Why the Industrial Revolution Started in 18th Century Britain, Not China

Front. Econ. China 2021, 16(1): 124–169

DOI 10.3868/s060-013-021-0006-5

Li Zhanga

Why the Industrial Revolution Started in 18th Century Britain, Not China, from the Perspective of Globalization

Abstract The research examines the role of market expansion and international labor division in the British Industrial Revolution from the perspective of globalization. The research shows that British cotton textile output in pieces grew 275 times from the 1770s to the mid-1850s and documents that such growth would never have happened without a vast overseas market for the supply of raw cotton and the sale of products. The paper argues that the continuous and dramatic expansion of overseas markets allowed the British cotton industry to expand greatly without hitting the ceiling of marginal returns, leading not only to the great expansion of production, but also to technological and institutional innovations, and that international labor division made it possible for the industry to import ample amounts of raw cotton and export large amounts of cotton textiles. In contrast, foreign demand for Chinese cotton textiles increased significantly in the late 18th and early 19th centuries, but accounted for only 0.3% of production capacity, which was too little to lift the law of diminishing marginal returns and to induce either technological or institutional changes. As a result, only Smithian growths could be achieved through optimal resource utilization and specialization in production.

Keywords market expansion, international labor division, Industrial Revolution, Smithian growth, Britain, China, India, US, raw cotton, cotton textile

JEL Classification B15, B25, N00, N10, N40, N50, N70

1 Introduction

There have been many views regarding the question of why the Industrial

Received October 11, 2019

a Department of Economics, School of Humanities and Social Sciences, Beihang University, Beijing 100191, China

E-mail: lzhague@yahoo.com

Revolution happened in 18th century Britain, bur not China. Various factors have been ascribed to the rise and success of the Industrial Revolution in Britain, including less government intervention and the practice of free markets and trade (Jones, 1981; Landes, 2003), institutional settings and property rights (North, 1991/19811, 1994/1990; North and Thomas, 1989/1973), state intervention and mercantilism (Ashworth, 2017; Davis, 1966; O’Brien et al., 1991; Parthasarathi, 2011; Vries, 2003; Weiss and Hobson, 1995), enlightenment and technological innovations (Mokyr, 1990, 1992, 2010), convenient coal supplies and access to the abundance of the New World (Pomeranz, 2000), high wages plus cheap coal (Allen, 2009), comparative advantage and free market competition (Broadberry and Gupta, 2005, 2009), imperialism and the construction of a global trade network (Ashworth, 2017; Beckert, 2014; Dattel, 2009; Inikori, 2002; Williams, 1944), etc.

This study will approach the issue from the perspective of globalization. The author, in her earlier work, has defined globalization as the establishment of the world economic system based on an integrated world market, international labor division, and unequal international exchange (Zhang, 2008, pp. 66–73; 2012, pp. 1–2, 33–34), but this paper will focus mainly on the role of world market expansion and international labor division, leaving the role of unequal international exchange to other writings.

The paper contends that dramatic market expansion can lift the law of diminishing marginal returns and move the production possibility frontier (PPF) outward. As the gap between fast-growing market demand and supply capacity becomes so wide that it cannot be filled by simply enlarging production through inputting more capital and labor, technological and institutional innovations will kick in. In contrast, when the market remains basically constant, the law of diminishing marginal returns will apply. Consistent market size along with consistent resources gives producers little motivation for technological and institutional innovation. Since a nation’s population and resources do not rise hundred-folds in a short period of time, dramatic market expansion depends heavily on access to the world market, both for supply of raw materials and for sale of manufactured goods. Therefore, international labor division is needed, which allows industrialized nations to grow by not only selling more

1 The year “1981” after “/” is the original publishing year, and the year “1991” before “/” is the publishing year of translation on the original publication.

manufactured products to non-industrialized countries, but also by buying more raw materials from them.

World market expansion and international labor division was essential to the British Industrial Revolution in the 18th–19th centuries, while in the case of 18th–19th century China, the foreign market for Chinese cotton textiles was miniscule compared to its production capacity. With an essentially consistent ratio of demand to supply, any attempt to increase the scale of the textile industry would have run up against the law of diminishing marginal returns, giving producers little incentive for innovation. With little-changed technology and resources, the Chinese cotton textile industry of the 18th and 19th centries could only achieve “Smithian growth” by utilizing resources optimally, and by reducing production costs through specialization in cotton planting, yarn spinning, and cloth weaving.

2 Globalization Is Essential to Industrial Revolution

Defined as the establishment of the world economic system, globalization is not internationalization. The former was led by certain nations that intended to integrate other regions’ or nations’ economies into their own economic systems, and eventually they produced an integrated global economy, and the latter refers to exchanges of goods, cultures, and ideas, etc. among nations (which had existed long before globalization), wherein each nation developed its economy independently, and there were no leading powers intending to build an integrated global economy based on international labor division (Zhang, 2008, pp. 66–73; 2012, pp.15–21, 33–39).2

In Immanuel Wallerstein’s view, the processes of globalization have existed since 1450, and globalization resulted in the establishment of the capitalist

2 Daly also made a distinction between globalization and internationalization. In his view, the former leads to a global economy of one unit, wherein there is an integration of global economy and a disintegration of national economy, namely each nation’s economy is torn out of its national context and re-integrated into the new whole, the globalized economy; with the latter, nations used their own national capital, labor, and resources to produce their national goods and then competed in international markets against the goods of other nations. In Daly’s opinion, the globalized economy refers to today’s world economy, and the world economy in the classical 19th-century vision of Smith and Ricardo was an internationalized economy (Daly, 1999, p. 32). Agreeing with Daly’s definition of globalization, but disagreeing with his time division, the author of this stucly thinks that the 18th and 19th century world economy already fits Daly’s concept of globalization.

world-system (the modern world-system), which also led to the crisis of the capitalist world-system of today (Wallerstein, 2000, pp. 49–50). The system, born in Europe in the late 15th and early 16th centuries, was economic and hierarchical. By integrating other regions into the system, the original European economic system expanded to the world and developed into the modern world-system (Wallerstein, 1998/1974, 1980, 1989). In Samir Amin’s view, globalization went hand in hand with the expansion of Western capitalism since 1492, and the expansion of capitalism went hand in hand with imperialism from the very beginning (Amin, 1997, 2001).

In the process of building the world’s economic system, globalization creates an integrated world market, international labor division, and international unequal exchange, which provides the international infrastructure for industrial revolution; globalization also creates hierarchy in the world economic system, in which leading powers can induce or enforce international labor division in their own favor. The author has argued in her earlier work that international labor division was the core content of globalization, which can only be established with the existence of an integrated world market, whereby a nation can industrialize by exporting its industrial products to the world market and importing agricultural products and raw materials from it; international labor division is also the basis of unequal exchange in international trade, and unequal exchange between manufactory goods and raw materials can keep the manufacturing industry lucrative and thus make its growth sustainable and the industrialized nations richer (Zhang, 2008, pp. 67, 73; 2012, pp. 15–16, 33–39).

Defined as the exchange of the value of one hour of labor for that of multiple hours of labor (Emmanuel, 1972), unequal exchange has existed in humans’ trading history from the very beginning. However, using colonial power, state industrial policy, and tariff barriers, etc. to forcefully implement international labor division and to deliberately position one nation on the advantaged side and the other on the disadvantaged side of unequal exchange is a recent phenomenon of new imperialism in the development process of modern capitalism. It often happened in a form whereby colonizing countries traded their industrial products for colonized countries’ agricultural products and raw materials, and in today’s form whereby developed countries trade their high-tech or high-end manufactured products for undeveloped countries’ low-tech or low-end manufactured products and agricultural products. As unequal exchange took

place between developed and undeveloped nations, wealth was transferred in a hidden form from undeveloped to developed nations (Zhang, 2008, pp. 67–68).

In the case of the British Industrial Revolution, unequal exchange had certainly taken place in the exchange of labor value between cotton-manufacturing British workers and raw cotton-producing American slaves. This unequal exchange between British cotton mills and American cotton plantations was capable of being sustained for nearly a century, and the plantation owners had no intention to change it. One important reason is that American cotton production was based on slavery. The burden of this unequal exchange did not fall upon the plantation owners, but rather upon the slave laborers. Even with the loss of labor value in exchange, the plantation owners still made a handsome profit with their slave laborers and vast acreages of land. However, the role of unequal exchange will not be discussed in this paper due to length limitations.

In summary, within the framework of the world economy, a nation’s industrialization must be founded upon international trade, international labor division, and unequal international exchange. Industrial revolution can only take place with access to the world market and within the framework of international labor division. Since it is globalization that created an integrated world market and international labor division, we can also say that the Industrial Revolution, or the great divergence, took place in the process of globalization.

3 World Market Expansion Is Essential to Industrial Revolution

For a new industry to take place in the 17th–18th centuries, five conditions were necessary: (1) capital for setting up factories, (2) land for building factories, (3) laborers available for factory employment, (4) markets for raw material supply, and (5) markets for sale of manufactured goods. The first, fourth, and fifth factors can be sought both domestically and internationally, and the second and third factors can be sought domestically.

