Gilboy Vs. Mokyr Who Is Right Essay, Research Paper

Gilboy vs. Mokyr: Who is right?

The Industrial Revolution that began in Britain in the mid 1700 s and lasted for about half a century has left many economists debating on its origins and the eternal questions of why? and how? There has been much research on the topic and many theories have emerged that try and explain some of the shady areas of the topic. There has been debate on whether demand or supply was more prevalent in starting the Industrial Revolution, such as the work done by Elizabeth Gilboy and Joel Mokyr. Gilboy s work Demand as a factor in the Industrial Revolution was widely accepted in the economic community when it was first published although it has received criticism. One of the critics of the Gilboy thesis, is Joel Mokyr who published Reassessing the Industrial Revolution: A macro view which was a reworking of the Gilboy thesis. The intent of this essay is to compare the works of Gilboy and Mokyr citing importance in their similarities and differences and giving insight into which argument has more merit.

Gilboy s paper starts off by highlighting that in economic history the factor of supply has been overemphasized and that classical economists accepted demand as constant. Gilboy states that there was a movement towards the factory system, and that this system could not be profitable unless there was growing demand in the society to utilize the products that it produced. Therefore, there were four conditions necessary for the growth of large-scale production especially in its initial stages; 1) a change in economic habits; 2) an increase in demand; 3) new wants; and, 4) social and economic mobility. If any one of these four factors were present in an economy the others were likely to emerge. These four conditions branded a society that was socially unstable, standards of living were changing, and class lines were not clearly drawn.

Gilboy s thesis is developed and she asserts that an increase in population alone may have little influence on stimulating methods of production. A population increase by itself may only lead to diminishing returns and falling incomes with no or little increase in demand. If diminishing returns set in, the population will either emigrate or die of starvation or disease. Although she does say that a population increase, along with other factors, will yield the discovery of new and more profitable production methods and industrial goods. Thus, new production methods may be invented but a complete change of social structure is needed to initiate a revolution

Gilboy s initial arguments are advanced by a more in-depth explanation. In order for an upward shift in the demand curve there must be an increase in the real income of the population. Real incomes must rise either through a rise in prices or a rise in money income, so the majority of the population has more to spend. Gilboy stresses a change in attitudes within the population, which are necessary to lead to an increase in real income.

Gilboy expands with the next argument of her work that states that the tastes of the population are changed in nature and in quantity. New commodities are incorporated into the consumption of the group. If there is an economic surplus people will extend more items into their daily consumption. If there is no economic surplus people are motivated to work harder in order to obtain the economic surplus to be able to incorporate these new wants into their daily consumption.

The last part of Gilboy s work expresses that there must be interclass competition. People must move, or, believe that they can move to different social classes. Once luxury articles of the rich move down through the different classes of social structure they will become a necessity for all.

Gilboy s conclusion closes off her study by reiterating that there was a rise in real income which was the stimulus for the expansion of industry, and that demand s relation to production should be clearly recognized.

Mokyr s study Demand vs. Supply in the Industrial Revolution was an attempt to reformulate Gilboy s thesis because Mokyr believed that there were many issues that were overlooked in the widely accepted writing. Since Mokyr s study was a reworking of Gilboy s, only the main criticisms of Gilboy s thesis will be discussed.

The main point in Gilboy s work was that there was not enough emphasis on demand as a basis for study of the Industrial Revolution. Mokyr agrees with parts of Gilboy s work but has a lot of criticism of certain points and gives examples to disprove these points.

