Topic 8: The Dawn of Modern IndustryI. The breakdown of the Malthusian modelIn the 18th century, the European population began to grow again, particularly in certain areas. How were Europeans able to push back Malthusian constraints?A. The expansion of trade and specialization. The example of the Dutch: Specialization along the lines of comparative advantage allowed for more output. In the Netherlands where commercial activity was the greatest, productivity was the highest. Dutch farmers specialized in production for the market, rather than in subsistence agriculture. Primarily, the Dutch specialized in livestock and dairy products. Over a quarter of all grain consumed by the Dutch in the mid-17th century was supplied by imports. Expansion of commercial activity and productivity went han-in-hand:1. Only with extensive trade and markets, could agricultural specialization be feasible.2. Only with an increase in the productivity of agriculture could such a large share of the population work outside of agriculture.B. Changes in crops. Foodstuffs transplanted from the New World also pushed back Malthusian constraints.1. Potatoes are land intensive whereas wheat is land extensive. Caloric output per acre greater for potatoes.2. Corn (maize) and rice. Their yields were commonly many time greater than that of wheat and barley and they reacted differently to climacticconditions. New crops provided a cushion against harvest disasters common in Europe in earlier centuries.C. Increased consumption of high energy, low bulk foods such as sugar. Trade w/ the New World provided a cheap sourceof suger, alternative energy source. Research on the diets in England at theend of the 18th century indicates sugar consumption was rising.D. The new husbandry. The new husbandry refers to a set of modifications in agricultural practice that first appeared in the Low Countriesat the end of the Medieval period. These practices slowly spread to England and other parts of Europe. In the Medieval period, 3 course rotation used, improvement over 2 course rotation. It had improved over time to a 4 course rotation.The new system involved crop rotation:fodder crops – turnips, clover, alfalfa, etc. were planted alternately with field crops. The fodder crops were used to feed livestock. Fallow was eliminated. This crop rotation had significant effects on agricultural productivity. These effects were mutually reinforcing:1. able to maintain more and better-fed livestock2. better-fed livestock produced more manure, a natural fertilizer that increased cereal yields.3. some fodder crops were nitrogen fixers and all broke disease and pest cycles (restored the fertility of the soil)E. Other technological innovations in agriculture1. Livestock breeding: Robert Bakewell (1725-95): began selectively breeding cattle and sheep for meat. Dramatically results: sheep increased from 28 to80 pounds and beef cattle increased from 370 to 800 pounds.2. Agricultural implementsa. seed drill--Jethro Tull introducedthe seed drill. It deposited seeds into equally spaced holes and greatly increased yield- seed ratios over early method of hand broadcasting.b. Iron plows-- first intruduced in the Low countires and then England. New plows were easier to manipulate ad handle and lowered te number of draft animals requiredfor plowing vs. The heavy wheeled plow. F. Enclosure and changes in agricultural production. A process that encouragedor fostered changes in agricultural production in Europe was the process of enclosure. Narrowly defined it isthe fencing or otherwise physically (by hedges, etc.) seperating landholdins. A broader definition is conversion to privately held land. In the manor system land was shared by the community. As the system disintegrated, it gave way to private landownership.1. freeholders and tenant farmersSome peasants became freeholders that is they had the own free holds of land. Others were tenant farmers. Enclosure began in the 16th century.2. Consolidation and rackrentLarge landholders tried to consolidate their lands and dispossess the peasants by charging high rents-- rackrent, making it difficult to make small farms profitable.3. Enclosure of the Commons--In the manor system, commons were important to production. The commons were a shared resource where peasants grazed their livestock. When the landlords enclosed small farmers lost their grazing land. Enclosure forced many off the land and caused a great deal of misery for the agricultural workforce, but it was importantfor the adoption of new techniques and toovercome the Tragedy of the commons--over use of grazing land.II. Early Modern Era institutions favorable to economic growthA. Insurance. 1. The origins of underwritersBy the 15 century, lomabard merchants had established the practiceof insuring ships and cargoes. Insurers were mainly private individuals seekinga profitable sideline activity. They assumed risk, but gained premium. In 17th century London, there were borkers who took insurance policies around London seeking wealthy merchants who were willing to take on risk and capable of meeting their shareof the claim. By this time risk was too great to be borne by one individual. So insurance brokers sought out merchants who were willing to “share” the risk and the premium. When the merchant agreed to share the risk, he signed his name and the amount of his share “under the writing” of the policy--Underwriters.2. Lloyd’s of London --Edward Lloyd’s coffeehouse became a place forshippers and merchants to meet and negotiate premiums. Lloyd did not get involved in underwriting, just provided a place for transactions to take place and for information on shipping to be exchanged. Why important? Being able to get insurance for loss at sea allowed more merchants to engage in overseas trade.B. Double-entry bookkeeping. Developed by Italian merchants in the later Middle Ages; spread to other areas of Europe. Based on the equation ASSETS = LIABILITIES + EQUITYEvery transaction that is recorded maintains this equation. “Double entry” b/c it considers the give and take of each transaction. If a firm pays off a debt, liabilities are reduced, but the asset of cash is also reduced. Why important？1. Provides a way of measuring financial position of a firm.2. Facilitates “absentee ownership” ？ allows for larger firms.3. Facilitates evaluation of credit worthiness ？ essential for growth incredit marketC. Religion. 1.