Yet, for a long-standing industry to achieve hundred-fold growth, which can be defined as Industrial Revolution, there must be a huge expansion of markets. Since a nation’s population and resources do not rise hundred-folds in a short period of time, the huge expansion of markets for both supply of raw materials and sale of manufactured goods must be sought internationally.

3.1 Hypotheses

3.1.1 Market Expansion Can Lift the Law of Diminishing Marginal Returns

By the law of diminishing marginal returns, marginal returns will approach zero when production expansion approaches a certain point, such as when supply meets demand. At this point, production will not expand further. Total output will stabilize, and there will be no incentive for innovation because the expected return brought about by innovation will be smaller than the expected innovation cost (see Figure 1).

Figure 1 The Law of Diminishing Marginal Returns

Note: When the market is constant (varying little), (1) marginal returns will approach zero when production scale approaches the balance of supply and demand; (2) at point A, supply meets demand; and (3) total output will stabilize after supply meets demand.

However, when market demand does not stop at point A but continues to expand dramatically, then the law of diminishing marginal returns will not apply. When the market expands far faster than what production can keep up with, the gap between supply and demand will widen greatly, and marginal returns not only does not decline, but instead rises (see Figure 2).

3.1.2 Dramatic Market Expansion Is Essential to Innovation

When the market expands too rapidly for production to catch up through simply enlarging its scale by inputting more capital and labor, higher marginal returns driven by the increasing gap between supply and demand will motivate

people to increase productivity through technological and institutional innovations. Measures and policies encouraging innovation will also kick in (see Figures 3–4).

Figure 2 Market Expansion Can Lift the Law of Diminishing Marginal Returns

Note: (1) When the market continuously expands, marginal returns will not diminish; and (2) when the market expands far faster than production, marginal returns not only does not decline, but instead shoots up.

Figure 3 illustrates the case of an import substitution industry, where there is already a gap between supply and demand at the starting point, since demand has existed before the industry takes place. Figure 4 illustrates the case of a long-standing industry, where a gap between supply and demand only starts to appear after market expansion breaks the balance of supply and demand.

Figure 3 Relationship between Market Expansion and Innovation for a Newly Established Industry

3.1.3 Market Expansion Can Move the Production Possibility Frontier Outward

Adopting PPF to explain the situation, dramatic market expansion can also lead to the PPF moving outward by bringing about more inputs of capital and labor and changes in technology. Assuming the curve M is the PPF under a certain market size, the growth before point A would be a Smithian growth achieved through fully utilizing existing labor, technology, and capital resources. At this point, growth cannot proceed any further without the PPF moving outward (see Figure 5). However, when a dramatic market expansion leads to more input of capital and labor and to technological innovations, the PPF will move outward. As the PPF moves outward, new growth will take place.

In the case of the British cotton industry, the PPF consistently moved outward because market expansion resulted in more capital and labor inputs, and also technological and institutional changes. The rapidly-growing market provided British manufacturers more incentive to increase production first through inputting more capital and labor, and then through technological and institutional innovations. All of this moved the PPF outward.

Meanwhile in China, the demand supply ratio remained constant as any increase in domestic demand also meant an increase in supply, since cotton

Figure 4 Relationship between Market Expansion and Innovation for a Long-Standing Industry

textile production in China was household-based and evenly distributed. Although there was increased international demand for Chinese cotton textiles in the 18th and 19th centuries, the increase was only a minuscule percentage of the domestic market, giving producers little incentive to embrace technological changes and innovations. As a result, the PPF remained basically the same (see Figure 6).

Note: Point A cannot proceed further without the PPF moving outward.

Note: T: Textile industry before market expansion; X, Y, Z

expanded as market was expanding.

3.2 The British Industrial Revolution from the Perspective of World Market Expansion

The British cotton industry was started as an import substitution industry to replace Indian cotton textiles. At the time, a huge pre-existing market had been created by imports and re-exports of Indian cotton textiles by the East India

Figure 5 Using the Production Possibility Frontier for Explanation

Figure 6 PPF Bounded by Market Size

: Textile industry

Company (EIC) and was there for the nascent industry to fill. It is estimated that domestic consumption of Indian cotton textiles in Britain averaged 369,964 pieces per year in 1699–1701 and 328,338 pieces in 1713–1715, and that the amount re-exported from Britain to Europe, Western Africa, and the Americas was 507,825 pieces per year in 1699–1701 and 612,455 pieces in 1713–1715 (Inikori, 2002, p. 431).

By the law of diminishing marginal returns, marginal returns for the British cotton industry would reach zero when the industry grew to a certain size, for example, when supply met demand. If this level of demand stayed basically constant, then total output would stabilize. However, as the infant British cotton industry was filling its pre-existing domestic and international market, Britain was also continuing to capture and secure overseas markets for the industry to grow into in the second half of the 18th century and the 19th century. As the market expanded dramatically and continuously, there was no ceiling such that the law of diminishing marginal returns would take effect.

3.2.1 The British Empire and Its Overseas Market Expansion

The British Industrial Revolution proceeded hand in hand with British imperial power, which played an important role in capturing and securing overseas markets for the British cotton industry. Britain’s overseas territories grew rapidly from the 17th century to the early 1910s. At its height in 1919, Britain governed nearly a quarter of the world’s territory and one-fifth of the world’s population. Colonizing India and America was especially important for the development of the British cotton industry. The former gave Britain the power to implement colonial policies weakening the Indian cotton industry and forcing India to import British cotton textiles and supply raw cotton for the British cotton industry; the latter produced an economic infrastructure in which America exported agricultural products and raw materials to Britain and imported manufactured goods from it. Even though America became independent in 1776, this economic structure did not change much until the second half of the 19th century. The two big territories contributed greatly to the British Industrial Revolution, providing Britain a vast market for importing raw cotton and exporting British manufactured cotton (see Table 1).

Table 1 British Overseas Expansion, Access to, and Domination of the World Market Year Event Market to accessMarket to dominate

1600 The EIC established Asia

1608 The EIC fleet first arrived in Surat Surat

1612 Victory in Battle of Sutra over Portuguese Southern West India

1606 Virginia Company founded North America

1619 The EIC established trading posts in Surat Surat

1637 Arrival in Guangzhou, China China

1650 Established a Hooghly stronghold in Bengal India

1651 Implementation of the Navigation Acts British colonial market

1661 Bombay transferred to Britain as a dowry of the Portuguese princess Catherine Bombay

1668–1711 Discovery of the eastern coast of Australia

Australia, New Zealand

1690 The EIC set up a new base of Calcutta in Bengal Bengal

1713 Signing of the Utrecht peace treaty with France

French, North America

1757 Victory in Battle of Plassey over French Bengal

1762 Victory in Battle of Havana over Spanish Caribbean market

1763 Victory in Seven Years’ War over French India, North America east of the Mississippi, etc.

1786 Acquisition of Penang Island Singapore

1795 Invasion of Dutch Cape Town South Africa

1799 Eviction of French from Egypt Egypt, North Africa

1806 Victory in Battle of Batavia over Dutch Southeast Asia

1811

Capture of Java from the Netherlands Java

1814–1815Cession of southern Nepal

1814

Anglo-Dutch treaty

Nepal, and China’s Tibet and Kashgar

Southern Africa

1819 Acquisition of Singapore Singapore

1824 Acquisition of Malacca Malacca

1824–1826

Victory in First Anglo-Burmese War over Burma Burma

Year Event Market to accessMarket to dominate

1840–1842 Victory in First Opium War over China Chinese port city market

1841–1842Acquisition of Brunei Brunei

1852 Second Anglo-Burmese War Burma

1882 Anglo-Egyptian War Egypt

1888 Acquisition of Zimbabwe, Zambia East Africa

1898 Victory in Battle of Omdurman North Africa

1899–1902Victory in Second Boer War South Africa

3.2.2 Market Expansion and British Cotton Manufacturing Growth

According to Joseph Inikori, the annual volume of Indian cotton textiles ordered by the EIC in the late 17th century was between 1.4 and 2.4 million pieces (Inikori, 2002, p. 430), and a large proportion was re-exported to Europe, Western Africa, and the Americas. Average domestic consumption in Britain was 369,964 pieces a year, valued at £251,576 in 1699–1701, and 328,338 pieces valued at £221,370 in 1713–1715. The amount re-exported from Britain to Europe, Western Africa, and the Americas was 507,825 pieces a year, valued at £345,321 in 1699–1701, and 612,455 pieces valued at £416,469 in 1713–1715 (Inikori, 2002, p. 431). Together, this was the size of the market that Britain already had before its cotton industry emerged, which was close to 1,000,000 pieces per year (328,338 pieces + 612,455 pieces), and it would become only a small part of the market enjoyed in the late 18th and 19th centuries, since the Indian subcontinent and most of North America had not yet been included.

