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American Railroads and the Transformation of the Ante-bellum Economy

Author(s):Fishlow, Albert
Reviewer(s):Majewski, John

Classic Reviews in Economic History

Albert Fishlow, American Railroads and the Transformation of the Ante-bellum Economy. Cambridge, MA: Harvard University Press, 1965. xv + 452 pp.

Review Essay by John Majewski, Department of History, University of California – Santa Barbara.

Albert Fishlow and the Road to the New Economic History

Albert Fishlow’s 1965 book, American Railroads and the Transformation of the Ante-bellum Economy, received widespread praise when it was initially reviewed. Jeffrey Williamson considered it “as the ripest fruit thus far to come from the vineyard of the new economic historian.”[1] Stuart Bruchey similarly ranked American Railroads as “the finest product of the ‘new’ economic history.”[2] Fishlow’s impressive evidentiary base and his carefully drawn conclusions have made American Railroads an enduring classic that is still cited today. There is more to the story of American Railroads, though, than that of well-crafted scholarly work. The book’s forty-year career is a window from which one can glimpse the transition from the “Old Economic History” to the “New Economic History.”

American Railroads is Fishlow’s award-winning Harvard dissertation written under the supervision of Alexander Gerschenkron. Fishlow’s project was, to say the least, ambitious for a graduate student: he wanted to systematically evaluate the impact of railroads on the antebellum economy. Fishlow started by calculating the social savings of railroads, which can be roughly defined as the railroad’s reduction in freight and passenger rates over the next best alternative. Calculating the social savings of antebellum railroads, given the period’s uneven statistical sources, presented Fishlow with an immense challenge. His statistical appendices, which totaled more than 150 pages, indicate how rigorously he tackled the problem. The quantitative element of American Railroads reflected the rise of the New Economic History, which was transforming their field through the use of formal models and sophisticated statistical techniques. Gerschenkron, in fact, also served as mentor for Paul David and Peter Temin, two other distinguished contributors to the New Economic History.[3]

Fishlow’s conclusions, though, differed significantly from those of Robert Fogel, often considered the leading figure of the cliometrics revolution. Fogel famously argued that railroads made a relatively small contribution to U.S. economic growth in 1890. Fishlow, on the other hand, estimated the social savings of railroads in 1859 was 4 percent of GNP. Extrapolating to 1890, Fishlow calculated, produced social savings of least 15 percent of GNP, far higher than Fogel’s estimate of 5 percent. The key difference rested on the way each defined social savings. Fishlow estimated the social savings by comparing railroads to actual alternatives available in the antebellum period. Fogel, on the other hand, calculated the social savings of railroads to a vast system of improved roads and canals that nineteenth-century Americans might have built in the absence of railroads. Fogel, in essence, compared railroads to an economy that did not exist. What William R. Summerhill calls “Fishlovian” and “Fogelian” counterfactuals have different strengths and weaknesses.[4] Fishlow’s method generally results in upper-bound estimates of social savings, but avoids what Fishlow called “[t]he inherent difficulties of measuring what never occurred” (p. 58).

If Fishlow and Fogel philosophically disagreed over the nature of social savings, their work nevertheless had much in common. Both criticized W. W. Rostow, who claimed that antebellum railroads constituted a “leading sector” that induced widespread industrialization via backward linkages to coal, iron, and machinery. Such bold claims, in fact, initially sparked Fishlow’s interest in railroads, and his book provides a devastating critique. Fishlow shows, for example, that most locomotives in the antebellum period burned wood, which meant that railroads used a surprisingly little coal. As for iron, Fishlow demonstrates that railroads accounted for only 20 percent of net consumption in the 1850s. Twenty percent was certainly significant, as Fishlow notes, but hardly revolutionary. Nor did railroads single handily create the machinery industry. Fishlow argues that the production of locomotives created “no strategic breakthroughs” in steam engine design and production (p. 152). Steamboats, in fact, demanded far more in the way of large, sophisticated engines.

In Fishlow’s account, Midwestern farmers and agricultural processing industries (such as flour milling) benefited the most from railroads. Railroads led to the creation of new farms and the growth of towns and cities that could market and process the growing surplus of grains, hogs, and cattle. Fishlow persuasively argued that these railroads were not built ahead of demand. Midwestern railroads, in fact, ran through densely populated areas, which intensified development in locales best suited for commercial agriculture. Almost from the very beginning, these railroads made substantial profits, which one would not expect from developmental enterprises built ahead of demand. Private capital markets (with occasional help from local governments) financed most Midwestern railroads, thus confirming that investors expected these companies to make money sooner rather than later.

Fishlow’s argument has important implications for understanding the relationship between government policy and economic development. Since antebellum railroads generally made money, investment from the national or state governments was not important. To the extent it occurred at all, government investment led “to excess and wasteful construction” (p. 310). The U. S. case showed that investment in railroads — an example of “social overhead capital” — produced high social rate of returns, but only in the context of a vibrant market economy. Fishlow presciently warned that underdeveloped nations — especially those “wracked with large and unproductive agricultural sectors, illiteracy, concentrations of wealth, frequently wasteful government intervention” — should avoid mechanistically investing in “social overhead capital” to magically replicate the U. S. experience (p. 311). The generally poor record of large-scale infrastructure projects in many parts of Africa, Asia, and Latin America underscores the salience of Fishlow’s point.[5]

Fishlow’s conclusion foreshadowed a shift in his research to contemporary development issues, where he often focused on Brazil and other Latin American nations. The influence of American Railroads, not surprisingly, subtly waned. The comparison with Fogel’s Railroads and American Economic Growth is instructive. Whereas Fishlow’s book remained an expensive hardback, Fogel’s book was published in paper, suggesting a wider readership in undergraduate courses and graduate seminars. Fogel, of course, never shied away from debate and controversy. His 1979 article “Notes on the Social Saving Controversy” — which defended his previous arguments with new evidence and new models — effectively gave him the last word in the debate.

That Fogel’s book received more sustained attention than Fishlow’s attests to its greater appeal to up-and-coming cliometricians. Fogel formally modeled his conception of social savings. Equations fill entire pages of Railroads and American Economic Growth, and even the book’s subtitle, Essays in Econometric History, has a strong cliometric flavor. Fishlow, on the other, eschewed formal models expressed as algebraic equations. Instead of running regressions, Fishlow presented most of his statistical evidence in descriptive tables. As D. McCloskey has argued, Fogel’s provocative rhetorical approach — which combined the confrontational approach of a courtroom lawyer with the technical apparatus of a cutting-edge scientist — appealed to new generation of economic historians.[6]

One might think that the practitioners of the old economic history would embrace Fishlow’s work as a more conservative alternative to Fogel’s aggressive counterfactual models. Alfred Chandler, for one, certainly found Fishlow’s approach more compatible with own view that railroads fundamentally transformed the American economy. Many other traditional economic historians, though, criticized Fishlow’s conclusions. Carter Goodrich, in particular, believed that Fishlow had underestimated the importance of government action. Goodrich considered himself part of the “American System” synthesis that stressed the importance of government investment in the early American economy. Goodrich seriously questioned few of Fishlow’s specific findings, but argued that the broader history of internal improvements — whether the canals of the Early Republic or the transcontinental railroads of the Gilded Age — showed the necessity of government investment.[7] Goodrich’s critique subtly changed the question from the role of railroads in the antebellum period to the role of government in the nineteenth century economy. That, of course, is a far different question than Fishlow asked, and one that has still not been fully answered to this day. If Goodrich’s critique did not undermine Fishlow’s evidence or analysis, it highlighted the profound differences between cliometricians and those using more traditional historical methods. Politics, ideology, and culture — not counterfactuals and social savings — most interested Goodrich and his intellectual heirs.

Here, then, is the bittersweet career of American Railroads. Fishlow’s impressive scholarship was not quite econometric enough to hold the attention of economists, yet proved too statistical to appeal to the more traditional economists and historians. One might interpret the fate of American Railroads as a cautionary tale of the troubles that befall interdisciplinary scholarship in an age of specialization. Such a dire assessment is unwarranted. Fogel may have grabbed the headlines, but Fishlow’s careful analysis and extensive research have provided scholars with a treasure trove of hard-earned knowledge. That Fishlow’s book is included in this series testifies to its significance. In his preface to American Railroads, Fishlow apologized (in 1965!) for writing yet another book about railroads. Future generations will certainly acknowledge their debt to Fishlow’s work as they write their own histories of railroads and government policy.

Notes:

1. Jeffrey G. Williamson, Economic History Review, (April 1967): 196.

2. Stuart Bruchey, American Historical Review, (April 1967): 1098.

3. For more details on Gerschenkron’s Harvard workshop, see Eugene N. White’s interview of Fishlow in Samuel H. Williamson, John S. Lyons, and Louis P. Cain (eds.), Reflections on the Cliometric Revolution: Conversations with Economic Historians (forthcoming, 2006).

4. William R. Summerhill, Order against Progress: Government, Foreign Investment, and Railroads in Brazil, 1854-1913 (Stanford: Stanford University Press, 2003), 215-16.

5. William Easterly, The Elusive Quest for Growth: Economists’ Adventures and Misadventures in the Tropics (Cambridge, MA: MIT Press, 2001), 25-44.

6. D. N. McCloskey, The Rhetoric of Economics (Madison: University of Wisconsin Press, 1985), 113-137.

7. Carter Goodrich, “Internal Improvements Reconsidered,” Journal of Economic History, (June 1970): 289-311.

John Majewski is an associate professor in the history department at UC Santa Barbara. He is the author of A House Dividing: Economic Development in Pennsylvania and Virginia before the Civil War (Cambridge University Press, 2000), and is currently writing a book on the political economy of Confederate secessionists. He thanks John Lyons and Robert Whaples for their helpful comments on this review.

Subject(s):Transport and Distribution, Energy, and Other Services
Geographic Area(s):North America
Time Period(s):19th Century

American Railroads: Decline and Renaissance in the Twentieth Century

Author(s):Gallamore, Robert E.
Meyer, John R.
Reviewer(s):Brown, John Howard

Published by EH.Net (December 2014)

Robert E. Gallamore and John R. Meyer, American Railroads: Decline and Renaissance in the Twentieth Century. Cambridge, MA: Harvard University Press, 2014. xiii + 506 pp. $55 (hardcover), ISBN: 978-0-674-72564-5.

Reviewed for EH.Net John Howard Brown, Department of Finance and Economics, Georgia Southern University.

This book presents a historical overview of the American railroad industry through the course of the twentieth century.  The central thesis of the volume is that many of the ills suffered by the rail mode in this century were a product of the regulatory environment they faced.  In particular, in the post-World War II environment where highway transportation became an increasingly effective alternative to both freight and passenger rail service, regulation hampered effective responses by rail firms.  In the early 1970s the rigor mortis induced by regulation combined with the collapse of manufacturing in the Northeastern region of the United States thrust much of the rail capacity in the region into bankruptcy.  Salvation was delivered to the rail industry by the Staggers Act of 1980 which dramatically broadened the scope of business decisions that railroads could make without regulatory monitoring.  This thesis will be uncontroversial for economists and business historians who have studied the industry and particularly its post-1980 resurgence.

