Paul Bairoch on the Industrial Revolution, the Third World and Imperialism in World History

To continue from my post here, Paul Bairoch’s book Economics and World History: Myths and Paradoxes (New York and London, 1993) further analyses Western colonialism, the industrial revolution, and non-Western versus Western imperialism.

Did British imperialism from the 15th to the early 19th century play a major – or indeed necessary – role in triggering the British industrial revolution?

The fact is that, economically speaking, the British empire was not very big in the early modern period and even late as 1700–1750 was not large (Bairoch 1993: 80; see also Harley 2004: 196).

Its North American territories (the most important part) only became large after the Treaty of Paris in 1763 by which Britain obtained Canada and Louisiana (Bairoch 1993: 81). But then Britain lost its Thirteen Colonies in North America to rebellion in 1776 and formally in 1783.

Even in India, the really great expansion of British territorial gains happened from the 1780s (Bairoch 1993: 81).

The Spanish and Portuguese had richer, larger colonial empires than Britain did, but why didn’t the Spanish and Portuguese undergo an industrial revolution? As late as the 1700s, the Spanish and Portuguese empires even had an export trade five to seven times larger than that of Britain’s empire (Bairoch 1993: 82).

Clearly, the possession of a colonial empire was not a sufficient condition for industrialisation, and, as we will see below, nor was it a necessary condition of the British industrial revolution. Rather, as Bairoch argues, the European conquest of the world occurred more as a consequence of the superior technology and wealth of Europeans (and power politics) which was in turn a result of industrialisation, not a condition for it (Bairoch 1993: 82, 85–86).

The British industrial revolution had its origins in the agricultural revolution of 1680–1700 which accelerated from 1720–1760 and resulted in a large grain surplus even by the 1730s (Bairoch 1993: 80). But that arose from internal progress in the yields of crops and agricultural productivity (Bairoch 1993: 80), not imperial conquests. Many of the necessary technological innovations existed by 1750, but these had nothing to do with British imperialism.

Did non-European markets in the colonies provide a necessary condition for the British industrial revolution? Once again, Bairoch argues cogently that they did not.

The role of colonial trade in spurring industry in England seems very minor. In the 18th century as the first phase of the industrial revolution gathered pace, the total export sector of the UK accounted for between 4–8% of Britain’s GDP, and of this only 33–39% of exports were bound for the Third World. So, crucially, only 2–3% of total output was exported to the Third World (Bairoch 1993: 82).

Even in individual sectors where the importance of exports to the Third World was somewhat higher such as textiles and iron, the contribution of this colonial or Third world demand was not decisive for industrial development (Bairoch 1993: 84).

Now there was one sector in the 19th century in Britain which was oriented largely towards colonial markets: the cotton textile industry (Bairoch 1993: 84–85). The revolution in British textile production was accomplished by technological innovations and use of steam power, all made possible behind high tariff barriers to keep out Indian cotton products.

By 1819/1821 cotton textile exports accounted for about 53% of production and a significant proportion of these went to colonies and the Third World (Bairoch 1993: 85). But this was only one industry amongst many in the industrial revolution, and even if colonial trade markets had been unavailable the sector would still have developed but just at a lower level of production.

Although Bairoch does not directly raise the issue, we can also address the questions: were the profits the British made from the trans-Atlantic slave trade and the slave-based production of sugar in the Caribbean necessary for industrialisation? Did they play a fundamental role in capital formation in Britain as a pre-requisite of industrial investment?

Unfortunately for that view, the reality is that the actual capital costs of the investment needed for the industrial revolution were not large at all compared to Britain’s GDP or the incomes of property owners (Harley 2004: 197). The profits from slavery barely rose from 1% of national income in the late 17th century to 1.5% by 1770, and – even if this had been totally eliminated – there were vast amounts of money capital awash in the British economy in the 1700s which could have been used to finance industrial investment (Harley 2004: 197). Moreover, the British financial sector was becoming increasing sophisticated anyway with a role for endogenous creation of credit money leveraged on a commodity money base, Bank of England notes, and the notes of the most credible private banks, so one must guard against simplistic views of the monetary and banking system often assumed in modern literature.

The contribution of the actual slave trade itself to Britain’s economy was trivial, and a significant volume of the trade occurred after the industrial take-off anyway (Eltis and Engerman 2000: 129). Moreover, the Spanish and Portuguese earned far more from the slave trade than the UK did in terms of a percentage of national income, but in neither case did profits from slavery lead to industrialisation in Spain or Portugal (Eltis and Engerman 2000: 131).

Finally, the profits earned from slave-based production of sugar in the Caribbean were not necessary for industrial take-off, nor was sugar some necessary factor input for early industrial production (Eltis and Engerman 2000: 134–135).

But to return to Bairoch’s analysis, what Bairoch does accept – as any sensible economic historian does – is that many colonies in the course of the 19th century could not implement tariff barriers to cheaper European goods, so that there was a process of de-industrialisation in much of the Third World (India being a notable example) (Bairoch 1993: 88–89). But these trends clearly occurred after the industrial take-off in Britain: this de-industrialisation was simply not a necessary condition for the first phase of the industrial revolution nor for the continuing development of it in the 19th century.

