Economic History and Economic Development

Deane’s work in economic history—Deane and Cole (1962) and Deane (1965)—grew out of her fieldwork on colonial national accounting (Deane 1948, 1953). Both are pieces of primary empirical research in the most difficult conditions, representing truly pioneering work, as emerges from a review of her main publication on the subject (Deane 1953): ‘With the aid of a clear style, great powers of analysing, selecting and presenting economic data, and an admirable appreciation of social factors in the motivation of economic behaviour, she sets out the kind of investigation which can guide us to a more efficient general system of colonial social accounting’ (Trent 1954: 170). Indeed, to

compile social accounts with the emphasis on money transaction for an economy which is wholly or partly subsistence tells us only part of the story and must give a distorted picture. No general rules have yet been devised for the measurement of subsistence output. In this connection Phyllis Deane’s pioneering work deserves the greatest admiration. With the aid of anthropological information she managed to compile social accounts for three Central African semi-subsistence societies: the Tonga, Lozi and Ngoni. She formulated a comprehensive questionnaire and used it to collect household budgets of all income, output and expenditure in money as well as subsistence terms. Her calculation of total income (excluding subsistence crops) is based on the assumption that barter and subsistence income have the same relation to cash income as barter and subsistence property to cash property ... Her experiment brings out clearly the inter-relationship of the social sciences. Village social accounts must necessarily be based on anthropological information. We must know the social system and values of a society before we can attempt to measure their economic activities (ibid.: 171).

Deane’s fundamental and pioneering work on the quantitative basis of development economics was a prerequisite for her solid and brilliant achievements in economic history represented by Deane and Cole (1962), Mitchell (with Deane) (1962), as well as Deane (1965, 1973).

Negley Harte denotes Deane’s 1962 publications written with Cole and Mitchell, as

two triumphant products [emerging from her work at the Department of Applied Economics], books that mark an era in British economic history ... For a generation, these were the central works in a tradition going back to Gregory King and Adam Smith. ‘Deane and Cole’ and ‘Mitchell and Deane’ mark the beginning of the high point of British economic history as a discipline (Harte 2012: 2).

British Economic Growth, 1688-1959, begins with the Glorious Revolution of 1688, a

starting-point.imposed by the nature of the data available. To this period belong the first regularly compiled statistics of English overseas trade, the first acceptable population estimate and the first systematic contemporary estimate of national income and expenditure. Unfortunately it was not the beginning of a new era in economic statistics. More than a century passed before the administrative records yielded as good a basis for a quantitative analysis of the English economy as they had in the time of Gregory King. In their completeness and internal consistency his estimates remained unique until the twentieth century ... From King’s manuscripts and working sheets and from the contemporary sources in which his data were analysed it is possible to construct and outline a set of social accounts for England and Wales [which is set out in the most fascinating table 1, page 2] (Deane and Cole 1962: 1—2).

Almost certainly, the experience gained through her work on colonial national accounts enabled Deane to fully and ingeniously put to use the data collected by King to set up a system of social accounts for England and Wales in 1688. This is typical of her research: later work grew out of former work, always with a view to broadening and deepening knowledge on socio-economic and political matters. What is materially significant about the findings contained in British Economic Growth, 1688-1959 is the large share of exports in national income which reflects the intense commercial activity in the mercantilist era and the absence of a subsistence sector, so important in twentieth- century colonial economies, indicating that late seventeenth-century England and Wales were already monetary production economies to a large extent.

The solid conceptual and empirical basis provided by King associated with modern Keynesian insights on national accounting sets the stage for the writing of British Economic Growth, 1688-1959. The research programme was

to compile and interpret long-term national income statistics, or approximations thereto, for the whole of the period of the British industrial revolution and its aftermath ... By describing the broad background trends in population, value of money, wages and international trade, we seek to indicate some general directions for the economy over the very long period (ibid.: 4).

A central conclusion of the book is set out on page 309:

Throughout the past two and a half centuries international trade has been a strategic factor in British economic growth. Overseas markets gave an outlet to industries which would have operated less efficiently within the confines of domestic demand: imported raw materials provided bases for innovation and specialisation: foreign investment offered profitable employment to capital which found home prospects unattractive. It is only within the past century, however, that international trade has come to play a dominating role by virtue of its sheer weight in total economic activity.

