ENGEL’S PAUSE:A PESSIMIST’S GUIDE TO THE BRITISH INDUSTRIALREVOLUTION

The paper reviews the macroeconomic data describing the British economy from 1760 to1913 and shows that it passed through a two stage evolution of inequality. In the first half ofthe nineteenth century, the real wage stagnated while output per worker expanded. The profitrate doubled and the share of profits in national income expanded at the expense of labourand land. After the middle of the nineteenth century, real wages began to grow in line withproductivity, and the profit rate and factor shares stabilized. An integrated model of growthand distribution is developed to explain these trends. The model includes an aggregateproduction function that explains the distribution of income, while a savings function inwhich savings depended on property income 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. After the middle of the nineteenth century,accumulation had caught up with the requirements of technology and wages rose in line withproductivity.key...