Population and Progress

How British Demography Spurred Industrialization

Economic historians are accustomed to looking at population growth as a negative—literally. Output per head is Y/L, so (taking logs) the growth rate of per capita income is roughly equal to output growth minus labor force growth. Viewed this way, the improvement of living standards is a race between the amount that we produce and the number of mouths queuing up to consume it. After two centuries of technological progress and a demographic transition, we’ve just been fortunate that output won the race. This perspective is baked into the Malthusian model that lies at the heart of how many economic historians—myself included—analyze pre-modern economies. Rising real wages improve welfare in the short run, but gradually decrease mortality and increase fertility such that pressure on the resource base reduces gains back toward a slow-growth equilibrium. Population is the result of economic change—the demon haunting every efflorescence that dared to become permanent. That’s the view we took last week, when we discussed how rising real wages and urbanization in early modern Britain led to an unprecedented demographic explosion.

But negative feedback isn’t the rule, even in pre-industrial economies. Indeed, there are plenty of reasons to suggest that, in certain contexts, positive feedbacks do exist between population growth and economic change. I suggest that, by the eighteenth century, such a virtuous circle had come to characterize British development, and that this helps us to understand the beginnings of the Industrial Revolution.

How can increased population beget economic growth? And why should we believe that it does, given the millennia of evidence of a vicious cycle existing between the two force? I didn’t have much of a clue until a few years ago, when Brad DeLong—my economic history professor at UC Berkeley—assigned me a paper that made me very angry. In “Population Growth and Technological Change: One Million B.C. to 1990” (1993), Michael Kremer argued that the rate of innovation experienced by a society was dependent on the number of people it contained. His model built on recent advances in the endogenous growth literature, which attempted to explain technical progress by exploiting the non-rivalry of technology—that is, the cost of inventing it doesn’t depend on the number of users. Since the probability of anyone having a good idea is constant, a larger population implies more research, more breakthroughs, and more innovation. “[E]ach person's chance of being lucky or smart enough to invent something is independent of population, all else equal,” wrote Kremer, “so… the growth rate of technology is proportional to total population.” And since, in a Malthusian world, population was limited by technology, the growth rate of population would have to be proportional to the growth rate of technology. Thus the simultaneous spurts of population and income after 1750 was no coincidence; instead, they were mutually enabling. We’d been so poor for so long because there just weren’t enough of us to invent an Industrial Revolution.

Kremer’s paper was a pioneering effort to build a “unified growth model,” which could explain both the long Malthusian epoch and the abrupt transition to rising living standards. The most famous such, “Population, Technology, and Growth: From Malthusian Stagnation to the Demographic Transition and Beyond” by Oded Galor and David Weil (2000), similarly foregrounded population as the impetus for technical change. Ideas and knowledge accumulated at gradually-increasing rates, before a sudden acceleration during the Industrial Revolution—when a threshold was reached—eventually raised the return to human capital investment sufficiently to produce a decline in fertility and the present modern economic growth regime. This solved the fundamental problem with Kremer’s model: the absurd implication that without an exogenously-applied demographic transition, all of his variables would explode to infinity. All well and good. But these unified growth models were designed to explain the long run, and in global perspective; translating them to a national context in the shorter term is fraught with difficulty. Why was Britain’s eighteenth-century economic surge preceded by the demographic stagnation of the seventeenth century? Why weren’t larger economies, such as those of China, or even France, more innovative? Kremer suggests that income levels can help to explain cross-sectional differences—China and India were larger but poorer than Britain—but this really only adds more ambiguity to the model.

Besides, it’s not exactly clear that ideas are the correct metric to be examining here. Prior to 1800, technological progress had very little to do with science or formal knowledge in general. Take the cotton industry, which was at the center of the British experience. The spinning jenny, water frame, mule, and power loom all represented massive forward leaps in productivity (the first three roughly tripled each other’s output per worker), but none owed much, if anything, to existing bodies of knowledge. As historian Donald Cardwell famously wrote, “one thing that all these textile machines have in common is that they satisfy Bacon’s criterion for a certain kind of invention: they incorporated no principles, materials or processes that would have puzzled Archimedes.” The flying shuttle of 1734 was little more than a block of wood with a string attached. These inventions, and especially their subsequent refinements, were the result of creative engineering solutions to existing problems of production. It’s not clear that over a thousand years of accumulated knowledge about the building of rudimentary wooden machines was necessary for the concentrated burst of technological change that swept eighteenth-century Lancashire.

Yet this sort of innovation, based on learning-by-doing, should definitely accelerate with the growth of population. Justin Yifu Lin, in a 1995 (Kremer-inspired) paper, suggested that China’s early lead in technology over the West was due to the fact that pre-modern invention was “experience-based”—working people discovering new and better ways to produce more with less. Technologies proposed can be represented as random draws from a distribution of potential utility, the mean and variance of which depended on the intelligence and knowledge of the inventor. “The likelihood of inventing a better technology is a positive function of the number of trials,” which effectively means the population size—more people doing productive activities that they might be tempted to improve. Lin concluded that China’s advantage only fell away once new technologies required formal theory, which he supposed to be stifled relative to Europe by the educational content of the civil service examinations.

