Industrial Revolution and the Standard of Living
By Clark Nardinelli
Between 1760 and 1860, technological progress, education, and an increasing capital stock transformed England into the workshop of the world. The industrial revolution, as the transformation came to be known, caused a sustained rise in real income per person in England and, as its effects spread, in the rest of the Western world. Historians agree that the industrial revolution was one of the most important events in history, marking the rapid transition to the modern age, but they disagree vehemently about many aspects of the event. Of all the disagreements, the oldest one is over how the industrial revolution affected ordinary people, often called the working classes. One group, the pessimists, argues that the living standards of ordinary people fell, while another group, the optimists, believes that living standards rose.
At one time, behind the debate was an ideological argument between the critics (especially Marxists) and the defenders of free markets. The critics, or pessimists, saw nineteenth-century England as Charles Dickens’s Coketown or poet William Blake’s “dark, satanic mills,” with capitalists squeezing more surplus value out of the working class with each passing year. The defenders, or optimists, saw nineteenth-century England as the birthplace of a consumer revolution that made more and more consumer goods available to ordinary people with each passing year. The ideological underpinnings of the debate eventually faded, probably because, as T. S. Ashton pointed out in 1948, the industrial revolution meant the difference between the grinding poverty that had characterized most of human history and the affluence of the modern industrialized nations. No economist today seriously disputes the fact that the industrial revolution began the transformation that has led to extraordinarily high (compared with the rest of human history) living standards for ordinary people throughout the market industrial economies.
The standard-of-living debate today is not about whether the industrial revolution made people better off, but about when. The pessimists claim no marked improvement in standards of living until the 1840s or 1850s. Most optimists, by contrast, believe that living standards were rising by the 1810s or 1820s, or even earlier.
The most influential recent contribution to the optimist position (and the center of much of the subsequent standard-of-living debate) is a 1983 paper by Peter Lindert and Jeffrey Williamson that produced new estimates of real wages in England for the years 1755 to 1851. These estimates are based on money wages for workers in several broad categories, including both blue-collar and white-collar occupations. The authors’ cost-of-living index attempted to represent actual working-class budgets. Lindert’s and Williamson’s analyses produced two striking results. First, they showed that real wages grew slowly between 1781 and 1819. Second, after 1819, real wages grew rapidly for all groups of workers. For all blue-collar workers—a good stand-in for the working classes—the Lindert-Williamson index number for real wages rose from 50 in 1819 to 100 in 1851. That is, real wages doubled in just thirty-two years.
Other economists challenged Lindert’s and Williamson’s optimistic findings. Charles Feinstein produced an alternative series of real wages based on a different price index. In the Feinstein series, real wages rose much more slowly than in the Lindert-Williamsons series. Other researchers have speculated that the largely unmeasured effects of environmental decay more than offset any gains in well-being attributable to rising wages. Wages were higher in English cities than in the countryside, but rents were higher and the quality of life was lower. What proportion of the rise in urban wages reflected compensation for worsening urban squalor rather than true increases in real incomes? Williamson—using methods developed to measure the ill effects of twentieth-century cities—found that between 8 and 30 percent of the higher urban wages could be attributed to compensation for the inferior quality of life in English cities. John Brown found that much of the rise in real wages in the factory districts could be explained as compensation for poor working and living conditions. Another criticism of Lindert’s and Williamson’s optimistic findings is that their results were for workers who earned wages. We do not know what happened to people who worked at home or were self-employed. Because the consumption per person of tea and sugar, thought of as luxury goods at the time, failed to rise along with real wages, Joel Mokyr has suggested that workers who were not in the Lindert-Williamson sample may have suffered sufficiently deteriorating real incomes to offset rising wage income; in other words, the average person was no better off. Mokyr’s explanation could also explain a lag between industrialization and the diffusion of its benefits.
What does “standard of living” mean? Economic historians would like it to mean happiness. But the impossibility of measuring happiness forces them to equate the standard of living with monetary measures such as real wages or real income. “Real income” is usually defined as money income adjusted for the cost of living, but not for effects of things such as health, longevity, unemployment, pollution, the condition of women and children, urban crowding, and the amount of leisure time. Although some new indexes attempt to capture the various dimensions of well-being, for most practical purposes real income per person remains the most telling indicator.
According to estimates by economist N. F. R. Crafts, British income per person (in 1970 U.S. dollars) rose from about $400 in 1760 to $430 in 1800, to $500 in 1830, and then jumped to $800 in 1860. (For many centuries before the industrial revolution, in contrast, periods of falling income offset periods of rising income.) Crafts’s estimates indicate slow growth lasting from 1760 to 1830 followed by higher growth beginning sometime between 1830 and 1860. For this doubling of real income per person between 1760 and 1860 not to have made the lowest-income people better off, the share of income going to the lowest 65 percent of the population would have had to fall by half for them to be worse off after all that growth. It did not. In 1760, the lowest 65 percent received about 29 percent of total income in Britain; in 1860, their share was down only four percentage points to 25 percent. So the lowest 65 percent were substantially better off, with an increase in average real income of more than 70 percent.
The estimates of real income imply that a mildly optimistic conclusion on living standards is justified for the century after 1760. But the long period of slow growth makes pessimistic conclusions about shorter periods plausible. For example, did the working class become worse off during the early years of England’s industrialization (1760–1830), when Crafts’s estimates show real income per person growing at only about 0.3 percent annually? Growth at such a slow rate made deterioration in the lot of the working classes possible. A simple numerical illustration will show why. If we take 0.3 percent per year as the annual rate of growth of real income, average real income in 1830 would have been about 16 percent higher than in 1760. The share of total income going to the lowest 65 percent of the income distribution need only have fallen to 86 percent of its 1790 level to negate the benefit of rising average income. Most economic historians agree that the distribution of income became more unequal between 1790 and 1840. Moreover, if we add the effects of unemployment, poor harvests, war, pollution, urban crowding, and other social ills, the modest rise in average income could well have been accompanied by a fall in the standard of living of the working classes.
Other evidence supports the conclusion of slow improvement in living standards during the years of the industrial revolution. Crafts and C. K. Harley have emphasized the limited spread of modernization in England throughout most of the century of the industrial revolution. Feinstein estimated consumption per person for each decade between the 1760s and 1850s, and found only a small rise in consumption between 1760 and 1820 and a rapid rise after 1820. On the other hand, according to historians E. A. Wrigley and Roger S. Schofield, between 1781 and 1851, life expectancy at birth rose from thirty-five years to forty years, a 15 percent increase. Although this increase was modest compared with what was to come, it was nevertheless substantial.
The research of economic historians, then, has altered the old standard-of-living debate. They now seek to answer not the question of what happened to the standard of living, but the question of the effect of the industrial revolution net of other historical events. For example, the positive effect of the industrial revolution may well have been offset by the negative effect of frequent wars (the American Revolution, the Napoleonic Wars, the War of 1812) and the high taxes that accompanied them. Some economic historians include bad harvests, misguided government policies, rapid population growth, and the costs of transforming preindustrial workers into a modern labor force as additional causes of slow growth. In a counterfactual simulation, Mokyr has shown that without the technological changes of the industrial revolution, population growth could have substantially reduced real income per person between 1760 and 1830. In other words, the net effect of the industrial revolution was strongly positive but was largely offset by the negative effects of rapid population growth.