Social savings

Social savings (sometimes "Fogel social savings") is a growth accounting technique to evaluate the historic implications of new technology on economic growth.Crafts, Nicholas F. R. (July 2004) London School of Economics " [http://www.lse.ac.uk/collections/economicHistory/pdf/LSTC/0604NickCrafts.pdf 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.] Developed in 1964 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. The amount of social savings (SS) may be calculated asSS = (P_T0 − P_T1)T₁where P_T0 is the price of the alternative technology, P_T1 is the price of the evaluated technology being evaluated, and T₁ is the quantity processed by the evaluated technology. This saving in resource costs may be taken to be equal to the gain in real national income. 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.

Railroads and American economic growth

Social savings both was introduced and applied to the railroads in the seminal book, "" (1964) by American economic historian and scientist Robert Fogel. 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. [http://eh.net/bookreviews/library/davis.shtml Railroads and American Economic Growth: Essays in Econometric History | Book Reviews | EH.Net ] ] In the absence of the railroad, America’s large canal waterway system would have been expanded and its roads would have been improved through pavement as the next best alternative; both of these improvements would take away from the social impact of the railroad. In estimating that the "level of per capita income achieved by January 1, 1890 would have been reached by March 31, 1890, if railroads had never been invented," the social savings analysis concluded that the difference in cost (or "social savings") attributable to railroads was negligible - about 1%. This counterfactual history view was vastly different from views proffered by railroad historians and made a controversial name for cliometrics.

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