Was the Industrial Revolution helped or hindered by the significant increase in population which occurred in the 18th and 19th century?
One of the most important observations made of the Industrial Revolution was the growth in wages and income seen throughout the period. Simultaneously, the English economy saw large increases in its population over the period between 1700 and 1900. It grew relatively slowly from 5.06 million to 8.66 million between 1701 and 1801 (Back projection in Wrigley and Schofield, 1981, p577), but in the period between 1801 and 1871, population grew rapidly to 21.37 million. If this is inspected more closely, we can see that after 1811, the population grew by about 2 million every 10 years, with it reaching a 2.54 million increase between 1861 and 1871 (Census data in Wrigley and Schofield, 1981, p588). This is very closely mirrored to income per capita which increased from $1,803 to $2,846 over the period from over 1760 to 1850, but the biggest growth came in between between 1830 and 1850, where income increased by $637 (Crafts, 1997, p623 – 1992 values ppp-adjusted). Wages also increased by 35% between 1780 and 1850, but the last 15 percentage points of that increase only occurred between 1830 and 1850. Taking wage increases and income as an indicator of economic growth, this shows that there was at least some correlation between the increase in population and the increase in economic growth. However, this is not enough to prove a causal relationship and, in any case, one could argue that this is not the main effect of the Industrial Revolution. How did population growth affect technological development? How did it affect the structure of the labour market? And how did it affect the demand for certain types of goods?
It has noted that an increase in the population would firstly have an effect on the labour market (Habbakuk, 1963). Assuming ceteris paribus and a pure classical model of the economy, the increase of labour into the economy would have had the effect of reducing wages, whilst increasing employment. This could also mean a reallocation of resources away from manufactured goods, such as cotton clothes, which made the most contribution to future economic growth and industrial revolution. This would be mostly because a fall in wages would mean a switch in purchases away from the normal goods (the manufactured goods) towards inferior goods (like food). This would result in an increase in resources allocated towards the agricultural industry, whilst the manufacturing industry would see a fall in resources. However, this was not seen; as I have shown earlier in this essay, the whole of this period saw mostly a growth in both real wages and employment. In fact, Britain had some of the highest wages in the whole of Europe. In London, real wages were 40% higher than Amsterdam (another city that was also undergoing industrial revolution) and 3 times higher than Florence and Vienna (two cities the same or similar size to London, but which had not undergone industrial revolution). This means that the Industrial Revolution was probably not led by low labour costs (Allen, 2009, p128). The switch in purchasing that I also mentioned could be countered by another, equally plausible argument. If wages fall, this will create a fall in costs for the labour-intensive products created by the manufacturing sector, whilst the land-intensive agricultural industry would mean that costs would not fall as much, as the same amount of labour is not needed per product when comparing agriculture and manufacture.
This should then invoke changes in demand and thus aggregate demand. Using Keynesian economics, an increase in aggregate demand should result in economic growth (as long as the economy is not at long-run equilibrium). It can be assumed that the English economy was not at its production possibility frontier at this point, so this could have been a contributing factor to the Industrial Revolution. However, another feature of Keynesian theory refutes this point. The fact that there are increases in one factor of production (i.e. an increase in population creating an increase in labour) means that they will have to be applied to another fixed factor of production (i.e. land). Due to decreasing returns to scale, this will result in a much smaller marginal economic growth and growth should eventually flatline. This, however, applies more to agricultural production, rather than industrial production and this does not factor the important factor of technology, which can be used to increase the productivity of those factors and thus create demand-led growth. Statistically, there is evidence that doubts the relationship between growth in the population and growth in demand. Brown claims that demand and population did not move together, as there was a time lag between economic growth and population growth. The fastest percentage population growth was seen in the period between 1800 and 1810 (Brown, 1996, p46) whilst the increased growth rates were initially seen in the years far before that. Deane and Cole found that growth started in industrial industries in the early 1740s (Deane and Cole, 1988, p89), whilst Brown reports that this estimate has been pushed back to the start of the 1700s (Brown, 1996, p47). This would mean that there is more factors at play or if there is a causal relationship, it would seem that economic growth caused the population increase, rather than the other war around, which has also been posited.