Patterns of Innovation during the Industrial Revolution: a Reappraisal using a Composite Indicator of Patent Quality∗ Alessandro Nuvolari†a, Valentina Tartarib, and Matteo Trancheroc aScuola Superiore Sant'Anna, Pisa, Italy bCopenhagen Business School, Copenhagen, Denmark cHaas School of Business, UC Berkeley, USA August 5, 2019 Abstract We introduce a new bibliographic quality indicator for English patents granted in the period 1700-1850. The indicator is based on the visibility of each patent both in the contemporary legal and engineering literature and in modern authoritative works on the history of science and technology. The indicator permits to operationalize empirically the distinction between micro- and macroinventions. Our findings indicate that macroinventions did not exhibit any specific time clustering, while at the same time they were characterized by a labor-saving bias. These results suggest that Mokyr's and Allen's views of macroinventions, rather than conflicting, should be regarded as complementary. Keywords: Industrial Revolution; Patents; Macroinventions; Microinventions. JEL Code: N74, O31 ∗Acknowledgements: The authors want to thank Bart Verspagen, Tania Treibich, Abhishek Nagaraj, Sameer Srivas- tava, as well as participants to seminars at University C^oted'Azur, UNU-MERIT, Berkeley-Haas and to EMAEE 2019 at SPRU - University of Sussex for their helpful comments. We are indebted to Joel Mokyr, Ralf Meisenzahl, Morgane Louenan, Olivier Gergaud and Etienne Wasmer for sharing their data. The usual disclaimers apply. †Corresponding author: Alessandro Nuvolari, Scuola Superiore Sant'Anna, Pisa, Italy. Postal address: c/o Institute of Economics, Scuola Superiore Sant'Anna, Piazza Martiri 33, 56127, Pisa, Italy. E-mail: [email protected]. 1 1 Introduction Technical change has traditionally occupied a central place in the historiography of the Indus- trial Revolution. Not surprisingly, both contemporaries and historians have regarded technological progress as one of key-factors shaping the dramatic economic and social transformations taking place in England during XVIII and XIX centuries. This interest in technical change has resulted in a very rich qualitative literature which has provided detailed descriptions of technological advances both in a broad, comprehensive perspective (Landes 1969; Mokyr 1990; Trinder 2013) and at the level of spe- cific technologies, such as steam power (Hills, 1989), textiles (Hills, 1970) and iron production (Hyde, 1977). In this context, the distinction between microinventions and macroinventions originally proposed by Mokyr (1990) has established itself as a particularly useful notion for providing an insightful characterization of the patterns of technical change. In Mokyr's original formulation, microinventions are \[. ] small, incremental steps that improve, adapt and streamline existing techniques already in use, reducing costs, improving form and function, increasing durability, and reducing energy and raw material requirements", whereas macroinventions are \[. ] those inventions in which a radical new idea, without clear precedent, emerges more or less ab nihilo" (Mokyr 1990, p. 13). The distinction between micro- and macroinventions is intuitively appealing and is consistent with many qualitative accounts of the contours of technical change during the Industrial Revolution (Landes 1969; Mathias 1969). However, at closer inspection, the notions of microinventions and macroinventions appears of difficult empirical operationalization, especially if one is interested in reconstructions of broad patterns of technical change spanning more than one specific technology or industry. In this respect, an established tradition in economic history has resorted to patents to provide quantitative assessments of the rate and scope of technical change (Sullivan 1989, 1990; Khan and Sokoloff 1993). However, one of the well-known limitations of simple patent counts is that they do not take into account the different quality of the inventions in question (O'Brien et al., 1995), thus preventing a straightforward empirical identification of macroinventions. For modern patents, economists of innovation have addressed this issue by designing a number of indicators of patent quality based on the use of patent citations, geographical coverage (i.e., size of the patent family) and renewals (Van Zeebroeck, 2011). These indicators are not immediately applicable to the case of the English patent system during the Industrial Revolution. Remarkably, when writing The Lever of Riches in 1990, Mokyr pessimistically concluded that \[. ] patent statistics [in the Industrial 2 Revolution period] do not permit us to distinguish between radical and minor inventions" (Mokyr 1990, p. 82). In this paper, we