The work of H. J. Habakkuk, Peter Temin, Robert Fogel, and Nathan Rosenberg on the effect of relative factor price differentials between America and England in the nineteenth century on the course of technological development has generated considerable interest in providing some empirical evidence on the labor scarcity hypothesis. Briefly stated, the hypothesis claims that relatively higher wages in America brought about the invention and use in production of a relatively capital intensive technology, and since “technical possibilities were richest at the capital intensive end of the spectrum,” this phenomenon was somehow responsible for the unique characteristics of American technology, that is, interchangeable parts, certain machine tool developments, and the proliferation of self-acting mechanisms.
Inferring Relative Factor Price Changes from Quantitative Data