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Abstract

British mathematician Charles Babbage (1791–1871) spent immense energy to build mechanical calculating engines. Hoping that it might help him in designing and building his engines, he visited numerous workshops and factories in both England and Continental Europe. One of the consequences of these visits was his On the Economy of Machinery and Manufactures, published in 1832. Through his observations, Babbage grasped the advantages of machinery and economies of scale. In micro terms, he acknowledged the cost-reducing features of economies of location, vertical integration, and division of labor – beyond Adam Smith's analysis – as well as the efficacy of clustering. He also pointed out the relationship between firm size, economic crisis, and innovation.