2 - Aggregate growth, 1870–1914: growing at the production frontier

Summary

Introduction: from Marx to Marshall – and Lenin

Dominant views of the performance of the British and European economies during the first half of the nineteenth century were quite pessimistic. Growth was considered difficult to achieve. Conflict over distribution was perceived as fundamental, be it between landowners and the rest of the society, or between factory owners and workers. In his famous Das Kapital, as well as in many other writings, Karl Marx insisted on the inevitable decline of real wages. The discussions over what was to become known as the Industrial Revolution and the decline or fall of real wages were heated during those years, and have been so ever since. They constitute, in many ways, the permanent appeal of the phenomenon across disciplines and sensitivities: is economic growth worth the increase in inequality?

Sometime during the 1860s, there was a change in intellectual mood. Social conflict, polarization, and the fight over income distribution were no longer the only possible outcomes of economic life. There were cases of countries – nearly all the developed world – that were able to provide increased incomes to the entire population. There was economic growth without any single individual (or social group) paying a penalty for it. Growth was being diffused throughout the national economy. An increasing number of economies were enjoying this kind of growth.