Britain's mid-nineteenth-century economy is often referred to as the "workshop of the world." The Industrial Revolution's modern industries dominated world markets; Paul Bairoch (1982) calculates that Britain produced two-thirds of the world's output of "new technology" products. Cotton-textile makers, who exported two-thirds of their output, were the most committed to serving word markets, but makers of other textiles and iron and iron products also sold nearly half their output abroad. These industries, greatly expanded by their successes in export markets, had transformed Britain into the world's first urban industrial society. That transformation, in turn, depended on imports of raw materials and food.
Trade has a clear association with the British Industrial Revolution. A systematic examination of the connection can usefully focus on three questions: First, to what extent did the late-eighteenth-century technological breakthroughs that established the "new technology" industries depend on Britain's position as a trading nation? Second, to what extend did trade change Britain's economic structure? Third, how greatly did Britain's expanding trade contribute to economic growth as measured by per capita income?
EIGHTEENTH-CENTURY TRADE AND THE INDUSTRIAL REVOLUTION
Late-eighteenth-century Britain was already a great manufacturing exporting nation, but cotton textile and pig and wrought iron, the great export products of the early nineteenth century, did not yet contribute. British cotton manufacture depended on the prohibition of Indian cottons, and much of the bar iron that British hardware manufacturers used was imported. Exports consisted of woolens, hardware, and other goods. These manufactured goods exports, particularly to markets in the Americas, had grown rapidly during the eighteenth century.
By the third quarter of the eighteenth century, Britain occupied the central position in a multilateral world trading system. Imports—consisting mainly of primary staple products—were paid for by exports of manufactured goods and the earnings from shipping and other international services. A disproportionate share of British manufactured exports sold in the mainland colonies in North America as part of a multilateral trading pattern. The pattern, although channeled by mercantilist regulation, reflected comparative advantage and Yankee ingenuity. New England and Newfoundland fish, the grain of the middle colonies, and the rice of the lower South fed the West Indian sugar plantations and also found eager buyers in Southern Europe. Equally important, a large portion of the tobacco from the Chesapeake Bay was re-exported through British ports to continental Europe. In turn, earnings from these exports passed to the metropolis to pay for manufactured imports, and contributed to England's access to Spanish- and Portuguese-American specie that was exchanged for textiles and tea in the trade to India and China.
Nicholas F. R. Crafts (1985) estimates that exports (already some 80% manufactured goods) amounted to nearly 15 percent of British national income in 1760—a figure comparable to the early nineteenth century (although by then the share of manufactured goods had increased to over 90%). This great expansion of trade certainly stimulated the rise of commercial and manufacturing expertise that supported the Industrial Revolution. The presence of already established export markets supported the great expansion of new sectors. It is less obvious, however, that trade made any important direct contribution to the technological breakthroughs in cotton, steam production, and iron that constitute the "Industrial Revolution." As we have already seen, these were not great exports, and foreign demand can hardly have stimulated initial breakthroughs. It would be more correct to see the breakthrough as successful achievement of an import competing strategy. Somewhat unusually, that strategy resulted in the development of great export industries.
TRADE AND ECONOMIC STRUCTURE: THE URBAN INDUSTRIAL SOCIETY
Trade has its most direct impact on an economy's structure. Fundamentally, trade allows the concentration of resources in the production of those goods in which an economy excels, and exchanges these goods to obtain imports. Britain became more industrial as a result of trade, and became an urban industrial economy by the middle of the nineteenth century as a result of the mushrooming of cities, such as Manchester, with new export industries. In 1840 the cotton-textile industry produced more than 100 times what it produced in 1760, and the metal industries (primary iron and hardware combined) producedPage 397
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15 times as much as before. Without qualification, however, those figures are misleading. These industries grew because spectacular technological breakthroughs allowed British firms to produce much more efficiently (i.e., with fewer inputs) and competition drove prices down to reflect this technological improvement. Export volumes increased rapidly—British custom's unchanged official values show a nearly fivefold increase in the 1780s and the 1840s (Davis 1979); a recent calculation (Cuenca Estaben 1997) suggests a tenfold increase between 1760 and 1830. We have already seen, however, that the share of British income exported was not significantly higher in the early nineteenth century than it had been before the American Revolution. The reasons for discrepancy are twofold. First, British income nearly tripled, population roughly doubled, and per capita income increased about a quarter. Second, and more importantly, exports grew primarily as a result of technological breakthroughs that radically lowered their prices and thus their value. Urban industry was a result more of the steam engine's potential for concentrating mechanical power than of an increase in the share of national activity going to manufacturing because of an expansion of exports.
