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Engel`s Pause: A Pessimist`s Guide to the British Industrial Revolution

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  • Robert Allen
  • Robert C. Allen

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.

Suggested Citation

  • Robert Allen & Robert C. Allen, 2007. "Engel`s Pause: A Pessimist`s Guide to the British Industrial Revolution," Economics Series Working Papers 315, University of Oxford, Department of Economics.
  • Handle: RePEc:oxf:wpaper:315
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    File URL: http://www.economics.ox.ac.uk/materials/working_papers/paper315.pdf
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    Blog mentions

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    1. Ten Things Worth Reading, Mostly Economics: February 12, 2010
      by Brad DeLong in Grasping Reality with the Invisible Hand on 2010-02-12 14:18:00
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      by Brad DeLong in Grasping Reality with the Invisible Hand on 2010-02-11 14:05:21
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    Cited by:

    1. Jonathan Hersh & Joachim Voth, 2009. "Sweet diversity: Colonial goods and the rise of European living standards after 1492," Economics Working Papers 1163, Department of Economics and Business, Universitat Pompeu Fabra, revised Jan 2011.
    2. Robert C. Allen, 2008. "A Review of Gregory Clark's A Farewell to Alms: A Brief Economic History of the World," Journal of Economic Literature, American Economic Association, vol. 46(4), pages 946-973, December.

    More about this item

    Keywords

    British Industrial Revolution; Kuznets Curve; Inequality; Savings; Investment;

    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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