et al. (2010) do not allow for the dynamic effects of resource scarcity on the rate of innovation. Tepper and Borowiecki (2015) also find a relatively small direct role for coal but concede that: “coal contributed to structural change in the British economy” (231), which they find was the most important factor in raising the rate of economic growth. On the other hand, Fernihough and O’Rourke (2014) and Gutberlet (2012) use geographical analysis to show the importance of access to local coal in driving industrialization and urban population growth, though Kelly et al. (2015) provide contradictory evidence on this point. Finally, Kander and Stern (2014) econometrically estimate a model of the transition from biomass energy (mainly wood) to fossil fuel (mainly coal) in Sweden, which shows the importance of this transition in economic growth there.

Our new paper shows that the switch to coal in response to resource scarcity is a plausible explanation of how an increase in the rate of economic growth and a dramatic restructuring of the economy could be triggered in a country with a suitable environment for innovation and capital accumulation. We argue that in the absence of resource scarcity this shift might not have happened or have been much delayed.

References

Allen, Robert C. 2012. "The Shift to Coal and Implications for the Next Energy Transition." Energy Policy 50: 17-23.

Barbier, Edward .B. 2011. Scarcity and Frontiers: How Economies Have Developed Through Natural Resource Exploitation. Cambridge University Press: Cambridge and New York.

Clark, Gregory. 2014. “The Industrial Revolution.” In Handbook of Economic Growth, Vol 2A, edited by Philippe Aghion and Steven Durlauf, 217-62. Amsterdam: North Holland.

Clark, Gregory, and David Jacks. 2007. “Coal and the Industrial Revolution 1700-1869.” European Review of Economic History 11: 39–72.

Fernihough, Alan, and Kevin Hjortshøj O’Rourke. 2014. “Coal and the European Industrial Revolution.” NBER Working Paper 19802.

Kander, Astrid, Paolo Malanima, and Paul Warde. 2014. Power to the People – Energy and Economic Transformation of Europe over Four Centuries. Princeton, NJ: Princeton University Press.

Kander, Astrid, and David I. Stern. 2014. “Economic Growth and the Transition from Traditional to Modern Energy in Sweden.” Energy Economics 46: 56-65.

Kelly, Morgan, Joel Mokyr, and Cormac Ó Gráda. 2015. “Roots of the industrial revolution.” UCD Centre for Economic Research Working Paper WP2015/24.

Krausmann, Fridolin, Heinz Schandl, and Rolf Peter Sieferle. 2008. “Socio-Ecological Regime Transitions in Austria and the United Kingdom.” Ecological Economics 65: 187-201.

Madsen, Jakob B., James B. Ang, and Rajabrata Banerjee. 2010. “Four Centuries of British Economic Growth: the Roles of Technology and Population.” Journal of Economic Growth 15(4): 263-90.

O’Rourke, Kevin Hjortshøj, Ahmed S. Rahman and Alan M. Taylor. 2013. “Luddites, the Industrial Revolution, and the Demographic Transition.” Journal of Economic Growth 18: 373-409.

Pomeranz, Kenneth L. 2001. The Great Divergence: China, Europe and the Making of the Modern World Economy. Princeton, NJ: Princeton University Press.

Tepper, Alexander, and Karol J. Borowiecki. 2015. “Accounting for Breakout in Britain: The Industrial Revolution through a Malthusian Lens.” Journal of Macroeconomics 44: 219-33.

Wilkinson, Richard G. 1973. Poverty and Progress: An Ecological Model of Economic Development. London: Methuen.

Wrigley, E. Anthony. 1988. Continuity, Chance, and Change: The Character of the Industrial Revolution in England. Cambridge: Cambridge University Press.

Wrigley, E. Anthony. 2010. Energy and the English Industrial Revolution. Cambridge: Cambridge University Press.

From Wood to Coal: Directed Technical Change and the British Industrial Revolution

We have finally posted our long-promised paper on the Industrial Revolution as a CAMA Working Paper. This is the final paper from our ARC-funded DP12 project: "Energy Transitions: Past, Present and Future". The paper is coauthored with Jack Pezzey and Yingying Lu. We wrote our ARC proposal in 2011, but we "only" started work on the current model in late 2014 after I read Acemoglu's paper "Directed Technical Change" in detail on a flight back to Australia and figured out how to apply it to our case. We have presented the paper many times in seminars and conferences, though I will be presenting it again at the University of Sydney on April 6th.

