Victorian Britain Did Fail

Abstract

IN recent extremely influential article Prof. McCloskey challenged central tenets of the conventional wisdom concerning the British economy of the late nineteenth century. He argued that significantly higher income growth could have been obtained by higher investment rate' and that growth was constrained by inelasticities on the supply side.2 Instead of seeing the period as one of entrepreneurial failure he painted a picture of an economy stagnating but growing as rapidly as permitted by the growth of its resources and the effective exploitation of the available technology.3 These views were later criticized by Dr Kennedy who concluded not that British resources were incapable of sustaining more rapid growth, but rather that resources were deployed to exploit opportunities which did exist.4 Kennedy reached his conclusion by maintaining that McCloskey's model was misspecified and thus the actual historical record had been compared with an inappropriate counterfactual situation. This comment maintains that McCloskey's reinterpretation of the late nineteenth century should be rejected even on the basis of his own model. It is shown using this model that higher domestic investment rate, entailing higher capital-to-labour ratio, would have permitted large increase in consumption per head. An investment rate similar to that of Germany would have given 25 per cent increase in consumption per head in I 9 I .