The first chapter is a paean to the “Enduring American Railroads.”  The second chapter discusses the ills of regulation in the context of the peculiar economics of the rail industry.  Curiously, given the pivotal role which sunk costs have assumed in economic theories of competition over the last forty years, the term is unmentioned in the text and index, even though the first topic discussed in the chapter is whether railroads are natural monopolies.  Since the expense of roadbed and right-of-way are both substantial and sunk, entry into a market is quite difficult where an incumbent is established, since they have already sunk their costs.  The incumbent can credibly threaten to force rates below average costs making entry unprofitable.  This dynamic often leads to monopoly.  Where entry actually occurs, the alternative is often “destructive competition” featuring rates that cannot recover the full costs of service.  A railroad’s system is thus often a checkerboard of competitive and monopolized routes.  This very characteristic of railways was responsible for attempts to regulate the industry in the nineteenth century, culminating in the Interstate Commerce Act.  The chapter concludes with a box laying out Ten Principles of Transportation Economics.  These are uncontroversial in themselves.  However, they do not offer so much as a hint of the role of sunk costs.

The third chapter summarizes the history of government control of railroads in the first half of the twentieth century.  The authors divide this era into three sub-periods: the antitrust episode, the period of direct government operation, and the period following the Transportation Act of 1920.  The antitrust episode was initiated by the Northern Securities case and represented a strike against what was viewed as excessive concentration of control in the transcontinental roads.  The authors view this episode as ill-conceived since after the Staggers Act of 1980 essentially the same systems were created in a new round of mergers.

The experience of government control during the First World War is in contrast reviewed positively.  Although it is treated as the product of special circumstances and the peculiarity of the design of the American railroad system, the authors do draw some lessons from the events.  These lessons consisted largely of the virtues of eliminating wasteful duplication of efforts.  This was the same reasoning that J.P. Morgan employed in snuffing out competition in many industries during the 1890s.  After the war, however, the roads were rapidly returned to private control.

This leads to the third epoch of the century where public rail policy was determined by the Transportation Act of 1920.   Official policy favored substantial consolidation of rail systems.  However, consolidation was never achieved.

The fourth chapter purports to examine the role that competition from alternative freight transportation modes played in the evolution of the rail industry.  In fact, the chapter is poorly organized, shifting between transport modes, policy recommendations, and historical eras haphazardly.  Three points stand out regarding the topic of intermodal freight competition.  First, prior to about 1950, waterborne carriage provided a limited competitive check on railroads in some regions of the United States, i.e. the Atlantic, Pacific, and Gulf Coasts; the Great Lakes; and the Mississippi-Ohio-Missouri basin.  Next, after 1950, highway transportation and air transport increased competitive pressure on the rail industry in freight markets.  Finally, government policies resulted in substantial subsidies to these alternative modes.  In particular, unlike railroads where right-of-ways are privately owned and maintained, internal waterway improvements, highways, and airports are usually built and maintained at government expense.

The following chapter tells a similar story regarding rail passenger traffic.  Once again, competition from competing modes was ineffectual prior to World War II.  Afterwards, both highways and air travel supplanted railroads in passenger service.  Some of this was attributable to the improved comfort and safety of these modes due to technical improvements, particularly the development of passenger jet aircraft.  Additionally, as was the case for rail freight, the implicit subsidies provided by governmental investments in highways, airports, and the air traffic control system placed the rails at a disadvantage.

The trends related in these two chapters paint a picture of steadily mounting pressure from competing and partially-subsidized modes.  The classic response of railroads to competition has always been deferral of maintenance.  Thus the rail system entered the nineteen sixties with substantial portions of its trackage functionally obsolete or at least in sore need of maintenance.  One possible solution, merger, is the topic of the succeeding chapter.

The sixth chapter discusses the dynamics of railroad mergers during the 1950s and 60s.  As always, public policy makers were ambivalent about the issue of rail consolidation.  Two different approaches to railroad mergers were available.  Parallel mergers joined firms whose route structures were largely overlapping.  On their face, such mergers reduce competition while perhaps reducing costs by elimination of duplicate functions.  End-to-end mergers joined roads which already had a collaborative relationship due to their interchange of freight.  These mergers might improve services available to shippers but were not anticipated to result in substantial cost reductions. Having pointed out that regulators generally opted for parallel and cost saving mergers, even though they threatened to reduce competition, the authors engage in a detailed rehearsal of the details of rail mergers.  The chapter concludes with the wreck of the Penn Central.

The seventh chapter discusses the rather muddled public policy response to the crisis induced by Penn Central’s collapse.  The 1970s featured more Congressional policy making for railroads than any prior decade.  The initial responses in the form of the so-called 3R and 4R bills can be classified as attempts at muddling through.  The most consequential result of these acts was the creation of the United States Railway Administration (USRA).  This body was charged with nothing less than the reorganization of the entire railway system.  The acts also created Conrail, an empty vessel into which the USRA was to pour its reorganization plan.  The Staggers Act concluded the decade with a radical departure from the prior eighty years of American public policy, although it was a logical extension of the deregulatory fervor which seized official Washington and the Carter administration.

The following chapter discusses the Frankenstein creation which was Conrail.  The chain reaction bankruptcies induced by the failed Penn Central merger threatened to exterminate rail freight service throughout much of the northeastern United States.  The creation of Conrail was the ad hoc response to the perceived crisis.  Like Frankenstein’s monster, Conrail took on a life of its own, far outlasting the crisis that birthed it, in the process besting a cabinet secretary determined to privatize it by merger.  Instead, it prospered as an independent, private firm up to the 1990s.

The ninth chapter backtracks chronologically to discuss the development of the Staggers Act and the consequences of deregulation.  Two features of the act were essential: streamlining the process by which railroads could abandon legacy lines that could not achieve economic traffic density and phasing out common carrier obligations.  Class I railroads aggressively pruned their route systems. All railroads took advantage of their newly acquired freedom to enter into private contracts.

The Staggers Act permitted the Interstate Commerce Commission, and its successor, the Surface Transportation Board, to “protect” captive shippers from exploitation by railroads.  The balance of the ninth chapter comprehensively covers the struggles between shippers and railroads over rates which could adequately compensate the railroads without exploiting shippers.  No very satisfactory result was ever achieved in squaring this circle.  Nor is it clear to the authors that any regulatory solution would be desirable.

The tenth chapter takes up the story of the post-Staggers Act consolidation of the U.S. rail industry into five Class I roads and innumerable short lines erected on tracks abandoned by the Class I roads.  The different mergers and their competitive logic (or occasionally lack thereof) are discussed in detail.  One flaw in this chapter is recurrent name dropping about rail executives who are mentioned positively without providing detailed evidence to support the judgments.

The final result of the flurry of mergers was paired duopolies, Burlington Northern-Santa Fe and Union Pacific-Southern Pacific west of the Mississippi and Norfolk Southern with CSX in the east.  Kansas City Southern remains an anomaly operating routes predominantly north and south while the other Class I operators’ traffic flows are east to west.  The authors conclude with a report card of the final four.

Chapter eleven returns to passenger rail and the Amtrak experience.  The dilemma of rail passenger service policy is twofold.  On one hand, Congress has sought to have Amtrak succeed on a commercial basis, i.e. cover expenses from passenger revenues.  This policy implies minimal federal subsidies.  However, only a few high-density corridors in the United States, particularly between Boston and Washington and some very large metropolitan areas, could commuter traffic support rail service on such a basis.  Once subsidies are required, the logic of legislative deal making demands passenger routes that can never be successful on a commercial basis in order to build legislative majorities.  For example, Amtrak’s transcontinental routes are not economically viable.

Chapter twelve documents the remarkable technological progressiveness of American railways in the twentieth century despite their not infrequent economic distress.  Broadly speaking two sources of technical progress can be identified, innovations embodied in physical capital and innovations in business practices.  The first is represented for railroads by the replacement of steam locomotives with diesel at mid-century.  The development in the post-Staggers era of the unit train illustrates the second category of technical change.

In addition, some improved technology was developed specifically for railroads, such as the diesel-electric locomotive and improved systems for braking and train control.  Other technologies were generated as a part of the twentieth century’s remarkable technological efflorescence but were readily adapted to the needs of railroads, e.g. computers and communication systems. The cumulative, synergistic effects of these changes was the transformation of a labor- and fuel-intensive industry in the late nineteenth century into an industry of unmatched productivity with respect to both in the early twenty-first.

The thirteenth chapter provides a summing up, consisting of ten propositions regarding the experience of the railroad industry during the twentieth century.  The first is that regulation was hugely damaging to the industry in the first eight decades of the century.  At the same time the authors concede in their second point that railroads represent an industry “affected with the public interest.”  Financial crises and bankruptcy under the competitive pressure from alternative modes constitute their points three through five.  Points six, seven, and ten take up the story of the chaotic 1970s, the belated regulatory reforms, particularly the Staggers Act, and the resurgence the railroads experienced in the final two decades.  Propositions eight and nine cover the notable progress of railway technology and the travails of passenger rail service.  There is nothing to criticize in this summary.  Although, as is too frequently the case, the organization of the presentation leaves something to be desired.

A final chapter closes the book with some observations about further regulatory reforms which might reinforce the current good health of the American rail industry.  They also highlight some post-millennial developments and their implications for the future of the industry.   These recommendations and observations are of particular interest in light of recent proposals of further Class I mergers.

This book is comprehensive and the authors clearly quite knowledgeable.  John Meyer, now deceased, was a professor at Harvard University and Robert Gallamore, was a former student, now retired from the rail industry and teaching at Michigan State University.  However, this book disappoints.  The authors have chosen a narrative structure that is neither fish nor fowl.  The chapter organization is largely topical.  However, the organization of the topics follows an imperfect chronological ordering.  The internal organization of chapters leaves much to be desired also, since they tend to leap from subject to subject with little connective logic.

The book appears also to suffer from sloppy editing.  Thus in one chapter we read that, “no comparable period in U.S. history had less success in actual railroad consolidations than the forty-year span, 1920 to 1940” (p. 66).  In several other places, tables displaying economic values over substantial time periods are reported in nominal, rather than real terms (see Figure 5.1, p. 121 and Figure 11.2, p. 333).  The latter figure distorts the levels of support Amtrak has received over its lifetime by understating subsidies in the 1970s and overstating the subsidies of the twenty-first century.

In summary, this book imperfectly fills the need for a comprehensive historical treatment of the American railroad industry in the last century.  Given the inherent interest and importance of the subject, this is unfortunate.

John Howard Brown is an Associate Professor of Economics in the Department of Finance and Economics at Georgia Southern University.  His article, “The ‘Railroad Problem’ and the Interstate Commerce Act” was published in a special issue of the Review of Industrial Organization on the 125th anniversary of the Interstate Commerce Act.

