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Engels' pause: Technical change, capital accumulation, and inequality in the british industrial revolution

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  • Allen, Robert C.

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 19th 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 19th 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 19th century, accumulation had caught up with the requirements of technology and wages rose in line with productivity.

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  • Allen, Robert C., 2009. "Engels' pause: Technical change, capital accumulation, and inequality in the british industrial revolution," Explorations in Economic History, Elsevier, vol. 46(4), pages 418-435, October.
    • Handle: RePEc:eee:exehis:v:46:y:2009:i:4:p:418-435
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    References listed on IDEAS

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    1. Labour repression & the Indo-Japanese divergence
      by pseudoerasmus in Pseudoerasmus on 2017-10-02 06:04:55

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    Cited by:

    1. Koyama, Mark, 2012. "The Law and Economics of Private Prosecutions in Industrial Revolution England," MPRA Paper 40500, University Library of Munich, Germany.
    2. Dmitriy Veselov & Alexander Yarkin, 2015. "The Great Divergence Revisited: Industrialization, Inequality and Political Conflict in the Unified Growth Model," HSE Working papers WP BRP 118/EC/2015, National Research University Higher School of Economics.
    3. Toms, Steven & Shepherd, Alice, 2013. "Creative accounting in the British Industrial Revolution: Cotton manufacturers and the ‘Ten Hours’ Movement," MPRA Paper 51478, University Library of Munich, Germany.
    4. Gómez Manuel A. & Neves Sequeira Tiago, 2012. "Phases of Economic Development: Do Initial Endowments Matter?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 12(1), pages 1-22, July.
    5. Miguel Martín-Retorillo & Vincente Pinilla, 2012. "Why did agricultural labour productivity not converge in Europe from 1950 to 2005?," Working Papers 0025, European Historical Economics Society (EHES).
    6. Francisco J. Beltran Tapia & Julio Martinez-Galarrage, 2015. "Inequality and poverty in a developing economy: Evidence from regional data (Spain, 1860-1930)," Working Papers 0078, European Historical Economics Society (EHES).
    7. Harley, C. Knick, 2012. "Was technological change in the early Industrial Revolution Schumpeterian? Evidence of cotton textile profitability," Explorations in Economic History, Elsevier, vol. 49(4), pages 516-527.
    8. Claire Loupias & Bertrand Wigniolle, 2018. "Technological changes and population growth: the role of land in England," PSE Working Papers halshs-01789598, HAL.
    9. Frey, Carl Benedikt & Osborne, Michael A., 2017. "The future of employment: How susceptible are jobs to computerisation?," Technological Forecasting and Social Change, Elsevier, vol. 114(C), pages 254-280.
    10. Robert Allen & Robert C. Allen, 2011. "Technology and the Great Divergence," Economics Series Working Papers 548, University of Oxford, Department of Economics.
    11. Mark Koyama, 2012. "Prosecution Associations in Industrial Revolution England: Private Providers of Public Goods?," The Journal of Legal Studies, University of Chicago Press, vol. 41(1), pages 95-130.
    12. de Pleijt, Alexandra M., 2015. "Human capital and long run economic growth : Evidence from the stock of human capital in England, 1300-1900," CAGE Online Working Paper Series 229, Competitive Advantage in the Global Economy (CAGE).
    13. Veselov, D. & Yarkin, A., 2016. "Wealth Distribution and Political Conflict in the Model of Transition from Stagnation to Growth," Journal of the New Economic Association, New Economic Association, vol. 32(4), pages 30-60.
    14. Alexandra M. de Pleijt & Jacob L. Weisdorf, 2017. "Human capital formation from occupations: the ‘deskilling hypothesis’ revisited," Cliometrica, Journal of Historical Economics and Econometric History, Association Française de Cliométrie (AFC), vol. 11(1), pages 1-30, January.
    15. Jane Humphries, 2013. "The lure of aggregates and the pitfalls of the patriarchal perspective: a critique of the high wage economy interpretation of the British industrial revolution," Economic History Review, Economic History Society, vol. 66(3), pages 693-714, August.

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