Monday, March 18, 2019

Monopoly in history

Timothy Taylor, the Conversable Economist, tracks down the oft-told story of William Lee and his knitting machine.
...the 2019 World Development Report from the World Bank has a mention near the start of Chapter 1: "In 1589, Queen Elizabeth I of England was alarmed when clergyman William Lee applied for a royal patent for a knitting machine: `Consider thou what the invention would do to my poor subjects,' she pointed out. `It would assuredly bring them to ruin by depriving them of employment.'” 
It's really a lovely story, presaging this fallacy passed down through the ages, to Milton Friedman's famous "let them use spoons" story (on being told a Chinese dam was being made by hand and shovel rather than bulldozers to provide employment) to the current hullabaloo that AI will take all the jobs. (And today. On a KQED (NPR) "forum," show last week, on while I was shaving, a caller expressed just how great it is that Mexico uses people not machines to sweep streets, thereby providing employment, and we should do the same. Fallacies live a long time.)

Lovely as it is, Taylor is "inherently dubious about direct quotations from conversations held in 1589," took a  "journey through libraries and archives," to track down the actual story.  It is an interesting note on the very beginnings of the industrial revolution.

As I read Taylor, it seems the story is actually pretty suspect.
"The underlying source seems to be in an 1831 book, History of the Framework Knitters, written by Gravenor Henson....Henson was an important British trade union leader in the early 19th century. As Stanley D. Chapman notes in his "Introduction" about Henson's purpose in writing the book: "His main theme was that hosiery, lace and all other industries should be regulated by the government so as to maintain a decent living standard for the workers and fair conditions of trade. British industries must be protected from direct foreign competition and, more particularly, from industrial espionage, migration of skilled workmen to other countries, and export of machinery."  
So, as I gather indirectly, the story passed on from a source was definitely trying to make a point, and (again reading only Tim) has precious little primary evidence for the famous conversation.

The first lesson: beware these apocryphal stories passed on through secondary, tertiary and ultimately gossipy sources.  

This lesson was brought home to me by Peter Garber's great "Famous First Bubbles" book (I had a lot of fun reviewing it). Garber went back to look at actual primary sources behind stories that though apocryphal are passed around as true among economists, such as the famous tulip "bubble." They aren't true either. Though they make good stories.

I got a deeper lesson, on just how economies worked in early modern Europe. Early economies were so pervasively regulated, that the only thing to do with an innovation was to run to get a Royal monopoly. 

William Lee invented a stocking-making machine. (Apparently, to put out of employment a woman who spurned his advances while knitting stockings.) So, what does he do with his newfound knowledge?
Having now discovered the method of knitting by machinery, his next effort was directed to obtain the golden harvest which had flattered his imagination. He removed his invention to London for the purpose presenting it to the Queen,...Lee now imagined himself certain of a handsome remuneration,...[but]  she refused to make either a grant of money or secure him a monopoly or patent. 
Here is where the famous quote enters
Her answer is said to have been to the following purport: -- My Lord, I have too much love to my poor people, who obtain their bread by the employment of knitting, to give my money to forward an invention which will tend to their ruin, by depriving them of employment, and thus make them beggars. 
It goes on, interestingly. The Queen was interested in cheaper silk stockings, which she wore:
Had Mr. Lee made a machine that would have made silk stockings, I should, I think, have been somewhat justified in granting him a patent for that monopoly, which would have affected only a small number of my subjects. but to enjoy the exclusive privilege of making stockings for the whole of my subjects is too important to grant to any individual."
But it gets much more s economically interesting
Apparently Lee ran into a different problem: Queen Elizabeth has been granting lots of monopolies to court favorites, and there was a widespread sense that it had gotten out of hand. Thus, the granting of unwarranted monopolies became a reason to deny Lee a monopoly as well. Henson writes:
"The time which Mr. Lee had chosen to make an application to the government, though to his sanguine mind very propitious for remuneration. was in reality the reverse; the treasury of Elizabeth was extremely low, owing to the enormous expenses which she had incurred in preparations to meet the Spanish armada in the preceding year. Already had the Parliament begun to express their decided umbrage at the grant of the privileges of patents for monopolies; which, as they were then conducted, were justly considered national evils, and the most odious means of rewarding court favorites, by an excessively tyrannical mode of private taxation. Nearly all the nobles enjoyed a patent for the most useful and general articles of consumption, such as iron, lead, saltpetre, salt, oil, glasses, &c. &c., to the amount of more than one hundred articles, which were sold, imported, or exported by virtue of letters patent. These patent rights, were sold to persons who farmed the profits, and thus demanded what prices they thought prudent for their commodities. [my emphasis] When the general list was read over in the House of Commons in 1601, a member, indignant at the the extortions, exclaimed, " Is bread amongst the number?" "Bread?" cried the house, with astonishment, "Yes I assure you," he sarcastically replied, "if we go on at this rate, we shall have a monopoly of bread before next Parliament." 
Actually, I believe they did. Most trades were restricted to guild members and you couldn't just bake bread and sell it. (Historians, let me know if I'm confusing place and time here.)  "Patent" in 16th century England also seems to mean more a general monopoly right than our current understanding, as in a "patent" to sell iron. Lee went on to the French court, to try to get a patent and monopoly there too.

Lee never, apparently, made a bundle actually making stockings. He died unhappily in France, though his machine did get adopted. Just how long it took a simple stocking machine to be adopted may tell us something interesting about why economic growth was so slow to break out.

