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Engel's Pause: A Pessimist's GUide to the British Industrial Revolution

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Robert Allen

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Abstract

The paper reviews the macroeconomic data describing the British economy from 1760 to 1913 and shows that it passed through a two stage evolution of inequality. In the first half of the nineteenth century, the real wage stagnated while output per worker expanded. The profit rate doubled and the share of profits in national income expanded at the expense of labour and land. After the middle of the nineteenth century, real wages began to grow in line with productivity, and the profit rate and factor shares stabilized. An integrated model of growth and distribution is developed to explain these trends. The model includes an aggregate production function that explains the distribution of income, while a savings function in which savings depended on property income 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. After the middle of the nineteenth century, accumulation had caught up with the requirements of technology and wages rose in line with productivity.

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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 315.

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Date of creation: 2007
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Handle: RePEc:oxf:wpaper:315

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Related research
Keywords: 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; Growth and 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

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References listed on IDEAS
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    Other versions:
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