In short, if the imperialism and colonial empires had not existed, then all that would have happened is that British per capita GDP in the course of the 19th century would have been slighter lower: the industrial revolution would still have occurred and per capita GDP still have soared. The industrial revolution would not have been stopped.

Finally, in some very interesting analysis not often commented on, Bairoch analyses Western imperialism: was it unique?

As Bairoch notes, the non-Western world also has a long and horrific history of slavery, imperialism and colonialism. There is an almost pathologically dishonest unwillingness to recognise that what the West did from 1500 to c. 1950 (in the period of its direct imperialism) was in essence what non-Western empire after empire has done through the ages.

We can run through the list of imperialist powers in history that provide direct precedents for what the West did in its period of supremacy:

(1) the Achaemenid Persian empire (from the 6th to 4th centuries BC), which conquered a vast territory from Egypt, all of the Middle east to central Asia.

(2) successive dynasties of the Chinese empire, which conquered and ruled vast numbers of non-Chinese people in central Asia, and for over 2000 years exercised an indirect imperial power over Korea, Japan and parts of South Asia.

(3) the Arab empire from the 7th to 12th centuries AD and their Turkish successors the Seljuks, which conquered the Middle east, Iran, central Asia, parts of India, north Africa, and Spain.

(4) the Mongol empire, which conquered vast territories from China to the Middle East and southern Russia, in the process committing mass murder on a scale which in per capita terms may be unmatched in human history.

(5) the Ottoman empire from the 15th to the 20th century, a highly aggressive empire which conquered the Byzantine empire, much of the Middle East, North Africa, the Balkans, Hungary, and the Crimea.

As Bairoch notes:

“The fact that all these empires did not expand beyond a certain size is not attributable to a lack of colonial appetite but to the military and economic constraints of that period, which set limits on the extent of the largest empire … . But this does not imply that the non-European colonial empires were small, especially in relative terms.” (Bairoch 1993: 145).

If the Mongols had had access to the military technology of 19th century Europeans, they would easily have conquered the whole planet and in the process committed genocides undreamt of in human history.

What about the European slave trade? The slave trade in Africans conducted by Westerners lasted for about three centuries from the early 1500s to about 1870 and it is estimated that there were about 11–11.5 million victims (Bairoch 1993: 146). This was a horrific crime, and no rational person would deny it.

But this was not as brutal as the Arab slave trade in black Africans, as Bairoch notes:

“Compared to the European slave trade, that conducted by the Islamic world started earlier, lasted longer and, crucially, involved a larger number of slaves. It began in the seventh century and lasted to the end of the nineteenth. For this whole period, the transport of people from sub-Saharan Africa to the Muslim world totalled 14–15 million, of which some 8–8.5 million were from 1500 to 1890. ….

There are now fewer descendants of slaves in the Islamic world than in Christian America. This is due to the fact that a great number destined for the Islamic world were castrated. Furthermore, their mortality was high and their birth rate low. In fact, the ‘visible’ descendants of those slaves can be estimated at only a few million in the Middle East (including North Africa), whereas in America their number is approximately 70 million.” (Bairoch 1993: 147).

The mass castration of black African slaves (often boys) in the Arab slave trade was particularly brutal and increased the death toll because the operation was very dangerous. African slaves were also subject to forced death marches across the Sahara desert on their way to slave markets and horrific conditions in slave ships bound for the Middle East and India.

For instance, the transportation of African slaves to the Arab state of Zanzibar on ships was described by the British abolitionist Sir Thomas Fowell Buxton in 1840:

“Captain Moresby, to whom I have already alluded, described to me the passage coastways, in the following terms:— ‘The Arab dows, or vessels, are large, unwieldy, open boats, without a deck. In these vessels temporary platforms of bamboos are erected, leaving a narrow passage in the centre. The negroes are then stowed, in the literal sense of the word, in bulk; the first along the floor of the vessel, two adults, side by side, with a boy or girl resting between or on them, until the tier is complete. Over them the first platform is laid, supported an inch or two clear of their bodies, when a second tier is stowed, and so on until they reach the gunwale of the vessel.

‘The voyage, they expect, will not exceed twenty-four or forty-eight hours: it often happens that a calm, or unexpected land-breeze, delays their progress: in this case a few hours are sufficient to decide the fate of the cargo; those of the lower portion of the cargo, that die, cannot be removed. They remain until the upper part are dead, and thrown over, and, from a cargo of from 200 to 400 stowed in this way, it has been known that not a dozen, at the expiration of ten days, have reached Zanzebar. On the arrival of the vessels at Zanzebar the cargo are landed; those that can walk up the beach are arranged for the inspection of the Imaum’s officer, and the payment of duties—those that are weak or maimed by the voyage are left for the coming tide to relieve their miseries. An examination then takes place, which for brutality has never been exceeded in Smithfield.’” (Buxton 1840: 165–166).

In addition, the medieval Middle East slave trade also involved the exploitation of many black Africans used in economic slavery in south Iraq and also in Africa (e.g., in the state of Zanzibar).

