Cotton and the Plantation Economy

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Interesting but technical article about the effect of Indian Cotton on British factories.

Econometrica, Vol. 83, No. 1 (January, 2015), 67–100
NECESSITY IS THE MOTHER OF INVENTION: INPUT SUPPLIES
AND DIRECTED TECHNICAL CHANGE
BY W. WALKER HANLON
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I exploit the impact of the U.S. Civil War on the British cotton textile industry, which reduced supplies of cotton from the Southern United States, forcing British producers to shift to lower-quality Indian cotton. Using detailed new data, I show that this shift induced the development of new technologies that augmented Indian cotton. As these new technologies became available, I show that the relative price of Indian/U.S. cotton rebounded to its pre-war level, despite the increased relative supply of Indian cotton. This is the first paper to establish both of these patterns empirically, lending support to the two key predictions of leading directed technical change theories.

To do so, it exploits a large exogenous shift in relative supplies to the British cotton textile industry caused by the U.S. Civil War (April 1861–April 1865). The war, which included a blockade on Southern shipping by the Union Navy, sharply increased the cost of supplying U.S. cotton from the South. The result was a sharp depression in the industry; output dropped by as much as 50% and hundreds of thousands of mill operatives found themselves out of work or working short-time. The shortage of U.S. cotton forced British producers to turn to raw cotton from alternative suppliers, chiefly India. However, the cotton available from India differed from American cotton in important ways; it was a low-quality variety that was difficult to clean and prepare for the spinning process. Thus, this event generated a sharp shift in the relative supplies of two similar, but not identical, inputs to the production process. Historians and contemporary observers have noted the important changes that took place as a result of this event. D. A. Farnie, in his authoritative history of the British cotton textile industry, wrote, “The shortage of American cotton compelled employers to re-equip their mills in order to spin Surat [Indian cotton], and especially to improve their preparatory processes. . . The reorganization of the preparatory processes entailed such an extensive investment of capital that it amounted almost to the creation of a new industry. . . ”3

The first contribution of this paper is to document the pattern of directed technical change generated by the shock to input supplies. Using detailed new patent data, I show that the Civil War time period was characterized by a sharp increase in innovation in three types of cotton textile machinery—gins, open- ers/scutchers, and carding machines—that were particularly important for ad- dressing the key bottlenecks in the use of Indian cotton. Comparing these three technology types to all other cotton spinning technologies, I document substan- tial increases in innovation in technologies related to the use of Indian cotton. Innovators reacted quickly, introducing simple improvements in technologies during the first year of the war, followed by more advanced machines in later years. Innovation in technologies related to Indian cotton peaked three years into the conflict, and remained high one to two years after the end of the war. Thus, the patent data reveal substantial directed technical change toward technologies that augmented Indian cotton.​
 
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