Table 2: The composition of British exports 1784-1856, R. Davis
It can be seen from the data in Table 2 that the growth of British exports was primarily down to textiles and most importantly cotton. It was the invention and innovation of new production processes such as the spinning jenny by Richard Arkwright that lead to the vast improvements in productivity witnessed in the late eighteenth century. Not only did the new processes deliver yarn of better quality than the Indian variety but also at a lower cost because of the higher productivity. At the time, with the restrictions upon imports of fine Indian yarn, there was a large unfulfilled domestic demand for such textiles. In the early stages of the new technology therefore, this new factory industry devoted its output to satisfying this home demand. As Table 3 below shows, between 1772-4 and 1784-6, production of cotton increased from £0.9 million to £5.4 million, yet of this increase, only £0.5 million was exported. The weight of this evidence thus suggests that the initial expansion of the cotton industry was independent of overseas trade. It was the supply-side shock in the form of vastly improved methods of production that allowed the cotton industry to industrialise.
Table 3: Exports and Production of cotton goods 1760-1796, Deane and Cole 1967
However, this is not to say that overseas trade was not important to the continued successful expansion of the industries. It was overseas demand once domestic demand had been satiated that allowed the building of more factories with a further expansion of output. In 1804-1806, cotton accounted for 84% of the increase in manufactured exports. The economies of scale generated from such an increase in production were mainly external. Higher factory density in textile areas led to improved transport infrastructure and the establishment of specialist services such as merchant houses and commodity brokers. The setting-up of machinery manufacturers, repairers and banking services also led to significant external economies. Such expansion also meant that new capital machinery embodied with the latest technologies was always being manufactured, thus allowing the prosperity to endure.
So, the need to meet overseas demand brought benefits of reduced average production costs as the scale of production and industry increased. The fact still remains though that overseas demand did not really act as a spur to innovation and development of the industry. The factories built to meet the foreign demand were very similar to the early factories developed to meet domestic demand. Although the benefits of scale economies are recognised, they pale in comparison to the initial technological advances that instigated cotton’s industrialisation. Although atypical and accounting for a very small portion of national output, cotton was the ‘leading sector’ in the process of British Industrialisation. Given that its development was achieved independently of trade, it is hard to justify the assertion that trade ‘broke the vicious cycle’.
Table 4: Exports of Metals and Metal wares R.Davis
Metals were the other sector that together with cotton formed the Britain’s new industrialised export base. There were a number of technological advances in the late eighteenth century that improved the productive efficiency of the iron-refining process such as the use of coke and the innovation of better blast furnaces. There were also advances in the processes of copper smelting. This lead to fall in costs of production for iron and other metals with cheaper prices encouraging their use in simple applications such as girders and plates. Scale economies were an important factor in the cheapening of metals and metal ware, with overseas trade allowing for increased scales of production that allowed for even greater reductions in costs. This allowed the cheaper iron to be diffused into a wider variety of uses than it otherwise would have without any trade.
The second stage of growth in the iron industry was a result of the introduction of steam locomotives and new machinery from the 1830s onwards. These proved to be crucial to the adoption of industrial processes across the British economy. Again, it was these supply-side inventions not trade that instigated these important changes. In fact, during the 1830s and 1840s much of the increase in iron production was met by the domestic demand for railway manufacture and maintenance. However, there was a downswing in British railway manufacture around 1850. In 1801, only 24% of the output of the iron industry was exported but by 1851, this proportion had risen to 39%. Exports of iron increased sharply as shown in Table 4 in the 1850s as overseas demand replaced the void left by the domestic glut. So trade helped to maintain high levels of output despite a domestic downturn, preserving the capital stock of the economy. Overseas trade was thus a very useful way to dispose of excess production whereas otherwise output would have had to be cut.
Table 5: The composition of British imports (£000) 1784-1856, R. Davis
The change in the volume and composition of imports also experienced equally dramatic change to that of exports in the same period. AS can be seen from table 5 above, the proportion of imports accounted for by manufactures fell sharply between 1784 and 1814 as domestic textile and metal production were substituted for imports. Given the increases in industrial production in textiles and metals, it is not surprising to see the rapid growth in imports of raw materials. Britain was in fact dependent on imports of raw materials to make most of its industrial output. Most industrial raw materials were either not available in the country (raw cotton) or were obtainable much more cheaply abroad (e.g. iron ore from the Baltics). There is no doubt that if Britain were unable to import its industrial raw materials so extensively, that the leading industrial sectors would not have grown at all.
