This article was originally published on Medium.
The industrial revolution can be thought of as the starting point of how the modern world has ended up. Prosperity worldwide has skyrocketed  and life expectancy has doubled  in most countries since its advent. The period has nonetheless generally gotten a negative image among many today, following works like those of Charles Dickens, Friedrich Engels and J.L. and Barbara Hammond, who characterize it as plagued by child labor and horrific working conditions. It’s certainly true that the industrial revolution at first led to an immediate increase in demand for child labor, as new machines lowered the criteria for competence necessary for work; child labor was cheaper than adult labor; and that children could more easily go through narrow passages (i.e. in mines) than the adults could. In 1861, around 36.9% of British boys between 10 and 14 years were in work, and in Italy that rate was up to 81.3% in 1881. As the industrial revolution continued, however, the rate started sinking, in Britain down to 22.9% by 1881 and in Italy down to 56.6% by 1901 . The rate also started sinking much earlier. In 1788, 2/3 of those working with heavy equipment by 143 watermills were children, while the rate in 1835 (before the Factory Act of 1833 had fully taken effect) was 43% in the contemporary 982 water mills . In this article I’ll discuss the causes of the reduction of child labor during the industrial revolution.
To understand why child labor has decreased, one must first understand why child labor occurs at all. Lawrence Reed  cites J.L. and Barbara Hammond to have made an important distinction between “free labor” children and “parish apprentice children” (in other sources  called “pauper apprentices”) based on different reasons why the children are in work. The first group include those who are in work because their families are so poor that they’re fully dependent on whatever source of income they can get to survive. Such a source of income was quite significant for many poor families as 1/3 of them were without any breadwinner . Poverty as we see it today was pretty much universal up to the industrial revolution. For the free farmers pre-industrial revolution harvested their own food, and if they had a surplus, they could sell it and buy other things they wanted. With such a dependency on agriculture for one’s lifestyle, there was much at stake when natural disasters and a lack of rain took place. The factory life during the industrial revolution was for many an alternative to such a risky dependency and being at the brink of starvation when catastrophes ensued. Whatever horrific conditions there may have been at the factory, it was for many a better alternative than they would have otherwise, which is why they would voluntarily accept that risk.
The other group, in contrast, was quite different. They were children who had been bought by businesses from poorhouses and orphanages to work. They had, so to speak, pretty much been sold into slavery as property. Businesses were quite dependent on this group of child workers. With just free labor children, they had a shortage of labor, as many parents didn’t want to let their kids work at the new textile factories. The solution for the businesses was to hire cheap “parish apprentice” child labor, which they were more uncomfortable to report about than free labor children when the authorities investigated their factories. This is the kind of child labor that is shown in Oliver Twist, where the children didn’t appear to have any alternatives or opportunities to negotiate for an increase in wages, food, or to better other working conditions.
One can imagine that one could solve the latter kind of child labor by the State legislating against child labor, or to banishing it completely. The problem with this proposal is that it would have a negative effect on the former kind, who are completely dependent on that alternative. In the first half of the 19th century, a large debate ensued about child labor in Britain following the significant changes in child labor from working in agriculture to tough work in factories and mines. The state also started involving itself, and made investigations like the Sadler report of 1832, which became quite known for its abhorrent details of bullying and violence against child workers . An investigation done the following year showed that the Sadler report exaggerated, but in 1833 several restrictions were placed on child labor in Britain under the Althorp’s Act, such as an age restriction of nine years in most sectors, maximum limits of the number of times certain age groups could work daily, and the imposition of an obligatory lunch break . Merely discussions or rumors that the state may set restrictions on child labor was enough to discourage employers from hiring children, as they understood it could complicate matters for them in the future. The change in the rate of child labor between generations at this time appears to reflect this concern. In a study conducted from 1818 to 1819, 49.9% of cotton workers had started to work at the factory when they were under 10 years . When the study was conducted, in contrast, it was only 3.9% of the workers there in the same age group, whereas 36.9% were 21 years or older. According to John Majewski exaggerated the committees which conducted the investigations because the doctors that testified against child labor had never visited a factory . He also argued that the works of e.g. Dickens and Engels were misleading because they were based upon these reports. To what degree they were misleading is an investigation which lies beyond the scope of this article, which here merely focus on the fact that those reports were in their time used as a basis for legislation.