It is also now largely forgotten that European themselves were for many centuries the victims of this slave trade conducted from the Middle East and north Africa from the 700s AD down to the 1800s and the number of victims probably numbered more than 2.5 million (see Davis 2004).

And who was it who ended the slave trade? As Bairoch notes, it was the British empire and European interventions which largely stamped out slavery on our planet (Bairoch 1993: 147).

All in all, Bairoch has demonstrated that:

(1) colonial exploitation was not a necessary precondition for the British industrial revolution, and

(2) Western imperialism has by no means been unique.

BIBLIOGRAPHY
Bairoch, Paul. 1993. Economics and World History: Myths and Paradoxes. Harvester Wheatsheaf, New York and London.

Davis, Robert C. 2004. Christian Slaves, Muslim Masters: White Slavery in the Mediterranean, the Barbary Coast, and Italy, 1500–1800. Palgrave Macmillan, Basingstoke, UK and New York.

Eltis, David and Stanley L. Engerman. 2000. “The Importance of Slavery and the Slave Trade to Industrializing Britain,” The Journal of Economic History 60.1: 123–144.

Harley, C. Knick, 2004. “Trade: Discovery, Mercantilism and Technology,” in Roderick Floud and Paul Johnson (eds.), The Cambridge Economic History of Modern Britain. Volume 1: Industrialisation, 1700–1860. Cambridge University Press, Cambridge. 175–203.

Paul Bairoch on the Industrial Revolution, Imperialism and Capitalism

The economic historian Paul Bairoch (1930–1999) subjected some Marxist myths about Western capitalism and imperialism to critical scrutiny in his now classic book Economics and World History: Myths and Paradoxes (New York and London, 1993).

First, was the Western industrial revolution dependent on energy from the Third World?

Bairoch (1993: 59) notes that right up until the post-WWII era the West was almost completely self-sufficient in energy, and as late as the 1930s much of the developed world had an export surplus in products used to create energy, such as coal (Bairoch 1993: 59). The energy-dependence of the First World on the Third World arose after WWII long after the industrial revolution, so one cannot claim that energy imports by imperialism were a necessary condition for the West’s industrialisation.

Production and use of oil as a source of energy for Western industrial civilisation only really began in the late 19th century, but it remained a tiny percentage of total energy consumption right up until WWI, and even here the West was mostly self-sufficient (Bairoch 1993: 61–62). An often forgotten fact is that US consumption of energy petroleum only rose above domestic production in 1957 (Bairoch 1993: 61), so that industrialisation in the US was not dependent on imports of oil.

What about iron ore? Iron ore was crucial for Western industry, since as late as 1910 iron ore represented 95% of all metal production (Bairoch 1993: 63). However, the West was almost wholly self-sufficient in iron ore too: most production occurred in Europe where in around 1914 Europe produced 28 million of the 32 million tons in global production (Bairoch 1993: 63). In 1914, the West only depended for 2% of its total metal ore consumption on Third World production – an extraordinarily low figure which means that 98% of metal ores were produced domestically (Bairoch 1993: 65).

In production of glass, cement, paper and clay products the West was almost completely independent and not reliant on imports (Bairoch 1993: 68).

Even in raw materials that were imported from the Third World, we can note that textile fibres were mostly produced domestically in Western countries and imports from the Third World only accounted for about 22% of domestic consumption as late as the 1909–1913 (Bairoch 1993: 67).

Bairoch (1993: 68) estimates that in terms of value the West was about 94–96% self-sufficient even in raw materials around 1913.

Of the raw materials that did need to be imported from the Third World such as rubber, fertilisers, and phosphates, their total value in relation to Western exports was not large, and could easily have been obtained by international trade and paid for through export earnings: there was simply no economic need for imperialist conquest of the Third World to obtain these goods.

Bairoch’s conclusion is very important:

“… if in fact from 1955 onwards the large dependence on raw materials from the Third World was a reality, before that period it was a complete myth. The developed countries were thus able to reach a very high level of industrialization on the basis of local raw materials and also on the exploitation of their local workforces …. .” (Bairoch 1993: 70).

In other words, the vulgar Marxist explanation of Western imperialism as motivated largely or ultimately by an evil capitalist need to plunder the Third World and steal raw materials and energy necessary for industrialisation is a myth.

Now what about the Marxist and Leninist thesis that Western imperialism – especially after the 1880s – was driven by the need to find new markets for Western manufactured commodities and that this was the primary economic cause of imperialism? This was the famous thesis of Lenin’s Imperialism, the Highest Stage of Capitalism (1982 [1917]).

Once again, Bairoch demonstrates that this is a myth. Of total exports from the West from 1900 to 1938, Bairoch estimates that about 17% of exports were sent to the Third World and only 9% to actual Western colonial territories (Bairoch 1993: 72).

And – even more catastrophically for Marxist ideology – the export sector accounted for only about 8–9% of GNP of most developed nations, and total exports to the Third World were as low as 1.3 to 1.7% of the total volume of production. Exports to actual Western colonial territories accounted for as little as 0.6 to 0.9% of the total volume of production (Bairoch 1993: 73).

