Information technology and the industrial revolution

My hoards of readers know my theory, the industrial revolution was initiated with the steam powered rotary press, not the steam powered railroad.  The importance of low cost, mass produced newsprint was that it allowed future planning.  American cotton shippers could describe quantities available in the American warehouses by print without actually shipping the products.  The same for manufactured goods from England in the reverse direction. Hence, a complete cross Atlantic market could be constructed. The great utility of information flows drove the bond and equity markets, information about goods, via the contract, was almost as valuable as the goods themselves, because one could lock up inventory without being in physical possession of it.

This utility came with a price, term structure mismatches, say between the production of cotton and the production of textiles.  Cotton inventories, over time and place in America, had to align with manufacturing inventories for textiles in England.  But the two production networks were unmatched.  American cotton producers had to take it at face value that cotton was stored in warehouses when there was no need to do so from the perspective of cotton production.  So both sides of the trade had to trust the hidden hand of the bond market to align inventory flows.

This all led to fiat currency of course.   Prior to fiat currency, gold, as money, had a production network very similar to production of other goods.  Under the gold standard, both production networks aligned with gold production, gold being the constrained heavy weight good.

The importance difference between lightweight information flows and heavyweight goods flows is that information flows were bidirectional along the distribution network, and it is this difference that really led to the business cycle.  Value, stored as contracts, tend to be Gaussian in their physical distribution, heavy weight goods being log normal.  Matching the two distributions could only be done on the average, but they were never matched at any given instant.  An American cotton trader, looking at the cotton futures might see an opportunity that really didn't exist, he would see an asymmetry in the bond curve, thinking it implied a cotton shortage in the near future.  But it really was an illusion due to approximation error, and his mistake would have to be corrected later with a loss.

The impact of the rotary press was...driving GDP below potential, because it needs a restructring, like any other material change. The response was, like I say, the Clipper Ship which allowed each side of the Atlantic to regain control of their own inventory, driving GDP up.