According to Robert Allen, total cotton cloth output at its maximum level in Bengal in the mid-18th century was 9,432,259 pieces a year, which is estimated to have weighed 85,000,000 lbs. (Allen, 2009, pp. 182–183). Given that British colonial power later turned the Indian subcontinent from an exporter of cotton textiles into an importer of English cotton textiles, this market of about 9.4 million pieces commanded by Bengali cotton textiles in the mid-18th century would eventually become a market for British cotton textiles as well.

Thereafter, by imposing tariff barriers on Indian cotton textile imports, limiting Indian cotton textile production, and inducing Indians to engage in cotton

cultivation by pushing colonial administrative rule to the countryside, providing advance loans to Indian peasants, and building legal and transportation infrastructure, etc., Britain made India into an exporter of raw cotton and an importer of British cotton textiles. With India’s former market size, which should be far greater than the annual output of 9,432,259 pieces in Bengal alone, and with the vast market of the Americas, even had the British cotton industry increased production to its full capacity, it would not have had to suffer diminishing marginal return. Marginal returns would increase in at least the first several decades of its development because of the huge gap between supply and demand, created by the huge pre-existing and continuously rapidly growing markets as well as the limited production capacity. As a result, existing manufacturers would want to enlarge their production, and many new people would be attracted to step into the industry.

The best evidence to prove that continuous and dramatic market expansion led to increasing marginal return in the British cotton industry during the second half of the 18th century and the early 19th century would, of course, be the general moving trend of the marginal returns in the industry during this period. Yet it is difficult to build this general moving trend due to the limitations of data. However, the historical fact that many manufacturers in the cotton industry were willing to vigorously enlarge their production and that many new entrepreneurs joined the industry during this period does provide indirect evidence that profit levels in the industry were attractive.

Based on Knick Harley’s study of prices and profits in British cotton manufactures during the Industrial Revolution, cloth prices were falling from the 1780s to the 1820s, but the weaving margin was not. Instead, the weaving margin increased by about 50% as the industry expanded enormously. The falling price of yarn was regarded as an important factor for the falling price of cloth and for the increasing margin of weaving. Yet, without a market to absorb the products, manufacturers would not have opted to pay increasing weaving wages to increase production. From the 1780s to the 1820s, weaving margins remained above the level of 6–7 shillings per piece at most times, and this is considered to be the normal profit level of this period (Harley, 2010, pp. 7–9, 10, Figure 4). Harley included the following quotation from William Radcliffe’s 1828 memoirs (ibid.: 9).

In the year 1770 ... the father of a family would earn from eight shillings to half a guinea at his loom, and his sons, if he had one, or two, or three alongside of him, six or eight shillings each per week ... From the year 1770 to 1788, a complete change had gradually been effected in the spinning of yarns ... [O]ur family and some others in the neighbourhood during the latter half of the time, earned from three to four fold wages [in weaving] to what the same family had heretofore done ... The next fifteen years, viz. from 1788 to 1803, which fifteen years I will call the golden age of this great trade, which has been ever since in a gradual decline ... the price of labour only rose to five times the amount ever before experienced in this sub division, every family bringing home weekly 40, 60, 80, 100 or even 120 shillings per week!!!

Allen’s work also shows that the weaving wage increased dramatically from the 1790s to the mid-1810s (Allen, 2018, p. 388, Figure 2) and has attributed it to the imbalance between spinning and weaving caused by a huge supply of cheap yarn brought about by the invention of spinning machines. A rising wage, in the logic of economics, is an indication of a labor shortage. In this case, it can be explained that the expansion of weaving production had reached a level where the demand for weavers had surpassed the supply. The demand for handloom weavers shot up from about 37,000 in 1780 to 95,000 in 1792, and to 240,000 in 1820 (Allen, 2018, p. 382), and the demand for factory workers went up from 90,000 in 1806 to 126,000 in 1820 (Mitchell and Deane, 1962, p. 187). The number of power looms increased from zero in the 1790s to 14,150 in 1820 (Allen, 2018, p. 382), while the gross output value of British cotton textiles increased from £0.8 million in 1772–1774 to £30 million in 1815–1817 (see Table 2). Had there not been a large market to swallow the products, an expansion like this would have made itself a huge oversupply, and thus would not have happened. The weaving wage would certainly not have gone up along with such a huge expansion of production.

In terms of gross output in pieces, which better reflects production capacity by taking into account the generally declining trend of cloth prices over time, total output increased from 620,000 pieces a year in 1772–1774 to 35,380,000 pieces a year in 1811–1813, then decreased to 28,570,000 pieces a year in 1815–1817 in response to the sharp fall in cloth prices in earlier years resulting from being blocked from entering the European market due to the Napoleon’s Continental

System. After a slight decrease in output from 1811–1813 to 1815–1817, total output jumped from 28,570,000 pieces in 1815–1817 to 55,710,000 pieces in 1824–1826, and by the mid-1850s, total output was 170,070,000 pieces per year, a growth of 275 times from the 1770s (see Table 3).

Source: Inikori, 2002, p. 436.

Note: Exports evolved from cotton-and-linen mixed cloth to pure cotton cloth. Until the last decades of the 18th century, exports were mainly cotton-and-linen mixed cloth (Inikori, 2002, p. 435; Peck, 2013, pp. 284–285).

As cotton weaving was growing by a factor of more than 50 from the 1780s to the early 1810s, weaving wages were also rising until at least the first decade of the 19th century. This indicates that despite the huge expansion of weaving production, there were still markets to fill, or we can say that the expansion of production did not catch up with the expansion of the market until the 1810s. The demand created by the dramatic expansion of overseas markets had prevented the

Table 2

Distribution of Gross Output Value of British Cotton Textiles between Exports and Domestic Consumption, 1760–1856

price of cloth from falling to such a degree that weaving margins could frequently fall below the normal profit level of 6–7 shillings per piece. Had there not been a continuous expansion of overseas markets, the British cotton industry might have had a different fate, which is hinted at by the temporary difficulty faced during the Napoleonic Wars.

Source: Value of gross output of cotton textiles (Inikori, 2002, p. 436); deflated average annual calico prices, for 1781–1783 to 1834–1836 (Harley, 1998, p.78, Appendix 2, Table A2.1), and for 1772–1774, 1844–1846, and 1854–1856 (Harley, 1998, p. 59, Table 4).

Note: * Deflated average annual calico prices for 1781–1783 to 1834–1836 are calculated based on annual prices of superfine cloths given by Harley, which equals to the sum of annual prices divided by the number of years, for example, average annual price for 1781–1783 is the sum of the prices for 1781, 1782 and 1783, divided by 3. Since Harley did not provide prices for 1772–1774, 1844–1846, and 1854–1856, his current price of calico for 1775–1779 is used as the deflated average annual calico prices for 1772–1774, and his deflated price for 1835–1839 is used for 1844–1846 and 1854–1856.

** Gross output in pieces = gross output in value (£ million) × 20 ÷ deflated calico price (shillings per piece).

Table 3 Estimate of Annual Cotton Textile Gross Output in the UK, 1772–1856

From 1803 to 1812, the British cotton industry underwent difficulty due to the resumption of war with France, the combination of Napoleon’s Continental System and the British Orders in Council, and the American Embargo. Napoleon’s Continental System blocked British goods from entering European markets, and the American Embargo banned imports of British goods. The former, in particular, led to a sharp fall in cloth prices (Harley, 2010, p. 11, p. 17: Figure 5, p. 20: Figure 6, and p. 24: Figure 8), and the latter lasted only from 1807 to 1809, because the US suffered more loss of trade than Britain, which was expanding its market in South America to offset its loss of the American market during the Embargo. Fortunately for Britain, the loss of foreign markets caused by the Napoleonic Wars did not last long.

The European market reopened to Britain after Napoleon’s Russian campaign failed in 1812. The difficulty caused by losing the European market provides additional proof that foreign market expansion was important for the Industrial Revolution. As shown in Figure 7, 1798–1800 was a turning point, when exports as a percentage of total output started to surpass domestic consumption. Before 1798, domestic consumption accounted for a major proportion, about 2/3 of total output. After 1800, exports in turn accounted for about 2/3 of total output, which means overseas markets had become the main driving force for the expansion of the British cotton industry.

Source: Table 2.

Figure 7 Values of Gross Output, Exports and Domestic Consumption of British Cotton Textiles, 1760–1856 (£ million)

According to Sven Beckert, British cotton manufacturing started to expand by leaps and bounds after 1780: “between 1780 and 1800, output of cotton textiles in Britain grew annually by 10.8%, and exports by 14%; ... In 1788, there had been 50,000 mule spindles, but 33 years later that number had increased to 7 million.” (Beckert, 2014, p. 67). The number of looms, based on Richard Hill’s figures, increased over 100 times from 1803 to 1857 (Hius, 1993; see Figure 8).

If we take into account technological improvements in looms over time, the productive capacity would have increased far more than 100 times. Gross output valued in English pounds increased nearly 100 times from 1760 to 1856, with exports increasing about 175 times and domestic consumption about 55 times (see Table 2). Yet gross output in pieces, which better reflects production capacity, grew 275 times from the 1770s to the mid-1850s (see Table 3). This kind of growth would never have happened had there not been a vast overseas market for it.

in Britain

Source: Hills, 1993, p. 117.

