CAPITAL ACCUMULATION, TECHNOLOGICAL CHANGE,AND THE DISTRIBUTION OF INCOME DURING THEBRITISH INDUSTRIAL REVOLUTION

The paper reviews the macroeconomic data describing the British economy during theindustrial revolution and shows that they contain a story of dramatically increasing inequalitybetween 1800 and 1840: GDP per worker rose 37%, real wages stagnated, and the profit ratedoubled. They share of profits in national income expanded at the expense of labour andland. A “Cambridge-Cambridge” model of economic growth and income distribution isdeveloped to explain these trends. An aggregate production function explains the distributionof income (as in Cambridge, MA), while a savings function in which savings depended onproperty income (as in Cambridge, England) governs accumulation. Simulations with themodel show that technical progress was the prime mover behind the industrial revolution.Capital accumulation was a necessary complement. The surge in inequality was intrinsic tothe growth process: Technical change increased the demand for capital and raised the profitrate and capital’s share. The rise in profits, in turn, sustained the industrial revolution byfinancing the necessary capital accumulation....