TRADE AND GROWTH
Britain's successful industrialization went hand in hand with expansion of the volume of exports, and it is tempting, but misleading, to assert that trade caused growth. Trade allows an economy to concentrate its resources on export and obtain goods it would have otherwise produced by trade. Foreign trade should be viewed as an "industry" that produces imports in exchange for sacrifices of exports. The "productivity" of this industry (that is to say, the final goods obtained from productive resources that made exports) crucially involve the "terms of trade"—the rate at which a given amount of exports (say, yards of cloth) exchanges for imports (say, quarters of wheat). The gains from trade depends on the extent to which trade improves the terms of trade, and on the importancePage 398
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of the foreign trade "industry" relative to other, domestic, industries.
It is difficult to assess how much the terms of trade might have moved had Britain lacked trading opportunities. Terms of trade over the nineteenth century gives some guidance. They fell dramatically from an index of 170 in 1820 to 100 in 1860 because of Britain's increasing productivity. They then rose to 130 late in the nineteenth century as the full application of steam and steel lowered the cost of making and, especially, shipping food and raw materials to Britain from hitherto remote parts of the globe. This 70 percent fall and 30 percent rise in the terms of trade can, perhaps, provide a guide to the terms of trade changes implied by self-sufficiency in, for example, 1840. As an illustration, consider the effect on national income of a reduction in the price of exportables relative to importables by, say, 50 percent. The share of imports in income in 1840 was 20 percent. If all of these goods increased in real cost by 50 percent (and surely many could have been produced domestically at a much lower increase in cost), self-sufficiency in 1840, then, would have cost Britain only about 10 percent of national income.
It is also often asserted that British producers attained a monopoly in "new technology" products that conferred important gains. This too is misleading. There was no monopoly; firms were too small. As a consequence, technological improvements that lowered costs caused prices to fall as well. Lower prices passed the benefits of technology to consumers; the foreign two-thirds of cotton-textile customers shared the benefits equally with domestic customers.
Britain's Industrial Revolution intertwined with an international economy undergoing epochal change. Expanding foreign trade accompanied the increasing sophistication of the British economy in the century before the Industrial Revolution. In the eighteenth century Britain financed sugar and tobacco imports by selling a multitude of manufactured goods to the North Americans who supplied food and timber to the West Indies. When the Industrial Revolution greatly cheapened British textiles and hardware, firms in these industries found their products in demand worldwide. Although trade undoubtedly stimulated Britain's industrialization, it is difficult to develop a causal connection from trade growth to the emergence of sustained modern economic growth. Specialization and trade, of course, provided gains for the economy, but quantifying these gains show them to have been quite small compared to the growth that emerged after the Industrial Revolution.
Bairoch, Paul. "International Industrialization Levels from 1750 to 1980." Journal of European Economic History 11 (Fall 1982): 269–333.
Crafts, Nicholas F. R. British Economic Growth During the Industrial Revolution. Oxford, U.K.: Oxford University Press, 1985.
Cuenca Esteban, Javier. "The Rising Share of British Industrial Exports in Industrial Output, 1700–1851." Journal of Economic History 57, no. 4 (December 1997): 879–906.
Davis, Ralph. The Industrial Revolution and British Overseas Trade. Leicester, U.K.: Leicester University Press, 1979.
Harley, C. Knick. "Trade: Discovery, Mercantilism, and Technology." In Cambridge Economic History of Britain since 1700, volume 2: 1700–1860, ed. R. Floud and P. Johnson. Cambridge, U.K.: Cambridge University Press, 2004.
C. Knick Harley