introduce a new composite indicator of the quality of English patents for the period 1700-1850. Our indicator of patent quality is a substantial refinement of the bibliographic indicator proposed by Nuvolari and Tartari (2011) based on Bennet Woodcroft's Reference Index of Patents of Invention, 1617-1852. We construct our new composite indicator by complementing Woodcroft's Reference Index with information collected from a wide array of modern sources on the history of technology. These different sources of information concerning the quality of each individual patent are aggregated using the approach introduced by Lanjouw and Schankerman (2004). The resulting Bigliographic Composite Index (BCI) that we propose provides a reliable selection of the most revolutionary technological breakthroughs of the period, and we validate its reliability through extensive robustness checks. The integration of multiple sources allows the construction of an index of patent quality that provides the opportunity for a large-scale empirical operationalization of the notions of micro- and macroinventions, at least for the subset of patented inventions. In turn, this will lead us to reappraise a number of interpretative conjectures on the sources and effects of macro- and microinventions and on their interconnections (Allen 2009; Mokyr 2010; Crafts 2011; Allen 2018). We find evidence that the distinction between macro- and microinventions is supported by the patent evidence, with the series of macroinventions showing characteristics remarkably close to the original theorizing of Mokyr (1990). In particular, the series of macroinventions shows statistical properties that are consistent with a significant role of serendipity in determining their occurrence. Vice versa, microinventions tend to come after the appearance of major breakthroughs, and to be correlated with the economic cycle. We also document that macroinventions were characterized by a labor-saving bias which is consistent with the High Wage Economy interpretation of the Industrial Revolution proposed by Allen (2009). However, unlike what has been suggested by Allen (2009), macroinventions were not the result of the activities of \outsiders", that is inventors working in different industrial sectors. A detailed study of patents in mechanical engineering further allows to test speculations of the historical literature on the role of machine users in innovation (MacLeod and Nuvolari, 2009), which we find were mostly responsible of minor improvements. Our work is connected also to the ongoing efforts on the construction of indices of historical technological progress. In this field, one traditional approach has been the estimation of indices of labour productivity or TFP (Crafts and Harley 1992; Crafts 2014), which however are indirect measures of technical change, often based on fragile data, and fraught with difficulties (Nelson, 1973). 3 Our efforts are closer in spirit to the recent attempts to construct direct proxies of technical change pioneered by Alexopoulos (2011), who proposed an indicator based on the number of new book titles in different fields of technology, and Kelly et al. (2018), who employed textual analysis of US patent documents to develop a new index of patent quality that can be used as a measure of technological change.1 2 Literature review The English patent system did not undergo major changes from the adoption of the Statute of Monopolies in 1624 to the reform of 1852. This relative uniformity, coupled with the precise recording of the date and details of the patents granted, makes patents an invaluable source to investigate the dynamics of innovation during the Industrial Revolution (Sullivan 1989, 1990). Still, historical patent data suffer from several pitfalls that can make their use problematic (MacLeod, 1988). The first major limitation is that obviously not all inventions were patented (Nuvolari 2004; Moser 2005). But as aptly noted by Schmookler (1966), this should stimulate research efforts on in- dicators of unpatented inventions that can usefully integrate the patent evidence, rather than leading to a dismissal of patents as an insightful source. A second important issue is the heterogeneity of patents in terms of their technological and eco- nomic significance, i.e. what we can refer to as their relative \quality". This, of course, applies to modern patents as well (Scherer and Harhoff, 2000). However, the patent system of the time had some features that exacerbated this problem. The English system was one of registration and not of examination and this means that patents were not subjected to any systematic check concerning their novelty or relevance. Sometimes patents lacked technological feasibility altogether, as the relatively high number of \perpetual