This conclusion confirms that export-led growth is typical for monetary production economies in which economic activity is governed by effective demand. On a theoretical level, Nicholas Kaldor, a Cambridge colleague of Deane, has indeed argued that, in the era of increasing globalisation, long- period effective demand is governed by exports and that consumption and investment are derived demand (Kaldor 1989).

British Economic Growth, 1688-1959, and lecture notes on development economics to graduate students led to Deane’s major work in economic history: The First Industrial Revolution. On the aim of the book, she says:

What I wanted to do most of all was to introduce the economist’s approach into economic history—much more than had so far characterised existing texts. I wanted to use economists’ methods of analysis and bring in enough economic theory to fit economic history into a first year course for students working towards a degree in economics (Deane quoted in Crafts and Humphries 1996: 7).

One cannot do economic history without economic theory! Marshall and Keynes would have subscribed without hesitation. Deane’s emphasising this fundamental issue shows how deeply she is embedded in the Cambridge tradition of economics or, more appropriately, political economy.

The book is written very clearly, fully mastering an immensely complex subject, showing thus Deane’s commanding knowledge of the matter she is dealing with. The clear and elegant literary style and the comprehensive and balanced vision might let the reader forget that a dramatic event of world historical importance is being pictured. Given this, Deane, quite naturally, takes an intermediate position as to the much debated question of continuity or discontinuity in history:

Those who, like [John] Nef, choose to emphasise the underlying continuity of history will trace the origins of the process of industrialization back to earlier centuries. Those who, like [Walt] Rostow, prefer to focus on the significant discontinuities of history will stress the revolutionary character of the changes taking place in relatively short periods of time and will look for the crucial watersheds, the irreversible upturns in the statistical series. These are in methods of historical analysis and interpretation rather than disputes about what actually happened in history. To understand the process of economic change one needs to take both approaches into account, and to recognize the significant discontinuities in the ‘seamless’ web of history (Deane 1965: 4).

This is a typical case of the Cambridge economist striving to take a balanced view of things, recalling Marshall’s endeavour for reconciliation and synthesis.

In her First Industrial Revolution, Deane first considers four interrelated revolutions: the demographic, agricultural, commercial, and transport revolutions. The agricultural revolution is fundamental and leads to a rising agricultural surplus, which is required to feed a rising population, including the workers active in the industrial sector. With the industrial sector growing, a cumulative interaction between agriculture and industry sets in, resulting in an internally driven process of economic development, as is pictured in book three of The Wealth of Nations. Given this, ‘the revolution in industry and the revolution in agriculture were part of the same process’ (ibid.: 51).

However, the internal development process pictured by Smith must be set in motion through some kind of autonomous effective demand. Most important are earnings from exports, which, in a monetary production economy, initiate a cumulative process of demand, production, and growth (Kaldor 1989); this is what occurred within the framework of the Industrial Revolution. The crucial role of international trade is duly recognised by Deane. Indeed, the most common way, perhaps, leading an economy from a pre-industrial to an industrial state is to exploit opportunities provided by international trade. By selling surplus domestic production abroad in return for goods which are scarce at home, the range of goods and services coming on to the home market can be widened, while increasing the value of domestic output. In widening the potential market for domestic producers, foreign trade encourages them to specialise, to develop special skills and techniques of economic organisation, and to reap the economies of large-scale production. This broadening of their economic horizons constitutes an incentive to greater productive activity and helps to break up the economic inertia which so often inhibits economic development (see Deane 1965: 53).

Deane admits that Britain was in a favourable position with respect to international trade. Indeed, around 1750, woollen textiles still accounted for well over half the value of English domestic exports. But by this time, the Atlantic trade had been opened and English plantations in the West Indies had greatly extended the range of commodities that English merchants could sell in Europe. Like the spices and tea of the Far East, the West Indian products—sugar, tobacco, cotton, indigo, and dyewoods—were valuable products unobtainable in Europe and rapidly became necessities of life. In the first half of the eighteenth century, the volume of English re-exports had increased by 90%: in the next half-century, the re-export trade expanded more than twice as fast (see ibid.: 54).