Throughout the 19th century, for example, the United States only exported about 0.5–0.9% of its total GNP to the Third World (Bairoch 1993: 73).

Even Great Britain – the colonialist superpower of the 19th century – exported only about 4–6% of its total production (Bairoch 1993: 73), and not all of that to its colonies, a figure which remains a low percentage. At most, Bairoch notes, exports to the Third World might have helped certain given UK sectors for limited periods of time (such as textiles), but this hardly vindicates Marxism, since it does not follow at all that this was a necessary condition for the British industrial revolution nor that British imperialism had a fundamental and underlying economic motive.

Did Western manufacturing need a captive Third World market from imperialism? The evidence shows that it did not. For a period where the data is very good, Bairoch estimates that from 1899–1938 manufacturing exports to the Third world accounted for about 5–8% of total Western manufacturing production (Bairoch 1993: 74): but this was a marginal outlet compared with domestic markets.

Even for the 19th century as a whole, Bairoch’s research suggests that perhaps on average 10% of Western manufacturing output was exported to the Third World (Bairoch 1993: 74).

Now it is true that free trade policies imposed on the Third World in the 19th century caused de-industrialisation in a number of countries, but none of this was necessary for Western capitalist development:

“… the damage caused to Third World industries by colonialism through the influx of manufactures did not in fact have a correspondingly large positive effect on the developed countries. Taken as a whole, access to Third World markets was no more than a small stimulus to the developed countries’ industries.” (Bairoch 1993: 74).

So in reality the industrial revolution and economic development of the West right up until the mid-20th century did not require as a necessary condition Western imperialism.

Without empires, the West would still have industrialised and its per capita wealth would still have spectacularly soared above the rest of the world: the miracle of capitalism would still have happened. At most, real capita GDP would have been slightly lower, but not by much.

BIBLIOGRAPHY
Lenin, Vladimir Il’ich. 1982. Imperialism, the Highest Stage of Capitalism. Progress, Moscow.

Bairoch, Paul. 1993. Economics and World History: Myths and Paradoxes. Harvester Wheatsheaf, New York and London.

Engels’ Pause: A Cause of Marx and Engels’ Hasty and False Generalisations about Capitalism

The expression “Engels’ Pause” was coined by Robert C. Allen and refers to the period of real wage stagnation or low real wage growth in Britain in the early 19th century from about 1800 to 1840, even when real per capita GDP was rising in an historically unprecedented manner. You can see the “pause” in the graph of historical British real wages and per capita GDP per worker here.

First, it is important to note that some economic historians have challenged the data on GDP and real wages in this period. For example, Gregory Clark (Clark 2001; 2005 and 2007) argues that GDP has been overestimated and real wage growth in the early 19th century underestimated, so real wages did in fact grow more than per capita output growth (Allen, “Engels’ Pause,” p. 2).

However, for the sake for argument and to make it easy for Marxists, let me assume that the data used by Allen is correct: that Engels’ Pause was real.

However, we now know that this was very much a short-term trend in the history of capitalism and that, after the 1840s, capitalism – even in its inefficient 19th century form – caused real wages, even of workers, to soar above the levels of the early years of the 1800s.

Allen (2007) examines this issue and has some interesting insights.

Essentially, not only Marx and Engels but also the earlier Classical Political economists like Ricardo and Malthus were misled by this short-run trend, and they all concluded that capitalism would lead to wage stagnation for workers (Allen, “Engels’ Pause,” p. 1).

However, the early Marxists and the early Classical economists differed on why this was the case – and this is a crucial point. Allen argues as follows:

“Among economists, Ricardo, Malthus, and Marx all believed that real wages would remain constant during capitalist development. They differed, however, in their explanations: Ricardo and Malthus believed that population growth would accelerate in response to any rise in income and ultimately force wages back to subsistence; Marx, on the other hand, believed that technological progress had a labour saving bias that would eliminate any upward demand pressure on wages even as output per worker surged.” (Allen, “Engels’ Pause,” p. 1).

“While the classical economists all expected the real wage to remain constant, they disagreed about the reason: Malthus and Ricardo emphasized the growth of population, while Marx emphasized the labour saving bias of technical change.” (Allen, “Engels’ Pause,” p. 5).

This is an important point: Marx and Engels also thought that wages would stagnate, but they rejected Malthusian population theory (on this, see here; see also Marx 1922 [1891]: 40).

However, Marx still held that wages would tend towards the value of labour-power: that is, the value of the maintenance and reproduction of labour, with only two additional qualifications as explained in Chapter 6 of volume 1 of Capital.

Marx only adds two minor additions to the value of the maintenance and reproduction of labour:

(1) the cost of education and training of the skilled forms of labour (Brewer 1984: 37), but this only applies to skilled labour and is just a part of the cost of reproduction of skilled workers, and

(2) sometimes a “historical and moral element” which as Marx explains in Value, Price and Profit (1865) was mainly a legacy of the pre-capitalist national differences in standards of living.

