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Unit 1 Prosperity, inequality, and planetary limits

1.5 The continuous technological revolution

The science fiction show Star Trek is set in the future, when humans travel the galaxy with friendly aliens, aided by intelligent computers, faster-than-light propulsion, and replicators that create food and medicine on demand. Whether we find the stories silly or inspiring, most of us, in optimistic moods, can entertain the idea that the future will be transformed morally, socially, and materially by technological progress.

No Star Trek future awaited the grandchildren of peasants in 1250. The next 500 years would pass without any measurable change in the standard of living for ordinary working people. While science fiction began to appear in the seventeenth century (Francis Bacon’s New Atlantis being one of the first works of science fiction, in 1627), it was not until the eighteenth century that each new generation could look forward to a different life, shaped by new technology.

A remarkable number of scientific and technological advances coincided with the upward kink in the income hockey stick in Britain in the middle of the eighteenth century.

Important new technologies were introduced in textiles, energy, and transportation. As late as 1800, traditional craft-based techniques, using skills that had been handed down from one generation to the next, were still used in most production processes. The new era brought new ideas, new discoveries, new methods, and new machines—and made old ideas and old tools obsolete. These new ways were, in turn, made obsolete by even newer ones.

Industrial Revolution
A wave of technological advances and organizational changes that began in Britain in the eighteenth century; it transformed an agricultural and craft-based economy into a commercial and industrial economy.

This period of cumulative innovation is called the Industrial Revolution.

technology
The description of a process that uses a set of materials and other inputs, including the work of people and machines, to produce an output.

In everyday usage, ‘technology’ refers to machinery, equipment, and devices developed using scientific knowledge. In economics, a technology is a process that takes a set of materials and other inputs—including the work of people and machines—and creates an output. For example, a technology for making a cake can be described by the recipe specifying the combination of inputs (ingredients such as flour, and activities like stirring) needed to create the output (the cake). Another cake-making technology uses large-scale machinery, ingredients, and labour (machine operators).

technological progress
A change in technology that reduces the amount of resources (labour, machines, land, energy, time) required to produce a given amount of the output.

Until the Industrial Revolution, the economy’s technology, like the skills needed to follow its recipes, was updated only slowly and passed from generation to generation. As technological progress revolutionized production, the time required to make a pair of shoes halved within a few decades; the pattern was similar for spinning and weaving, and making cakes in a factory. This marked the beginning of a continuous technological revolution: the time required to produce most products fell from one generation to the next.

For most of human history, technological progress in lighting was slow. Our distant ancestors had nothing brighter than a campfire at night. Thousands of years later, in the early 1800s, tallow candles provided about nine times as much light for an hour of labour as the animal fat lamps of the past. New technologies since then have rapidly increased lighting efficiency. Three decades ago in 1992, compact fluorescent bulbs were introduced and were about 45,000 times more efficient than lights were 200 years ago.1

The continuous technological revolution

David Landes, an economic historian, wrote that the Industrial Revolution was ‘an interrelated succession of technological changes’ that transformed the societies in which these changes took place.2 Figure 1.7 illustrates some of these changes during the Industrial Revolution in Britain between 1700 and 1850, and the subsequent period of rapid technological developments in other countries, particularly the US, with the accompanying changes in living standards.