In addition, domestic exports increased impressively from the 1740s to the 1770s, as is implied in Figure 1 set out on page 68 of the First Industrial Revolution (the immense work required to establish this figure cannot but be admired). Hence, around 1770, effective demand originating from the high purchasing power even of the less prosperous parts of the British population, from the incomes created through the building of roads and canals, and, most importantly, from re-exports and domestic exports, exerted a demand pressure on the British economy essential to bring about the Industrial Revolution, because traditional methods of production (manufactures, handicraft production) were no longer sufficient. However, there were still major bottlenecks preventing the Industrial Revolution from coming into being: ‘The most crucial and general of the bottlenecks limiting the expansion of the British economy on the eve of the British industrial revolution.. .were a shortage of wood and the shortage of power’ (ibid.: 136). These bottlenecks were overcome through the ‘most important achievement of the industrial revolution [which] converted the British economy from a wood-and-water basis to a coal-and-iron basis’ (ibid.: 137). This was made possible through two crucially important ‘eighteenth-century inventions which set the stage for the industrial revolution by precipitating a continuous process of industrialization and technical change, and hence sustained economic growth [namely Watt’s improved] steam engine on the one hand, and on the other, Cort’s puddling process which made a cheap and acceptable British malleable iron’ (ibid.). ‘The adoption of a metal using technology employing decentralised sources of power, which [these] inventions permitted, lies at the heart of the first industrial revolution’ (ibid.: 139). On pages 137-139, Deane pictures this fascinating process.

Now, in the last quarter of the eighteenth century, the Industrial Revolution was ready to unfold: effective demand was there, mainly on account of Great Britain dominating world markets, and technology, too. Subsequently, the factory and the machine went on to conquer Britain, then Western Europe. France and Germany and other countries had to industrialise, the alternative being to perish, as Karl Marx had forcefully stated. Around 1850 Britain dominated the world in a way unprecedented in history. The long period of peace from 1815 to 1914, interrupted only by the Crimean War of 1853 to 1856, was indeed Pax Britannica. No major war was possible on account of British economic, political, and military supremacy. Deane then goes on to consider the role of labour and of capital, and of the banks. The superiority of Great Britain was so crushing that free trade could be adopted. The government played an important role, mainly through the British Navy, which protected sea routes and harbours. Economic growth was, in fact, cyclical. Long cycles were superseded by medium- and short-term cycles. Standards of living rose, in part also for the working classes; however, Deane also considers social issues, that is, the phenomenon of widespread poverty of the working people, which was to become the Social Question (Chapter 15).

Considering the overall achievement, Deane concludes that, endowed as it was with abundant labour, a limited and exhaustible heritage of land and other natural resources, a modest propensity to save and invest and other natural resources, and a government which preferred to leave economic development to the free play of private enterprise, the British economy came through its Industrial Revolution with a relatively low growth potential by comparison with most of the countries which industrialised later. Several decades of easy success made its entrepreneurs believe that they could avoid rapid changes. Around 1850 British manufactures and British machinery were technologically superior, except in a few special cases, to those of any other country. But it was a matter of time only before faster-growing rivals with a clear trail to follow and stronger incentive to invest and to innovate would begin to outstrip her in their readiness to reduce costs and thus to threaten her virtual monopoly in world markets. When these rivals found governments which were ready actively to assist the industrialisation process, through tariff policy, for example, the end of British industrial supremacy was definitely in sight (see ibid.: 295).

Deane’s First Industrial Revolution is a monument in the field of economic history, and it was an immense success: two editions and a great number of reprints, the second edition was reprinted ten times, and all editions are to be found in around 1,500 libraries worldwide. The book has all the hallmarks of a scientific bestseller. Written in a clear and elegant style, it represents a masterful presentation of a most complex subject. It is certainly one of the best, if not the best, work on the socio-economic and technical aspects of the Great Transformation as Karl Polanyi called it. As such, Deane’s book is an excellent introduction to the subject for the general reader, as well as for students, teachers, and researchers, and this is very likely to remain so. Indeed, the First Industrial Revolution has become a classic.