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Subject(s):Transport and Distribution, Energy, and Other Services
Geographic Area(s):North America
Time Period(s):20th Century: Pre WWII
20th Century: WWII and post-WWII

The History of American Labor Market Institutions and Outcomes

Joshua Rosenbloom, University of Kansas

One of the most important implications of modern microeconomic theory is that perfectly competitive markets produce an efficient allocation of resources. Historically, however, most markets have not approached the level of organization of this theoretical ideal. Instead of the costless and instantaneous communication envisioned in theory, market participants must rely on a set of incomplete and often costly channels of communication to learn about conditions of supply and demand; and they may face significant transaction costs to act on the information that they have acquired through these channels.

The economic history of labor market institutions is concerned with identifying the mechanisms that have facilitated the allocation of labor effort in the economy at different times, tracing the historical processes by which they have responded to shifting circumstances, and understanding how these mechanisms affected the allocation of labor as well as the distribution of labor’s products in different epochs.

Labor market institutions include both formal organizations (such as union hiring halls, government labor exchanges, and third party intermediaries such as employment agents), and informal mechanisms of communication such as word-of-mouth about employment opportunities passed between family and friends. The impact of these institutions is broad ranging. It includes the geographic allocation of labor (migration and urbanization), decisions about education and training of workers (investment in human capital), inequality (relative wages), the allocation of time between paid work and other activities such as household production, education, and leisure, and fertility (the allocation of time between production and reproduction).

Because each worker possesses a unique bundle of skills and attributes and each job is different, labor market transactions require the communication of a relatively large amount of information. In other words, the transactions costs involved in the exchange of labor are relatively high. The result is that the barriers separating different labor markets have sometimes been quite high, and these markets are relatively poorly integrated with one another.

The frictions inherent in the labor market mean that even during macroeconomic expansions there may be both a significant number of unemployed workers and a large number of unfilled vacancies. When viewed from some distance and looked at in the long-run, however, what is most striking is how effective labor market institutions have been in adapting to the shifting patterns of supply and demand in the economy. Over the past two centuries American labor markets have accomplished a massive redistribution of labor out of agriculture into manufacturing, and then from manufacturing into services. At the same time they have accomplished a huge geographic reallocation of labor between the United States and other parts of the world as well as within the United States itself, both across states and regions and from rural locations to urban areas.

This essay is organized topically, beginning with a discussion of the evolution of institutions involved in the allocation of labor across space and then taking up the development of institutions that fostered the allocation of labor across industries and sectors. The third section considers issues related to labor market performance.

The Geographic Distribution of Labor

One of the dominant themes of American history is the process of European settlement (and the concomitant displacement of the native population). This movement of population is in essence a labor market phenomenon. From the beginning of European settlement in what became the United States, labor markets were characterized by the scarcity of labor in relation to abundant land and natural resources. Labor scarcity raised labor productivity and enabled ordinary Americans to enjoy a higher standard of living than comparable Europeans. Counterbalancing these inducements to migration, however, were the high costs of travel across the Atlantic and the significant risks posed by settlement in frontier regions. Over time, technological changes lowered the costs of communication and transportation. But exploiting these advantages required the parallel development of new labor market institutions.

Trans-Atlantic Migration in the Colonial Period

During the seventeenth and eighteenth centuries a variety of labor market institutions developed to facilitate the movement of labor in response to the opportunities created by American factor proportions. While some immigrants migrated on their own, the majority of immigrants were either indentured servants or African slaves.

Because of the cost of passage—which exceeded half a year’s income for a typical British immigrant and a full year’s income for a typical German immigrant—only a small portion of European migrants could afford to pay for their passage to the Americas (Grubb 1985a). They did so by signing contracts, or “indentures,” committing themselves to work for a fixed number of years in the future—their labor being their only viable asset—with British merchants, who then sold these contracts to colonists after their ship reached America. Indentured servitude was introduced by the Virginia Company in 1619 and appears to have arisen from a combination of the terms of two other types of labor contract widely used in England at the time: service in husbandry and apprenticeship (Galenson 1981). In other cases, migrants borrowed money for their passage and committed to repay merchants by pledging to sell themselves as servants in America, a practice known as “redemptioner servitude (Grubb 1986). Redemptioners bore increased risk because they could not predict in advance what terms they might be able to negotiate for their labor, but presumably they did so because of other benefits, such as the opportunity to choose their own master, and to select where they would be employed.

Although data on immigration for the colonial period are scattered and incomplete a number of scholars have estimated that between half and three quarters of European immigrants arriving in the colonies came as indentured or redemptioner servants. Using data for the end of the colonial period Grubb (1985b) found that close to three-quarters of English immigrants to Pennsylvania and nearly 60 percent of German immigrants arrived as servants.

A number of scholars have examined the terms of indenture and redemptioner contracts in some detail (see, e.g., Galenson 1981; Grubb 1985a). They find that consistent with the existence of a well-functioning market, the terms of service varied in response to differences in individual productivity, employment conditions, and the balance of supply and demand in different locations.

The other major source of labor for the colonies was the forced migration of African slaves. Slavery had been introduced in the West Indies at an early date, but it was not until the late seventeenth century that significant numbers of slaves began to be imported into the mainland colonies. From 1700 to 1780 the proportion of blacks in the Chesapeake region grew from 13 percent to around 40 percent. In South Carolina and Georgia, the black share of the population climbed from 18 percent to 41 percent in the same period (McCusker and Menard, 1985, p. 222). Galenson (1984) explains the transition from indentured European to enslaved African labor as the result of shifts in supply and demand conditions in England and the trans-Atlantic slave market. Conditions in Europe improved after 1650, reducing the supply of indentured servants, while at the same time increased competition in the slave trade was lowering the price of slaves (Dunn 1984). In some sense the colonies’ early experience with indentured servants paved the way for the transition to slavery. Like slaves, indentured servants were unfree, and ownership of their labor could be freely transferred from one owner to another. Unlike slaves, however, they could look forward to eventually becoming free (Morgan 1971).

Over time a marked regional division in labor market institutions emerged in colonial America. The use of slaves was concentrated in the Chesapeake and Lower South, where the presence of staple export crops (rice, indigo and tobacco) provided economic rewards for expanding the scale of cultivation beyond the size achievable with family labor. European immigrants (primarily indentured servants) tended to concentrate in the Chesapeake and Middle Colonies, where servants could expect to find the greatest opportunities to enter agriculture once they had completed their term of service. While New England was able to support self-sufficient farmers, its climate and soil were not conducive to the expansion of commercial agriculture, with the result that it attracted relatively few slaves, indentured servants, or free immigrants. These patterns are illustrated in Table 1, which summarizes the composition and destinations of English emigrants in the years 1773 to 1776.

Table 1

English Emigration to the American Colonies, by Destination and Type, 1773-76

Total Emigration
Destination Number Percentage Percent listed as servants
New England 54 1.20 1.85
Middle Colonies 1,162 25.78 61.27
New York 303 6.72 11.55
Pennsylvania 859 19.06 78.81
Chesapeake 2,984 66.21 96.28
Maryland 2,217 49.19 98.33
Virginia 767 17.02 90.35
Lower South 307 6.81 19.54
Carolinas 106 2.35 23.58
Georgia 196 4.35 17.86
Florida 5 0.11 0.00
Total 4,507 80.90

Source: Grubb (1985b, p. 334).

International Migration in the Nineteenth and Twentieth Centuries

American independence marks a turning point in the development of labor market institutions. In 1808 Congress prohibited the importation of slaves. Meanwhile, the use of indentured servitude to finance the migration of European immigrants fell into disuse. As a result, most subsequent migration was at least nominally free migration.

The high cost of migration and the economic uncertainties of the new nation help to explain the relatively low level of immigration in the early years of the nineteenth century. But as the costs of transportation fell, the volume of immigration rose dramatically over the course of the century. Transportation costs were of course only one of the obstacles to international population movements. At least as important were problems of communication. Potential migrants might know in a general way that the United States offered greater economic opportunities than were available at home, but acting on this information required the development of labor market institutions that could effectively link job-seekers with employers.

For the most part, the labor market institutions that emerged in the nineteenth century to direct international migration were “informal” and thus difficult to document. As Rosenbloom (2002, ch. 2) describes, however, word-of-mouth played an important role in labor markets at this time. Many immigrants were following in the footsteps of friends or relatives already in the United States. Often these initial pioneers provided material assistance—helping to purchase ship and train tickets, providing housing—as well as information. The consequences of this so-called “chain migration” are readily reflected in a variety of kinds of evidence. Numerous studies of specific migration streams have documented the role of a small group of initial migrants in facilitating subsequent migration (for example, Barton 1975; Kamphoefner 1987; Gjerde 1985). At a more aggregate level, settlement patterns confirm the tendency of immigrants from different countries to concentrate in different cities (Ward 1971, p. 77; Galloway, Vedder and Shukla 1974).

Informal word-of-mouth communication was an effective labor market institution because it served both employers and job-seekers. For job-seekers the recommendations of friends and relatives were more reliable than those of third parties and often came with additional assistance. For employers the recommendations of current employees served as a kind of screening mechanism, since their employees were unlikely to encourage the immigration of unreliable workers.

While chain migration can explain a quantitatively large part of the redistribution of labor in the nineteenth century it is still necessary to explain how these chains came into existence in the first place. Chain migration always coexisted with another set of more formal labor market institutions that grew up largely to serve employers who could not rely on their existing labor force to recruit new hires (such as railroad construction companies). Labor agents, often themselves immigrants, acted as intermediaries between these employers and job-seekers, providing labor market information and frequently acting as translators for immigrants who could not speak English. Steamship companies operating between Europe and the United States also employed agents to help recruit potential migrants (Rosenbloom 2002, ch. 3).

By the 1840s networks of labor agents along with boarding houses serving immigrants and other similar support networks were well established in New York, Boston, and other major immigrant destinations. The services of these agents were well documented in published guides and most Europeans considering immigration must have known that they could turn to these commercial intermediaries if they lacked friends and family to guide them. After some time working in America these immigrants, if they were successful, would find steadier employment and begin to direct subsequent migration, thus establishing a new link in the stream of chain migration.

The economic impacts of immigration are theoretically ambiguous. Increased labor supply, by itself, would tend to lower wages—benefiting employers and hurting workers. But because immigrants are also consumers, the resulting increase in demand for goods and services will increase the demand for labor, partially offsetting the depressing effect of immigration on wages. As long as the labor to capital ratio rises, however, immigration will necessarily lower wages. But if, as was true in the late nineteenth century, foreign lending follows foreign labor, then there may be no negative impact on wages (Carter and Sutch 1999). Whatever the theoretical considerations, however, immigration became an increasingly controversial political issue during the late nineteenth and early twentieth centuries. While employers and some immigrant groups supported continued immigration, there was a growing nativist sentiment among other segments of the population. Anti-immigrant sentiments appear to have arisen out of a mix of perceived economic effects and concern about the implications of the ethnic, religious and cultural differences between immigrants and the native born.

In 1882, Congress passed the Chinese Exclusion Act. Subsequent legislative efforts to impose further restrictions on immigration passed Congress but foundered on presidential vetoes. The balance of political forces shifted, however, in the wake of World War I. In 1917 a literacy requirement was imposed for the first time, and in 1921 an Emergency Quota Act was passed (Goldin 1994).