The interesting observation here: it's 1589, and you invent a cool new machine, say for making stockings. What do you do with it? You and I might answer, "start making stockings." You can undersell the competition and make a bundle. Or, we might answer, "start selling stocking-making machines." Sure, others will follow, but you have a big first-mover advantage. Yes, if a modern patent system were up and running it might be useful to get a patent and try to slow down competitors. But first and foremost, get the business going.

That Lee did not do this -- that it seems not even to have occurred to him - is telling about just how controlled and regulated economies apparently were at the time.

It brings to mind two other recent histories I read, Dava Sobel's Longitude and Charles Coulston Gillispies' book on the  Montgolfier Brothers.

Longitude: In the 1700s, it was a major problem to know how far east or west a ship was. After painstaking work, John Harrison came up with a solution: a clock that could tell time accurately, even at sea. What did he do with it? Start selling clocks to ship captains, you might say! And you would be wrong. He spent his life trying to get the prize established for that purpose, mostly unsuccessfully.

Balloons: The Montgolfier Brothers invent the balloon. What do they do with it? Start selling balloons? Start selling balloon rides? No, immediately off to Paris to get royal dispensation.

I don't know enough about these early economies, but that running off to get a Royal monopoly seems to be the only thing anyone even considers to do with a new invention seems interesting evidence on just how rigidly controlled economic affairs were.

Guilds, patents, monopolies, and the primary function of economic regulation being to create rents in return for political support, seems a pattern with deep roots.


  1. John, I like your blog posts but I think that these royal "monopolies" were more equivalent to patent protection than you're letting on. I'm a bit removed from my days studying economic history in undergrad so unfortunately I can't refer you to specific source material.

    Given the limited reach of the 16th century England's courts, a time-limited Royal monopoly functioned as what we would call a 'patent.' Copying, counterfeiting, and state-sponsored industrial espionage were all extremely pervasive in early modern economies. Entrepreneurs would not have wanted to make a capital investment in a new technology unless they were assured that there would be a return.

    By the early 19th century English courts had advanced enough that 'patents' became a viable option---the courts could actually enforce them throughout the country. Eli Howe died rich, but he probably wouldn't have had without the strong (for the era) patent protection provided by American Federal courts.

    Incidentally, "monopoly," copyright, and trademark protections were not as prevalent in early modern China. Who innovated more?

  2. "A pattern with deep roots" indeed. It goes back to clientalism and feudalism before that. We hope a modern Rule of Law society would have ended "patronage" but it is always there. Sen. Mendez is my poster boy. He just traded favors with his old friend, and the jury and Senate have agreed. But it was certainly favoring in a corrupt way, against the ideal of "merit" et al.

  3. In the time of James I of England (James VI of Scotland), the control exerted by the guilds of London did not extend beyond the walls of London. Immigrant tradesmen from France and the Lowlands set up shop outside the walls of London and practiced their trade without interference from the London guilds. Thus it was that workers in silk who relocated from France in order to practice their protestant religion, were able to transform was its now East London into a thriving economic zone, serving the wealthy classes of London with domestically produced silks and other fabrics that previously had to be imported from continental europe at high cost. Not all industry was tightly controlled, though the guilds maintained a closed-shop environment in the City of London.

    An interesting use of Royal patents was made by James I of England. In order to encourage the immigration of skilled labour from France whichi was then in throws of religious upheaval between catholics and protestants, James I issued a Royal patent establishing the right of foreign protestants to establish a church in their faith (Calvinist) outside the walls of the City of London. The church was known as "La Patent", and the issuance of the Royal patent connected thereto gave encouragement to the Huguenot protestants to move from catholic France to England, bringing their trades and professional skills to the London area.

    Not all Royal patents were useless. Some were important to the establishment of industry and the encouragement of immigration by skilled tradesmen and professionals that contributed to economic growth.

  4. Akin to monopolies, corporate/gov cronies seek rents hoping to gain a competitive advantage by lobbying for specific regulations that limits competition. Since 2009, General Electric spent around $134 million lobbying, AT&T spent $91.2 million and Boeing spent $90.3 million. Would for-profit corporations spend so much to influence government if it didn’t help their bottom line?

    1. Defensively "help their bottom line," yes. In Washington, DC, the socialists and predators are swarming over any possible tax victims. It is no surprise they spend a lot in Washington, DC, on defense.

  5. Yep, legal monopolies were granted by monarchies to "friends" in return for a huge chunk of the revenue. The formalization of a functioning patent system in England really got the industrial revolution going. There was zero IP protection back then. Lots of clever people hiding in the woodwork, but afraid to share knowledge and get ripped off.

    Legal monopolies provide the incentive for innovation. But, one in a while you get outliers like Salk, who just gave away the polio vaccine. Zero interest in making a buck. All in all, when not abused, the patent system is a great way to share knowledge and improve upon it. Helps markets, too.

  6. This stuff used to be the core curriculum of econ history and English constitutional law; the granting of 'Monopolies' was a celebrated issue in the lead up to the English Civil War:

  7. Yes, this ties into a thesis of mine, which is the triggering event for the spectacular economic growth that started in Europe circa eighteenth century was not the industrial revolution, cheap energy or the agricultural revolution. Rather it was the concept of private property increasingly adopted in law and societal custom.


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