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Summary EH101 MT5 Readings
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- EH101 (EH101)
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- London School Of Economics (LSE)
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MT5 EH101 Essential ReadingsSteam as a General Purpose Technology: A Growth Accounting Perspective
Author(s): Nicholas Crafts
Source: The Economic Journal, Apr., 2004, Vol. 114, No. 495 (Apr., 2004), pp.
338-351 Published by: Oxford University Press on behalf of the Royal Economic
Society
Introduction
A general purpose technology is a type of tech that has room for improvement and can be
used in various ways.
“A GPT can be define that initially has much scope for improvement and eventually used, to have
many uses, and to have many Hicksian and tech mentarities' (Lipsey et al., 1998a, p.43)” (pg 338)
The economic effect of GPTs is not consistent and can improve and decline economic growth
in a fluctuating way. The impact of GPTs on productivity in the beginning is not recognised
because people have not understood its use yet, but overtime it has significant growth
effects, it is just delayed in the beginning.
“An interesting aspect of the occasional arrival of new GPTs macroeconomic outcomes is that they imply that
the growth process may be subject to episodes of sharp acceleration and deceleration. The initial impact of a
GPT on overall productivity growth is typically minimal and the realisation of its eventual potential may take
several decades such that the largest growth effects are quite long-delayed, as with electricity in the early
twentieth century (David, 1991).”
The diffusion of steam power in Britain in the 18 th and 19th centuries (page 341)
The money gained from steam engines was very slow. Only until 1830 where water steam was the
same as water as a source of power and only 165,000 steam horsepower were implemented.
“that accumulation of capital in the form of steam engines was rather slow. James Watt's improved steam
engine was patented in 1769. Yet, it was only in 1830 that steam reached parity with water as a source of
power in the economy at which point only 165,000 steam horsepower had been installed representing about
1.5% of the total capital stock.”
Water power was very cost effective and steam engines were used in mining and cotton textiles and
important sectors of the economy did not use it at all.
“For a very long time, water power remained cost effective in many activities. Even in 1870 almost half of all
steam power was used in mining and in cotton textiles while important sector in the economy including
agriculture and services (apart from transport) were virtually untouched by steam.” (page 342)
Originally steam power was used at a low pressure but was later acknowledged that it is more
effective, and less coal power could be used, if it was used a higher pressure. This requires great
innovation and manufacturing to accomplish.
“Steam technology took a long time to perfect. The original Watt engines were a low pressure design whereas
it was later realised that a much lower consumption could be achieved with high pressure. In turn, reliable high
pressure steam engines required big improvements in the design and manufacture of boilers.”
, The steam technology around steamships was based on the availability of cheap steel because it was
light weight so the ships could hold more cargo, otherwise it would require coal power which is not as
efficient.
“The switch from sailing ships to steamships also depended on moves to high pressure steam which increased
fuel efficiency. Here though the steam technology was based on compound engines and the eventual triumph
of steam was based on the availability by the 1880s of cheap, high-quality steel which reduced hull weights.
Until these developments the economic viability of steam voyages was undermined by the proportion of
capacity that had to be devoted to coal storage as opposed to cargo and this increased sharply with distance.”
Railways in the beginning depended on steam engines. In the early 1850s there was a network of
7000 miles of track open and grew to 20,000 miles. Railways were a big investment in the British
economy and total miles train ran went from 60 million per year (1850s) to 200 million by mid 1870s,
400 million 1910s.
“This form of transport was initially wholly dependent on steam engines and can be seen as a manifestation of
a developing GPT at work… By the early 1850s the core trunk routes of the network were in place and about
7000 miles of track were open. Eventually the network grew to about 20,000 miles. Railways were a massive
investment by the British economy which was undertaken rapidly such that by 1855 their capital stock was
equal to 30% of GDP. Total train miles grew from about 60 million per year in the early 1850s to 200 million by
the mid-1870s and a little over 400 million by 1910 (Mitchell, 1988, pp. 541-7).” (page 343)
3. The contribution of Steam to Productivity Growth, 1760-1910
Before 1850, steamships did not contribute to economic growth because they used too much coal
and it was only till after 1870 where they improved productivity growth due to the era of high-
pressure steam.
“No attempt has been made to quantify contribution prior to 1850 but it was entirely trivial since the net stock
of capital in steamships was only £2.4 mn in 1850 (Feinste, 1998, p. 351). Prior to that time steamships were
generally uneconomic because they used far too much coal to permit an adequate payload. The results show
that steamships added significantly to productivity growth after 1870. They reinforce the point that the main
impetus to growth from steam came in the era of high pressure working in the second half of the nineteenth
century.”
During the industrial revolution steam was not very useful, and its impact peaked in later 19 th century
and maintained its usefulness until World War 1. ICT had a longer lasting impact on productivity
growth compared to steam.
“This confirms that the impact of steam was very small during the industrial revolution, peaked in the third
quarter of the 19th century and was well-sustained through till World War 1… steam had a much smaller
impact on annual productivity growth than did ICT in the US even before the mid 1990s – at no time does
steam’s contribution math the 0.68% per year of ICT in 1974-90.” (page 346)
General purpose technologies have great impacts on productivity but there is a time lag in which this
can be seen. Within the time of GPTs having an impact on productivity, there was major innovation
and research done to understand the potential of GPTs. (page 348)
“the major impact of a GPT on productivity in the world leading economy of the day may be very long delayed.
While electricity delivered its major boost to American economic growth about 40 years after the first
commercial generating stations came on stream (David, 1991), the lag following James Watts steam engine
was about 80 years. In a proximate sense, this long delay resulted from the time taken to understand the true
potential of steam in an era when science and technology were relatively primitive.”
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