Week of February 14, 2021

Anglo-American Exceptionalism

We return from a week’s hiatus to discuss two episodes of industrialization, separated by an ocean and a century, that defined the economic trajectory of the modern West: eighteenth-century take-off in Britain and the nineteenth-century emergence of America. The first two papers propose different answers to a similar question about the latter—why the United States, a nation of abundant natural resources, became a member of the developed core rather than the agricultural periphery during the “Great Specialization.” The second pair overview two debates in the historiography of the Industrial Revolution in Britain, one regarding the pace of and the other the motive for productivity growth. All are or will soon be classics in their respective fields and are mostly accessible and relevant to the lay reader.

As ever, enjoy the papers and the remainder of the weekend.

Links

The United States As A Developing Nation: Revisiting The Peculiarities Of American History

Stefan Link and Noam Maggor | Past and Present | December 2019

This article caused a stir when it first appeared a little over a year ago, sparking heated discussions between economic historians and historians of capitalism over issues of canon, ideology, and methodology. My sympathies lie with the former camp, but this article—written by two historians of capitalism—contains much of interest from a theoretical point of view. Link and Maggor, taking a broadly historiographical perspective, combat inevitabilist narratives of American development (namechecking Weber and Cronon) by suggesting that the Republic be seen as a country in the agricultural periphery during the nineteenth century. America’s early industries, after all, were not mass manufactures but raw materials (most famously cotton), tendencies that led almost universally to developing-country status during the “Great Specialization” into primary-product and finished-goods exporters. In the United States, however, highly efficient agriculture grew up alongside the world’s most dynamic mechanized industrial sector; indeed, both flourished simultaneously. To explain this paradox, the authors suggest that America be compared with other development projects, such as the East Asian countries of the twentieth century, rather than be held out as a template for the “natural” course of economic maturation. From this perspective, they propose that the local heterogeneity of the country—states, counties, and municipalities all serving as “laboratories of democracy”—was key to its industrial diversity.

[F]armers in this period mobilized to advance an aggressive regulatory agenda.. broad access to credit, leverage against railroad corporations, and protection from the competitive advantages of monopolies, even at the cost of higher prices for the goods they acquired and consumed. They enacted not liberal non-interventionism but an intensely proactive agenda, including progressive taxation, robust anti-trust policies, bankruptcy protections, banking reform, and corporate regulation (of railroad freight rates in particular). These measures were launched in different iterations and configurations by state-level legislation before migrating — only partially and with much difficulty — to the federal level in the twentieth century. The net result was not a level playing field shaped by liberal policy but a dense patchwork of overlapping, unevenly regulated and highly politicized markets. This ‘productive incoherence’ — disconnected, experimental, even erratic procedures that were forged politically over time — generated a long catalogue of incentives and constraints. Cumulatively, we surmise, these policies obstructed the drive towards economic specialization, channelled and disciplined the flows of capital, and nurtured a robust, diverse and technologically sophisticated manufacturing base.

The empirical and structural foundations of the Link and Maggor framework are loose and incomplete, but there is no doubt that this reformulation presents an interesting antidote to the assumed “typicality” of the American industrialization experience. The first and final quarters of this article are certainly worth reading, but the central historiographical review covers literature by now irrelevant to the main debates in American economic history and can be safely ignored.

American Exceptionalism as a Problem in Global History

Robert C. Allen | The Journal of Economic History | June 2014

Allen presents a rigorous, classically economic-historical perspective on the same problem of American exceptionalism. Positing that America’s comparative advantages during the nineteenth century lay in agriculture, he paints a picture of a nation poised for specialization in primary product exports. Raw material abundance (causing “Dutch Disease”), integration with the English labor market, and widespread education had created a high wage economy incapable of competing in international markets for industrial production. Without tariff protection, America’s nascent manufactures would have collapsed—as occurred elsewhere—under the pressure of cheap British imports. The application of Allen’s “standard model” (import restrictions, transportation improvements, and universal education), however, allowed the United States to groom a successful industrial sector and accumulate capital. By 1880, America’s configuration of high wages and cheap energy had become even more polarized than Britain’s, creating the optimal conditions for the adoption of labor-saving mechanized technologies. American industries, on par with European levels during the mid-nineteenth century, became the world’s most efficient. This program failed in Egypt and India, by contrast, because in both countries wages were too low relative to energy prices to incentivize technological adoption even with a tariff. While his dogmatic policy views (especially education fundamentalism) remains slightly unconvincing, this paper represents a brilliant application of the “high wage explanation” to the United States, and is also a surprisingly concise survey of macroeconomic trends during the nineteenth century. This is one of my favorite papers of the year so far.

Two Views of the British Industrial Revolution

Peter Temin | The Journal of Economic History | March 1997

The classic story of the British Industrial Revolution, associated with T. S. Ashton and David Landes, revolves around a sharp discontinuity in the country’s economic development and the roughly simultaneous transformation of a wide range of industries into modern mechanized sectors. During the 1980s, however, quantitative studies produced by C. Knick Harley and Nicholas Crafts devised statistics supporting a directly contrary perspective: productivity growth had only occurred in a narrow range of leading sectors, primarily textiles, leaving the rest of the British economy stagnant—a change “so small relative to the whole economy that it no longer deserves the title of ‘Industrial Revolution.’” Temin employs a Ricardian comparative-cost trade model to propose an empirical test for choosing between the two perspectives. If productivity growth had really been limited to a small group of advanced industries, as Crafts and Harley suggested, then exports should have fallen across the board as Britain specialized to meet foreign exchange needs. The evidence suggests that this did not occur; rather, “Britain maintained a clear comparative advantage in a wide variety of manufacturing industries throughout the first half of the nineteenth century,” keeping pace with cotton exports. This is a model paper in cliometric history, proposing a well-formulated question and answering it with a clear test and empirical data.

Explaining the First Industrial Revolution: Two Views

Nicholas Crafts | European Review of Economic History | December 2010

Somewhat confusingly, Crafts—in an accessible and lucid review piece—compares two very different views on the British Industrial Revolution: Joel Mokyr’s vision of an “Industrial Enlightenment” and Robert Allen’s “high wage explanation.” The latter (to which this author is favorable) has been described ad nauseam on this newsletter, but to those unfamiliar, suggests a process by which a combination of elevated British labor costs and cheap energy incentivized the adoption of mechanized technologies. Mokyr, writing in The Enlightened Economy, instead proposes that the “Baconian program” of generating useful knowledge and institutional development manifested in a technologically-creative society that produced a stream of “macroinventions” to be improved into genuine industrial breakthroughs by Britain’s prolific engineering class. He strongly disagrees with Allen’s view, noting that innovation usually economizes on all inputs; that inventors rarely professed a desire to reduce labor costs; and that factor prices at best determine the direction rather than the pace of technological change. Allen, meanwhile, rejoins that Mokyr’s inventors were frequently unconnected with Enlightenment science and came not from the intelligentsia but from artisanal families. Crafts acknowledges the empirical limitations of both views, pointing out that the spinning jenny—Allen’s case study of wage-driven industrialization—would have been profitable to adopt at English prices in France; however, he praises the HWE’s theoretical consistency and argues that British innovation was indeed biased toward labor conservation. He ultimately concludes that the Allen and Mokyr hypotheses are “not mutually exclusive” and that the following synthesis might be plausible: Mokyr describes the “responsiveness of agents” to incentives for invention, while Allen outlines the economic factors that made technological breakthroughs profitable. This paper is probably the best introduction to the modern debates on the Industrial Revolution and the clearest outline—outside of Allen’s own work—of the high wage explanation. I read this once a year.