Explaining Britain’s industrial revolution

A paper tests the popular ‘high wage economy’ hypothesis

July 17, 2018 12:15 am | Updated 12:15 am IST

Why did the industrial revolution take place in Britain? Economic historians have proposed various hypotheses to answer why Britain was the first country in the world to transform from an agricultural to an industrial economy. One of the most popular among them is the ‘high wage economy’ hypothesis put forward by American economic historian Robert C. Allen. Allen proposed that the high cost of labour in Britain relative to the cost of fossil fuels like coal encouraged British companies to adopt technology that would help them save on their labour costs. So the need for British businesses to save on their labour costs supposedly spurred the industrial revolution.

“Spinning the industrial revolution”, a 2018 paper published by Jane Humphries and Benjamin Schneider in The Economic History Review studies the spinning industry in Britain before the advent of the industrial revolution to examine if Allen’s hypothesis actually holds true. Contrary to the Allen hypothesis, the authors find that labourers employed in Britain’s spinning industry were actually paid low wages. One reason for this was that the owners of spinning mills were able to tap an abundant source of cheap labour in the form of women and children from rural Britain. The authors find that there was “no substantial jump in nominal, real, or relative wages for spinners leading up to the spinning innovations of the 1760s and 1770s”. Thus, they come to the conclusion that high wages probably do not explain why the industrial revolution originated in Britain rather than in some other country, and highlight the need for alternative explanations.

A possible flaw in the Allen hypothesis is that it fails to recognise that disparities in factor prices can only influence the kind of technology adopted by businesses. It cannot, by itself, influence whether or not businesses choose to adopt new technology. So, businesses faced with high wages may be more likely to invest in labour-saving technology, while those with high rents invest in land-saving technology. This does not mean that businesses will not adopt new technology unless there is a disparity in factor prices. Businesses trying to earn profits always look to adopt technology that can help them cut costs, irrespective of the relative prices of factors of production. If so, there is probably no reason to believe that there was something unique about factor prices in Britain that caused the industrial revolution to originate there.

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