3.3 Market Expansion Is Also Essential to Innovation

Manufacturers are most likely to embrace innovation under two conditions. One is that wherein there exists a large gap between supply and demand, marginal returns is rising or good, and producers believe that the market can absorb all they can produce. In this situation, every rational manufacturer would like to

Figure 8 Number of Looms

increase production capacity as much as possible, often first by inputting more capital and labor to enlarge the scale, and then by embracing technological innovations to increase productivity. Especially when the expansion of production hits the limit of labor input, technological innovation becomes an important and essential choice for increasing production capacity. Another situation is that wherein competition among producers becomes intense, but the prospective market is still great; then, lowering production costs and raising product quality—and thus being able to lower prices while offering better quality—becomes an important way to gain market share or to earn greater profits. The two circumstances can co-exist, but the pre-condition is that the prospective market must be good and that the expected returns brought about by innovations surpass the costs.

3.3.1 Innovations Took Place Sequentially in Accordance with Market Demand

In Britain, technological innovation related to cotton manufacturing took place sequentially from dyeing and printing, to cotton yarn spinning, and then to cotton cloth weaving, which was in line with market demand, first for dyeing and printing Indian calicoes, then for making cotton yarn to be used as weft to weave with linen or wool as warp for producing cotton-linen fustians or cotton-wool fabrics, then for being able to produce pure cotton cloth, and finally for increasing productivity and quality.

When the EIC began importing Indian cotton textiles in the early 1620s, there was no cotton cloth production in Britain. Large-scale imports of Indian plain calicoes created a market opportunity for the British dyeing and printing industry. As a result, the dyeing and printing industry was the first in Britain where innovations related to cotton took place. The first patent for a new way to print calicoes was granted to William Sherwin in 1676, which is also the year when the first English calico printing workshop was established in London. The industry expanded significantly, and by 1696, there were over 50 separate calico printing workshops employing several hundred men (Floud, 1960, p. 277). Between 1681 and 1700, seven of 15 registered textile patents were for dyeing and printing (Griffiths et al., 1991, p. 5). The Calico Act of 1701 further boosted the dyeing and printing industry by banning the importation and wearing of printed or painted calicoes from India within Britain, while allowing the

importation of plain calico and the consumption and re-exportation of calicoes dyed and printed in Britain.

The first innovation that had an important effect on the development of the British cotton industry was the flying shuttle invented by John Kay in 1733, but strictly speaking, it was not designed for cotton cloth weaving, but for wool or linen-cotton mixed weaving (Clark, 2005, p. 8). Imports of Indian cotton textiles stimulated British demand for cotton cloth, but no pure light cotton cloth could be produced in Britain until the invention of Arkwright’s water frame in 1769, because cotton yarn spun in Britain was not strong and fine enough to be used as warp (Mantoux, 1983/1975, pp. 153–154, 176).3 To meet people’s demand for the smooth and soft touch of cotton fabrics, alternative products were produced by using cotton yarn as weft with linen or wool as warp to make cotton-linen fustians or cotton-wool fabrics (Mantoux, 1983/1975, pp. 176–177). When Kay invented the flying shuttle in 1733, cotton yarn had been used as weft with linen or wool as warp for decades. The flying shuttle doubled weaving productivity by halving the labor from two operators per loom to one, and thus dramatically increased demand for yarn. While increasing demand for linen yarn was met by increasing imports from Scotland and Ireland (Davis, 1962, p. 288), rising demand for cotton yarn was resolved by innovations in cotton spinning in England.

In 1754, the British Royal Society for the Encouragement of Arts, Manufactures, and Commerce was established in London. The Society made a public call for innovations in spinning in 1761, noting that spinners were in short supply in the seasons of agricultural harvest and thus could not supply enough yarn for weavers, and proposing awards for innovations to (1) make a machine capable of spinning six threads of wool, linen, or cotton at the same time, and (2) be capable of being operated by only one person (Mantoux, 1983/1975, p. 168).

Between 1760 and 1780, several important innovations took place in cotton spinning. The spinning jenny multiplied the yield per spinner by eight times because it could spin eight threads simultaneously, but the yarn spun was not

3 According to Mantoux, the word “cotton” had referred to a kind of coarse woolen cloth until the 17th century. People in England started to use cotton to produce some low quality coarse fabrics in the 1640s in small amounts, but no pure cotton light cloth could be produced until 1773. Some scholars have disputed the conventional view that no pure cotton cloth was made in Britain before Arkwright’s water frame and have asserted that cotton warps had been produced in Britain before 1770, but that the extent of their use has perhaps hardly been realized (Harley, 1998, p. 65, citing Mokyr, 1992, pp. 96–99).

high quality and could only be used as weft. Then came the water frame, which greatly improved the quality of cotton yarns. According to Mantoux, it was only after Arkwright’s invention of the water frame that yarn spun from cotton became suitable for complete cotton cloth weaving. In 1773, Arkwright’s cotton mill at Derbyshire produced the first cloth of pure cotton in Britain (Mantoux, 1983/1975, pp. 153, 176–177).4

The British cotton weaving industry now was born, facing a huge pre-existing market to fill. And the market was continually expanding as British imperial power was in its golden age, gaining ever more captive markets along with its growing overseas territories. However, to harvest the market, an adequate supply of suitable cotton yarn was needed. The water frame made cotton yarn strong and fine enough for pure cotton cloth weaving, but it could spin only four threads at the same time. To grasp the market as quickly and as much as possible, the bottleneck problem of cotton yarn shortage had to be solved. In 1779, the spinning mule was invented. The invention combined spinning jenny and water frame, increasing the number of threads spun simultaneously to 96 and then to over a hundred (Hudson, 2015, p. 82).

With a huge market to fill and an oversupply of cheap cotton yarn, weaving marginal return were without question high. Manufacturers, at this stage, would have greater incentive to increase production capacity first by simply inputting more capital and labor than to opt for innovation, since innovation incurs costs and takes time. Cotton weaving was growing at maximum pace in the 1780s. From 1781 to 1807, cotton weaving experienced its highest growth rate with little technological change taking place in weaving (see Table 4 and Figure 9), which indicates that the growth was mainly achieved through inputting more labor and capital. Weaving wages also increased simultaneously with the expansion of weaving production, indicating not only that there was a shortage of weavers but also that the gap between supply and demand was widening.

However, if the expansion of production achieved by inputting more labor hit the limit of labor input while the gap between supply and demand continued to widen, manufacturers would have greater incentive to increase production capacity by increasing productivity based on innovations. In an alternative case, if the gap between supply and demand was narrowing, and marginal returns began to decline considerably but remained far from reaching zero,

4 Although some scholars have contested this view (see Footnote 2), it is safe to say that it was only after the 1770s that pure cotton cloth was produced on a large scale in Britain.

manufacturers would have also felt pressured to lower production costs by embracing innovations to replace human power with machines, provided that the prospective market was good.

Table 4 Annual Growth Rate of British Cotton Textile Output, 1772–1856

Note: * Years marked with an asterisk are those for which no gross output value was provided in Inikori’s estimate, and thus no gross output in pieces are calculated for those years in Table 3. In order to make the moving trend line of gross output in pieces continuous, gross output in pieces for those years is estimated based on the assumption that annual growth rates of output in those years are as same as the average annual growth rate between the preceding year and the following year, for example, gross output in pieces for 1790–1792*=(power (6.9/3.18, (1/8))^3)*3.18=4.25, gross output in pieces for 1793–1794*=(power (6.9/3.18,(1/8))^6)*3.18= 5.68 Average annual growth rate = (power (annual output of later years/annual output of earlier years,(1/gap in years))–1)*%, for example, annual growth rate from 1834–1836 to 1844–1846 = (power (140.1/81.09, (1/10))–1)*%.

Source: Estimate of annual gross output in pieces from Table 3.

The first innovation for pure cotton cloth weaving was Edmund Cartwright’s power loom, invented in 1784 and patented in 1785, when cotton weaving was growing at its highest pace, above 30% per year (see Table 4). Cartwright’s loom was designed to be more powerful and productive by using water to power the loom. However, the machine was crude, heavy, and impractical and thus was not

commercially viable (Henderson, 1970/1969, p. 47; Hudson, 2015, p. 128). From the 1790s to the 1810s, several attempts were made to perfect it. The key breakthrough came from William Horrocks, a cotton manufacturer in Stockport, who, based on the principles of Cartwright’s loom, made significant improvements in 1802 and received a patent in 1803. From 1803 to 1813, Horrocks made further improvements and received subsequent patents in 1805 and 1813. The Horrocks loom increased the average picking speed to 35 picks per minute and required less skill to operate than the handloom. It was compact, and hundreds could be put in a single room, and thus it could move production from cottage to factory (Allen, 2018, p. 390; Baines, 1835, p. 234; Timmins, 1998, p. 129). The Horrocks loom was regarded to be “the first to make the transition from R&D to commercial use” (Allen, 2018, p. 389). But it was not until the invention of the Roberts loom, patented by Richard Roberts in 1822, that wide-scale adoption of the power loom by cotton manufacturers began.