In this line chart, the horizontal axis shows years from 1700 to 1925. The vertical axis shows GDP per capita in 2011 international dollars. There are two series, one for the United States and one for the United Kingdom. In the United Kingdom, GDP was approximately 2,600 dollars in 1709 when Abraham Darby began iron-smelting, in 1712 when Newcomen invented the steam engine, and in 1733 when the Flying Shuttle weaving machine was invented. GDP was approximately 3,000 dollars in 1761 when the Bridgewater canal was built to transport coal, in 1764 when Hargreaves invented the Spinning Jenny, in 1769 when James Watt was granted a patent for his steam engine, and in 1779 when Akrkwright opened a cotton spinning mill using water-power. GDP was approximately 3,500 dollars in 1798 when Malthus published his essay and in 1801 when Trevithick built the first railway locomotive. GDP was almost 4,000 dollars in 1830 when Stephenson opened a railway connecting the textile mills with the port of Liverpool. GDP was 5,000 dollars in 1851 when rural-to-urban migration meant that half of the British population now lived in towns. GDP was 6,000 dollars in 1876 when Alexander Graham Bell patented the telephone. GDP was 8,000 dollars in 1914, the the First World War started. By 1925, GDP in the United Kingdom was 8,000 dollars. In the United States, GDP was approximately 2,000 dollars in 1720. GDP was 3,500 dollars in 1834 when McCormick patented the mechanical reaper, revolutionizing harvesting in the US. GDP was 5,000 dollars in 1869 when the US transcontinental railroad was completed. GDP was 6,000 dollars in 1879 when Edison invented the incandescent lightbulb. GDP was 8,000 dollars in 1913 when Henry Ford introduced assembly line manufacturing. GDP was 11,000 dollars by 1925.
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https://www.core-econ.org/microeconomics/01-prosperity-inequality-05-technological-revolution.html#figure-1-7

Figure 1.7 The Industrial Revolution and the continuous technological revolution.

Jutta Bolt and Jan Luiten van Zanden. 2020. Maddison Project Database, version 2020. ‘Maddison style estimates of the evolution of the world economy. A new 2020 update’

An early invention was Thomas Newcomen’s steam engine, which was used to pump water out of mines. Developed further by James Watt, steam engines were eventually used across the economy: in textiles, manufacturing, railways, and steamships. They are an example of what is termed a general-purpose innovation or technology: a technological advancement that can be applied to many sectors, and which spawns further innovations.

The number of internet users worldwide rose from 2.6 million in 1990 to 4.7 billion by 2020.3 4

The process of innovation did not end with the Industrial Revolution, as the example of lighting shows. It has continued with the application of new technologies in many industries, including electricity, transportation (canals, railroads, automobiles), and most recently, the revolution in information processing and digital communication. These broadly applicable general-purpose innovations give a particularly strong impetus to growth in living standards, because they change the way that large parts of the economy work.

But if technological progress raised living standards as we have suggested, then why was the hockey stick flat for most of the past thousand years? This unit and the next will show how economic reasoning helps to explain both the flat part of the hockey stick and the upturn.

Question 1.4 Choose the correct answer(s)

Which of the following variable(s) have followed the so-called ‘hockey stick’ trajectory—that is, little to no growth for most of history followed by a sudden and sharp change to a positive growth rate?

  • GDP per capita
  • technological progress in lighting
  • income inequality
  • atmospheric CO2
  • GDP per capita grew slowly or not at all in economies prior to industrialization, whereupon it began to grow at an ever-increasing rate.
  • The description of technological change in lighting indicates hockey stick growth—technological progress in lighting efficiency was slow until the 1800s but has increased rapidly since then.
  • There is no unidirectional trend in inequality over time. While most early hunter-gatherer economies were not highly unequal compared to later farming and industrial economies, economies in the modern era have varied from highly equal to highly unequal.
  • The growth in atmospheric CO2 began from the mid-nineteenth century as a consequence of the burning of fossil fuels as the technologies introduced in the Industrial Revolution spread (Figure 1.2a).

  1. William Nordhaus. 1998. ‘Do Real Output and Real Wage Measures Capture Reality? The History of Lighting Suggests Not’. Cowles Foundation for Research in Economics Paper 1078. ↩

  2. David S. Landes. 2003. The Unbound Prometheus: Technological Change and Industrial Development in Western Europe from 1750 to the Present. Cambridge: Cambridge University Press. ↩

  3. World Bank, World Development Indicators. 2022. Population, total. ↩

  4. World Bank, World Development Indicators. 2022. Individuals using the Internet (% of population). ↩