| Abstract: |
This paper builds a model of growth through industrialization, as machines
replace workers in a growing number of tasks. This enables the economy to
experience long-run growth, as machines become servants of humans, and as
their number can grow unboundedly. The mechanism that drives growth is the
feedback between industrialization and wages. High wages are incentives to use
machines and industrialize, while industrialization raises wages. The model
shows that industrialization and growth take off only if the economy is
productive enough. It also shows that monopoly power can stifle growth, as it
lowers wages. Hence, a one-time increase in productivity, or a reduction of
monopoly power can push economies from stagnation to industrialization. |