The Roberts loom was the first that achieved commercial success. It increased the average picking speed to about 76 picks per minute, surpassing a skilled

Figure 9 Annual Gross Output and Annual Growth Rate of British Cotton Textiles Source: Data are based on Table 4.

handloom weaver’s speed of about 65 picks per minute (Allen, 2018, p. 390). It was said that demand for the Roberts loom was so great that, “even producing 4,000 machines a year, it was not until the early 1830s that supply caught up with the order backlog.” (Hudson, 2015, p. 82) As the spinning mule had moved spinning production from cottage to factory, the wide-scale adoption of the power loom transformed weaving production from cottage to factory.

Power loom factories started operations on a small scale in 1806 and increased dramatically after 1822 (see Figure 10), which Allen has largely credited to major breakthroughs in the power loom made by Horrocks in 1803 and Richard Robert in 1822 (Allen, 2018, pp. 390–396). The former increased average picks to 35 per minute, which, according to Allen, if combined with longer operating hours, could surpass the work of a good handloom weaver with a speed of about 65 picks per minute, and the latter increased average picks to 76, considerably higher than the average of handloom weavers (Allen, 2018, pp. 390–396). Allen argues that it was high wages that led to innovations, and that it was only after the speed of power looms reached a certain level, where a long operating hour machine could do more picks than a good handloom weaver, that the shift from handloom weavers to power looms began to take place on a large scale (Allen, 2009, 2018).

Note: The number of power looms in 1806, provided in Allen’s work, was “hundreds.” Here it is assumed that it was 500 in 1806.

Source: Based on the figures in Allen (2018, p. 382).

Figure 10

Number of Handlooms, Power Looms and Total

Weaving wages were indeed high from the 1780s to the early 1810s. During this period, the first power loom was invented (1784) and a series of subsequent improvements were made. Yet this period is also when the gap between supply and demand was the largest, with a pre-existing market of about 1,000,000 pieces a year, and with domestic and overseas markets continuing to expand as population was growing in Britain and British imperial power was gaining more and more colonies. Replacing handloom weavers with power looms would not only save labor, but also increase production capacity. When the gap between supply and demand was huge, increasing production capacity to obtain greater market share would be a higher priority than reducing labor costs. If the central concern were high wages, then manufacturers could have just stopped hiring more handloom weavers or stopped increasing weavers’ wages, and we would not have seen both the number of handloom weavers and weaving wages growing from the 1780s to the early 1810s.

Weaving wages began to fall after the turn of the 19th century, according to Harley (2010, p. 11), and after 1817, according to Allen (2018, p. 388). Based on Harley’s study, weaving margins began to deteriorate decisively in 1814, falling through the level of six shillings per piece and continuing to decline (Harley, 2010, p. 10: Figure 4). The decline in weaving wages has been attributed to the shift of labor from traditional sectors of the economy into weaving in response to higher wages (Harley, 2010, p.11). But it can also be seen as a sign that the gap between supply and demand was narrowing at this moment, and that profit pressure was growing.

The gap between supply and demand was indeed narrowing during the years from 1806 to 1812, mainly because of the Napoleonic Wars. Being blocked from the European market cut the volume of British cotton textile exports and led to a sharp fall in cloth prices. The deflated price for British calico, calculated by Harley based on prices of superfine cloths of several firms, had been gradually declining since 1781, and had stayed within the range of 40 (early) and 20 (late) shillings per piece from 1788 to 1803. The price fell sharply in 1804, dropping from 28 in 1802 and 27 in 1803, to 19 shillings per piece in 1804, and then further to 16 in 1805, and 14 in 1808. The price only recovered to the level of 1803 in 1814 (see Table 5). The return to capital based on Harley’s case study of the three British cotton spinning firms also shows a relative decline compared to the immediate earlier and later years (Harley, 2010, pp. 11, 17: Figure 5, p. 20: Figure 5, p. 24: Figure 8).

The growth rate also slowed significantly and even became negative in the mid-1810s, indicating that the growth generated by the growing number of handloom weavers since the 1770s had hit its limit by the 1810s. As estimated in Table 4, the annual growth rate of cotton textile output in pieces declined sharply after 1805–1807, and for the first time, that gross output decreased from

Source: Harley (1998, p. 78: Table A 2.1).

Table 5 Calico Prices during 1780–1835 (Shillings per Piece)

1811–1813 to 1815–1817, resulting in a negative growth rate of –4.81%. This situation certainly would put pressure on manufacturers and cause fierce competition among firms. In order to become more competitive and survive in hard times, seeking technological innovation for higher productivity and lower production costs would be a rational choice.

The narrowing gap between supply and demand did not last long. The European market re-opened to British goods after 1812, and more non-European markets were obtained by Britain during and after the wars (see Table 1). Had the narrowing gap become a long-term trend and approached zero, many workers would have been laid off due to the replacement of human power by machines, and output would no longer have risen significantly. However, this did not happen in Britain until the first decade of the 20th century after the British cotton industry had been seriously challenged in the world market by the rising cotton textile industries of other powers such as the US and Japan, and by the protectionist policies adopted by some nations to either ban or raise tariffs on British cotton textiles. Exports of British manufactured cotton had been on a rising trend, peaking in 1913 at 7,075 million yards a year, prior to the outbreak of World War I in 1914 (Mitchell and Deane, 1962, pp. 182–183).

British manufactured cotton faced no barrier to access Britain’s captive market, but in the market of non-British colonies, it still faced strong competition from other European manufactured cotton, such as from France and Germany, etc. British manufactured cotton had penetrated the markets of Western Africa by the late 18th century, first with cotton and linen mixed cloth and then with cotton cloth to substitute the re-exports of Indian cotton textiles, but was less favored then because Indian cotton textiles shipped there were cheaper and high quality. In India, British cotton textiles were taking the place of Indian cotton textiles with the help of the British colonial government but still encountered some resistance from cheap Indian cotton cloth. Enabled to fill the captive market with cheap cotton textiles and to compete with other European nations in the non-captive market, the British cotton industry was fully geared to increase productivity through innovation during and after the Napoleonic Wars.

The commercial success of the Roberts loom increased weaving productivity dramatically and thus created a yarn famine again. In 1830, the Roberts automatic spinning mule was invented, which dramatically increased spinning productivity by reducing operating hours for spinning 100 lbs. of cotton from

2,000 to 135. In 1842, the semi-automatic Lancashire loom was invented by James Bullough and William Kenworthy (Marsden, 1895, pp. 94–95, 97). The Lancashire loom increased not only productivity by allowing one operator to manage four to eight looms instead of just one, but also quality. The higher productivity brought about by technological innovations made the British cotton industry much more competitive and thus capable of conquering a greater world market share through its cheaper and higher quality products.

3.3.2 Replacing Handlooms with Power Looms Did Not Lead to a Reduction in Employment

The shift from handlooms to power looms saved a great deal of labor by increasing productivity per laborer by at least several dozen-folds, but it did not lead to a decrease in employment. Instead, the number of workers increased, not only those operating power looms, but even the number of handloom weavers continued to increase until the 1830s. Total employment in the British cotton weaving sector had been rising since 1780 and reached its zenith in 1834, when factory workers started to outnumber handloom weavers, 215,000:200,000 (Mitchell and Deane, 1962, p. 187; also see Figure 11). Total employment declined slightly from 1835 to 1847, but it was caused purely by the decline in handloom weavers, as the number of factory workers continued rising. Total employment resumed its upward trend in 1847 and was overwhelmingly comprised of factory workers. In 1862, almost all production of cotton cloth in Britain was by power looms. Factory workers constituted nearly 100% of employees: 453,000 factory workers versus 3,000 handloom weavers (see Figure 11).

The decision to increase or decrease employment of workers would depend on the ratio of the increase in demand generated by market expansion to the increase in productivity. If the ratio were much above 1, the employment of workers would not only not decrease, but also even increase; if it were around 1, the employment of workers would fluctuate little, and if it were much below 1, the number of workers would certainly decrease. The fact that employment continued to rise as power looms were replacing handlooms indicates that the market had been expanding faster than the increase in productivity, which is also supported by the fact that output continued to grow dramatically after

technological innovations flooded into the cotton industry in the 1820s–1830s. It means that the market expansion was large enough to absorb all products generated by the greatly increased production capacity, allowing the industry grow without hitting the ceiling of marginal returns. Thus, this paper argues it was market expansion rather than high wages that was more the driving force for the innovations. British cotton manufacturers were motivated to opt for innovations more by the prospect of gaining greater market share through increasing production capacity and making products more competitive in terms of price and quality than by the prospect of saving labor.

Source: Figures in 1780 and 1792 (Allen, 2018, p. 382); for years from 1806 to 1862 (Mitchell and Deane, 1962, p. 187).