However, for Marx, the “historical and moral element” is clearly not greatly above the level needed for subsistence and reproduction of workers, and in Value, Price and Profit Marx seems to imply that capitalism will reduce even the “historical and moral element” and, generally speaking, will tend to keep wages to a minimum.

Moreover, in the rest of volume 1 of Capital, we hear nothing further about the “historical and moral element”: for example, this is clear in Chapter 10 where Marx explicitly assumes his theory that

“labour-power is bought and sold at its value. Its value, like that of all other commodities, is determined by the working time necessary to its production. If the production of the average daily means of subsistence of the labourer takes up 6 hours, he must work, on the average, 6 hours every day, to produce his daily labour-power, or to reproduce the value received as the result of its sale.” (Marx 1906: 255).

It is the same in Chapter 11 where wages are “the value of labour-power” which is “therefore the part of the working-day necessary for the reproduction or maintenance of that labour-power” (Marx 1906: 331). We can also see this view more starkly in Marx’s Critique of the Gotha Program where Marx says that in capitalism wages are set so that the worker “is only permitted to work for his living, i.e., to live” (Marx 1922 [1891]: 40; see appendix).

In Friedrich Engels’ Herr Eugen Dühring’s Revolution in Science (1894; first published in 1878), he defended this view of Marx, and Engels even argued that industrial capitalism, partly by means of automation and use of machines, drove workers’ wages down to a subsistence level and tended to keep them there:

“Thus it comes about that the excessive labour of some becomes the necessary condition for the lack of employment of others, and that large-scale industry, which hunts all over the world for new consumers, restricts the consumption of the masses at home to a famine minimum and thereby undermines its own internal market.” (Engels [1894]: 308).

So the crucial point is: even Marx and Engels, like Ricardo, thought that capitalism would tend to keep real wages to a minimum, even if for different reasons.

Allen points out that from 1780 to 1840 British real wages increased by only 12%, even when real GDP per worker rose by 46% (Allen, “Engels’ Pause,” p. 1). Again, a graph of the data on real wages and per capita GDP per worker can be seen here. After 1840, however, real wages began an upward trend and living standards soared.

Now Lewis (1954) argued that the greater share of income to capital in the 1800–1840 period allowed capital accumulation and that the flow of migration from the country-side contributed to holding down real wages (Allen, “Engels’ Pause,” p. 4).

However, Allen rejects this and argues as follows:

“Although Lewis’ model was inspired by the classical economists analysing the British industrial revolution, the emphasis he placed on surplus labour is hard to reconcile with British history. As a general matter, surplus labour in the countryside is difficult to reconcile with a positive wage. In addition, there are particular problems to applying it to the British industrial revolution. British agriculture did not function as source of surplus labour that kept wages down. For one thing it was too small. In 1801 only 36% of the work force was in agriculture (Deane and Cole 1969, p. 142) compared to the 75–80% that characterized the less developed countries Lewis was describing. Moreover, contrary to Marx, the parliament enclosures did not drive workers from the land; indeed, the poor law (through the Speenhamland system) paid men to stay in the countryside and reduced rural-urban migration. … This does not square with Lewis’ scenario.” (Allen, “Engels’ Pause,” p. 4).

Instead, Allen explains the two stages of capitalist development in Britain with the view that accumulation of capital and productivity growth in the early 1800s were out of balance, and that technical progress was labour-augmenting (Allen, “Engels’ Pause,” p. 11–12).

Allen analyses Marx’s views on capitalism as follows:

“The transition from the first stage to the second, which occurred around the time of the publication of the Communist Manifesto (1848), provides a wry commentary on Marx’s expectations. The acceleration of productivity growth did, indeed, shift income from workers to capitalists, as he expected. The result, however, was not continually increasing immiseration, for the capitalists invested a portion of their extra income and the increase in the capital stock eventually allowed rising productivity to be manifest as rising real wages. History did, indeed, exhibit a stage pattern of evolution, but the stage of flat real wages was followed by the most sustained rise in real wages ever seen–not by socialist revolution.” (Allen, “Engels’ Pause,” p. 12).

Allen suggests that the rising demand for capital investment pushed up the rate of return and capitalist profits, which suppressed wage growth. This changed after 1840.

Whatever the merits of this explanation an important point still emerges.

It still follows that Marx and Engels generalised from limited data on wages and made a hasty and inaccurate inference about the trajectory of capitalism. Marx was guilty of a type of fallacy of hasty generalisation on the basis of Engels’ Pause.

We can see this clearly in the graph below using Wood’s data (Wood 1909: 102–103, Appendix) on UK real wages from 1850 to 1902, constructed from the wage data for working people in a whole range of industries.

As we can see, after 1848 living standards soared. Even if we assume wages were at subsistence levels in 1850, it is clear that by 1900 they had risen well above that level. It seems that already in the 1870s Marx’s socialist critic Eugen Dühring accused Marx of falling to take account of the rising standard of living (see Fabian 2011: 463, citing Dühring 1875).

