We provide a model of the links between commercialisation and technological progress, which is consistent with the historical evidence and places market relations at the heart of the industrial revolution. First, commercialisation raised wages as a growing reliance on impersonal labour market transactions in place of customary relations with a high degree of monitoring led to the adoption of efficiency wages. Second, commercialisation lowered interest rates as a growing reliance on impersonal capital market transactions in place of active investor involvement in investment projects led investors to allow borrowers to keep a larger share of the profits. Third, the resulting rise in the wage/cost of capital ratio led to the adoption of a more capital-intensive technology. Fourth, this led to a faster rate of technological progress through greater learning by doing on the capital intensive production technology. Fifth, the rate of technological progress was raised further by the patent system, which allowed the commercialisation of property rights in innovations embodied in machinery
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