Keynes and the Collapse of the British Cotton Industry in the 1920s: A Microeconomic Case against Laissez-Faire

The limitations of economic counterfactuals: The case of the Lancashire textile industry

“…He also argued that the recapitalizations of the 1919-20 boom were irrelevant as they did not affect earnings, suggesting that even if this capital were written off the problem would persist without solving the underlying problem of over-capacity (Keynes 1981, 629-31). Keynes and others who have made similar arguments (Bamberg 1988;Marchionatti 1995;Porter 1974) have ignored the earlier activities of the same entrepreneurs and indeed perhaps because they regard them as irrelevant have not investigated precisely who was responsible for the 1919-1920 re-floats. As a result therefore, they have not established any relation of cause and effect between the pre-and post-war phases of the history of the industry.…”

On Keynes’ Animal Spirits

“…Keynes in his analysis of the longevity of an industry, in earlier writings from the middle of the nineteen-twenties about the state of the Lancashire cotton industry, referred to the concept of economic atmosphere in connection with another Marshallian concept, the life cycle of the firm (see Marchionatti 1995). Keynes raises the issue of the failure of the British cotton industry to adjust and change.…”

Whatever happened to Marshall's industrial economics?

“…22 Completing the picture would require exploration of the havoc played by Sraffa (1926) and Robbins (1928) with Marshall's concepts of increasing returns, external and internal economies and the representative firm, but this historical episode is too well known to need reconstruction. For a general idea of what happened -or did not happen -from the point of view of Marshall's own research programme, I refer readers to a set of articles beginning with Andrews (1951) and including Moss (1984), O'Brien (1990), Loasby (1999), Marchionatti (2001) and Hart (2003) as well as to chapter 6 of Raffaelli (2003a). 23 The outcome of these vicissitudes was that within a decade the Marshallian approach was abandoned and industrial economics was marginalized by new trends of economic research, as shown by Robbins's trenchant judgment on book IV of Principles (Coase 1988: 24 -5).…”

“…19 In the introduction to the LSE reprint of his book, Macgregor noticed the similarity between his 1906 approach and that supporting rationalization. 20 The episode, and its connection with The End of Laissez Faire, is examined by Marchionatti (1995). 21 The prolonged 1920s crisis of the Lancashire cotton industry also dealt a blow to earlier hopes in the future of industrial districts, whose original points of strength already seemed to be vanishing with the development of transportation facilities and the spread of information.…”