An expansion of manufacturing production, driven by market expansion, can escape the law of diminishing marginal returns because rising demand can prevent the price of additional products manufactured from falling. However,

Figure 11 Numbers of Handloom Weavers and Factory Workers Employed in Cotton Weaving, 1780

1862 (in Thousands)

4 The British Industrial Revolution in the Perspective of International Labor Division

manufacturing growth will not be possible or sustainable if the raw material supply is short or cannot keep up with the growth of production, or if the price of raw materials is very high. In other words, a region can industrialize only by having other regions to supply it with adequate cheap raw materials and to consume its growing manufactured products. In the perspective of global economy, the industrialization of a nation can only be achieved based on international labor division, whereby industrializing nations can obtain adequate supply of cheap raw materials from non-industrial regions and also sell their manufactured products there.

Being able to import land-intensive products from the New World spared Britain a good deal of land. Without massive imports of agricultural products and natural resources such as food and timber, Britain would not have been able to focus on industrialization by devoting more land and labor to manufactures. Based on Kenneth Pomeranz’s estimate, in the early 19th century, just imports of dried meat, ships, wood-based naval stores, timber, and grain, etc. from the New Continent spared Britain about 3,000,000–4,000,000 acres of land. Combining sugar, cotton, and timber, 25,000,000–30,000,000 ghost acres would have been needed, which exceeded the entire arable land of Britain, which was only about 17,000,000 acres in 1867 (Pomeranz, 2000, pp. 275–276).

Between 1800 and 1880, annual raw cotton consumption in Britain grew by a factor of 26 from 52 million to 1,361 million lbs. (Mitchell and Deane, 1962, p. 179). Net imports of raw cotton in Britain, excluding re-exports, grew by a factor of 8, from 6,553,000 lbs. in 1780 to 51,594,000 in 1800.5 Assuming the quantity of net imports was that of consumption and dividing the consumption quantity in 1880 by that in 1780, raw cotton consumption in Britain grew by a factor of 208 between 1780 and 1880. Had not there been the vast supply of raw cotton from America and India, etc., this would never have been possible.

Based on Beckert’s account, calculated by dividing the amount of cotton consumed by the British cotton industry by the yield of cotton per acre, and also dividing it by the yield per laborer at the time, cultivating the amount of cotton consumed by the British cotton industry would require 416,081 acres and approximately 90,360 agricultural laborers in 1800, 873,312 acres and 198,738

5 Total imports of raw cotton in Britain were 6,877,000 lbs. in 1780, of which 324,000 were re-exported, and in 1800, total imports were 56,011,000, of which 4,417,000 were re-exported (Mitchell and Deane, 1962, p. 178).

laborers in 1820, 3,273,414 acres and 544,066 laborers in 1840, and 6.3 million acres and more than 1 million laborers in 1860. If that cotton had been grown in Britain, it would have taken up 3.7% of arable land in 1800, 7.8% in 1820, 29% in 1840, and 37% in 1860 (Beckert, 2014, pp. 95, 477, note 28). If it had been for the wool industry to raise enough sheep to replace the yarn made with Britain’s New World cotton imports in 1830, 23,000,000 ghost acres would have been required based on Pomeranz’s estimate, which was more than the entire arable land of Britain (Pomeranz, 2000, pp. 275–276).

The labor division between cotton-manufacturing Britain and the cotton-producing American South and India, etc. was crucial, which allowed the British cotton industry to gain an adequate supply of raw cotton and to have a huge market for its manufactured cotton. Yet this labor division was not purely the work of the free market, but of the joint efforts of British manufacturers, merchants, and the British state and colonial administrations. Sven Beckert and William Ashworth have both independently provided valuable discussions of the origin of Britain’s Industrial Revolution within the context of the global economic network, and both have emphasized the crucial role played by the British state in shaping the global economy (Ashworth, 2017; Beckert, 2014).

From the 17th to 19th centuries, Britain made great efforts not only to access and dominate the world market, but also to protect and promote its domestic industry by imposing high tariffs on imports of foreign manufactured goods, by lowering or removing duties on exports of domestic manufactured products, and by repealing duties on imports of raw materials. British manufacturers and merchants, along with the British state, the EIC, and the colonial government that replaced the EIC’s colonial rule in India in 1858, made great efforts to transform India from a cotton textile-producing region into a raw cotton-producing region, inducing or enforcing cotton production through tariffs and bounties, and through capital inputs, regulations, and building transportation infrastructure (Ashworth, 2017, pp. 105–118). In Ashworth’s (2017) words, “The rise of the British cotton industry and other manufacturers took place behind closed doors and after nearly a century of nurturing” (p.105). “Protectionism, taxation and the expansion of empire were fundamental factors in Britain’s Industrial Revolution” (Ashworth, 2017, p. 117).

Beckert uses the term “war capitalism” to characterize the origin of the Industrial Revolution, saying that “Imperial expansion, slavery, and land

expropriations—war capitalism—laid the foundations for the still small and technologically backward domestic cotton industry in Europe. It provided dynamic markets and access to technology and to essential raw materials” (Beckert, 2014, p. 52). Beckert did not use the term, “international labor division,” but he provided a valid case of how Europeans, especially British manufacturers, merchants, and statesmen, worked together to construct a global cotton network whereby Britain became a nation of the cotton industry, importing raw cotton and exporting manufactured cotton. As Beckert (2014, pp. 52–53) stated:

European—and especially British—merchants, with the willing partnership of the British state, had inserted themselves in unique ways into the global networks of cotton production, between growers and spinners, between spinners and weavers, between producers and consumers. Long before the advent of new cotton-producing technologies, they had in fact already rearranged the global cotton industry and global cotton networks.

This rearrangement did not stop at a certain point, but proceeded accordingly with the advancing British cotton industry. For Britain’s cotton manufacturers to be able to continue their production expansion and grow into the vast captive markets of the British Empire, they had to secure an ample supply of raw cotton.

Central to this was creating a labor division between Britain and the regions under its colonial rule or its strong influence whereby Britain produced cotton textiles, and others produced raw cotton. It is by the combined efforts of Manchester cotton manufacturers, merchants, the British state, and colonial governments, along with those of local merchants and planters, that raw cotton production greatly expanded, especially in the American South and India (Beckert, 2014, pp. 98–135, 199–241).

According to Beckert (2014), “When cotton manufacturing exploded in Great Britain, it was unclear where enough cotton would come from to feed its hungry factories” (p. 84). When the price of raw cotton in the early 1780s was driven two to three times higher, “Manchester manufacturers were ‘quite convinced that unless some new source of supply could be found the progress of the rising industry would be checked, if not altogether arrested.’ As a result, ‘From the

1780s they formed a powerful and influential group in their efforts to acquaint the planters and the British government with their requirements’” (Beckert, 2014, p. 86).

Between 1774 and 1781, annual raw cotton imports had been around 6,000,000 lbs. It jumped to 11,828,000 lbs. in 1782, and then stayed in a rapidly rising trend until 1860, reaching 1,391,000,000 lbs. in 1860 (Mitchell and Deane, 1962, pp. 177–181). Raw cotton flowed into Britain from many parts of the world. At first, it was imported mainly from the British West Indies and the Mediterranean. After 1790, imports from India and the US started to grow significantly, and then U.S. cotton quickly took the lead. From the 1810s on, the US became Britain’s most important supplier of raw cotton, accounting for more than 50% of total imports. By 1860, prior to the Civil War, the US supplied over 80% of British raw cotton imports (Beckert, 2014, p. 42; Mitchell and Deane, 1962, pp. 180–181; also see Figure 12 and Table 6). The quantity of raw cotton traded between the United States and Britain grew by a factor of 38 from 1800 to 1860 (Beckert, 2014, p. 205).

Source: Beckert, 2014, p. 121.

Close connections between Britain and America had been constructed over centuries, which provided great opportunities and channels for British manufacturers and merchants to promote cotton production in the US by extending credit to planters in the American South and by coordinating with local

Figure 12 Raw Cotton Imports into Britain, 1786–1860

merchants to construct an efficient trade network (Ashworth, 2017, p. 142; Beckert, 2014, pp. 100–104). The enthusiastic interest of American plantation owners in planting and exporting raw cotton also stimulated the invention of the cotton gin by Eli Whitney in 1793. The cotton gin greatly accelerated the expansion of cotton planting in the South, which in turn kept raw cotton prices stable for several decades until the outbreak of the Civil War. Annual cotton prices in New York had been remained below 20 cents/lb. since 1820 and had fluctuated around 10 cents/lb. most of the time until the outbreak of the Civil War.6 As a result, the US was able not only to produce a vast quantity, but also to export it at low prices, owing to slave labor and the ample availability of fertile land. As the Manchester Chamber of Commerce remarked in 1825: “We are firmly persuaded that it is in great measure owing to the very low price of the raw material that this manufacture has been of late years so rapidly increased” (Beckert, 2014, pp. 119–120).

Table 6 British Raw Cotton Imports from America (in lbs.)

Source: Dattel, 2009, p. 16.

When the Civil War disrupted imports from the US, Britain’s cotton industry was heavily affected. Imports of raw cotton from the US fell by more than 90 percent from a prewar level of over 1,000 million lbs. a year to 14 million in 1862, six million in 1863, and 14 million in 1864 (Mitchell and Deane, 1962, p. 180). Raw cotton prices also increased sharply to four times prewar levels (Beckert, 2014, p. 247).7 In response, some mills were closed, working hours

6 See The Secretariat of the International Cotton Advisory Committee, 2005: chapter 1/page 14, chart 1.1: Annual cotton prices in New York.