Foodstuffs are an important area to consider in the process of Industrialisation. Initially, previous inventions in agricultural productivity had meant that output of basic foodstuffs such as grain had risen to meet the needs of a rising population without having the need to import. This process was very important in freeing up labour and resources to be used in the industrial sectors of the economy. Initially therefore, foodstuff imports were made up of items not readily available to produce in Britain such as sugar, tea and spices. However, there came a point where such self-sufficiency could no longer be maintained. Imports of ‘temperate foodstuffs’ such as grain and meat rose from £2,051,000 in 1844-46 right up to £23,269,000 in 1854-6 (R.Davis). Such an increase in imported food meant that Britain was dependent on trade to feed its people. However, it also meant that instead of transferring labour and capital back into low-productivity agriculture resources could remain in the industrial sectors where Britain had greater comparative advantage.
Table 6: The % composition of U.K exports and imports by country of destination/origin
As well as the volume and composition of trade changing there was also a geographical change in the destinations and sources of imports and exports. Trade commenced with countries that had never been traded with before for certain commodities such as China, whilst proportionate and absolute levels of trade with established partners such as Europe declined. There was definitely a ‘wider access to markets’ as stated in Dean’s assertion about the role of trade. Britain was able to take advantage of the growing incomes of middle-class Americans and the wealth created from the gold deposits in Australia through increased export earnings. It was also able to exploit cheap sources of raw material supply from underdeveloped countries in Africa and Asia. Such expansions of markets proved important in the growth of many industries, as new emerging markets would often replace old static ones. For example, the Latin American market for cotton outgrew that of America’s during the 1820s, helping to sustain the growth of the cotton industry.
In aggregate, Britain found herself with surpluses on the current account of the balance of payments for many years of this expanding trade. Imlah calculated that there were surpluses in every year from 1816 to 1855, with the greatest surpluses coming around the 1850s, which is consistent with data in Table 1. Such surpluses would have had an upward multiplier on the national income of Britain, as there would be a net injection of demand into the economy. The corresponding deficit on the capital account meant that Britons were making productive investments abroad, the returns on which would serve to increase. Some of the surplus would also have been use to invest expanding domestic export industries, for example the building of iron factories in South Wales.
Overseas demand clearly lead to an expansion of output beyond domestic production that allowed for improvements in productivity and growth of the industrial sector. However, in order for it to have been an instigator of change, it must be an exogenously determined input into the economic system. This assumption is contrary to what many economic historians such as Mathias believe. They saw overseas demand as an indirect result of initial domestic prosperity. It was only through the export earnings from Britons demanding more imports, that overseas markets were able to obtain the sterling necessary to create a demand for British exports. Thomas and McCloskey found that it was prior supply-side changes in the domestic economy such as increased agricultural productivity that allowed for increased real incomes to demand more imports. They suggest that the causal link in the argument of British industrialisation runs from imports to exports, not vice versa.
I feel the weight of the evidence supports Thomas and McCloskey’s view that export demand had little independent and initiating role to play in Britain’s industrialisation. Technological innovations in agriculture and manufacturing were the supply-side spurs to initial advancement. They allowed the development of new products and processes that were destined for the domestic market. Optimists such as Hartwell argue that increasing consumption had produced strong home demand for industrial output. There are numerous supporting theories for this expansion of home demand: people working harder and longer (DevRies); increased employment for women and children leading to increased household income (McKendrick); population growth increasing the number of consumers and increases in agricultural productivity raising real incomes of workers.
However, although trade had little to do with the early stages of industrialisation it did play an important role later on in the process. Growth of trade allowed for the continued expansion of industries such as cotton and iron. Without trade, these industries would have been smaller and may not have been as efficient as they were at lower scales of production. Expansion due to trade allowed for increased division of labour and specialisation. Although these sectors were relatively small, their importance lies in the fact it was these sectors where comparative advantage lay. Yes, instead of expansion of export industries, other channels for the capital could have been found, but none would be as productive. In fact, Davis is of the opinion that it would have been difficult to find alternative domestic investment opportunities other than capital-intensive export industries.
It was not trade that ‘broke the vicious cycle’ described by Dean. Prior supply-side changes, particularly in the levels of technology, laid the foundations for the new industrial economy. However, Britain would not have been able to capitalise on these opportunities were it not for imports of industrial raw materials necessary to increase output. Furthermore, export markets were a vital supplement to the domestic demand, allowing expansion of output to a scale that further improved industry. Trade may not have instigated British industrialisation, but this does not diminish the importance of its role in allowing it to sustain through to its completion.
