Demand versus Supply in the Industrial Revolution: A Reply

Abstract

I welcome Ari Ben-Shachar's spirited comment on my 1977 paper Demand vs. Supply in the Industrial When I wrote it, over eight years ago, I hoped that the paper would stimulate others to pursue some of the issues which the paper raised. Although Ben-Shachar, regrettably, presents no original research or novel ideas, his comment provides an opportunity to reexamine the demand hypothesis. He flatters me by implicitly assuming that the readers of this JOURNAL are aware of the central argument made by the paper. It seems useful to reiterate briefly the main points before turning to the difficulties raised by Ben-Shachar. I termed the Gilboy thesis the view which claimed that an exogenous shift in demand was a causal factor in the Industrial Revolution. I did not provide an exact definition of the Industrial Revolution, an omission I now regret, because it may have contributed to Ben-Shachar's difficulties.' But under the assumption that most readers were in agreement as to what was meant by the Industrial Revolution, I asked three questions: (1) Was there an exogenous increase in demand for industrial products before and in the early stages of the Industrial Revolution and if so, what caused it and how large was it? (2) Assuming that the answer is yes, could an increase in demand have been a causal factor in the Industrial Revolution, through dynamic effects such as demand-induced technological change, economies of scale and agglomeration, and interfirm external economies? (3) Again assuming that the answer to the first question is yes, could an increase in demand have led to the Industrial Revolution, by bringing into use previously unemployed resources? Now, Ben-Shachar has nothing to say about queries (2) and (3) concentrating his criticism on Part I of the paper, which was an exercise in comparative statics.2 He claims that I dismiss Gilboy's argument simply by ignoring To the contrary, what I tried to do was to leave no stone unturned in giving the demand hypothesis every possible economic interpretation, howeVer fuzzily some of its proponents may have expressed it. I therefore may have gone too far in attributing to Gilboy's paper ideas that were not really there.3 Ben-Shachar's main complaint, however, seems