It is now perfectly clear that Marx’s theory of wages – that wages would tend to “the value of labour-power” which is “part of the working-day necessary for the reproduction or maintenance of that labour-power” (Marx 1906: 331) – was proven false even in the 19th century and even by gold standard capitalism, which was certainly more unstable and inefficient than the far more dynamic, efficient and stable forms of mixed economy capitalism developed in the 20th century.

Appendix: Marx on Wages in the Critique of the Gotha Program
Marx’s Critique of the Gotha Program was based on a letter he wrote in 1875 and was published in 1891.

We have the following discussion of wages here:

“Since Lassalle’s death the scientific knowledge has made way in our party that wages are not what they seem, namely, the value or price of labor, but only a disguised form for the value of price of labor-power.

Thereby the whole capitalist theory of wages, hitherto prevailing, together with all the criticism hitherto directed against it, was once and for all overthrown, and the fact clearly established that the laborer is only permitted to work for his living, i.e., to live, so long as he works a certain time gratis for the capitalist (hence also for those who share the surplus-value with the latter); that the pivot around which the entire capitalist system of production turns, is to increase this unpaid labor either by lengthening the working day, or by developing the productive powers of labor, or by straining the laborer to more intense exertion, etc., etc.; that, therefore, the system of wage-labor is a system of slavery, and indeed slavery, which, moreover, grows harder in proportion as the productive powers of labor are developed in society, no matter whether the laborer’s pay is better or worse.” (Marx 1922 [1891]: 40–41).

So here Marx can even refer to his theory of wages as the view that “the laborer is only permitted to work for his living, i.e., to live.”

Further Reading
“Marx’s Capital, Volume 1, Chapter 6: A Critical Summary,” July 13, 2015.

“The Debate on Marx’s View of Wages in Capitalism,” January 12, 2016.

“Marx on Wages in Value, Price and Profit (1865),” December 30, 2015

“Marx and the ‘Iron Law of Wages,’” December 29, 2015.

“Engels on Subsistence Wages,” December 21, 2015.

BIBLIOGRAPHY
Allen, Robert C. 2007. “Engels’ Pause: A Pessimist’s Guide to the British Industrial Revolution” Oxford University, Department of Economics Working Paper No. 315
https://ideas.repec.org/p/oxf/wpaper/315.html

Brewer, Anthony. 1984. A Guide to Marx’s Capital. Cambridge University Press, Cambridge.

Clark, Gregory. 2001. “The Secret History of the Industrial Revolution,”
http://faculty.econ.ucdavis.edu/faculty/gclark/papers/secret2001.pdf

Clark, Gregory. 2005. “The Condition of the Working Class in England, 1209–2004,” Journal of Political Economy 113: 1307–1340.

Clark, Gregory. 2007. “What made Britannia great? How much of the rise of Britain to World Dominance by 1850 does the Industrial Revolution explain” in Tim Hatton, Kevin O’Rourke, and Alan Taylor (eds.), Comparative Economic History: Essays in Honor of Jeffrey Williamson. MIT Press, Cambridge. 33–57.

Dühring, Eugen. 1875. Kritische Geschichte der Nationalökonomie und des Sozialismus (2nd edn.). Theobald Grieben, Berlin.

Fabian, George. 2011. Karl Marx: Prince of Darkness. Xlibris Corporation, US.

Lewis, William Arthur. 1954. “Economic Development with Unlimited Supplies of Labour,” Manchester School of Economics and Social Studies 22: 139–191.

Marx, Karl. 1906. Capital. A Critique of Political Economy (vol. 1; rev. trans. by Ernest Untermann from 4th German edn.). The Modern Library, New York.

Marx, Karl. 1922. “Critique of the Gotha Programme,” in Marx and Daniel de Leon, Critique of the Gotha Programme and Did Marx Err?. National Executive Committee, Socialist Labor Party, New York.

Wood, George H. 1909. “Real Wages and the Standard of Comfort since 1850,” Journal of the Royal Statistical Society 72: 91–103.

The Early British Industrial Revolution and Infant Industry Protectionism: The Case of Cotton Textiles

In recent posts on this blog, I have pointed to industrial policy as an important tool in economic development. I have promised further posts on the subject. This is the first of a number I wish to write on industrial policy both in theory and in practice.

There are many types of industrial policy. In the 18th and 19th centuries, industrial policy often took the form of “infant industry protectionism.” This idea was originally made by the first secretary of the US treasury Alexander Hamilton in 1790, and later by the German economist Friedrich List in 1841.

Infant industry protectionism is the use of selected tariffs on imports of high-value-added manufactured goods when domestic manufacturing is in its early stages of development, particularly where the creation of these industries gives increasing returns to scale, rather than dead-end “diminishing returns to scale.” The goal of protectionism is to allow an industry to develop until it is able to compete in international trade. Once the industry is competitive on global markets, you no longer need domestic tariffs and they can be removed.

An excellent overview of infant industry protectionism can be found in Ha-Joon Chang, Kicking Away the Ladder: Development Strategy in Historical Perspective (London, 2002).

It is often asserted that free-trade Britain shows that protectionism is false and unnecessary, since the UK industrialized without the need for tariffs or protectionism. But the fact is that the UK was a pioneer in many manufacturing industries and had no competitors: it is clearly a special case to some extent. Furthermore, the UK did have an extensive tariff regime until trade liberalization in 1846.

