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Capital Accumulation, Technological Change, and the Distribution of Income during the British Industrial Revolution

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  • Robert C. Allen

Abstract

The 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.

Suggested Citation

  • Robert C. Allen, 2005. "Capital Accumulation, Technological Change, and the Distribution of Income during the British Industrial Revolution," Economics Series Working Papers 239, University of Oxford, Department of Economics.
  • Handle: RePEc:oxf:wpaper:239
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    Cited by:

    1. Mehdi Senouci, 2012. "Technical change in a neoclassical two-sector model of optimal growth," PSE Working Papers halshs-00589627, HAL.
    2. Hernando Zuleta, 2012. "Seasonal Fluctuations And Economic Growth," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 37(4), pages 1-27, December.
    3. Nico Voigtländer & Hans-Joachim Voth, 2006. "Why England? Demographic factors, structural change and physical capital accumulation during the Industrial Revolution," Journal of Economic Growth, Springer, vol. 11(4), pages 319-361, December.
    4. Hernando Zuleta, 2008. "Seasons, savings and GDP," Documentos de Trabajo 004592, Universidad del Rosario.
    5. Hernando Zuleta, 2007. "Biased innovations in the Harrod-Domar model," Revista de Economía del Rosario, Universidad del Rosario, December.
    6. Peter Temin & Hans‐Joachim Voth, 2008. "Interest Rate Restrictions in a Natural Experiment: Loan Allocation and the Change in the Usury Laws in 1714," Economic Journal, Royal Economic Society, vol. 118(528), pages 743-758, April.
    7. Espín-Sánchez, José-Antonio & Gil-Guirado, Salvador & Giraldo-Paez, W. Daniel & Vickers, Chris, 2019. "Labor income inequality in pre-industrial Mediterranean Spain: The city of Murcia in the 18th century," Explorations in Economic History, Elsevier, vol. 73(C), pages 1-1.
    8. Joel Mokyr & Chris Vickers & Nicolas L. Ziebarth, 2015. "The History of Technological Anxiety and the Future of Economic Growth: Is This Time Different?," Journal of Economic Perspectives, American Economic Association, vol. 29(3), pages 31-50, Summer.

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    More about this item

    Keywords

    British Industrial Revolution; Kuznets Curve; Inequality; Savings; Investment;
    All these keywords.

    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, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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