Just how did the world move from an agricultural to industrial economy? Are there any patterns to economic development? Explore developmental and historical economics with Raymond Wong in this article.
[Raymond is studying a Bachelor of Commerce/Bachelor of Science at Monash University, with majors in finance and statistics. He is interested in a strange assortment of economics - financial economics, behavioural economics, macroeconomic policy, as well as the philosophy of economics.]
In this article, we explore the economies of old and attempt to map out their progression into the modern world. We begin by briefly examining the pre-Qin era of ancient China, in roughly 1600 to 1000 BCE in a period known today as the Shang dynasty. Marked by an economy based on agriculture, it was highly dependent on the Yellow and Yangtze rivers [1], the two major rivers that run through China. Yet, there are few features of this economy which hint at development of the economy. And by economic development, what we mean is an increase in production, and a rise in material living standards. More specifically, the development of copper mines and manipulation of copper to produce bronze tools were important to increase productivity.
A distinguishing feature of the Shang dynasty was its use of trade with other regions – so much so that the Chinese word for “merchant” means the “Shang people” [2]. In today’s world, trade is inevitable for any economy. The economic model of comparative advantage suggests that economies should specialise in activities in which they have a lower opportunity cost relative to other countries, resulting in a lower marginal cost and increased overall profit after trading with other parties. Despite the surplus agricultural production, it would seem the Shang dynasty was aware of the mutually beneficial effects of trade.
Jiang describes the “first economic revolution” as occurring from roughly the fifth century BCE onwards in the Zhou dynasty, and this was characterised by increased productivity from technological innovation. For instance, there is archaeological evidence of advanced iron tools, rather than bronze ones, while it was only widely known in Europe in the Middle Ages, roughly 1000 years later. Additionally, there were improvements in agricultural production methods, including ox-driven ploughs [3]. We see that at the heart of economic development is technological improvement and increases productivity. In particular, ox-powered ploughs removed some of the need for physical human labour, and planting was now achieved as a much faster rate.
Consequently, supporting infrastructure such as irrigation systems and anti-flood and drought measures were also required. This infrastructure was vital in combatting the extremes of floods and droughts, allowing greater agricultural output[4]. In turn, this output was used to raise armies to conquer more land, thus seizing more resources and increasing production, which would have required further supporting infrastructure…
We see that economic development happens not in discrete steps but rather continuous cycles of causes and effects, flowing into one and another. There is no beginning nor is there an end. We realise that what was most important was ensuring a strong supply of agricultural output, which freed up human labour and furthered advancements in innovation.
We now turn our attention to the (first) Industrial Revolution of Europe to examine similarities and differences between these two. Of course, no web article could cover the entire Industrial Revolution, so we will only highlight the relevant parts here. The first noteworthy difference is that the Industrial Revolution was certainly far more than a technological and economic revolution. It involved cultural and societal changes on a large scale. For the first time, Europeans used coal and electricity for power. Much like the ancient Chinese economic revolution, the Industrial Revolution also saw an increase in the production of food due to agricultural improvements, resulting in larger populations and ultimately, the creation of cities [5]. Arguably, it is cities and the mass production of goods and services which characterises modern human history. We all feel the direct impact of the Industrial Revolution in our lives in so many ways, and indirectly in just as many.
New technologies – that are now far removed from our everyday modern lives – emerged during this time. Rather than support the mercantilist way of minimising imports and maximising exports, increasing productivity and output through mechanisation was seen as an effective cost cutting exercise. Originally argued by historian Robert C Allen, the hypothesis is that the wage costs for spinners in Britain were relatively more expensive than in continental Europe, providing the motivation for capitalists to create machines such as the power loom (which rather unsurprisingly is no longer used in its original form today) [6]. This transformation to use capital to produce happened due to the ruling class enabling markets to develop and subsequently flourish. Furthermore, Allen argues that cheap energy (see below) directly fed into the rapid uptake of capital that replaced labour.
Interestingly, trade once again features in the story of the Industrial Revolution, which coincided with and perhaps is both the cause and effect of European colonisation. North Britain was conducive for mass scale coal mining, which solved an energy demand wood could no longer address. Coal in Newcastle was cheaper than in Paris or Beijing, allowing British homes to be the first in the world to be powered by coal [7]. Further, the abundance of coal allowed Britain to trade coal for other goods, a trait we now call specialisation in an area of production with low opportunity cost – or comparative advantage.
From just a cursory glance at two distinct time periods in two distinct civilisations, we see commonality in the developments of economies. Both the Shang dynasty and Imperial Britain grew their economies through trade, though Britain traded on a much larger scale. Both economic revolutions were underpinned by technological innovations, productivity growth, and ultimately, a rise in total production output. Will these patterns continue to hold true in the future?
And what about the future? Machinery has replaced human physical labour in the past, but AI threatens to substitute human thinking. With human labour already far surpassed in some domains by machinery, and human thoughts coming under increasing pressure, what role will humans play tomorrow?
[1] George Jiang, The Imperial Mode of China: An Analytical Reconstruction of Chinese Economic History. (Cham, Palgrave Macmillan, 2023), 34
[2] Jiang, 36
[3] Jiang, 41-45
[4] Jiang, 43
[5] Editors of Encyclopaedia Britannica
[6] Allen
[7] Allen
References
Hong Jiang, George. The Imperial Mode of China: An Analytical Reconstruction of Chinese Economic History. Palgrave Macmillan, 2023
The Editors of Encyclopaedia Britannica. “Industrial Revolution.” Britannica, Britannica, 2024, www.britannica.com/event/Industrial-Revolution
Cartwright, Mark. “Why the Industrial Revolution Started in Britain.” World History, World History Encyclopedia, 2023, www.worldhistory.org/article/2221/why-the-industrial-revolution-started-in-britain/
Belardes, Reina. “Power Loom: An Essential Industrial Revolution Invention.” HowStuffWorks, HowStuffWorks, 2023, www.science.howstuffworks.com/innovation/inventions/power-loom.htm
Allen, Robert. “Why was the Industrial Revolution British?” , VoxEu Columns, VoxEu, 2009, https://cepr.org/voxeu/columns/why-was-industrial-revolution-british
The author would like to acknowledge the input of Matt Perryman and Nick Gunawan, without whom this article would only have been nearly half as good. Their feedback was insightful and encouraged me to search for better ways of writing this article.