7 Also see The Secretariat of the International Cotton Advisory Committee, 2005: chapter 1/page 14, chart 1.1: Annual cotton prices in New York, and chapter 1/page 15, chart 1.2: Annual cotton prices in New Orleans.

were shortened, and many workers were laid off. “By early 1863, a quarter of the inhabitants of Lancashire—more than half a million individuals—were out of work, receiving some form of public or private assistance” (Beckert, 2014, p. 247). Raw cotton consumption decreased from about 1,000 million lbs. a year in 1859–1861 to about 500 million lbs. in 1862–1864 and only recovered to prewar levels in 1870 (Mitchell and Deane, 1962, p. 179).

To deal with the situation, British manufacturers, merchants, and statesmen again worked together to seek other regions to compensate for the sharp fall of the raw cotton supply from the US, and India again became the number one choice. Britain had tried to transform India into a cotton-producing area since the 1810s, not only because Britain’s cotton mills needed raw cotton and the EIC wanted to substitute Indian cotton for silver to trade for Chinese goods,8 but also because by transforming India into a cotton-producing area, British cotton textiles would face less competition from Indian cotton textiles in the world market. However, until the eruption of the American Civil War, the effort was not very successful due to the availability of cheap American cotton produced by slaves as well as the lack of commercial, regulatory, and transportation infrastructure in India.

British cotton manufacturers had concerns about the possible interruption of the raw cotton supply from the US since the 1810s. Such concerns grew greatly in the 1850s when political and economic conflicts between the northern capitalists and the southern plantation owners in America intensified. In 1857, Manchester manufacturers and merchants formed the Manchester Cotton Supply Association, aiming to secure the adequate supply of raw cotton.

In response to the requests of British cotton manufacturers and merchants, the British state and colonial administration made great efforts in building legal, administrative, and transportation infrastructure to guarantee the growth of cotton planting in India. Laws and regulations were enacted to encourage and protect capital investments in cotton production and to guarantee the quality of cotton, such as new contract laws imposing penalties on those who had taken loans in advance but did not grow cotton or sold their harvests to others, and laws which made “adulteration of cotton” a crime. Colonial administrative units were also set up in the countryside to supervise and secure the cultivation and sale of raw

8 From the 1760s to 1820s, Indian cotton became an important commodity that the EIC used as a medium to trade for Chinese goods (Bowen, 2009, p. 115).

cotton. In order to be able to transport raw cotton from villages to the coast, many railroads were also constructed (Beckert, 2014, pp. 123–131, 238–241, 251–256). As Beckert (2014) stated, “During the American Civil War, British cotton capitalists and colonial bureaucrats worked feverishly to increase India’s cotton output and move it to market” (p. 251).

The efforts paid off handsomely. Raw cotton planting expanded greatly in India. The disruption of the raw cotton supply from the US was remedied by the rise of the Indian raw cotton supply. Imports of Indian raw cotton to Britain more than doubled from 102,200 tons in 1860 to 255,600 tons in 1865, and Indian cotton as a percentage of total imports of raw cotton to Britain went up from 16.7% in 1860 to 51.1% in 1865.9 And cotton growing continued to expand in India. “In the thirty years after 1860, continental European consumption of Indian cotton increased sixty-two-fold … by the late 1880s in some areas of India (such as Berar) one-third of all land was under cotton” (Beckert, 2014, p. 293).

By the late 19th century, India had been successfully transformed from a cotton textile-producing area into a raw cotton-producing area. The labor division ended up with India being a large supplier of raw cotton to Britain and the largest market for British manufactured cotton. A British colonial official observed in the mid-1870s that in Berar, “Cotton is grown almost entirely for export. The manufacture of home cloth has been undermined by the importation of English Piece Goods, and many of the weaver class have become ordinary labourers” (Beckert, 2014, p. 296). The market share of British manufactured cotton in India increased from 11.5% in 1850 to about 60% in 1880 (Beckert, 2014, pp. 326, 328). In 1886, 30% of the value of Lancashire manufactured cotton was exported to India (Rose, 2000 p. 169). “By 1900, 78 percent of the total production of the British cotton industry was exported, much of it to India” (Beckert, 2014, p. 324).

Quoted in Beckert’s Empire of Cotton, the observation in 1899 of Ernst K. Henrici, a German scholar, engineer, and Africa expert, also perfectly reflected the significance of the labor division between the colonizing nations and the colonized: “In the great economic competition among peoples, mass production and mass consumption are becoming central. Our colonies, if they should be of real benefit to the mother country, need to aspire towards delivering great

9 See The Secretariat of the International Cotton Advisory Committee, 2005: chapter 1/page 21, Table A.4: Sources of cotton imports into England, 1786–1884.

quantities of raw materials, so that they can in turn purchase great quantities of the industrial products of the motherland” (Beckert, 2014, p. 357).

In summary, without imports of raw cotton from the Americas and India, and without Britain’s vast colonies to become a guaranteed market for British cotton textiles, as well as available markets in other parts of the world, the British cotton industry would not have been able to grow so extensively. As raw cotton flowed into Britain from India, the Americas, and Egypt, etc., British cotton textiles flowed into the world market, becoming especially dominant in the markets of Western Africa, the Americas, and India.

5 Smithian Growth Rather than Industrial Revolution in the Chinese Textile Industry of the 18th and 19th Centuries10

5.1 The Cotton Industry Did Not Emerge in China as an Import Substitution Industry

The cotton industry emerged in Britain in the mid-18th century as an import substitution industry, with a large pre-existing domestic and overseas market created by imports and re-exports of Indian cotton textiles. By contrast, cotton textile production spread to southern China from India in the 13th century, when there was no or very little demand for cotton textiles in China.

Several factors in the development of the Chinese cotton industry may explain why industrial revolution did not happen following the emergence of Chinese cotton textile production in the 13th century and why there was no industrial revolution in the Chinese cotton industry of the 18th and 19th centuries:

(1) There was little importation of cotton textiles to China and thus little or no demand for cotton textiles in China before cotton yarn-spinning and cloth-weaving production spread to China from India in the 13th century. Domestic demand for cotton textiles increased gradually along with the gradually expanding cotton industry from region to region.

10 Since Chinese silk was far more renowned than Chinese cotton textiles, one may ask why not focus on the former? The reason is that silk is not a mass-consumption but a luxury product. World demand for silk can never come close to that for cotton cloth, and thus is far from enough to lift the law of diminishing marginal returns. Moreover, silk can never be produced as massively as cotton textiles, given that silkworm-raising and raw-silk-reeling require restrictive weather, temperature, and humidity conditions and involve delicate and intensive labor. Limited demand and limited supply prevented the silk industry from achieving hundreds-fold growth like the cotton industry.

(2) Until the 1890s, cotton textile production in China was carried out mainly in a proto-industrial form, produced mainly by individual peasant households, and the production was basically evenly distributed among regions and among peasant households. As a result, an increase in demand generated by population growth would also mean an increase in supply.

(3) Throughout history, no region in China had ever been protected by the state for cotton textile production such that a particular region could have the rest of China as its market for raw cotton supply and cotton textile sales.

(4) There was never any continuous and dramatic expansion of the international market that could lift the law of diminishing marginal returns since the cotton industry had become widely established in China by the 17th century. Cotton cloth had entered China before the Song dynasty, but in very tiny amounts, either as tribute or as imports from merchants, and it remained largely unknown to the public. Since there had never been significant imports of cotton cloth, there was little or no demand for cotton textiles in China before the cotton industry took place. Domestic demand for cotton textiles developed gradually along with the gradual spread of cotton industry in China.

According to Qi Xia, cotton textile production had already taken place in Fujian and Jiangnan in the Southern Song dynasty, which was clearly stated in the taxation decree issued by the Yuan court in 1296, which, Qi Xia believes, formed the basis for the Yuan court to include raw cotton and cotton cloth in its summer taxation for the south (Qi, 1992, pp. 18–21). However, this account does not necessarily contradict the mainstream account that the rise of Jiangnan as the center of the Chinese cotton industry had a great deal to do with a woman named Huang Daopo.

Huang Daopo, a widow who had been married to a man in Hainan, returned to her home village of Wunijing in Songjiang county in the Yangzi Delta in 1295. Upon her return, she started to teach people in her home village the cotton-weaving skills that she had learned in Hainan. As a result, Songjiang soon became famous for its cotton cloth in China, and from Songjiang, cotton textile production continued to proceed into the north. It is believed that by the late 16th century, cotton cloth weaving had taken place in most parts of China (Yan, 2011/1955, p. 25). But for a period of time, Songjiang remained the most important cotton textile producing region of China, selling cotton cloth to Shandong, Hebei, and Henan, etc. in the north and buying raw cotton from those regions. This trading trend ended in the early Qing when a number of regions in

northern China also became important centers for producing high quality cotton textiles.