This model obviously applies to the English textile industry. James Hargreaves, inventor of the spinning jenny, was a weaver and carpenter and Samuel Crompton, who crafted the mule, was a former spinner. Richard Roberts, who perfected the power loom and the self-acting mule, was an engineer with experience in lathe-using and tool-making. The iron industry developed similarly; coke smelting and puddling-and-rolling were implemented by ironmasters experimenting with the operations of their own works. Josiah Wedgewood, who helped to transform ceramics, was the son of a potter, and his penchant for experimentation was merely a product of his ambition and intellect. Still more inventors came from the artisanal classes in general, from Richard Arkwright and Benjamin Huntsman to Abraham Darby and Richard Trevithick. They invented because they sought to solve technical problems directly before them, and used skills inculcated by their professional backgrounds, not formal education. The larger the absolute size of the industrial sector, therefore, the greater will be the number of such individuals—and thus the number and frequency of technical changes. But how can we reconcile this with the relatively small size of the British population, even in 1800? France’s was nearly 3 times greater, and China’s a staggering 33 times larger. Yet neither economy demonstrated the same kind of propensity for mechanical invention. The Dutch Golden Age, meanwhile, had occurred sooner in a country only a fifth’s Britain’s size, and had seen the development of a range of wind- and heat-driven technologies.

The answer, of course, is that at any one time a range of background factors—geography, institutions, culture, history—determine how population growth affects efficiency and output. But fertility can still drive the temporal trend in a consistent way. A larger population, for example, means a larger and thicker market faces the producers in a society. This, in turn, is an opportunity for Smithian growth—heightened specialization and the division of labor. Unless there are enough buyers of goods, there will be little incentive for firms to emerge crafting customized products, much less entire regions exploiting an inherent comparative advantage. Small, isolated villages may have weavers and spinners, but not textile factories; smiths, but no ironworks; and even still, many of these operations can be performed from the home, or as by-employments—activities with a high opportunity cost because performed unpracticed and with inadequate tools. With production occurring at a small scale, the division of labor into atomistic, repetitive tasks will be limited, curtailing static efficiency gains.

Opportunities for dynamic technical change will also be blocked. Contrary to popular invocations, Smithian growth is absolutely compatible with technological progress; indeed, it is this interaction that characterized the first Industrial Revolution. The existence of individualized trades creates opportunities for specific observation, experimentation, and trial-and-error in the production process. Machines only become useful and cost-efficient to invent and invest in if producers expect that sufficiently long production runs of the same output will be possible. Robert Allen’s theory of induced invention, for example, relies heavily on market size (a positive function of population): research and development costs are fixed, so the likelihood of paying them increases if they can be amortized across a greater number of units of output. Engineers like Roberts only emerge in highly-developed economies where mechanized production is profitable; where there are few consumers of nails, rails, and textiles, human artisan labor will be cheaper. Inventions, in this context, do not arise ab nihilo: if the economy is not making a good, or is only doing so at an inefficient scale, no technical change can occur in that industry.

This point is made forcefully by Desmet and Parente (2012),¹ who argue that “an increase in consumer varieties and an increase in firm size are essential for the introduction of cost-saving technologies and an economy’s take-off.” In their model, population is initially small, such that the market supports only a few varieties of consumer goods which are poorly substitutable, implying low competition. Firms undergo short production runs and have little incentive to pay the fixed costs of new technologies. As population expands, however, the size of the market increases, permitting a greater range of goods. Amid heightened competition, firms produce more, and once the market reaches a “threshold” size, process innovation—techniques that lower marginal costs—becomes profitable and industrialization accelerates. This captures perfectly the virtuous population-productivity circle: a sudden spurt of population growth boosts the British economy past the critical threshold, allowing entrepreneurs to realize that new kinds of “mass-production” methods might actually yield returns. Industrialization raises wages and increases urbanization, which pushes up agricultural TFP and thus begets further leaps in population.

Britain had the additional advantage of her commercial orientation (shared conspicuously by the Dutch), which enlarged the effective size of the market. But during the eighteenth century, the engine of growth remained the domestic economy, whose scope (and income level) determined the level of effective demand. The doubling of Britain’s population during the second half of the eighteenth century—coupled with stable or increasing living standards—would have been by far the most powerful force permitting the scaling-up process to factory industry. The great demographic surge after 1740, which responded to rising real wages and urbanization, also helped to promote specialization, the division of labor, and thus technical development, primarily in the textile industry. This process was complemented by increased food demand; as this began to outstrip supply, greater quantities of manufactured exports had to be sent abroad to pay for grain imports.

Thus the British picture to me appears as follows: commerce-led urbanization pulled workers off the farms and increased agricultural efficiency. More food, wage laborers, and city-dwellers led to higher birth rates and a rising population after the mid-eighteenth century. Market size increased, permitting specialized firms to grow up producing a greater variety of products, and the increased quantity of goods that they had to make in this competitive environment made the adoption of machinery possible. More industrial firms operating machinery for larger markets, moreover, meant that more artisans and engineers faced opportunities to observe, experiment with, and improve upon production processes, generating a flow of tinkerer-inventors and learning-by-doing inventions. Efficiency increased rapidly, especially in the textile sector—most susceptible to such innovation—and advancing industrialization raised population still further. The only way to contain the additional demand for food was to embrace grain imports; this eventually led to the specialization of the entire island in producing manufactured exports to exchange for marginal caloric needs. A larger home industrial sector also led to agglomeration and “collective invention” by (intended and unintended) knowledge sharing in concentrated regions.

The demographic surge of the eighteenth century undoubtedly put pressure on the real wage gains made during the seventeenth, threatening a Malthusian catastrophe. Fortunately, that same population growth may have kicked Britain over a critical threshold beyond which the ideas and innovations of modern economic growth could be attained.

1. Hat tip to Pseudoerasmus.