With the passage of the Emergency Quota Act in 1921 and subsequent legislation culminating in the National Origins Act, the volume of immigration dropped sharply. Since this time international migration into the United States has been controlled to varying degrees by legal restrictions. Variations in the rules have produced variations in the volume of legal immigration. Meanwhile the persistence of large wage gaps between the United States and Mexico and other developing countries has encouraged a substantial volume of illegal immigration. It remains the case, however, that most of this migration—both legal and illegal—continues to be directed by chains of friends and relatives.

Recent trends in outsourcing and off-shoring have begun to create a new channel by which lower-wage workers outside the United States can respond to the country’s high wages without physically relocating. Workers in India, China, and elsewhere possessing technical skills can now provide services such as data entry or technical support by phone and over the internet. While the novelty of this phenomenon has attracted considerable attention, the actual volume of jobs moved off-shore remains limited, and there are important obstacles to overcome before more jobs can be carried out remotely (Edwards 2004).

Internal Migration in the Nineteenth and Twentieth Centuries

At the same time that American economic development created international imbalances between labor supply and demand it also created internal disequilibrium. Fertile land and abundant natural resources drew population toward less densely settled regions in the West. Over the course of the century, advances in transportation technologies lowered the cost of shipping goods from interior regions, vastly expanding the area available for settlement. Meanwhile transportation advances and technological innovations encouraged the growth of manufacturing and fueled increased urbanization. The movement of population and economic activity from the Eastern Seaboard into the interior of the continent and from rural to urban areas in response to these incentives is an important element of U.S. economic history in the nineteenth century.

In the pre-Civil War era, the labor market response to frontier expansion differed substantially between North and South, with profound effects on patterns of settlement and regional development. Much of the cost of migration is a result of the need to gather information about opportunities in potential destinations. In the South, plantation owners could spread these costs over a relatively large number of potential migrants—i.e., their slaves. Plantations were also relatively self-sufficient, requiring little urban or commercial infrastructure to make them economically viable. Moreover, the existence of well-established markets for slaves allowed western planters to expand their labor force by purchasing additional labor from eastern plantations.

In the North, on the other hand, migration took place through the relocation of small, family farms. Fixed costs of gathering information and the risks of migration loomed larger in these farmers’ calculations than they did for slaveholders, and they were more dependent on the presence of urban merchants to supply them with inputs and market their products. Consequently the task of mobilizing labor fell to promoters who bought up large tracts of land at low prices and then subdivided them into individual lots. To increase the value of these lands promoters offered loans, actively encourage the development of urban services such as blacksmith shops, grain merchants, wagon builders and general stores, and recruited settlers. With the spread of railroads, railroad construction companies also played a role in encouraging settlement along their routes to speed the development of traffic.

The differences in processes of westward migration in the North and South were reflected in the divergence of rates of urbanization, transportation infrastructure investment, manufacturing employment, and population density, all of which were higher in the North than in the South in 1860 (Wright 1986, pp. 19-29).

The Distribution of Labor among Economic Activities

Over the course of U.S. economic development technological changes and shifting consumption patterns have caused the demand for labor to increase in manufacturing and services and decline in agriculture and other extractive activities. These broad changes are illustrated in Table 2. As technological changes have increased the advantages of specialization and the division of labor, more and more economic activity has moved outside the scope of the household, and the boundaries of the labor market have been enlarged. As a result more and more women have moved into the paid labor force. On the other hand, with the increasing importance of formal education, there has been a decline in the number of children in the labor force (Whaples 2005).

Table 2

Sectoral Distribution of the Labor Force, 1800-1999

Share in
Non-Agriculture
Year Total Labor Force (1000s) Agriculture Total Manufacturing Services
1800 1,658 76.2 23.8
1850 8,199 53.6 46.4
1900 29,031 37.5 59.4 35.8 23.6
1950 57,860 11.9 88.1 41.0 47.1
1999 133,489 2.3 97.7 24.7 73.0

Notes and Sources: 1800 and 1850 from Weiss (1986), pp. 646-49; remaining years from Hughes and Cain (2003), 547-48. For 1900-1999 Forestry and Fishing are included in the Agricultural labor force.

As these changes have taken place they have placed strains on existing labor market institutions and encouraged the development of new mechanisms to facilitate the distribution of labor. Over the course of the last century and a half the tendency has been a movement away from something approximating a “spot” market characterized by short-term employment relationships in which wages are equated to the marginal product of labor, and toward a much more complex and rule-bound set of long-term transactions (Goldin 2000, p. 586) While certain segments of the labor market still involve relatively anonymous and short-lived transactions, workers and employers are much more likely today to enter into long-term employment relationships that are expected to last for many years.

The evolution of labor market institutions in response to these shifting demands has been anything but smooth. During the late nineteenth century the expansion of organized labor was accompanied by often violent labor-management conflict (Friedman 2002). Not until the New Deal did unions gain widespread acceptance and a legal right to bargain. Yet even today, union organizing efforts are often met with considerable hostility.

Conflicts over union organizing efforts inevitably involved state and federal governments because the legal environment directly affected the bargaining power of both sides, and shifting legal opinions and legislative changes played an important part in determining the outcome of these contests. State and federal governments were also drawn into labor markets as various groups sought to limit hours of work, set minimum wages, provide support for disabled workers, and respond to other perceived shortcomings of existing arrangements. It would be wrong, however, to see the growth of government regulation as simply a movement from freer to more regulated markets. The ability to exchange goods and services rests ultimately on the legal system, and to this extent there has never been an entirely unregulated market. In addition, labor market transactions are never as simple as the anonymous exchange of other goods or services. Because the identities of individual buyers and sellers matter and the long-term nature of many employment relationships, adjustments can occur along other margins besides wages, and many of these dimensions involve externalities that affect all workers at a particular establishment, or possibly workers in an entire industry or sector.

Government regulations have responded in many cases to needs voiced by participants on both sides of the labor market for assistance to achieve desired ends. That has not, of course, prevented both workers and employers from seeking to use government to alter the way in which the gains from trade are distributed within the market.

The Agricultural Labor Market

At the beginning of the nineteenth century most labor was employed in agriculture, and, with the exception of large slave plantations, most agricultural labor was performed on small, family-run farms. There were markets for temporary and seasonal agricultural laborers to supplement family labor supply, but in most parts of the country outside the South, families remained the dominant institution directing the allocation of farm labor. Reliable estimates of the number of farm workers are not readily available before 1860, when the federal Census first enumerated “farm laborers.” At this time census enumerators found about 800 thousand such workers, implying an average of less than one-half farm worker per farm. Interpretation of this figure is complicated, however, and it may either overstate the amount of hired help—since farm laborers included unpaid family workers—or understate it—since it excluded those who reported their occupation simply as “laborer” and may have spent some of their time working in agriculture (Wright 1988, p. 193). A possibly more reliable indicator is provided by the percentage of gross value of farm output spent on wage labor. This figure fell from 11.4 percent in 1870 to around 8 percent by 1900, indicating that hired labor was on average becoming even less important (Wright 1988, pp. 194-95).

In the South, after the Civil War, arrangements were more complicated. Former plantation owners continued to own large tracts of land that required labor if they were to be made productive. Meanwhile former slaves needed access to land and capital if they were to support themselves. While some land owners turned to wage labor to work their land, most relied heavily on institutions like sharecropping. On the supply side, croppers viewed this form of employment as a rung on the “agricultural ladder” that would lead eventually to tenancy and possibly ownership. Because climbing the agricultural ladder meant establishing one’s credit-worthiness with local lenders, southern farm laborers tended to sort themselves into two categories: locally established (mostly older, married men) croppers and renters on the one hand, and mobile wage laborers (mostly younger and unmarried) on the other. While the labor market for each of these types of workers appears to have been relatively competitive, the barriers between the two markets remained relatively high (Wright 1987, p. 111).

While the predominant pattern in agriculture then was one of small, family-operated units, there was an important countervailing trend toward specialization that both depended on, and encouraged the emergence of a more specialized market for farm labor. Because specialization in a single crop increased the seasonality of labor demand, farmers could not afford to employ labor year-round, but had to depend on migrant workers. The use of seasonal gangs of migrant wage laborers developed earliest in California in the 1870s and 1880s, where employers relied heavily on Chinese immigrants. Following restrictions on Chinese entry, they were replaced first by Japanese, and later by Mexican workers (Wright 1988, pp. 201-204).

The Emergence of Internal Labor Markets

Outside of agriculture, at the beginning of the nineteenth century most manufacturing took place in small establishments. Hired labor might consist of a small number of apprentices, or, as in the early New England textile mills, a few child laborers hired from nearby farms (Ware 1931). As a result labor market institutions remained small-scale and informal, and institutions for training and skill acquisition remained correspondingly limited. Workers learned on the job as apprentices or helpers; advancement came through establishing themselves as independent producers rather than through internal promotion.

With the growth of manufacturing, and the spread of factory methods of production, especially in the years after the end of the Civil War, an increasing number of people could expect to spend their working-lives as employees. One reflection of this change was the emergence in the 1870s of the problem of unemployment. During the depression of 1873 for the first time cities throughout the country had to contend with large masses of industrial workers thrown out of work and unable to support themselves through, in the language of the time, “no fault of their own” (Keyssar 1986, ch. 2).

The growth of large factories and the creation of new kinds of labor skills specific to a particular employer created returns to sustaining long-term employment relationships. As workers acquired job- and employer-specific skills their productivity increased giving rise to gains that were available only so long as the employment relationship persisted. Employers did little, however, to encourage long-term employment relationships. Instead authority over hiring, promotion and retention was commonly delegated to foremen or inside contractors (Nelson 1975, pp. 34-54). In the latter case, skilled craftsmen operated in effect as their own bosses contracting with the firm to supply components or finished products for an agreed price, and taking responsibility for hiring and managing their own assistants.

These arrangements were well suited to promoting external mobility. Foremen were often drawn from the immigrant community and could easily tap into word-of-mouth channels of recruitment. But these benefits came increasingly into conflict with rising costs of hiring and training workers.

The informality of personnel policies prior to World War I seems likely to have discouraged lasting employment relationships, and it is true that rates of labor turnover at the beginning of the twentieth century were considerably higher than they were to be later (Owen, 2004). Scattered evidence on the duration of employment relationships gathered by various state labor bureaus at the end of the century suggests, however, at least some workers did establish lasting employment relationship (Carter 1988; Carter and Savocca 1990; Jacoby and Sharma 1992; James 1994).

The growing awareness of the costs of labor-turnover and informal, casual labor relations led reformers to advocate the establishment of more centralized and formal processes of hiring, firing and promotion, along with the establishment of internal job-ladders, and deferred payment plans to help bind workers and employers. The implementation of these reforms did not make significant headway, however, until the 1920s (Slichter 1929). Why employers began to establish internal labor markets in the 1920s remains in dispute. While some scholars emphasize pressure from workers (Jacoby 1984; 1985) others have stressed that it was largely a response to the rising costs of labor turnover (Edwards 1979).