The Chinese government played an important role in the spread of cotton planting and cloth weaving by writing and disseminating cotton-planting books, but it never had any intention to promote one region’s cotton industry over others’ by enforcing or inducing a labor division between cotton weaving and cultivation. Had Songjiang been designated by the state as the sole cotton textile producing region, its manufacturers would probably have had greater incentive to increase productivity through technological innovations to meet the demand of the vast domestic market. Instead, the Chinese government strove to make the cotton industry a household-based production by imposing cotton planting on every peasant household and including raw cotton and cotton cloth payments in the taxation structure.

In 1296, the Yuan court added raw cotton and cotton cloth quotas to its taxation on peasant households in Jiangsu, Zhejiang, and Fujian in southern China. In 1367, the founding emperor of the Ming dynasty, Zhu Yuanzhang, issued a decree requiring every peasant household with 5–10 mu of land to have 0.5 mu for cotton cultivation, and those with more land needed to proportionally plant more cotton, and those who did not plant cotton had to pay one bolt of cotton cloth for one mu of cotton planting (Yan, 2011/1955, pp. 22–26). By the second half of the 16th century, raw cotton and cotton cloth had become a regular tax payment included in the state taxation. Before the 1570s, cotton and cotton cloth were paid in kind directly to the government by individual peasant households. After the 1570s, with the implementation of the policy that all taxes must be paid in silver, the government obtained cotton products mainly through market purchases. It has been estimated that the Ming army, court, and government in the late 16th century annually consumed 15–20 million bolts of cotton cloth, and the amount in the early Qing was even higher, being no less than 20 million bolts a year (Yan, 2011/1955, pp. 37–39).

5.2 The Proto-Industrial Form of Cotton Textile Production Based on Individual Households

Judging from the Yuan and Ming courts’ decrees that imposed cotton production at the peasant household level and that included cotton cloth as a regular tax

payment for every household, it is obvious that the Yuan and Ming courts wanted to make cotton yarn spinning and cloth weaving a sideline production of every peasant household. As a result, household-based cotton textile production became the basic structure of the Chinese cotton industry. Until the 1890s, when modern cotton textile manufactories started to emerge in Shanghai, cotton textile production in China was carried out mainly in a proto-industrial form, produced mainly by individual peasant households, and it was quite evenly distributed among regions and among peasant households, even though the quality of cotton textiles varied from region to region. This household-based cotton textile production could easily digest any increase in domestic demand. It is another factor explaining why industrial revolution did not happen in the Chinese cotton industry, and why the rapid growth of the Chinese population from the late 17th century to the early 19th century had little effect on the Chinese cotton industry, either technologically or institutionally.

In the case of Songjiang, although it had developed superior products early in the development of the Chinese cotton industry and had dominated the northern market from the early 15th to the late 16th centuries, it could not maintain its dominance as cotton textile production was introduced to more and more regions of China with government encouragement, and as more and more progress was made in other regions. Instead of gaining more market from other regions, the market for Songjiang cloth shrank as more and more other regions were able to produce their own high-quality cloth. Eventually, Songjiang lost its dominance in both weaving technology and market share.

The Chinese population had nearly quadrupled from the late 17th century to 1850 prior to the Taiping Rebellion, which dramatically reduced the population (Ge, 1991, pp. 246–251). As population increased, consumption of cotton cloth also increased. However, since yarn spinning and cloth weaving had been a wide-spread sideline production of peasant households, the growth of cotton textile consumption due to population growth also meant the growth of producers. This is different from the situation in Britain, where cotton manufactures in Lancashire as a unit faced a vast and growing domestic and overseas market.

According to Xu Dixin and Wu Chengming, although cotton textile production was growing throughout the Ming and early Qing, the commodity rate of cotton textiles was even higher in the late Ming than in the early Qing because demand for Jiangnan cloth was higher in China before the early 18th century, when some

regions in northern China had just started to produce their own high-quality cotton cloth. Based on Xu Xinwu’s estimate that 45% of peasant households engaged in cotton cloth-weaving in 1840, Xu Dixin and Wu Chengming estimated that about 50% of peasant households engaged in cotton cloth weaving in the mid-18th century (Xu, 1959; Xu and Wu, 1985, pp. 94–95).

Given that cotton textile production was widely and quite evenly distributed among regions and among peasant households, and that about 50% of peasant households were engaging in it, the increase in consumption brought about by the 400% growth of the Chinese population over 160 years would be easily digested. The market size of textile consumption faced by each producer would remain basically the same, producing no force that could lift the law of diminishing marginal returns, nor that would have moved the PPF outward. As a result, there was little incentive for producers to engage in technological and institutional innovations.

5.3 No Huge Foreign Market Expansion for the Chinese Cotton industry

For a well-established, long-standing industry, any multi-dozen or multi-hundred fold increase in market size, like that the British cotton industry enjoyed from the second half of the 18th to the second half of the 19th centuries, can only come from the international market, because domestic population does not increase at such a pace. Without gaining a large portion of the world market share, a well-established industry cannot escape from the law of diminishing marginal returns, and the industry will have little incentive to enlarge its production and strive for technological innovation. This was basically the case for the Chinese cotton industry of the 18th and 19th centuries.

The EIC started to purchase Chinese cotton textiles, especially Nanjing cloth, in considerable amounts in the 1730s, and American merchants started to import them in the late 18th century. By the early 19th century, exports of Chinese cotton cloth had reached over a million bolts per year (Yan, 2011/1955, p. 41). However, compared to annual output, this amount of exports was too small to have an effect on Chinese production.

It is estimated that 34,260,000 households, 45% of total peasant households, engaged in cotton cloth weaving in China in 1840 prior to the Opium War, producing about 597,327,000 bolts of cotton cloth. Of this total output, 282,150,000 bolts were self-consumed by the weaving households, accounting for 47.2% of total output, and 315,177,000 bolts were sold on the market, for a

commodity rate of 52.8% (Xu and Wu, 1985, pp. 322–325).

Assuming Chinese cotton cloth output grew at the same rate as the population, annual output in China in the early 19th century would be about 500,000,000 bolts. With the amount of exports being about 1.3 million bolts a year (Yan, 2011/1955, p. 41), the foreign market size as a percentage of output was less than 0.3% (see Figure 13). Such a size was definitely too small to lift the law of diminishing marginal returns and to move the PPF outward. As a result, the Chinese cotton industry could only achieve Smithian growth through optimal resource utilization and specialization in cotton planting, yarn spinning, and cloth weaving.

6 Conclusion

World market expansion and international labor division were essential to the Industrial Revolution in Britain. The former lifted the law of diminishing marginal returns, allowing the British cotton industry to expand greatly without hitting the ceiling of marginal returns for several decades from the 1770s to the early 19th century. The latter made it possible for the British cotton industry to import ample amounts of raw cotton from, and export large amounts of cotton textiles to, the world market.

Yet the world market expansion and international labor division were not purely the natural work of the market but were created with the help of the British Empire and its industrial policies. British imperial power was the leading power driving globalization in the 18th and 19th centuries, and it was globalization that created the international infrastructure for the British Industrial Revolution. Without access to vast overseas markets and without international labor division induced or enforced by the British state and colonial

Figure 13 Exports versus Production Capacity for the Early 19th Chinese Cotton Industry

administrations, such as that between Britain and India, it would not have been possible for the Industrial Revolution to happen and to succeed in Britain.

In contrast, the Chinese cotton industry did not emerge as an import substitution industry. There had been little or no demand for cotton cloth in China before cotton textile production spread to southern China from India in the 13th century. Demand increased gradually along with the gradual spread of cotton weaving from region to region. No region had ever been protected by the Chinese state for cotton textile production such that any particular region could have the vast remaining regions as its market for both raw cotton supply and cotton textile sales. Neither had there been any state policy to enforce or induce labor division among regions between raw cotton and cotton textile production. Instead, the state intentionally made both a production of individual households. As a result, whenever domestic demand increased as population grew, producers also increased by similar proportions.

There was never a huge and consistent foreign market expansion for the Chinese cotton industry either, which could have lifted the law of diminishing marginal returns. In the late 18th and early 19th centuries, foreign demand for Chinese textiles increased significantly, but only accounted for 0.3% of production capacity, which no doubt was too small to induce either technological or institutional changes. As a result, no industrial revolution took place and the Chinese cotton industry only achieved Smithian growth through optimal resource utilization and specialization in cotton planting, yarn spinning, and cloth weaving.

Acknowledgments I acknowledge the financial support of the National Social Science Fund of China for my research project, “Globalization and the Rise of the West,” of which this paper is a part. My heart-felt thanks go to Joseph Inikori for his comments and valuable suggestions, and also to Ralph Austen, Gareth Austin, Maxine Berg, Mariusz Lukasiewicz, and Prasannan Parthasarathi for their comments at Rochester and Boston when I presented this paper. I also thank Guang Yongqiang and Liu Qiang for their comments and my graduate students, Li Kun, Yang Yang, Yan Songzhang, who helped me prepare Figures 10, 11, and Table 5.

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