Mokyr sets up his rearrangement of Gilboy s thesis in four parts. Each section is proven using both his research and the research and interpretation of other economists to rework Gilboy s thesis. The first section asks the question: Did the demand curve shift? Gilboy states that an increase in population along with certain factors will be a stimulus to the discovery of new and more profitable production methods and industrial goods. Mokyr argues this concept saying that an increase in population will not increase the demand for industrial goods. Mokyr argues that a population increase, leads to greater demand for agricultural goods rather than industrial. His proof for this statement is stated in the preceding paragraph:

A decline in prices of agricultural goods will lead to an increase in the demand for nonagricultural goods if, ceteris paribus, the demand for agricultural goods is inelastic, as is usually assumed the theory (Gilboy s) runs into a timing dilemma: whereas agricultural prices fell in the first part of the eighteenth century, they started to rise after 1750 . to the end of the Napoleonic wars. (Mokyr, p98)

Mokyr goes on to mention that population increased demand by less than 10 percent of total output growth for the first half of the century and probably less than that for the period 1750-1801. He says that the demand for increased industrial production was marginal.

Other economists have to tried to credit the Gilboy thesis by saying that a rise in agricultural prices due to bad harvests could increase the demand for industrial goods. Since the supply of agricultural goods would decline, farm income would rise giving farmers more to spend and increasing the demand for non-agricultural goods. Mokyr disproves this defense of the Gilboy thesis by noting that using a general equilibrium framework, it can be proven that both goods are normal, therefore making it impossible for this defense to work. Only if both goods are inferior goods is it possible for non-agricultural goods to extend because of harvest failures. Thus this part of Gilboy s thesis can be ruled out as being incorrect.

Another defense of the Gilboy thesis comes from the work of Eric Jones and others, which showed that agricultural productivity increased throughout the period of 1750-80. This work does not help to explain the growth in industrial production. If the increased demand for agricultural goods came at the expense of industrial goods then again the Gilboy thesis is does not work.

The second part of Mokyr s work is labeled Induced Technological Change and Economies of Scale. In this part of his work Mokyr argues against Gilboy s statement that the supply curve shifts outward as a result of increases in demand. He argues this point by bringing up the Kennedy concept of induced innovation which shows how market conditions affect the location of an economy on a given innovation possibility frontier. For the Gilboy thesis to hold true demand should be able to shift the frontier outward. This assumes that there is a market for inventions. The demand for technological progress is dependent on the demand for the final good. Hence, Mokyr asks the question: Whence the initial shift in demand? (Mokyr, p 102)

Moreover, there have been doubts that a market for inventions existed at all. As well, this theory that there was a market for inventions is subject to various market failures. The key market failure is the fact that the price on the vertical axis of this supply and demand model is not specified. Since each invention is produced only once, the producer has no firm basis on which to estimate his returns. Even further, the financial gain is only a minor consideration for many inventors.

Mokyr s third point looks at a macroeconomic analysis of the Gilboy thesis. This third part can be summarized in the preceding two excerpts from Mokyr s writing:

An alternative interpretation of the Gilboy thesis maintains that an expansion of demand for industrial goods does not necessarily have to come at the expense of other goods. This would be the case if the preindustrial economy had large amounts of underutilized resources. Indeed, without unemployed reserves of factors, economic expansion initiated by demand would have run into difficulties. If there were large reservoirs of involuntarily unemployed labor, increases in demand would set into motion a multiplier mechanism, which, enforced by induced investment, could have led to the Industrial Revolution. (Mokyr, p107)

Mokyr argues this view by saying that unemployment is by no means the same as underutilized resources. It would only hold true if aggregate demand were insufficient so that people willing and able to work could not find employment. More light on Mokyr s thought of this theory is shed in the following paragraph:

If considerable involuntary unemployment had existed in preindustrial and early industrial economies, it should be expected that sudden expansions of aggregate demand should have affected output and employment in a significant way. It seems, however, that in the one test case for which evidence exists, the Napoleonic Wars, this was not the case. It may thus be inferred tentatively that preindustrial and early industrial economies were as a rule on their transformation curves. This is not to say that in no sense were there any under-utilized resources in preindustrial Europe that could be brought into productive activity during the industrialization process. Obvious examples are a better allocation of resources due to increased efficiency of the market mechanism or the formation of additional factors of production complementary to labor. But such movements should be viewed properly as supply and not as demand-related phenomena. (Mokyr, p109)

