Finish the Economics question with A++++++ work.

Why the Industrial Revolution was British (Allen 2011)

June 28, 2018

Newton - ”Invention was 1% inspiration and 99% perspiration.”

Inventions in I.R. mainly about research and development

• Economic activity w/ distinct features

• ”Hard work needs incentives, flashes of genius do not.”

• Article focuses on research and development and the related incentives.

1 Input prices

• British wages higher than other countries

• High silver wages → higher standard of living

• British wages high relative to capital prices

• British wages high relative to energy prices

2 Causes for unusual prices

2 factors

• Britain’s success in the global economy

• Geography - vast, readily worked coal deposits

Britain (similar to Antwerp, Amsterdam) diverted from wage/population trends, experienced in- crease in living standards from 1650 onward.

• ↑ international trade

• London grew quickly from trade-induced high labor demand

• Workforce in agriculture increased from 35% to 75%

Cheap coal

• 1700 - London average (Newcastle prices plus transportation), Newcastle cheap

• Raised Plabor Penergy

→ demand for energy-using technology

• metal and bricks cheap as a result of low energy prices → incentive to substitute capital for labor

Reasons for growth of coal industry

• London growing → demand for firewood and charcoal → P ↑

– Needed to ship from farther away as demand rose

• Coal had nearly unlimited supply at constant real cost

• Wood doubled in price in 1500’s while coal stayed constant → incentive for buyers to learn to sub coal for wood

Low factor prices meant businesses could pay high wages, remain profitable, and competitive in- ternationally

3 Demand side of technological change

Industrial process diverged in Britain b/c high wage structure induced demand for technology that substituted capital and energy for labor

2 ”stages”

• inspiration

– recognized as being outside the purview of economics

• perspiration

– affected by incentives

– inventors spend money (and time) developing idea when they believe invention would be useful

∗ benefits > costs ∗ private or social motivations

Use simply model to show that high-wage countries more incentivized to develop labor-saving capital

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4 Spread of technology

Developed technology initially only useful at British factor prices

Technology improved, became useful in other countries as well (fig. 7)

5 Why Britain instead of other high-wage regions?

Author claims scientific revolution played a part

6 Cultural Change

”Elite culture” - More interested in science than other places/periods

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Enlightenment thinking became more common at all levels of society

7 Uniqueness of I.R.

Important inventions have been made previously

I.R. was the first time inventions have led to sustained long-term growth.

• scientific knowledge increased enough to allow continuous innovation

• I.R.-era inventions were particularly transformative

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