Such solutions, however, still doesn’t address the problem for free labor children. Solutions to reduce child labor should be focused on making things better for the child, not as a reduction in child labor as a goal rather than a means. The fundamental cause of free labor children is poverty, hence a reduction in poverty must occur to improve the situation for the children and their families. Data from Our World in Data shows the extreme poverty rate falling globally from the 1820s . An enormous reduction doesn’t occur before around the 1970s, but from the beginning of the graph one sees a gradually accelerating reduction.
Solutions to solve poverty can either be viewed from the perspective of the State or the market. Karl Marx and Friedrich Engels systematized Socialism in the mid-1800s and later popularized, which focused on reducing class differences through state (“collective”) ownership of the means of production. “From each according to his abilities, to each according to his needs,” went the slogan. The system was dispelled theoretically quite early. Most notably with the formulation of the incentive problem and the economic calculation problem in the 1920s by the economist Ludwig von Mises , but also earlier with Marx’ contemporary economists like Claude Frederic Bastiat, who also wrote a lot in the mid-1800s. After being tried in practice and ended up with horrific consequences during the 20th century, many have since turned to a “middle way” between Capitalism and Socialism based on gradual changes toward State control, first called Fabianism in Britain and globally called Social Democracy. Former President Lyndon B. Johnson attempted to wage a “war on poverty” in 1964 based on redistribution, which actually ended up making reduction of poverty in the United States stagnate .
The reason for this is that when incentives to work are low for poor people with low competence, they will possibly earn even less money after going into work than they would’ve received otherwise. Another alternative from the side of the State is to impose a minimum wage as a price floor under which businesses aren’t allowed to pay their workers. This alternative was much suggested in the 1900s and is still commonly debated today in many countries (most of all in the US), but as it wasn’t implemented in Britain before 1909 (to 1930, and reimposed in 1998), it will just be noted here that based on both economic theory (supply/demand analysis) and historical statistics indicate that wages for some workers tended to increase, but that it also increased unemployment .
One can also analyze the potential reduction of poverty from the side of the market. A study from Overseas Development Institute shows that economic growth led to a reduction of poverty in 18 of 24 cases globally from the 1980s up to today . The six outliers won’t be discussed here. Why does economic growth lead to a reduction in poverty? There are two ways to explain this from the side of the market. The first relates to what you’re able to buy, and for how much. One is limited out from the wage one has, but a reduction in prices will make it easier for people to fulfill their needs even without an increase in wages. Britain didn’t have a completely free market during the industrial revolution, as there were State monopolies such as East India Company with a lot of power, but it was a lot more based on competition under the industrial revolution when the tariffs were low than under the mercantile system they had earlier. Monopolies can set pretty much as high prices for as low quality as they please as long as people are still willing to purchase the good or service, but when competition is introduced to the market, businesses have to compete for the consumers, who will go to the competitor with the lowest price for the highest quality. This makes the price approach the cost of production (though this will vary depending on profit/loss determined by whether labor and capital were allocated efficiently. More on this here). The cost of production can also decrease when innovation takes place, making it easier and quicker to produce the good. In that way products like phones and computers have gone from being extremely costly and of low quality to have low costs for high quality in under half a century. The same is not the case with sectors subsidized by the State. The graph below shows price changes between 1996 to 2016 on a variety of goods and services. Education, healthcare, the agricultural sector and the housing market are all to a large degree subsidized and regulated by the State. Meanwhile all other sectors have either seen price decreases or small price increases far below the rate of inflation.
Where the market is free and private with incentives as the conductor, therefore, luxury is merely a historical phenomenon, as Ludwig von Mises pointed out, because it only refers to the degree of accessibility the good or service has to the general public at a certain point in time. Under the industrial revolution it was meat, vegetables and fruit that went from luxury to everyday diet. Mises wrote in 1927,
To form a correct conception of the social significance of luxury consumption,
one must first of all realize that the concept of luxury is an altogether relative one. Luxury consists in a way of living that stands in sharp contrast to that of the great mass of one’s contemporaries.The conception of luxury is, therefore, essentially historical. Many things that seem to us necessities today were once considered as luxuries. When, in the Middle Ages, an aristocratic Byzantine lady who had married a Venetian doge made use of a golden implement, which could be called the forerunner of the fork as we know it today, instead of her fingers, in eating her meals, the Venetians looked on this as a godless luxury, and they thought it only just when the lady was stricken with a dreadful disease; this must be, they supposed, the well-merited punishment of God for such unnatural extravagance. Two or three generations ago even in England an indoor bathroom was considered a luxury; today the home of every English worker of the better type contains one. Thirty-five years ago there were no automobiles; twenty years ago the possession of such a vehicle was the sign of a particularly luxurious mode of living; today in the United States even the worker has his Ford. This is the course of economic history. The luxury of today is the necessity of tomorrow. Every advance first comes into being as the luxury of a few rich people, only to become, after a time, the indispensable necessity taken for granted by everyone. Luxury consumption provides industry with the stimulus to discover and introduce new things. It is one of the dynamic factors in our economy. To it we owe the progressive innovations by which the standard of living of all strata of the population has been gradually raised .
