Advanced Search
MyIDEAS: Login to save this paper or follow this series

Spinning Welfare: the Gains from Process Innovation in Cotton and Car Production

Contents:

Author Info

  • Tim Leunig
  • Joachim Voth

Abstract

Economists and economic historians want to know how much better life is today than in the past. Fifty years ago economic historians found surprisingly small gains from 19th century US railroads, while more recently economists have found relatively large gains from electricity, computers and cell phones. In each case the implicit or explicit assumption is that researchers were measuring the value of a new good to society. In this paper we use the same techniques to find the value to society of making existing goods cheaper. Henry Ford did not invent the car, and the inventors of mechanised cotton spinning in the industrial revolution invented no new product. But both made existing products dramatically cheaper, bringing them into the reach of many more consumers. That in turn has potentially large welfare effects. We find that the consumer surplus of Henry Ford's production line was around 2% by 1923, 15 years after Ford began to implement the moving assembly line, while the mechanisation of cotton spinning was worth around 6% by 1820, 34 years after its initial invention. Both are large: of the same order of magnitude as consumer expenditure on these items, and as large or larger than the value of the internet to consumers. On the social savings measure traditionally used by economic historians, these process innovations were worth 15% and 18% respectively, making them more important than railroads. Our results remind us that process innovations can be at least as important for welfare and productivity as the invention of new products.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://cep.lse.ac.uk/pubs/download/dp1050.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp1050.

as in new window
Length:
Date of creation: May 2011
Date of revision:
Handle: RePEc:cep:cepdps:dp1050

Contact details of provider:
Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

Related research

Keywords: Process innovations; new goods; welfare; consumer surplus; mechanisation; massproduction; automobiles; cotton; industrial revolution; second industrial revolution;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. C. Knick Harley, 1998. "Cotton Textile Prices and the Industrial Revolution," Economic History Review, Economic History Society, vol. 51(1), pages 49-83, 02.
  2. Christian Broda & David Weinstein, 2004. "Globalization and the gains from variety," Staff Reports 180, Federal Reserve Bank of New York.
  3. Leunig, Timothy, 2001. "NEW ANSWERS TO OLD QUESTIONS: EXPLAINING THE SLOW ADOPTION OF RING SPINNING IN LANCASHIRE, 1880 l913," The Journal of Economic History, Cambridge University Press, vol. 61(02), pages 439-466, June.
  4. Jonathan Hersh & Joachim Voth, 2009. "Sweet diversity: Colonial goods and the rise of European living standards after 1492," Economics Working Papers 1163, Department of Economics and Business, Universitat Pompeu Fabra, revised Jan 2011.
  5. Herranz-Lonc n, Alfonso, 2006. "Railroad Impact in Backward Economies: Spain, 1850 1913," The Journal of Economic History, Cambridge University Press, vol. 66(04), pages 853-881, December.
  6. Gary R. Saxonhouse & Gavin Wright, 1984. "New Evidence on the Stubborn English Mule and the Cotton Industry, 1878-1920," Economic History Review, Economic History Society, vol. 37(4), pages 507-519, November.
  7. C. Knick Harley, 1999. "Cotton textile prices revisited: a response to Cuenca Esteban," Economic History Review, Economic History Society, vol. 52(4), pages 756-765, November.
  8. Lazonick, William, 1981. "Factor Costs and the Diffusion of Ring Spinning in Britain Prior to World War I," The Quarterly Journal of Economics, MIT Press, vol. 96(1), pages 89-109, February.
  9. Coatsworth, John H., 1979. "Indispensable Railroads in a Backward Economy: The Case of Mexico," The Journal of Economic History, Cambridge University Press, vol. 39(04), pages 939-960, December.
  10. Austan Goolsbee & Amil Petrin, 2004. "The Consumer Gains from Direct Broadcast Satellites and the Competition with Cable TV," Econometrica, Econometric Society, vol. 72(2), pages 351-381, 03.
  11. Jerry Hausman, 1997. "Cellular Telephone, New Products and the CPI," NBER Working Papers 5982, National Bureau of Economic Research, Inc.
  12. Karen A. Kopecky & Jeremy Greenwood, 2008. "Measuring the Welfare Gain from Personal Computers," 2008 Meeting Papers 491, Society for Economic Dynamics.
  13. Fogel, Robert William, 1962. "A Quantitative Approach to the Study of Railroads in American Economic Growth: A Report of Some Preliminary Findings," The Journal of Economic History, Cambridge University Press, vol. 22(02), pages 163-197, June.
  14. Feenstra, Robert C, 1994. "New Product Varieties and the Measurement of International Prices," American Economic Review, American Economic Association, vol. 84(1), pages 157-77, March.
  15. James Wilson & Alan McKinlay, 2010. "Rethinking the assembly line: Organisation, performance and productivity in Ford Motor Company, c. 1908-27," Business History, Taylor & Francis Journals, vol. 52(5), pages 760-778.
  16. Amil Petrin, 2002. "Quantifying the Benefits of New Products: The Case of the Minivan," Journal of Political Economy, University of Chicago Press, vol. 110(4), pages 705-729, August.
  17. Leunig, Timothy, 2006. "Time is Money: A Re-Assessment of the Passenger Social Savings from Victorian British Railways," The Journal of Economic History, Cambridge University Press, vol. 66(03), pages 635-673, September.
  18. Paul Nieuwenhuis & Peter Wells, 2007. "The all-steel body as a cornerstone to the foundations of the mass production car industry," Industrial and Corporate Change, Oxford University Press, vol. 16(2), pages 183-211, April.
  19. Summerhill, William R., 2005. "Big Social Savings in a Small Laggard Economy: Railroad-Led Growth in Brazil," The Journal of Economic History, Cambridge University Press, vol. 65(01), pages 72-102, March.
  20. Ciliberto, Federico, 2009. "Were British Cotton Entrepreneurs Technologically Backward? Firm-Level Evidence on the Adoption of Ring-Spinning," MPRA Paper 18533, University Library of Munich, Germany.
  21. Fogel, Robert William, 1979. "Notes on the Social Saving Controversy," The Journal of Economic History, Cambridge University Press, vol. 39(01), pages 1-54, March.
  22. Nicholas Crafts, 2004. "Social savings as a measure of the contribution of a new technology to economic growth," Economic History Working Papers 22554, London School of Economics and Political Science, Department of Economic History.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:cep:cepdps:dp1050. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.