The Government and the Labor Market

The growth of large factories contributed to rising labor tensions in the late nineteenth- and early twentieth-centuries. Issues like hours of work, safety, and working conditions all have a significant public goods aspect. While market forces of entry and exit will force employers to adopt policies that are sufficient to attract the marginal worker (the one just indifferent between staying and leaving), less mobile workers may find that their interests are not adequately represented (Freeman and Medoff 1984). One solution is to establish mechanisms for collective bargaining, and the years after the American Civil War were characterized by significant progress in the growth of organized labor (Friedman 2002). Unionization efforts, however, met strong opposition from employers, and suffered from the obstacles created by the American legal system’s bias toward protecting property and the freedom of contract. Under prevailing legal interpretation, strikes were often found by the courts to be conspiracies in restraint of trade with the result that the apparatus of government was often arrayed against labor.

Although efforts to win significant improvements in working conditions were rarely successful, there were still areas where there was room for mutually beneficial change. One such area involved the provision of disability insurance for workers injured on the job. Traditionally, injured workers had turned to the courts to adjudicate liability for industrial accidents. Legal proceedings were costly and their outcome unpredictable. By the early 1910s it became clear to all sides that a system of disability insurance was preferable to reliance on the courts. Resolution of this problem, however, required the intervention of state legislatures to establish mandatory state workers compensation insurance schemes and remove the issue from the courts. Once introduced workers compensation schemes spread quickly: nine states passed legislation in 1911; 13 more had joined the bandwagon by 1913, and by 1920 44 states had such legislation (Fishback 2001).

Along with workers compensation state legislatures in the late nineteenth century also considered legislation restricting hours of work. Prevailing legal interpretations limited the effectiveness of such efforts for adult males. But rules restricting hours for women and children were found to be acceptable. The federal government passed legislation restricting the employment of children under 14 in 1916, but this law was found unconstitutional in 1916 (Goldin 2000, p. 612-13).

The economic crisis of the 1930s triggered a new wave of government interventions in the labor market. During the 1930s the federal government granted unions the right to organize legally, established a system of unemployment, disability and old age insurance, and established minimum wage and overtime pay provisions.

In 1933 the National Industrial Recovery Act included provisions legalizing unions’ right to bargain collectively. Although the NIRA was eventually ruled to be unconstitutional, the key labor provisions of the Act were reinstated in the Wagner Act of 1935. While some of the provisions of the Wagner Act were modified in 1947 by the Taft-Hartley Act, its passage marks the beginning of the golden age of organized labor. Union membership jumped very quickly after 1935 from around 12 percent of the non-agricultural labor force to nearly 30 percent, and by the late 1940s had attained a peak of 35 percent, where it stabilized. Since the 1960s, however, union membership has declined steadily, to the point where it is now back at pre-Wagner Act levels.

The Social Security Act of 1935 introduced a federal unemployment insurance scheme that was operated in partnership with state governments and financed through a tax on employers. It also created government old age and disability insurance. In 1938, the federal Fair Labor Standards Act provided for minimum wages and for overtime pay. At first the coverage of these provisions was limited, but it has been steadily increased in subsequent years to cover most industries today.

In the post-war era, the federal government has expanded its role in managing labor markets both directly—through the establishment of occupational safety regulations, and anti-discrimination laws, for example—and indirectly—through its efforts to manage the macroeconomy to insure maximum employment.

A further expansion of federal involvement in labor markets began in 1964 with passage of the Civil Rights Act, which prohibited employment discrimination against both minorities and women. In 1967 the Age Discrimination and Employment Act was passed prohibiting discrimination against people aged 40 to 70 in regard to hiring, firing, working conditions and pay. The Family and Medical Leave Act of 1994 allows for unpaid leave to care for infants, children and other sick relatives (Goldin 2000, p. 614).

Whether state and federal legislation has significantly affected labor market outcomes remains unclear. Most economists would argue that the majority of labor’s gains in the past century would have occurred even in the absence of government intervention. Rather than shaping market outcomes, many legislative initiatives emerged as a result of underlying changes that were making advances possible. According to Claudia Goldin (2000, p. 553) “government intervention often reinforced existing trends, as in the decline of child labor, the narrowing of the wage structure, and the decrease in hours of work.” In other cases, such as Workers Compensation and pensions, legislation helped to establish the basis for markets.

The Changing Boundaries of the Labor Market

The rise of factories and urban employment had implications that went far beyond the labor market itself. On farms women and children had found ready employment (Craig 1993, ch. 4). But when the male household head worked for wages, employment opportunities for other family members were more limited. Late nineteenth-century convention largely dictated that married women did not work outside the home unless their husband was dead or incapacitated (Goldin 1990, p. 119-20). Children, on the other hand, were often viewed as supplementary earners in blue-collar households at this time.

Since 1900 changes in relative earnings power related to shifts in technology have encouraged women to enter the paid labor market while purchasing more of the goods and services that were previously produced within the home. At the same time, the rising value of formal education has lead to the withdrawal of child labor from the market and increased investment in formal education (Whaples 2005). During the first half of the twentieth century high school education became nearly universal. And since World War II, there has been a rapid increase in the number of college educated workers in the U.S. economy (Goldin 2000, p. 609-12).

Assessing the Efficiency of Labor Market Institutions

The function of labor markets is to match workers and jobs. As this essay has described the mechanisms by which labor markets have accomplished this task have changed considerably as the American economy has developed. A central issue for economic historians is to assess how changing labor market institutions have affected the efficiency of labor markets. This leads to three sets of questions. The first concerns the long-run efficiency of market processes in allocating labor across space and economic activities. The second involves the response of labor markets to short-run macroeconomic fluctuations. The third deals with wage determination and the distribution of income.

Long-Run Efficiency and Wage Gaps

Efforts to evaluate the efficiency of market allocation begin with what is commonly know as the “law of one price,” which states that within an efficient market the wage of similar workers doing similar work under similar circumstances should be equalized. The ideal of complete equalization is, of course, unlikely to be achieved given the high information and transactions costs that characterize labor markets. Thus, conclusions are usually couched in relative terms, comparing the efficiency of one market at one point in time with those of some other markets at other points in time. A further complication in measuring wage equalization is the need to compare homogeneous workers and to control for other differences (such as cost of living and non-pecuniary amenities).

Falling transportation and communications costs have encouraged a trend toward diminishing wage gaps over time, but this trend has not always been consistent over time, nor has it applied to all markets in equal measure. That said, what stands out is in fact the relative strength of forces of market arbitrage that have operated in many contexts to promote wage convergence.

At the beginning of the nineteenth century, the costs of trans-Atlantic migration were still quite high and international wage gaps large. By the 1840s, however, vast improvements in shipping cut the costs of migration, and gave rise to an era of dramatic international wage equalization (O’Rourke and Williamson 1999, ch. 2; Williamson 1995). Figure 1 shows the movement of real wages relative to the United States in a selection of European countries. After the beginning of mass immigration wage differentials began to fall substantially in one country after another. International wage convergence continued up until the 1880s, when it appears that the accelerating growth of the American economy outstripped European labor supply responses and reversed wage convergence briefly. World War I and subsequent immigration restrictions caused a sharper break, and contributed to widening international wage differences during the middle portion of the twentieth century. From World War II until about 1980, European wage levels once again began to converge toward the U.S., but this convergence reflected largely internally-generated improvements in European living standards rather then labor market pressures.

Figure 1

Relative Real Wages of Selected European Countries, 1830-1980 (US = 100)

Source: Williamson (1995), Tables A2.1-A2.3.

Wage convergence also took place within some parts of the United States during the nineteenth century. Figure 2 traces wages in the North Central and Southern regions of the U.S relative to those in the Northeast across the period from 1820 to the early twentieth century. Within the United States, wages in the North Central region of the country were 30 to 40 percent higher than in the East in the 1820s (Margo 2000a, ch. 5). Thereafter, wage gaps declined substantially, falling to the 10-20 percent range before the Civil War. Despite some temporary divergence during the war, wage gaps had fallen to 5 to 10 percent by the 1880s and 1890s. Much of this decline was made possible by faster and less expensive means of transportation, but it was also dependent on the development of labor market institutions linking the two regions, for while transportation improvements helped to link East and West, there was no corresponding North-South integration. While southern wages hovered near levels in the Northeast prior to the Civil War, they fell substantially below northern levels after the Civil War, as Figure 2 illustrates.

Figure 2

Relative Regional Real Wage Rates in the United States, 1825-1984

(Northeast = 100 in each year)

Notes and sources: Rosenbloom (2002, p. 133); Montgomery (1992). It is not possible to assemble entirely consistent data on regional wage variations over such an extended period. The nature of the wage data, the precise geographic coverage of the data, and the estimates of regional cost-of-living indices are all different. The earliest wage data—Margo (2000); Sundstrom and Rosenbloom (1993) and Coelho and Shepherd (1976) are all based on occupational wage rates from payroll records for specific occupations; Rosenbloom (1996) uses average earnings across all manufacturing workers; while Montgomery (1992) uses individual level wage data drawn from the Current Population Survey, and calculates geographic variations using a regression technique to control for individual differences in human capital and industry of employment. I used the relative real wages that Montgomery (1992) reported for workers in manufacturing, and used an unweighted average of wages across the cities in each region to arrive at relative regional real wages. Interested readers should consult the various underlying sources for further details.

Despite the large North-South wage gap Table 3 shows there was relatively little migration out of the South until large-scale foreign immigration came to an end. Migration from the South during World War I and the 1920s created a basis for future chain migration, but the Great Depression of the 1930s interrupted this process of adjustment. Not until the 1940s did the North-South wage gap begin to decline substantially (Wright 1986, pp. 71-80). By the 1970s the southern wage disadvantage had largely disappeared, and because of the decline fortunes of older manufacturing districts and the rise of Sunbelt cities, wages in the South now exceed those in the Northeast (Coelho and Ghali 1971; Bellante 1979; Sahling and Smith 1983; Montgomery 1992). Despite these shocks, however, the overall variation in wages appears comparable to levels attained by the end of the nineteenth century. Montgomery (1992), for example finds that from 1974 to 1984 the standard deviation of wages across SMSAs was only about 10 percent of the average wage.