Moreover, the fact is that in the case of cotton textiles, one fundamental area of its early manufacturing sector, Britain is a classic example of the success of infant industry protectionism.

In 1750, India produced about 23% of world manufacturing output. China probably produced around 33% of global manufacturing, and Europe about 23% (Marks 2002: 97; Kennedy 1989: 149; Perlin 1983; the source of these figures is the French economic historian Paul Bairoch 1997).

Europe, China and India all accounted for about 80% of global manufacturing output (Marks 2002: 123). It has been estimated that the GDPs of China, India and Europe were roughly 23% each of global GDP in 1700 (see Philip S Golub, “All the Riches of the East Restored”). That is to say, their respective economies were about the same size.

Textiles were a significant part of India’s manufacturing base, and Indian textiles were exported to Europe, Africa, the Middle East, south-east Asia, and the Americas. It has been shown by economic historians that India had a comparative advantage in the production of textiles, namely cheap but high-quality calicoes, because of cheap labour (Marks 2002: 97; Parthasarathi 1998). (As an aside, one can note that P. Parthasarathi 1998 shows that, since food was comparatively cheap in India and agriculture was very productive, free artisans who produced textiles had reasonably good living standards.) Indian production for export was concentrated in four major centres in Gujarat, Bengal, Madras and the Punjab.

India dominated world cotton textile markets in 1750, and Indian calicoes had been popular in Britain since the late 17th century. Contemporary British manufacturers and politicians correctly complained that British labour was more expensive than Indian labour. Yet by 1830 British cotton textiles dominated the world market and the Indian cotton textile industry was in ruins. How did it happen? Was it by the unregulated free market and free trade?

In fact, it was by tariffs and protectionism. The earliest phase of the Industrial Revolution in Britain was founded on the cotton textile industry. It was here that Britain crossed the “threshold” of the industrial revolution (Landes 1969: 82). The second phase of the industrial revolution only started after the early 1800s with the invention of the railroad and the expansion of the coal, iron and steam power. Thus the importance of the cotton textile industry at Manchester in the early Industrial Revolution cannot be underestimated.

If we look at how Britain developed its first significant manufacturing industry which launched the industrial revolution, we find that it did so by severely violating all the modern doctrines of free trade and free market economics.

In the late 17th century and 18th century, cheap high-quality Indian textiles competed with the domestic wool, linen and silk textile industry in Britain. These woolen, silk and linen textile producers demanded and were given import relief from Indian goods by tariffs and sumptuary laws in the early 18th century.

These were some of laws passed to protect British industry:

1685 – 10% import tariff on Indian goods;

1690 – tariff doubled to 20%;

1701 – First Calico Act, legislation banning imports of dyed, painted or printed fabric;

1707 – British textiles manufacturers obtained further tariffs on Indian textiles;

1721 – Second Calico Act, which further banned imports of Indian textiles.

Britain’s textile industry was able to develop behind tariff barriers, and the home market started to develop a cotton textile industry. In fact, just before the industrial revolution, the tariff on Indian cotton goods imported into Britain had gone up to 50% (Alavi 1982: 56).

However, the early cotton industry in Britain could not match the quality of Indian textiles. In the early 18th century, Britain generally produced fustians (a mixture of linen and cotton/wool) and linen-cotton textiles, but not pure cotton goods.

Furthermore, the price of raw cotton imports rose in the 1770s and 1780s. It was only after the slave-based plantations of North America started to export to the UK that cotton imports started to fall in price.

I need hardly point out the paradox that the industrial revolution in Manchester through production of textile goods was itself dependent on, and effectively subsidized by, slave labour in the New World (see Pomeranz 2000: 277). How competitive would Manchester textiles have been, if production of cotton in the American south had been carried on by free laborers and farmers?

In the course of the 18th century, a number of technological innovations transformed the cottage industries of Britain into factory systems.

The most important inventions were as follows:

(1) Hargreaves’s spinning jenny (invented c. 1764; patented 1770), which was later made obsolete by 1800 by mules;

(2) Arkwright’s spinning frame, which was later developed into the water frame (patented 1769);

(3) Crompton’s mule (1779).

These technological innovations in textile manufacturing occurred and were applied to the infant industry in an environment of heavy protectionism.

According to the conventional view, the technological innovations made British textiles cheaper and able to compete with Indian textiles both in the UK and in the global markets in the late 18th century.

But this is not correct. The inventions of Kay, Hargreaves, and Arkwright did not make British textiles more competitive than Indian goods, and Indian goods were still of a finer quality. Even with the invention and gradual use of Crompton’s mule in the 1780s, British textiles still could not compete with Indian calicoes (Alavi 1982: 56).

The producers were protected with more tariffs, and by 1813 the import duty on Indian cotton goods stood at 85% (Alavi 1982: 56). As Alavi (1982: 56) argues:

“It was the wall of protection that made possible the survival and growth of the British cotton textile industry in the face of Indian competition and facilitated large capital investments in the industry. Without it, the English industry would have found it impossible to get a foothold in the home market, let alone abroad.”

