Perhaps the most popular modern theory of the causes of the IR is Robert C. Allen’s “Induced Innovation”, as outlined in his 2009 book The British Industrial Revolution in Global Perspective. The argument is straightforward, but compelling: Britain had uniquely high wages from about as far back as the Black Death, along with relatively low capital and energy costs.* At the same time, places like China had low wages and relatively higher capital and energy costs. Britain’s relative factor price structure therefore induced a lot of labour-saving inventions, whereas China was stuck with a bunch of labour-intensive innovations.

The benefit of this theory is that it even goes some way towards explaining why Britain might have been earlier than most other European countries: it had relatively higher wages. 

This is an important theory, but it goes slightly too far:

[1]

The key problem is that there is no mechanism by which the economic environment (the relative factor price structure) necessarily induces the inventive process. Imagine yourself a creative potter in the 18th Century - do high wages cause you to sit down and focus on a labour-saving invention? Or are you more likely to simply grumble and make do? There seem to be a few extra steps required here.

One key facet of the IR is not so much the type of inventions that Britain witnessed, but their sheer volume: in every industry, and all around the same time. Indeed, many of these were saving labour, energy and capital indiscriminately. One thing that Allen’s theory does not explain is the source of this generalised and accelerated outburst of inventive activity.

[2]

The theory goes that the right relative factor prices can bias a pre-existing process of invention towards being labour-saving rather than capital- or energy-saving. However, this seems unlikely. Inventors and innovators have a vast amount of uncertainty that they attempt to overcome during the experimentation process. Even then, the incidence of savings on either labour or capital might not be obvious. As such, I find it highly unlikely that inventors were able to even know whether or not their initial ideas were to save more labour or capital, let alone respond accordingly to relative factor prices when investing in costly experiments.

I should make clear that this part of Allen’s theory mostly applies to ‘macro-inventions’. In other words, these are the out-of-the-blue, game-changing inventions like the steam engine, coke smelting, or the spinning machine. As such, I think the lack of inventor certainty or knowledge becomes even more stark than if we’re only talking about incremental improvements to a pre-existing technology (so-called 'micro-inventions’).

[3]

Allen does acknowledge that micro-inventions are likely to be indiscriminate in whether or not they save on capital or labour. Not only do inventors have greater certainty about what any given tweak might do to a pre-existing invention, but they also have every incentive to save on any of their input costs. What is puzzling is why he so readily dismisses the same lack of discrimination in the macro-invention process.**

[4]

Allen’s theory is strongest when it comes to the success of an invention in the market. As points 2 and 3 demonstrate, the actual process of invention itself may not be influenced by relative factor prices. However, your ability to construct and use your newfangled machine for production is very much influenced by the costs of labour, energy and capital. 

As such, Allen’s theory works best when explaining why particular major inventions were successful in high-wage Britain. This rings true: look at the extraordinary successes in Britain of foreign-invented contraptions such as the Lombe silk loom (stolen from Piedmont), or of the Jacquard Loom (a French-invented attachment to looms enabling patterns to be programmed - the inspiration for Babbage’s proto-computer, the analytical engine).

[5]

By focusing on market viability, this aspect of the theory also goes some way to explaining the rate and pattern of industrialisation’s spread. As British inventors tweaked their macro-inventions to save indiscriminately on both capital and labour, they eventually became cost-effective enough to be applied to other countries’ lower-wage environments. With the uncertainty of the research and development phase overcome by British innovators, foreign entrepreneurs could apply technologies with reference to relative factor prices. 

[6]

Allen points out that many macro-inventions were particularly inefficient when they were first invented, making their market viability and chances of further development all the more sensitive to relative factor prices. However, one should also note that many subsequently major inventions were not at all successful from the outset.

Take the steam carriage (the bane of many failed companies, but also the direct ancestor of the tractor), or perhaps even John Harrison’s famous marine chronometer, which was only made cost-effective for any kind of market by the work of Thomas Earnshaw and his rival John Arnold. 

Thus, while Allen’s theory might explain why some inventions were adopted for further development, many other inventions appear to have been developed further despite the bias of relative factor prices. The best explanation for this seemingly irrational behaviour again lies with innovators’ and entrepreneurs’ uncertainty. There’s no way they could have known the viability of their own inventions while they were still developing them, but then entrepreneurs are risk-takers. It’s only after research and development that Allen’s theory really kicks in.

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Allen’s theory is therefore one that best explains bias in the adoption of Britain’s numerous inventions (both in Britain, and abroad). Instead of “inducing innovation” in the sense of bringing about invention, Britain’s uniquely high wages and low energy determined that initially labour-saving inventions were more likely to be successful than others. For a fuller explanation of the IR, though, we need to go right to the inventive source - why was there so much more invention in Britain to be adopted in the first place? 

Edits:

*I won’t go into the various reasons for this that Allen goes into.

**I should also mention the work done on Christine MacLeod’s databases of patents to show that only around 21% were labour-saving even by the end of the 18th Century (pp.269-71 of Mokyr’s The Enlightened Economy)