The paper develops a directed technical change model of economic growth where there are two sectors of the economy each using a specific type of energy as well as machines and labor. The Malthus sector uses wood, which is only available in a fixed quantity per year, and the Solow sector uses coal, which is available at a fixed price. These assumptions are supported by the data. We don't think it is necessary to model coal as an explicitly non-renewable resource. As shallow deposits were worked out, technological change, including the development of the steam engine, allowed the exploitation of deeper deposits at more or less constant cost.

The names of the sectors come from the paper by Hansen and Prescott (2002): Malthus to Solow.  That paper assumes that technological change is exogenous and happens at a faster fixed rate in the Solow sector (which only uses labor and capital) than in the Malthus sector (which also uses a fixed quantity of land). The Solow sector is initially backward but because technical change is more rapid in that sector and it is not held back by fixed land, eventually it comes to dominate the economy in an industrial revolution.

Our paper updates this model for the 21st Century. In our model, technological change is endogenous, as is the speed with which it happens in each sector - the direction of technical change. We don't assume, a priori, that it is easier to find new ideas in the coal-using sector. In fact, we don't assume any differences between the sectors apart from the supply conditions of the two energy sources, which we explicitly model.

In most cases, an industrial revolution eventually happens. The most interesting case is when the elasticity of substitution between the outputs of the Malthus and Solow sector's is sufficiently high - based on our best guesses of the model parameters in Britain, greater than 2.9 - then it is possible if wood is relatively abundant for an economy to remain trapped forever in what we call Malthusian Sluggishness where growth is very low.* Population growth can push an economy out of this zone by raising the price of wood relative to coal and send the economy on a path to an industrial revolution.

These two phase diagrams show the two alternative paths an economy can take in the absence of population growth, depending on its initial endowment of knowledge and resources:

N is the ratio of knowledge in the Malthus sector (actually varieties of machines) to knowledge in the Solow sector. y is the ratio of output in the two sectors and e is the ratio of the price of wood to the price of coal. In the first diagram we see that an economy on an industrial revolution path first has rising wood prices relative to coal and also, initially, technical change is more rapid in the Malthus sector than in the Solow sector and so N rises too. In the long-run both these trends reverse and under Modern Economic Growth technical change is more rapid in the Solow sector and the relative price of wood falls. At the same time, we see in the second diagram that eventually the output of the Solow sector grows more rapidly than that of the Malthus sector so that y falls. The rate of economic growth also accelerates.

But an economy which starts out with a low relative wood price, e, or low relative knowledge in the Solow sector, N, can remain trapped with rising wood prices AND increasing specialization in the Malthus sector - rising y and N. Though there is coal lying underground, it is never exploited, even though switching to coal use would unleash more rapid economic growth in the long run. The myopic, but realistic, focus on near term profits from innovation discourages the required innovation in the Solow sector.

The core of the paper is a set of formal propositions laying out the logic of these findings but we also carry out simulations of the model calibrated to the British case over the period 1560-1900. Counterfactual simulations with more abundant wood, more expensive coal, more substitutability, less initial knowledge about using coal, or less population growth all delay the coming of the Industrial Revolution.

* We assume either that population is constant or treat its growth as exogenous.

Papers from Google Scholar

One way that I keep up to date is to track the papers that cite me using Google Scholar alerts. This time I thought some of the papers were more interesting than usual, particularly the economic history papers. Well it's one way to produce a quick blogpost :)

[HTML] Tempo-spatial characteristics of sub-daily temperature trends in mainland China

Y Ren, D Parker, G Ren, R Dunn - Climate Dynamics, 2015

Abstract The spatial and temporal pattern of sub-daily temperature change in mainland

China was analysed for the period from 1973 to 2011 using a 3-hourly dataset based on 408

stations. The increase in surface air temperature was more significant by night between ...

[PDF] The rise in energy consumption in Czechoslovakia and the role of foreign trade in a long-run perspective (1920-2000): The “Machine shop” hypothesis

H Nielsen

Abstract This paper examines the role of foreign trade in the consumption of primary energy

in the Czech Republic and to what extent adjustment for energy embodied in trade effects

the country's energy intensity curve. As opposed to previous studies, this article takes a ...

[PDF] Take-Back Legislation

G Esenduran, E Kemahlıoglu-Ziya, JM Swaminathan

ABSTRACT In the last two decades, many countries have enacted product take-back

legislation that holds manufacturers responsible for the collection and environmentally

sound treatment of end-of-use products. In an industry regulated by such legislation, we ...

[PDF] Long term CO2 and SO2 Emissions in the Netherlands

R Hölsgens, B Gales, JP Smits, F Notten

In this paper we analyze recent estimates of annual CO2 (carbon dioxide) emissions from

energy consumption in the Netherlands since 1800 alongside another emission to air

resulting from energy consumption: SO2 (sulfur dioxide). The new time series on CO2 can ...

