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

Abstract

The paper reviews the macroeconomic data describing the British economy from 1760 to\n1913 and shows that it passed through a two stage evolution of inequality. In the first half of\nthe nineteenth century, the real wage stagnated while output per worker expanded. The profit\nrate doubled and the share of profits in national income expanded at the expense of labour\nand land. After the middle of the nineteenth century, real wages began to grow in line with\nproductivity, and the profit rate and factor shares stabilized. An integrated model of growth\nand distribution is developed to explain these trends. The model includes an aggregate\nproduction function that explains the distribution of income, while a savings function in\nwhich savings depended on property income governs accumulation. Simulations with the\nmodel show that technical progress was the prime mover behind the industrial revolution.\nCapital accumulation was a necessary complement. The surge in inequality was intrinsic to\nthe growth process: Technical change increased the demand for capital and raised the profit\nrate and capital’s share. The rise in profits, in turn, sustained the industrial revolution by\nfinancing the necessary capital accumulation. After the middle of the nineteenth century,\naccumulation had caught up with the requirements of technology and wages rose in line with\nproductivity.

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