Another way to see reduction in poverty from the side of the market is to look at increases in wages. Competition plays a large part here too. When there is competition in the marketplace, will the workers have more opportunities to change jobs or threaten with doing so if they’re dissatisfied with their wages or working conditions. Wages will in that way in a market free economy generally be set to the value that the employer perceives the employee’s work to be worth (based on how well it contributes to the business). When wages are instead increased by law, like with the minimum wage, will employers either fire workers who make less, or have to cut costs in other parts of the business to make it go up. As an illustration of how far it can go, the Venezuelan President Nicholas Maduro recently increased minimum wage by 3000%, which turned out to have disastrous consequences for businesses with the theoretical implications in practice . Between 1780 and 1860 in Britain, the average wage increased from £11 to £28, though the increase varied in different sectors and in different parts of the country . Forcing increases in wages thus turns out to create negative unintended side-effects, in comparison to the economic growth which tend to increase it naturally without such complications.
According to a meta-study by Libek showed 86 out of 92 studies that there is a positive correlation between economic growth and economic freedom, while only one of them showed a negative correlation . Statistics presented by economic professor Antony Davies also show that states in the United States in which decisions are made more individualistically rather than centrally in most cases have seen higher rates of median household income (higher 75% of the time in 1984–2014), lower rates of unemployment (600,000 more jobs from 1981–2014), poverty (3 million people less in 1981–2014) and income inequality. Davies also demonstrates that the statistics for countries in general show the same trend. Those in which decisions are made on a more individual level see lower rates of poverty (average 6% as opposed to 15% in the more collectivist countries), income inequality (Gini coefficient 0.39 vs 0.42), child labor (25% vs 39%) and gender inequality (0.28 vs 0.50) .
To understand the connection between economic growth and economic freedom can the Rahn-curve work as a good illustration, which shows the relationship between economic growth and State expenditures as a curve. In the beginning there is a positive correlation, as it is established a good environment with courts protecting private property and which makes it a safer and more stable place to invest. At one point however, the graph turns. This is because higher taxes, more regulations and more bureaucracy makes it more difficult for businesses and the market in general to work optimally. Sweden, for instance, had the highest economic growth in the industrial world between 1870 and 1936, but went down to 13th place between 1936 and 2008 as their welfare state began growing more significantly .
There are many factors which can affect the poverty rate and the real income rate, such as the wars that went on (such as the Napoleonic Wars and the War of Independence) and the business cycle, but with a combination of theory and history one can investigate the degree to which the different factors can affect the big picture. It will always be an important theme when one discusses politics whether the State should involve itself less or more in the market. The industrial revolution is perceived as many on both sides of the debate as an illustration of the nature of the market free economy and whether it is a model we would like to follow today. It’s therefore crucial to get the investigation of the causal mechanisms of this period right. The works of J.L. and Barbara Hammond is, according to Reed, generally acknowledged as “authoritative” on the topic, though he accused them to have downplayed the significance of the distinction between the two different kinds of child workers discussed above, which is why they — and others such as Engels — have blamed market freedom as the cause for the horrific conditions at the time, rather than their solution. The debate about the degree to which the State should involve itself in the market will continue as long as we have both a State and a market, but knowledge about history and economic theory can give a firm basis to understand what consequences come with what policies.
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17. Bloomberg (2018) Venezuela Raises Minimum Wage 3,000% and Lots of Workers Get Fired, https://www.bloomberg.com/news/articles/2018-09-14/after-getting-3-000-wage-hike-workers-are-fired-in-venezuela
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