It was not until the widespread adoption of the spinning mule and then the mechanized power loom invented by Edmund Cartwright in 1784 that English textiles gradually became more competitive in the early decades of the 19th century.

From 1797–1819 British cotton textile manufacturers were still unable to compete. In 1815, the value of all Indian cotton goods coming into England was 1.3 million pounds (from 1741–1750, it had stood at 1.2 million points annually, at a time when domestic cotton textile competition was still largely non-existent). British producers asked for and obtained tariff increases on Indian cottons on 7 separate occasions in the years from 1797–1819.

In fact, even with the technological innovations, by start of 19th century Indian silk and cotton goods

“could be sold in the British market at a price between 50% and 60% lower than those fabricated in England. It consequently became necessary to protect the latter by duties of 70% to 80% on their value” (Das 1946: 313, quoting Mukerjee 1967).

It was only the application of steam power in the period between 1815 to 1830 that allowed English textile goods to be competitive globally (Marks 2002: 100). The power loom, for instance, was initially limited by relying on water power, but by the beginning of the 19th century was able to use steam power (Moe 2007: 34).

The cost of British-made cotton cloth fell by 85%, but only from 1780 to 1850, and it was only in 1835 that steam power fueled 75% of the British cotton industry (Moe 2007: 35).

British textile goods probably became internationally competitive by the mid 1820s (when tariffs were still in place). The British protectionism that lasted until the 1820s allowed British goods to become competitive.

It is estimated that by 1820, 46% of Britain’s exports were cotton textile goods. These exports displaced India’s textile exports in world markets. Thus Britain itself had an “export-led” model of economic growth even in the early stages of the industrial revolution, by taking away the market share of India through technological innovation allowed by protectionism and tariffs.

Yet, according to classical free trade theory, the British should not have bothered to develop a textile manufacturing industry, if they were able get Indian cotton textile goods at a price 50 to 60% lower than domestic textiles. India did have a comparative advantage in production of cotton textiles even around 1810 when the British textile industry was developing. If real free trade had been implemented, the protective tariff would have been abolished and the market for British-made textiles at home would have collapsed. There would never have been a later opportunity to compete internationally.

Yet nobody can seriously deny that having a large productive textile industry was the foundation of Britain’s industrial revolution and in the long run good for the economy.

This is not the whole picture either, because from 1757 the British East India Company (EIC) won control of Bengal, the centre of Indian textile manufacturing.

The Indian states could not impose retaliatory tariffs on British goods in the early 19th century in response to British protectionism, because they were effectively ruled by Britain through the East India Company.

After the successful decades of tariff protection and shelter from competition, British goods succeeded in global markets at the expense of India’s exports. Bengal and the textile manufacturers were ruined and the resultant de-industrialization impoverished the previously prosperous towns.

Contemporary 19th-century British advocates of free trade actually noticed this state of affairs and criticised it. Robert Montgomery Martin was a historian of Irish descent and wrote about twenty-six books on history and the British empire (including a History of the British Colonies). In 1844 he was Treasurer of Hong Kong. He appears to have been a typical liberal and free trader. I quote from the Oxford Dictionary of National Biography:

Martin, Robert Montgomery (1800–1868), author and civil servant … His life was dominated by a self-appointed task—the study of the British empire, which Martin saw in terms of a vast free-trade area of new territories in allegiance to the British crown …. [sc. he wrote a] five-volume History of the British Colonies, followed by such related works as Statistics of the Colonies of the British Empire (1839).
http://www.oxforddnb.com/view/article/18208, accessed 16 Feb 2009.

Robert Montgomery Martin was called upon to give evidence in 1840 during a British parliamentary inquiry about India:

“[Before a British Parliamentary Committee in 1840] Montgomery Martin stated that he . . . was convinced that an outrage had been committed ‘by reason of the outcry for free trade on the part of England without permitting India a free trade herself.’ After supplying statistical data of Indian textile exports to Great Britain, he pointed out that between 1815–1832 prohibitive duties ranging from 10 to 20, 30, 50, 100 and 1,000 per cent were levied on articles from India. ... ‘Had this not been the case,’ wrote Horace Wilson in his 1826 History of British India, ‘the mills of Paisley and Manchester would have been stopped in their outset, and could scarcely have been again set in motion, even by the power of steam. They were created by the sacrifice of Indian manufacture. Had India been independent, she could have retaliated, would have imposed prohibitive duties on British goods and thus have preserved her own productive industry from annihilation. This act of self-defence was not permitted her’” (Clairmonte 1960: 86-87).

Thus near-contemporary British apostles of free trade were the first to notice the double standard. They were appalled at the hypocrisy of British protectionism and the destruction of India’s prosperous cities built on textile exports.

But they of course failed to notice that the protectionism had been a major cause of Britain’s industrial revolution and that, without it, the UK would have been much poorer. In other words, the success of the cotton textile industry in the early industrial revolution in Britain was an example of infant industry protectionism, or modern import substitution industrialization (ISI).


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