Mokyr then concludes his argument by reiterating his intent in writing his essay was to examine Gilboy s hypothesis in every possible interpretation, and to decide whether to assign an important role to demand factors in the explanation of the Industrial Revolution. He says that the questions of when, where and how fast are to be sought in supply, not demand related processes. Mokyr ends by stating that the wide and uncritical acceptance of the Gilboy thesis is an error and that he hopes that his essay will make skeptics out of some Gilboy s followers.

There are many differences in opinion between the two essays and this difference can be attributed to two factors. There is a difference in assumptions and a difference in the supporting data used.

In comparing the two essays described above there is evidence that there is a difference in assumptions. Firstly, Gilboy s essay was a new way to look at a complex part of history. Before Gilboy, many economists had investigated the many aspects of the Industrial Revolution but had mainly focused on supply-side issues as she described in her opening remarks. She decided to look at the different events of the Industrial Revolution using demand as a key factor in the rise of the Industrial Revolution. Gilboy did not say that demand is more important than supply but rather investigated deeper into the demand side of the factors that led to the Industrial Revolution, which she believes have been overlooked in the past. Gilboy may have assumed that maybe more light would be shed in looking through demand-related processes and that is what caused her to investigate further. The wide acceptance of her studies in economic literature show that many found her work to be refreshing and new. No one else had looked at the events of the Industrial Revolution in that light before. Since there was very little criticism of her writings it was accepted into the economic community.

Mokyr was Gilboy s greatest critic, and basically took her studies and analyzed them piece by piece using different economic interpretations, and showed that there were holes in her arguments. Although Mokyr disagrees with many parts of Gilboy s thesis he does agree that demand had a place in the Industrial Revolution. He explains the place of demand in the Industrial Revolution in the conclusion of his essay. Mokyr emphasizes though, that the profound questions of the Industrial Revolution must me pursued in supply rather than demand-related processes.

Another issue that may bring up the disagreement between Gilboy and Mokyr may have been the data they used. From reading the essay, one would notice that each, Gilboy and Mokyr used different sources of data. The reason for this may have been that each wanted to give convincing arguments of their thesis and chose data that could be used in their favour. When Gilboy first started her study she knew that she wanted to write about the demand-side factors and so she formulated her thesis. To prove this thesis she would have had to use data that was prevalent in proving what she wanted to say. The same approach can be applied to Mokyr. When Mokyr read Gilboy s essay he found things that he did not agree with. So, he formulated a thesis and chose to rework Gilboy s work to show, what he believed, was wrong with hers. He then ventured off into his studies and disproved many of Gilboy s points using his own research and data that helped him prove that Gilboy was wrong.

According to the evidence given in the two pieces of writing one can come to a conclusion about which theory is more correct. If one were to read the two essays they would find more merit in Mokyr s work than in Gilboy s. The traditional notion that supply and demand were somehow symmetric in the industrialization process is unfounded. Mokyr was more convincing in the way he used his data to support his views. He stated that his purpose for writing the essay was to rework Gilboy s thesis and into a workable form because Gilboy had many holes in her arguments. He used key points of analysis citing reference from different studies as well as giving general examples to solidify his arguments. Whereas, Gilboy s references were not clearly pinpointed and it seemed as though she was just giving her opinion instead of relying on solid information. Mokyr took Gilboy s work and broke it down piece by piece and analyzed each part thoroughly before inserting data that he collected and then reanalyzing it with examples. Where Gilboy just stated that demand needed more exposure, Mokyr actually scrutinized each segment of Gilboy s thesis and gave illustrations from other theories. He then followed up technically on his points by using economic theory to solidify what he was saying. The determination of when, where, and how fast are to be sought first and foremost in supply, not demand-related processes.