Capital Accumulation, Technological Change, and the Distribution of Income during the British Industrial Revolution
AbstractThe paper reviews the macroeconomic data describing the British economy during the industrial revolution and shows that they contain a story of dramatically increasing inequality between 1800 and 1840: GDP per worker rose 37%, real wages stagnated, and the profit rate doubled. The share of profits in national income expanded at the expense of labour and land. A Cambridge-Cambridge model of economic growth and income distribution is developed to explain these trends. An aggregate production function explains the distribution of income (as in Cambridge, MA), while a savings function in which savings depended on property income (as in Cambridge, England) governs accumulation. Simulations with the model show that technical progress was the prime mover behind the industrial revolution. Capital accumulation was a necessary complement. The surge in inequality was intrinsic to the growth process. Technical change increased the demand for capital and raised the profit rate and capital`s share. The rise in profits, in turn, sustained the industrial revolution by financing the necessary capital accumulation.
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Bibliographic InfoPaper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 239.
Date of creation: 01 Jun 2005
Date of revision:
British Industrial Revolution; Kuznets Curve; Inequality; Savings; Investment;
Find related papers by JEL classification:
- D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
- N13 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: Pre-1913
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
- O47 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
- O52 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Europe
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-03-18 (All new papers)
- NEP-DEV-2006-03-18 (Development)
- NEP-HIS-2006-03-18 (Business, Economic & Financial History)
- NEP-INO-2006-03-18 (Innovation)
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