Spinning welfare: the gains from process innovation in cotton and car production

Leunig, Tim and Voth, Joachim (2011) Spinning welfare: the gains from process innovation in cotton and car production. CEP Discussion Papers (CEPDP1050). London School of Economics and Political Science. Centre for Economic Performance, London, UK.

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Abstract

Economists and economic historians want to know how much better life is today than in the past. Fifty years ago economic historians found surprisingly small gains from 19th century US railroads, while more recently economists have found relatively large gains from electricity, computers and cell phones. In each case the implicit or explicit assumption is that researchers were measuring the value of a new good to society. In this paper we use the same techniques to find the value to society of making existing goods cheaper. Henry Ford did not invent the car, and the inventors of mechanised cotton spinning in the industrial revolution invented no new product. But both made existing products dramatically cheaper, bringing them into the reach of many more consumers. That in turn has potentially large welfare effects. We find that the consumer surplus of Henry Ford’s production line was around 2% by 1923, 15 years after Ford began to implement the moving assembly line, while the mechanisation of cotton spinning was worth around 6% by 1820, 34 years after its initial invention. Both are large: of the same order of magnitude as consumer expenditure on these items, and as large or larger than the value of the internet to consumers. On the social savings measure traditionally used by economic historians, these process innovations were worth 15% and 18% respectively, making them more important than railroads. Our results remind us that process innovations can be at least as important for welfare and productivity as the invention of new products.

Item Type:	Monograph (Discussion Paper)
Official URL:	https://cep.lse.ac.uk/_new/publications/discussion...
Additional Information:	© 2011 The Author(s)
Divisions:	Economic History
Subjects:	H Social Sciences > HC Economic History and Conditions
JEL classification:	N - Economic History > N2 - Financial Markets and Institutions > N22 - U.S.; Canada: 1913- N - Economic History > N2 - Financial Markets and Institutions > N24 - Europe: 1913- O - Economic Development, Technological Change, and Growth > O3 - Technological Change; Research and Development > O31 - Innovation and Invention: Processes and Incentives O - Economic Development, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O40 - General
Date Deposited:	22 Feb 2024 15:48
Last Modified:	11 Dec 2024 19:52
URI:	http://eprints.lse.ac.uk/id/eprint/121731

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