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

Robert Allen

No 239, Economics Series Working Papers from University of Oxford, Department of Economics

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.

Keywords: British Industrial Revolution; Kuznets Curve; Inequality; Savings; Investment (search for similar items in EconPapers)
JEL-codes: D63 N13 O41 O47 O52 (search for similar items in EconPapers)
Date: 2005-06-01
New Economics Papers: this item is included in nep-dev, nep-his and nep-ino
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Citations: View citations in EconPapers (8)

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Working Paper: Capital Accumulation, Technological Change, and the Distribution of Income during the British Industrial Revolution (2006)
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