Social savings (sometimes "Fogel social savings") is a
growth accountingGrowth accounting is a procedure used in economics to measure the contribution of different factors to economic growth and to indirectly compute the rate of technological progress, measured as a residual, in an economy....
technique to
evaluateCliometrics refers to the systematic application of economic theory, econometric techniques, and other formal/mathematical methods to the study of history . The term was originally coined by Jonathan R.T...
the
historicEconomic history is the study of how economic phenomena evolved from a historical perspective. Analysis in economic history is undertaken using a combination of historical methods, statistical methods and by applying economic theory to historical situations. The topic includes business history and...
implications of new technology on economic growth. Developed in 1964 by
AmericanThe United States of America is a federal constitutional republic comprising fifty states and a federal district...
economic historian and scientist
Robert FogelRobert William Fogel is an American economic historian and scientist, and winner of the 1993 Nobel Memorial Prize in Economic Sciences...
, 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 as
SS = (P
T0 − P
T1)T
1
where P
T0 is the price of the alternative technology, P
T1 is the price of the evaluated technology being evaluated, and T
1 is the quantity processed by the evaluated technology.
Social savings (sometimes "Fogel social savings") is a
growth accountingGrowth accounting is a procedure used in economics to measure the contribution of different factors to economic growth and to indirectly compute the rate of technological progress, measured as a residual, in an economy....
technique to
evaluateCliometrics refers to the systematic application of economic theory, econometric techniques, and other formal/mathematical methods to the study of history . The term was originally coined by Jonathan R.T...
the
historicEconomic history is the study of how economic phenomena evolved from a historical perspective. Analysis in economic history is undertaken using a combination of historical methods, statistical methods and by applying economic theory to historical situations. The topic includes business history and...
implications of new technology on economic growth. Developed in 1964 by
AmericanThe United States of America is a federal constitutional republic comprising fifty states and a federal district...
economic historian and scientist
Robert FogelRobert William Fogel is an American economic historian and scientist, and winner of the 1993 Nobel Memorial Prize in Economic Sciences...
, 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 as
SS = (P
T0 − P
T1)T
1
where P
T0 is the price of the alternative technology, P
T1 is the price of the evaluated technology being evaluated, and T
1 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 incomeGross national income ' comprises the total value produced within a country , together with its income received from other countries , less similar payments made to other countries....
. Two noted social savings applications include social savings analysis on the contribution of the
railwayToday, most rail transport in the United States is based in freight train shipments. The U.S. rail industry has experienced repeated convulsions due to changing U.S. economic needs and the rise of automobile, bus, and air transport. Despite the difficulties, U.S. railroads carried 427 billion...
to the 19th century economic growth and the impact of
information technologyInformation technology , as defined by the Information Technology Association of America , is "the study, design, development, implementation, support or management of computer-based information systems, particularly software applications and computer hardware." IT deals with the use of electronic...
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,
Railroads and American Economic Growth: Essays in Econometric History (1964) by
AmericanThe United States of America is a federal constitutional republic comprising fifty states and a federal district...
economic historian and scientist
Robert FogelRobert William Fogel is an American economic historian and scientist, and winner of the 1993 Nobel Memorial Prize in Economic Sciences...
. 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. 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
cliometricsCliometrics refers to the systematic application of economic theory, econometric techniques, and other formal/mathematical methods to the study of history . The term was originally coined by Jonathan R.T...
. Though
Robert FogelRobert William Fogel is an American economic historian and scientist, and winner of the 1993 Nobel Memorial Prize in Economic Sciences...
argues that Railroads had a small impact on the level of per capita income it is not arguable that the railroads created a "national market". This "national market" shrunk the price gap that existed between the West and East markets. With the development of railroads shipping from coast to coast became cheaper and there for slowly closed the price gap that once existed between the West market and East market.