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]
The amount of social savings (SS) may be calculated as
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]
Social savings both was introduced and applied to the railroads in a seminal book by American 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 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.[3] 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,"[3] 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. Though Robert Fogel 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, or a market where the "law of one price held". However, canals contributed to this almost as much as railroads as they provided an alternative method of transport to wagons. Wagon transport at the time was very expensive and took a very long time. 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.
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