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Social savings

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Social savings

Social savings is a growth accounting technique to evaluate the historical implications of new technology on economic growth.[1] Developed in the late 1950s by American economic historian and scientist Robert Fogel, the methodology works to estimate the cost-savings of the new technology compared with the next best alternative.[1] The first oral presentation was at the 1960 Purdue Cliometrics meeting, and the first published version was in the Journal of economic history in 1962.

A recent survey can be found in "economic and history: surveys in Cliometrics", edited by David Greasley and Les Oxley and published by Wiley-Blackwell in 2011. The relevant chapter is entitled "social savings" and is by Tim Leunig, London School of Economics. [1]

Calculation

The amount of social savings (SS) may be calculated as

SS = (PT0 − PT1)T1

where PT0 is the price per unit of the alternative technology, PT1 is the price of the technology being evaluated, and T1 is the quantity processed by the technology being evaluated.[1] This saving in resource costs may be taken to be equal to the gain in real national income.[1] Two noted social savings applications include social savings analysis on the contribution of the railway to the 19th century economic growth and the impact of information technology to the 20th century economic growth.[1]

Railroads and American economic growth

Social savings both was introduced and applied to the railroads in a seminal book by economic historian and scientist Robert Fogel.[2][1] The social savings analysis involved using quantitative methods to imagine what the U.S. economy would have been like in 1890 if there were no railroads.[3] In the absence of railroads, freight transportation by rivers and canals would have been only moderately more expensive along most common routes. America’s canal waterway system might have been expanded and its roads might have been improved as the next best alternative; both of these improvements would reduce the social impact of the railroad.[3] Fogel concluded that the difference in cost (or "social savings") attributable to railroads was negligible - about 2.7% of GNP. This counterfactual history view was vastly different from views proffered by railroad historians and made a controversial name for cliometrics.

References

  1. ^ a b c d e f Crafts, Nicholas F. R. (July 2004) "Social Savings as a Measure of the Contribution of a New Technology to Economic Growth". Working Paper 06/04, Department of Economic History, London School of Economics.
  2. ^ Fogel R. (1964) Railroads and American Economic Growth: Essays in Econometric History, The Johns Hopkins University Press; 1st Edition. ISBN 0-8018-0201-6.
  3. ^ a b Railroads and American Economic Growth: Essays in Econometric History | Book Reviews | EH.Net
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