[PDF] Enerji Açığının Belirleyicilerinin Teorik Perspektiften İncelenmesi

E Ömer, M BAYRAK - Anemon Muş Alparslan Üniversitesi Sosyal Bilimler …, 2015

Özet Enerji; kullanım şekli, miktarı, bileşimi, yapısı ve mahiyetiyle ekonomik ve sosyal

gelişmişliğin temel ölçütlerinden biridir. Bir ülkede mevcut enerji arzının enerji talebini

karşılayamadığı durum olarak tanımlanan enerji açığı; büyüme ve kalkınma sürecinde, ...

[PDF] Machines, Energy and Economic Growth

R Hölsgens, C Ducoing, M Rubio, B Gales

Abstract The relationship between energy and capital is one of the most important

relationships of modern economic growth. Machines need energy to produce all the goods

we enjoy; energy without machinery is useless. However, the great majority of the ...

[PDF] The ultimate energy input-output model

Z Guevaraa, JFD Rodriguesc, T Domingosb

Abstract Conventional energy input-output models were developed about 40 years ago and

have not been significantly improved since. These conventional models offer a limited

description of energy flows in the economy. This paper introduces a novel energy input- ...

Firewood consumption pattern, availability and coping strategies adopted to mitigate firewood scarcity: a case of rural households in Ghana

M Amoah, O Marfo, M Ohene - Forests, Trees and Livelihoods, 2015

Firewood is the dominant fuel type used by rural households in Ghana. However, the

scarcity of firewood species has raised concerns about the sustainable use of this fuel type.

This study investigated the firewood consumption pattern, firewood species used by rural ...

[PDF] EPP energy efficiency calculation and influencing factor analysis: cases in China

B Deng, Y Li

Abstract: Efficiency Power Plant (EPP) promotes the use of energy-efficiency power plant

technology and energy efficient equipment, coupled with its low-input, zero pollution, zero

emissions and other advantages, has an important role in the control of energy ...

[PDF] MODELLING AND FORECASTING THE EXCHANGE RATE OF THE PHILIPPINES: A TIME SERIES ANALYSIS

JD Urrutia, MLT Olfindo, R Tampis

Abstract: The researchers aim to formulate a mathematical model to forecast Exchange Rate of the Philippines from the 1st Quarter of 2015 up to the 4th Quarter of 2020 using

Autoregressive integrated Moving Average (ARIMA). The researchers used the data ...

Does Age Heaping Mean the Romans were Innumerate?

The system of dating years since some ancient point in the past used today by the Western, Islamic, and Hebrew Calendars among others makes it much easier to remember how old you are. If you know you were born in 1964 or 5725 and know that this year is 2015 or 5775, it's easy to work out how old you are. But in ancient Rome it seems that it was not even common to date years by the number of years the emperor had ruled, let alone since the foundation of Rome. It was more common to name years by the names of the consuls in office. So, it's not surprising that there is a lot of age-heaping on Roman tombstones. Gregory Clark argues that this shows that Romans were very innumerate. That might be partly true, but the lack of a proper dating system also needs to be taken into account.

Five Minute Paper

You may have heard about the Three Minute Thesis. Now we have the Five Minute Paper. Actually, it's called Elsevier Audioslides. Authors of articles in Elsevier journals are invited to create voiced over slide presentations about their papers to be hosted on Elsevier's website. The maximum length of recording is five minutes. As my presentation at LSE next week will cover my recent paper with Astrid Kander (as well as current work), I thought I could use some of the slides I made for an audioslides presentation on our paper. I didn't bother writing a script and just made it up as I went along. But that's the way it goes in a conference presentation too and, of course, in the Three Minute Thesis competition.

Here is the result.

I've also got an invite to do one for my paper in Biomass and Bioenergy. But as I've never presented that paper, I would have to make up the slides from scratch and I'm not sure it's worth the effort. I think I'll ask my coauthor if he wants to do it :)

"Economic Growth and the Transition from Traditional to Modern Energy in Sweden" to be Published in Energy Economics

We started working on this paper when I visited Sweden in September 2010. It took a while till we were both happy with the paper. Then we submitted it to what I think is the top economic history journal. We got a revise and resubmit. I worked hard to do exactly what the referees wanted but the editor rejected the paper. I think this was a first for me. Of course, I had declined to resubmit papers in the past because I thought the chances were better elsewhere. Then we submitted to another economic history journal who gave us a revise and resubmit too. But this time we decided to not resubmit as it seemed unlikely we could please the referees. So, then I submitted the paper to Energy Economics and got a "minor revisions" and now it is accepted. This is a fairly typical story I think in terms of time taken and submissions made.