Table 3

Net Migration by Region, and Race, 1870-1950

South Northeast North Central West
Period White Black White Black White Black White Black
Number (in 1,000s)
1870-80 91 -68 -374 26 26 42 257 0
1880-90 -271 -88 -240 61 -43 28 554 0
1890-00 -30 -185 101 136 -445 49 374 0
1900-10 -69 -194 -196 109 -1,110 63 1,375 22
1910-20 -663 -555 -74 242 -145 281 880 32
1920-30 -704 -903 -177 435 -464 426 1,345 42
1930-40 -558 -480 55 273 -747 152 1,250 55
1940-50 -866 -1581 -659 599 -1,296 626 2,822 356
Rate (migrants/1,000 Population)
1870-80 11 -14 -33 55 2 124 274 0
1880-90 -26 -15 -18 107 -3 65 325 0
1890-00 -2 -26 6 200 -23 104 141 0
1900-10 -4 -24 -11 137 -48 122 329 542
1910-20 -33 -66 -3 254 -5 421 143 491
1920-30 -30 -103 -7 328 -15 415 160 421
1930-40 -20 -52 2 157 -22 113 116 378
1940-50 -28 -167 -20 259 -35 344 195 964

Note: Net migration is calculated as the difference between the actual increase in population over each decade and the predicted increase based on age and sex specific mortality rates and the demographic structure of the region’s population at the beginning of the decade. If the actual increase exceeds the predicted increase this implies a net migration into the region; if the actual increase is less than predicted this implies net migration out of the region. The states included in the Southern region are Oklahoma, Texas, Arkansas, Louisiana, Mississippi, Alabama, Tennessee, Kentucky, West Virginia, Virginia, North Carolina, South Carolina, Georgia, and Florida.

Source: Eldridge and Thomas (1964, pp. 90, 99).

In addition to geographic wage gaps economists have considered gaps between farm and city, between black and white workers, between men and women, and between different industries. The literature on these topics is quite extensive and this essay can only touch on a few of the more general themes raised here as they relate to U.S. economic history.

Studies of farm-city wage gaps are a variant of the broader literature on geographic wage variation, related to the general movement of labor from farms to urban manufacturing and services. Here comparisons are complicated by the need to adjust for the non-wage perquisites that farm laborers typically received, which could be almost as large as cash wages. The issue of whether such gaps existed in the nineteenth century has important implications for whether the pace of industrialization was impeded by the lack of adequate labor supply responses. By the second half of the nineteenth century at least, it appears that farm-manufacturing wage gaps were small and markets were relatively integrated (Wright 1988, pp. 204-5). Margo (2000, ch. 4) offers evidence of a high degree of equalization within local labor markets between farm and urban wages as early as 1860. Making comparisons within counties and states, he reports that farm wages were within 10 percent of urban wages in eight states. Analyzing data from the late nineteenth century through the 1930s, Hatton and Williamson (1991) find that farm and city wages were nearly equal within U.S. regions by the 1890s. It appears, however that during the Great Depression farm wages were much more flexible than urban wages causing a large gap to emerge at this time (Alston and Williamson 1991).

Much attention has been focused on trends in wage gaps by race and sex. The twentieth century has seen a substantial convergence in both of these differentials. Table 4 displays comparisons of earnings of black males relative to white males for full time workers. In 1940, full-time black male workers earned only about 43 percent of what white male full-time workers did. By 1980 the racial pay ratio had risen to nearly 73 percent, but there has been little subsequent progress. Until the mid-1960s these gains can be attributed primarily to migration from the low-wage South to higher paying areas in the North, and to increases in the quantity and quality of black education over time (Margo 1995; Smith and Welch 1990). Since then, however, most gains have been due to shifts in relative pay within regions. Although it is clear that discrimination was a key factor in limiting access to education, the role of discrimination within the labor market in contributing to these differentials has been a more controversial topic (see Wright 1986, pp. 127-34). But the episodic nature of black wage gains, especially after 1964 is compelling evidence that discrimination has played a role historically in earnings differences and that federal anti-discrimination legislation was a crucial factor in reducing its effects (Donohue and Heckman 1991).

Table 4

Black Male Wages as a Percentage of White Male Wages, 1940-2004

Date Black Relative Wage
1940 43.4
1950 55.2
1960 57.5
1970 64.4
1980 72.6
1990 70.0
2004 77.0

Notes and Sources: Data for 1940 through 1980 are based on Census data as reported in Smith and Welch (1989, Table 8). Data for 1990 are from Ehrenberg and Smith (2000, Table 12.4) and refer to earnings of full time, full year workers. Data from 2004 are for median weekly earnings of full-time wage and salary workers derived from data in the Current Population Survey accessed on-line from the Bureau of Labor Statistic on 13 December 2005; URL ftp://ftp.bls.gov/pub/special.requests/lf/aat37.txt.

Male-Female wage gaps have also narrowed substantially over time. In the 1820s women’s earnings in manufacturing were a little less than 40 percent of those of men, but this ratio rose over time reaching about 55 percent by the 1920s. Across all sectors women’s relative pay rose during the first half of the twentieth century, but gains in female wages stalled during the 1950s and 1960s at the time when female labor force participation began to increase rapidly. Beginning in the late 1970s or early 1980s, relative female pay began to rise again, and today women earn about 80 percent what men do (Goldin 1990, table 3.2; Goldin 2000, pp. 606-8). Part of this remaining difference is explained by differences in the occupational distribution of men and women, with women tending to be concentrated in lower paying jobs. Whether these differences are the result of persistent discrimination or arise because of differences in productivity or a choice by women to trade off greater flexibility in terms of labor market commitment for lower pay remains controversial.

In addition to locational, sectoral, racial and gender wage differentials, economists have also documented and analyzed differences by industry. Krueger and Summers (1987) find that there are pronounced differences in wages by industry within well-specified occupational classes, and that these differentials have remained relatively stable over several decades. One interpretation of this phenomenon is that in industries with substantial market power workers are able to extract some of the monopoly rents as higher pay. An alternative view is that workers are in fact heterogeneous, and differences in wages reflect a process of sorting in which higher paying industries attract more able workers.

The Response to Short-run Macroeconomic Fluctuations

The existence of unemployment is one of the clearest indications of the persistent frictions that characterize labor markets. As described earlier, the concept of unemployment first entered common discussion with the growth of the factory labor force in the 1870s. Unemployment was not a visible social phenomenon in an agricultural economy, although there was undoubtedly a great deal of hidden underemployment.

Although one might have expected that the shift from spot toward more contractual labor markets would have increased rigidities in the employment relationship that would result in higher levels of unemployment there is in fact no evidence of any long-run increase in the level of unemployment.

Contemporaneous measurements of the rate of unemployment only began in 1940. Prior to this date, economic historians have had to estimate unemployment levels from a variety of other sources. Decennial censuses provide benchmark levels, but it is necessary to interpolate between these benchmarks based on other series. Conclusions about long-run changes in unemployment behavior depend to a large extent on the method used to interpolate between benchmark dates. Estimates prepared by Stanley Lebergott (1964) suggest that the average level of unemployment and its volatility have declined between the pre-1930 and post-World War II periods. Christina Romer (1986a, 1986b), however, has argued that there was no decline in volatility. Rather, she argues that the apparent change in behavior is the result of Lebergott’s interpolation procedure.

While the aggregate behavior of unemployment has changed surprisingly little over the past century, the changing nature of employment relationships has been reflected much more clearly in changes in the distribution of the burden of unemployment (Goldin 2000, pp. 591-97). At the beginning of the twentieth century, unemployment was relatively widespread, and largely unrelated to personal characteristics. Thus many employees faced great uncertainty about the permanence of their employment relationship. Today, on the other hand, unemployment is highly concentrated: falling heavily on the least skilled, the youngest, and the non-white segments of the labor force. Thus, the movement away from spot markets has tended to create a two-tier labor market in which some workers are highly vulnerable to economic fluctuations, while others remain largely insulated from economic shocks.

Wage Determination and Distributional Issues

American economic growth has generated vast increases in the material standard of living. Real gross domestic product per capita, for example, has increased more than twenty-fold since 1820 (Steckel 2002). This growth in total output has in large part been passed on to labor in the form of higher wages. Although labor’s share of national output has fluctuated somewhat, in the long-run it has remained surprisingly stable. According to Abramovitz and David (2000, p. 20), labor received 65 percent of national income in the years 1800-1855. Labor’s share dropped in the late nineteenth and early twentieth centuries, falling to a low of 54 percent of national income between 1890 and 1927, but has since risen, reaching 65 percent again in 1966-1989. Thus, over the long term, labor income has grown at the same rate as total output in the economy.

The distribution of labor’s gains across different groups in the labor force has also varied over time. I have already discussed patterns of wage variation by race and gender, but another important issue revolves around the overall level of inequality of pay, and differences in pay between groups of skilled and unskilled workers. Careful research by Picketty and Saez (2003) using individual income tax returns has documented changes in the overall distribution of income in the United States since 1913. They find that inequality has followed a U-shaped pattern over the course of the twentieth century. Inequality was relatively high at the beginning of the period they consider, fell sharply during World War II, held steady until the early 1970s and then began to increase, reaching levels comparable to those in the early twentieth century by the 1990s.

An important factor in the rising inequality of income since 1970 has been growing dispersion in wage rates. The wage differential between workers in the 90th percentile of the wage distribution and those in the 10th percentile increased by 49 percent between 1969 and 1995 (Plotnick et al 2000, pp. 357-58). These shifts are mirrored in increased premiums earned by college graduates relative to high school graduates. Two primary explanations have been advanced for these trends. First, there is evidence that technological changes—especially those associated with the increased use of information technology—has increased relative demand for more educated workers (Murnane, Willett and Levy (1995). Second, increased global integration has allowed low-wage manufacturing industries overseas to compete more effectively with U.S. manufacturers, thus depressing wages in what have traditionally been high-paying blue collar jobs.

Efforts to expand the scope of analysis over a longer-run encounter problems with more limited data. Based on selected wage ratios of skilled and unskilled workers Willamson and Lindert (1980) have argued that there was an increase in wage inequality over the course of the nineteenth century. But other scholars have argued that the wage series that Williamson and Lindert used are unreliable (Margo 2000b, pp. 224-28).

Conclusions

The history of labor market institutions in the United States illustrates the point that real world economies are substantially more complex than the simplest textbook models. Instead of a disinterested and omniscient auctioneer, the process of matching buyers and sellers takes place through the actions of self-interested market participants. The resulting labor market institutions do not respond immediately and precisely to shifting patterns of incentives. Rather they are subject to historical forces of increasing-returns and lock-in that cause them to change gradually and along path-dependent trajectories.

For all of these departures from the theoretically ideal market, however, the history of labor markets in the United States can also be seen as a confirmation of the remarkable power of market processes of allocation. From the beginning of European settlement in mainland North America, labor markets have done a remarkable job of responding to shifting patterns of demand and supply. Not only have they accomplished the massive geographic shifts associated with the settlement of the United States, but they have also dealt with huge structural changes induced by the sustained pace of technological change.

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The Roots of American Industrialization, 1790-1860

David R. Meyer, Brown University

The Puzzle of Industrialization

In a society which is predominantly agricultural, how is it possible for industrialization to gain a foothold? One view is that the demand of farm households for manufactures spurs industrialization, but such an outcome is not guaranteed. What if farm households can meet their own food requirements, and they choose to supply some of their needs for manufactures by engaging in small-scale craft production in the home? They might supplement this production with limited purchases of goods from local craftworkers and purchases of luxuries from other countries. This local economy would be relatively self-sufficient, and there is no apparent impetus to alter it significantly through industrialization, that is, the growth of workshop and factory production for larger markets. Others would claim that limited gains might come from specialization, once demand passed some small threshold. Finally, it has been argued that if the farmers are impoverished, some of them would be available for manufacturing and this would provide an incentive to industrialize. However, this argument begs the question as to who would purchase the manufactures. One possibility is that non-farm rural dwellers, such as trade people, innkeepers, and professionals, as well as a small urban population, might provide an impetus to limited industrialization.

