David Ames Wells on productivity

Ames Wells’ view that over-production was a symptom, not a cause of the period known as the Long Depression. In chapter 2 he raises productivity growth as the fundamental cause of the Long Depression. His descriptions of change are fascinating:

Evidence gathered at the time put the improvement in labour productivity at somewhere between 30% and 80%. At the high end of the range, he describes an 80% rise in shoe manufacturing and 65% in carriage making.

1869 is the most important year. This is the year the Suez Canal opened. The journey from Calcutta to Europe (London importantly) went from six to eight months to thirty days. The consequences were enormous.

Shipping stock became redundant; new steamships built in 1870-1873 made sail redundant (the journey time limited energy use sufficiently to make steam efficient) but by 1875-76 the first steam ships could not be sold for half their price, and by 1885 these vessels were of no use compared to ships with 50% lower fuel consumption.

Inventory management was turned on its head. Instead of product being warehoused in London, the first European port of call from the Cape, product was warehoused at sea. (Imagine the loss of bank assets because  UK warehousing loses its market). In 1871, India exported GBP57mn, of which GBP31mn landed in the UK. In 1885, India exported GBP85mn, of which GBP32mn landed in the UK.

Ames Wells describes the miracle of a merchant in Boston ordering a consignment of leather bags in Calcutta in a 24 hour period.

This disaggregation of Indian trade through Europe led to better retail distribution networks. Ames Wells highlights the provision of paper bags by grocers as an important development!

The Italian rice trade was decimated by Burmese rice. Burmese rice imports to southern Europe rose by 800% in 9 years.

Freight rates per bushel fell from 32c in 1880 to 16c in 1885. Freight created efficiencies: India’s trade with the world, in nominal terms, fell by 10% between 1869 and 1874 but in real terms, this smaller nominal amount of trade required 250,000 more tonnes of shipping on a route that was much shorter.

The transport of fresh meat went from 50c a pound in 1860 to 1c a pound in 1888. A bushel of wheat from New York to London fell in freight price from 27c in 1860 to 0.5c in 1888.

Similarly, there were 60bn tons carried in 1887 at a cost of $10 per capita. If the same tons were carried by horse, the cost would be $200 per capita, or more than the per capita production of the US. In other words, without efficiencies of rail and ship, the US could not have moved or produced as much as it had.

Part of the cost reduction was in man power. In 1870, one thousand tons of freight required 47 men but by 1885 it was 27. Steam hoists and other mechanical devices contributed to the improvement. These faster ships cost less. In 1873 it was $90 a ton, in 1887 it was $34 a ton.

But the biggest improvement was steel production. Bessemer steel, the big innovation, fell in price from $80 per ton to $20 per ton. All of a sudden everything made with iron became stronger and faster, steam ships, rail roads and steam trains, plus engines for manufacturing. The method meant a ton of steel could be made with half a ton of coal instead of a ton of coal.

The cost of rail went from $40,000 per mile to $20,000 per mile.

The freight improvement created commodity markets: for instance wheat prices in France varied on average by 45 francs across the economy in 1817, 26 francs in 1847 but by just 3.55 francs in 1870. If a country had a bad crop, it could be replaced from elsewhere.

While labour use fell in many industries, despite the deflation, wages actually rose. In cotton mills they rose from $176 in 1847 to $285 in 1886. In the Dakotas, wages were $25 a month plus board, with a production cost of 40c a bushel, by comparison, in Prussia, wages were $6 per month with a production cost of 80c. Productivity gets you paid.

Bottle blowing was ended – the new process created one third less waste while shoe production rose 400% between 1845 and 1885. Mill stones were abandoned for steel rollers which led to better flour at a lower cost. Apparently making a millstone was difficult work with an apprenticeship requiring four to five years.

He describes close to 40 different inventions of the period, including photography, steel wire, mechanical reapers, electricity, sewing machines, cranes and hydraulic lifts.

It’s a fascinating chapter that describes an extraordinary time. A time so similar to our own. We don’t think enough about productivity.

2 responses to “David Ames Wells on productivity

  1. I think you might have your blog set to machine gun mode…..

    Love your work though.

    Patrick Sheppard, Principal Adviser, Appian Way Financial Services Pty Ltd

    >

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s