Henriques PhD Dissertation on the Energy History of Portugal Now Available on the Web

Sofia has posted her dissertation to Academia.edu. It includes the data. She studied in Lund with Astrid Kander and is now at the University of Southern Denmark.

Malthusian Trap

Some interesting blogposts from Nick Szabo on the Malthusian trap and the breakout to economic growth. Follow the link in the post back to previous blogposts.

Is Piketty's Work Flawed by Computational Errors Too?

The Financial Times claims that, like the work by Reinhart and Rogoff on debt and growth, Piketty's research on changes in inequality over time is also beset by computational errors. Though the theoretical component of Piketty's book has been controversial but as the article says, the critics have still praised the historical research. The biggest differences seem to be in estimates of wealth inequality in Britain in recent decades. The data the FT correspondent provides shows no increase in concentration in wealth in the top 1% and top 10% in the UK in recent decades. That would weaken Piketty's conclusions overall, but it doesn't seem it destroys them. Piketty's response is here.

More Debate on the Little Ice Age

Back in 2010, I discussed a paper by Kelly and O Grada on the Little Ice Age. Or rather, on the lack of a Little Ice Age. Commenters on the thread including O Grada have pointed out that that debate has made some progress in the last few years. The authors published a paper in the Journal of Interdisciplinary History, which was part of a special issue on the topic. Now, they have followed up with a response to their critics' articles from the special issue.

Astrid Kander Interviewed on Radio Washington Al Mundo

Following up from my post on Power to the People, Astrid was interviewed on the radio about her book. The interview starts at minute 37.

Power to the People

Power to the People - authored by Astrid Kander (my collaborator), Paolo Malanima, and Paul Warde is now available from Princeton University Press. The book is the culmination of a long-term research project to reconstruct the energy history of Europe and then explore how developments in energy interacted with developments in the economy. That research is a foundation for our exploration of the role of energy in long-run growth, and our ongoing research under our ARC grant on energy transitions.

11/12/13

Americans won't appreciate this, but I just realised while signing my name that today is the last day this century where the date can be written as three numbers one apart in order. For countries which list the year first it's 13/12/11. For Americans December, 13, 2014, will be the last such day this century.

Joel Mokyr is Very Optimistic on Future Technological Progress

I've made a few posts in the last half year or so on the potential slowing of the rate of technological change and economic growth and the implications of continued technological change for the distribution of income. Economic historian Joel Mokyr discusses some of these issues in a very optimistic piece on the future of technological change and economic growth. He sees no real limits to advances in technology and sees the implications for the future of labor as positive.

Per Capita Energy Use in the UK

The history of energy use per capita is quite different in the UK compared to other developed countries. Already by 1800 about 3/4 of UK energy use was coal as the UK was the first country to industrialize. Energy use per capita peaks before the First World War and never really "recovers". In most other countries there was a very strong growth of energy use between the end of the Second World War and the oil price shocks in the 1970s.

This data is a rough estimate of "final energy use". The energy in electricity consumed is included in the data and the energy used to produce the electricity is deducted. Currently, electricity generation is about 40% efficient in the UK, meaning that 60% of the energy used to generate electricity is lost as waste heat. There are also about 7% losses of electricity in the transmission and distribution system.

Energy Cost Share for England and Wales

Astrid Kander is visiting me to work on our ARC project. One paper we are working on is a comparison of Sweden and the United Kingdom. One of the our stylized facts on the relationship between energy and growth is that the share of energy in total production cost declines over time. This is very clear in the data from Sweden. But up till now, we've had very limited evidence for other countries. So we are putting together a comparable data set for England and Wales. The results are quite similar though less dramatic:

There are quite a lot of "kinks" in this data to be ironed out still, so this is very preliminary. We plan to fit the same model as we fitted to the Swedish data in our Energy Journal paper to this data too and then compare the results.

Stiglitz on the Great Depression and the Great Recession

Joseph Stiglitz argues that the Great Depression (1930s in the US) and the Great Recession (now in the US) have a common cause in maladjustment to structural change in the economy. In the 1930s it was an overhang of the shift of employment from farming to manufacturing and today from manufacturing to the service sector. It's an interesting thesis. Odd that he omitted some important sectors - retail/wholesale, transport, & government admin from his list of service sectors. Or are many service employees becoming obsolete in advanced economies?

Episode 3

Evolutionary biology, HIV, and the Central African World War... This one is even more out there... There is more about the series on Wikipedia.