The problem with the “impoverished agriculture” theory

The industrialization of the eastern United States from 1790 to 1860 raises similar conundrums. For a long time, scholars thought that the agriculture was mostly poor quality. Thus, the farm labor force left agriculture for workshops, such as those which produced shoes, or for factories, such as the cotton textile mills of New England. These manufactures provided employment for women and children, who otherwise had limited productive possibilities because the farms were not economical. Yet, the market for manufactures remained mostly in the East prior to 1860. Consequently, it is unclear who would have purchased the products to support the growth of manufactures before 1820, as well as to undergird the large-scale industrialization of the East during the two decades following 1840. Even if the impoverished-agriculture explanation of the East’s industrialization is rejected, we are still left with the curiosity that as late as 1840, about eighty percent of the population lived in rural areas, though some of them were in nonfarm occupations.

In brief, the puzzle of eastern industrialization between 1790 and 1860 can be resolved – the East had a prosperous agriculture. Farmers supplied low-cost agricultural products to rural and urban dwellers, and this population demanded manufactures, which were supplied by vigorous local and subregional manufacturing sectors. Some entrepreneurs shifted into production for larger market areas, and this transformation occurred especially in sectors such as shoes, selected light manufactures produced in Connecticut (such as buttons, tinware, and wooden clocks), and cotton textiles. Transportation improvements exerted little impact on these agricultural and industrial developments, primarily because the lowly wagon served effectively as a transport medium and much of the East’s most prosperous areas were accessible to cheap waterway transportation. The metropolises of Boston, New York, Philadelphia, and, to a lesser extent, Baltimore, and the satellites of each (together, each metropolis and its satellites is called a metropolitan industrial complex), became leading manufacturing centers, and other industrial centers emerged in prosperous agricultural areas distant from these complexes. The East industrialized first, and, subsequently, the Midwest began an agricultural and industrial growth process which was underway by the 1840s. Together, the East and the Midwest constituted the American Manufacturing Belt, which was formed by the 1870s, whereas the South failed to industrialize commensurately.

Synergy between Agriculture and Manufacturing

The solution to the puzzle of how industrialization can occur in a predominantly agricultural economy recognizes the possibility of synergy between agriculture and manufacturing. During the first three decades following 1790, prosperous agricultural areas emerged in the eastern United States. Initially, these areas were concentrated near the small metropolises of Boston, New York, and Philadelphia, and in river valleys such as the Connecticut Valley in Connecticut and Massachusetts, the Hudson and Mohawk Valleys in New York, the Delaware Valley bordering Pennsylvania and New Jersey, and the Susquehanna Valley in eastern Pennsylvania. These agricultural areas had access to cheap, convenient transport which could be used to reach markets; the farms supplied the growing urban populations in the cities and some of the products were exported. Furthermore, the farmers supplied the nearby, growing non-farm populations in the villages and small towns who provided goods and services to farmers. These non-farm consumers included retailers, small mill owners, teamsters, craftspeople, and professionals (clergy, physicians, and lawyers).

Across every decade from 1800 to 1860, the number of farm laborers grew, thus testifying to the robustness of eastern agriculture (see Table 1). And, this increase occurred in the face of an expanding manufacturing sector, as increasing numbers of rural dwellers left the farms to work in the factories, especially after 1840. Even New England, the region which presumably was the epitome of declining agriculture, witnessed a rise in the number of farm laborers all the way up to 1840, and, as of 1860, the drop off from the peak was small. Massachusetts and Connecticut, which had vigorous small workshops and increasing numbers of small factories before 1840, followed by a surge in manufacturing after 1840, matched the trajectory of farm laborers in New England as a whole. The numbers in these two states peaked in 1840 and fell off only modestly over the next twenty years. The Middle Atlantic region witnessed an uninterrupted rise in the number of farm laborers over the sixty-year period. New York and Pennsylvania, the largest states, followed slightly different paths. In New York, the number of farm laborers peaked around 1840 and then stabilized near that level for the next two decades, whereas in Pennsylvania the number of farm laborers rose in an uninterrupted fashion.

Table 1
Number of Farm Laborers by Region and Selected States, 1800-1860

Year 1800 1810 1820 1830 1840 1850 1860
New England 228,100 257,700 303,400 353,800 389,100 367,400 348,100
Massachusetts 73,200 72,500 73,400 78,500 87,900 80,800 77,700
Connecticut 50,400 49,300 51,500 55,900 57,000 51,400 51,800
Middle Atlantic 375,700 471,400 571,700 715,000 852,800 910,400 966,600
New York 111,800 170,100 256,000 356,300 456,000 437,100 449,100
Pennsylvania 112,600 141,000 164,900 195,200 239,000 296,300 329,000
East 831,900 986,800 1,178,500 1,422,600 1,631,000 1,645,200 1,662,800

Source: Thomas Weiss, “U.S. Labor Force Estimates and Economic Growth, 1800-1860,”American Economic Growth and Standards of Living before the Civil War, edited by Robert E. Gallman and John Joseph Wallis (Chicago, IL: University of Chicago Press, 1992), table 1A.9, p. 51.

The farmers, retailers, professionals, and others in these prosperous agricultural areas accumulated capital which became available for other economic sectors, and manufacturing was one of the most important to receive this capital. Entrepreneurs who owned small workshops and factories obtained capital to turn out a wide range of goods such as boards, boxes, utensils, building hardware, furniture, and wagons, which were in demand in the agricultural areas. And, some of these workshops and factories enlarged their market areas to a subregion as they gained production efficiencies; but, this did not account for all industrial development. Selected manufactures such as shoes, tinware, buttons, and cotton textiles were widely demanded by urban and rural residents of prosperous agricultural areas and by residents of the large cities. These products were high value relative to their weight; thus, the cost to ship them long distances was low. Astute entrepreneurs devised production methods and marketing approaches to sell these goods in large market areas, including New England and the Middle Atlantic regions of the East.

Manufactures Which Were Produced for Large Market Areas

Shoes and Tinware

Small workshops turned out shoes. Massachusetts entrepreneurs devised an integrated shoe production complex based on a division of labor among shops, and they established a marketing arm of wholesalers, principally in Boston, who sold the shoes throughout New England, to the Middle Atlantic, and to the South (particularly, to slave plantations). Businesses in Connecticut drew on the extensive capital accumulated by the well-to-do rural and urban dwellers of that state and moved into tinware, plated ware, buttons, and wooden clocks. These products, like shoes, also were manufactured in small workshops, but a division of labor among shops was less important than the organization of production within shops. Firms producing each good tended to agglomerate in a small subregion of the state. These clusters arose because entrepreneurs shared information about production techniques and specialized skills which they developed, and this knowledge was communicated as workers moved among shops. Initially, a marketing system of peddlers emerged in the tinware sector, and they sold the goods, first throughout Connecticut, and then they extended their travels to the rest of New England and to the Middle Atlantic. Workshops which made other types of light, high-value goods soon took advantage of the peddler distribution system to enlarge their market areas. At first, these peddlers operated part-time during the year, but as the supply of goods increased and market demand grew, peddlers operated for longer periods of the year and they traveled farther.

Cotton Textiles

Cotton textile manufacturing was an industry built on low-wage, especially female, labor; presumably, this industry offered opportunities in areas where farmers were unsuccessful. Yet, similar to the other manufactures which enlarged their market areas to the entire East before 1820, cotton textile production emerged in prosperous agricultural areas. That is not surprising, because this industry required substantial capital, technical skills, and, initially, nearby markets. These requirements were met in rich farming areas, which also could draw on wealthy merchants in large cities who contributed capital and provided sale outlets beyond nearby markets as output grew. The production processes in cotton textile manufacturing, however, diverged from the approaches to making shoes and small metal and wooden products. From the start, production processes included textile machinery, which initially consisted of spinning machines to make yarn, and later (after 1815), weaving machines and other mechanical equipment were added. Highly skilled mechanics were required to build the machines and to maintain them. The greater capital requirements for cotton mills, compared to shoes and small goods’ manufactures in Connecticut, meant that merchant wholesalers and wealthy retailers, professionals, mill owners, and others, were important underwriters of the factories.

Starting in the 1790s, New England, and, especially, Rhode Island, housed the leaders in early cotton textile manufacturing. Providence merchants funded some of the first successful cotton spinning mills, and they drew on the talents of Samuel Slater, an immigrant British machinist. He trained many of the first important textile mechanics, and investors in various parts of Rhode Island, Connecticut, Massachusetts, New Hampshire, and New York hired them to build mills. Between 1815 and 1820, power-loom weaving began to be commercially feasible, and this effort was led by firms in Rhode Island and, especially, in Massachusetts. Boston merchants, starting with the Boston Manufacturing Company at Waltham, devised a business plan which targeted large-scale, integrated cotton textile manufacturing, with a marketing/sales arm housed in a separate firm. They enlarged their effort significantly after 1820, and much of the impetus to the growth of the cotton textile industry came from the success entrepreneurs had in lowering the cost of production.

The Impact of Transportation Improvements

Following 1820, government and private sources invested substantial sums in canals, and after 1835, railroad investment increased rapidly. Canals required huge volumes of low-value commodities in order to pay operating expenses, cover interest on the bonds which were issued for construction, and retire the bonds at maturity. These conditions were only met in the richest agricultural and resource (lumbering and coal mining, for example) areas traversed by the Erie and Champlain Canals in New York and the coal canals in eastern Pennsylvania and New Jersey. The vast majority of the other canals failed to yield benefits for agriculture and industry, and most were costly debacles. Early railroads mainly carried passengers, especially within fifty to one hundred miles of the largest cities – Boston, New York, Philadelphia, and Baltimore. Industrial products were not carried in large volumes until after 1850; consequently, railroads built before that time had little impact on industrialization in the East.

Canals and railroads had minor impacts on agricultural and industrial development because the lowly wagon provided withering competition. Wagons offered flexible, direct connections between origins and destinations, without the need to transship goods, as was the case with canals and railroads; these modes required wagons at their end points. Within a distance of about fifty miles, the cost of wagon transport was competitive with alternative transport modes, so long as the commodities were high value relative to their weight. And, infrequent transport of these goods could occur over distances of as much as one hundred miles. This applied to many manufactures, and agricultural commodities could be raised to high value by processing prior to shipment. Thus, wheat was turned into flour, corn and other grains were fed to cattle and pigs and these were processed into beef and pork prior to shipment, and milk was converted into butter and cheese. Most of the richest agricultural and industrial areas of the East were less than one hundred miles from the largest cities or these areas were near low-cost waterway transport along rivers, bays, and the Atlantic Coast. Therefore, canals and railroads in these areas had difficulty competing for freight, and outside these areas the limited production generated little demand for long distant transport services.

Agricultural Prosperity Continues

After 1820, eastern farmers seized the increasing market opportunities in the prosperous rural areas as nonfarm processing expanded and village and small town populations demanded greater amounts of farm products. The large number of farmers who were concentrated around the rapidly growing metropolises (Boston, New York, Philadelphia, and Baltimore) and near urban agglomerations such as Albany-Troy, New York, developed increasing specialization in urban market goods such as fluid milk, fresh vegetables, fruit, butter, and hay (for horse transport). Farmers farther away responded to competition by shifting into products which could be transported long distances to market, including wheat into flour, cattle which walked to market, or pigs which were converted into pork. During the winter these farms sent butter, and cheese was a specialty which could be lucrative for long periods of the year when temperatures were cool.

These changes swept across the East, and, after 1840, farmers increasingly adjusted their production to compete with cheap wheat, cattle, and pork arriving over the Erie Canal from the Midwest. Wheat growing became less profitable, and specialized agriculture expanded, such as potatoes, barley, and hops in central New York and cigar tobacco in the Connecticut Valley. Farmers near the largest cities intensified their specialization in urban market products, and as the railroads expanded, fluid milk was shipped longer distances to these cities. Farmers in less accessible areas and on poor agricultural land which was infertile or too hilly, became less competitive. If these farmers and their children stayed, their incomes declined relative to others in the East, but if they moved to the Midwest or to the burgeoning industrial cities of the East, they had the chance of participating in the rising prosperity.

Metropolitan Industrial Complexes

The metropolises of Boston, New York, Philadelphia, and, to a lesser extent, Baltimore, led the industrial expansion after 1820, because they were the greatest concentrated markets, they had the most capital, and their wholesalers provided access to subregional and regional markets outside the metropolises. By 1840, each of them was surrounded by industrial satellites – manufacturing centers in close proximity to, and economically integrated with, the metropolis. Together, these metropolises and their satellites formed metropolitan industrial complexes, which accounted for almost one-quarter of the nation’s manufacturing (see Table 2). For example, metropolises and satellites included Boston and Lowell, New York and Paterson (New Jersey), Philadelphia and Reading (Pennsylvania), and Baltimore and Wilmington (Delaware), which also was a satellite of Philadelphia. Among the four leading metropolises, New York and Philadelphia housed, by far, the largest share of the nation’s manufacturing workers, and their satellites had large numbers of industrial workers. Yet, Boston’s satellites contained the greatest concentration of industrial workers in the nation, with almost seven percent of the national total. The New York, Philadelphia, and Boston metropolitan industrial complexes each had approximately the same share of the nation’s manufacturing workers. These complexes housed a disproportionate share of the nation’s commerce-serving manufactures such as printing-publishing and paper and of local, regional, and national market manufactures such as glass, drugs and paints, textiles, musical instruments, furniture, hardware, and machinery.

Table 2
Manufacturing Employment in the Metropolitan Industrial Complexes
of New York, Philadelphia, Boston, and Baltimore
as a Percentage of National Manufacturing Employment in 1840

Metropolis Satellites Complex
New York 4.1% 3.4% 7.4%
Philadelphia 3.9 2.9 6.7
Boston 0.5 6.6 7.1
Baltimore 2.0 0.2 2.3
Four Complexes 10.5 13.1 23.5

Note: Metropolitan county is defined as the metropolis for each complex and “outside” comprises nearby counties; those included in each complex were the following. New York: metropolis (New York, Kings, Queens, Richmond); outside (Connecticut: Fairfield; New York: Westchester, Putnam, Rockland, Orange; New Jersey: Bergen, Essex, Hudson, Middlesex, Morris, Passaic, Somerset). Philadelphia: metropolis (Philadelphia); outside (Pennsylvania: Bucks, Chester, Delaware, Montgomery; New Jersey: Burlington, Gloucester, Mercer; Delaware: New Castle). Boston: metropolis (Suffolk); outside (Essex, Middlesex, Norfolk, Plymouth). Baltimore: metropolis (Baltimore); outside (Anne Arundel, Harford).

Source: U.S. Bureau of the Census, Compendium of the Sixth Census, 1840 (Washington, D.C.: Blair and Rives, 1841).

Also, by 1840, prosperous agricultural areas farther from these complexes, such as the Connecticut Valley in New England, the Hudson Valley, the Erie Canal Corridor across New York state, and southeastern Pennsylvania, housed significant amounts of manufacturing in urban places. At the intersection of the Hudson and Mohawk rivers, the Albany-Troy agglomeration contained one of the largest concentrations of manufacturing outside the metropolitan complexes. And, industrial towns such as Utica, Syracuse, Rochester, and Buffalo were strung along the Erie Canal Corridor. Many of the manufactures (such as furniture, wagons, and machinery) served subregional markets in the areas of prosperous agriculture, but some places also developed specialization in manufactures (textiles and hardware) for larger regional and interregional market areas (the East as a whole). The Connecticut Valley, for example, housed many firms which produced cotton textiles, hardware, and cutlery.

Manufactures for Eastern and National Markets

Shoes

In several industrial sectors whose firms had expanded before 1820 to regional, and even, multiregional markets, in the East, firms intensified their penetration of eastern markets and reached to markets in the rapidly growing Midwest between 1820 and 1860. In eastern Massachusetts, a production complex of shoe firms innovated methods of organizing output within and among firms, and they developed a wide array of specialized tools and components to increase productivity and to lower manufacturing costs. In addition, a formidable wholesaling, marketing, and distribution complex, headed by Boston wholesalers, pushed the ever-growing volume of shoes into sales channels which reached throughout the nation. Machinery did not come into use until the 1850s, and, by 1860, Massachusetts accounted for half of the value of the nation’s shoe production.

Cotton Textiles

In contrast, machinery constituted an important factor of production which drove down the price of cotton textile goods, substantially enlarging the quantity consumers demanded. Before 1820, most of the machinery innovations improved the spinning process for making yarn, and in the five years following 1815, innovations in mechanized weaving generated an initial substantial drop in the cost of production as the first integrated spinning-weaving mills emerged. During the next decade and a half the price of cotton goods collapsed by over fifty percent as large integrated spinning-weaving mills became the norm for the production of most cotton goods. Therefore, by the mid-1830s vast volumes of cotton goods were pouring out of textile mills, and a sophisticated set of specialized wholesaling firms, mostly concentrated in Boston, and secondarily, in New York and Philadelphia, channeled these items into the national market.

Prior to 1820, the cotton textile industry was organized into three cores. The Providence core dominated and the Boston core occupied second place; both of these were based mostly on mechanized spinning. A third core in the city of Philadelphia was based on hand spinning and weaving. Within about fifteen years after 1820, the Boston core soared to a commanding position in cotton textile production as a group of Boston merchants and their allies relentlessly replicated their business plan at various sites in New England, including at Lowell, Chicopee, and Taunton in Massachusetts, at Nashua, Manchester, and Dover in New Hampshire, and at Saco in Maine. The Providence core continued to grow, but its investors did not seem to fully grasp the strategic, multi-faceted business plan which the Boston merchants implemented. Similarly, investors in an emerging core within about fifty to seventy-five miles of New York City in the Hudson Valley and northern New Jersey likewise did not seem to fully understand the Boston merchants’ plan, and these New York City area firms never reached the scale of the firms of the Boston Core. The Philadelphia core enlarged to nearby areas southwest of the city and in Delaware, but these firms stayed small, and the Philadelphia firms created a small-scale, flexible production system which turned out specialized goods, not the mass-market commodity textiles of the other cores.

Capital Investment in Cotton Textiles

The distribution of capital investment in cotton textiles across the regions and states of the East between 1820 and 1860 capture the changing prominence of the cores of cotton textile production (see Table 3). The New England and the Middle Atlantic regions contained approximately similar shares (almost half each) of the nation’s capital investment. However, during the 1820s the cotton textile industry restructured to a form which was maintained for the next three decades. New England’s share of capital investment surged to about seventy percent, and it maintained that share until 1860, whereas the Middle Atlantic region’s share fell to around twenty percent by 1840 and remained near that until 1860. The rest of the nation, primarily the South, reached about ten percent of total capital investment around 1840 and continued at that level for the next two decades. Massachusetts became the leading cotton textile state by 1831 and Rhode Island, the early leader, gradually slipped to a level of about ten percent by the 1850s; New Hampshire and Pennsylvania housed approximately similar shares as Rhode Island by that time.

Table 3
Capital Invested in Cotton Textiles
by Region and State as a Percentage of the Nation
1820-1860

Region/state 1820 1831 1840 1850 1860
New England 49.6% 69.8% 68.4% 72.3% 70.3%
Maine 1.6 1.9 2.7 4.5 6.1
New Hampshire 5.6 13.1 10.8 14.7 12.8
Vermont 1.0 0.7 0.2 0.3 0.3
Massachusetts 14.3 31.7 34.1 38.2 34.2
Connecticut 11.6 7.0 6.2 5.7 6.7
Rhode Island 15.4 15.4 14.3 9.0 10.2
Middle Atlantic 46.2 29.5 22.7 17.3 19.0
New York 18.8 9.0 9.6 5.6 5.5
New Jersey 4.7 5.0 3.4 2.0 1.3
Pennsylvania 6.3 9.3 6.5 6.1 9.3
Delaware 4.0 0.9 0.6 0.6 0.6
Maryland 12.4 5.3 2.6 3.0 2.3
Rest of nation 4.3 0.7 9.0 10.4 10.7
Nation 100.0% 100.0% 100.0% 100.0% 100.0%
Total capital (thousands) $10,783 $40,613 $51,102 $74,501 $98,585

Sources: David J. Jeremy, Transatlantic Industrial Revolution: The Diffusion of Textile Technologies Between Britain and America, 1790-1830s (Cambridge, MA: MIT Press, 1981), appendix D, table D.1, p. 276; U.S. Bureau of the Census, Compendium of the Sixth Census, 1840 (Washington, D.C.: Blair and Rives, 1841); U.S. Bureau of the Census, Report on the Manufactures of the United States at the Tenth Census, 1880 (Washington, D.C.: Government Printing Office, 1883).

Connecticut’s Industries

In Connecticut, industrialists built on their successful production and sales prior to 1820 and expanded into a wider array of products which they sold in the East and South, and, after 1840, they acquired more sales in the Midwest. This success was not based on a mythical “Yankee ingenuity,” which, typically, has been framed in terms of character. Instead, this ingenuity rested on fundamental assets: a highly educated population linked through wide-ranging social networks which communicated information about technology, labor opportunities, and markets; and the abundant supplies of capital in the state supported the entrepreneurs. The peddler distribution system provided efficient sales channels into the mid-1830s, but, after that, firms took advantage of more traditional wholesaling channels. In some sectors, such as the brass industry, firms followed the example of the large Boston-core textile firms, and the brass companies founded their own wholesale distribution agencies in Boston and New York City. The achievements of Connecticut’s firms were evident by 1850. As a share of the nation’s value of production, they accounted for virtually all of the clocks, pins, and suspenders, close to half of the buttons and rubber goods, and about one-third of the brass foundry products, Britannia and plated ware, and hardware.

Difficulty of Duplicating Eastern Methods in the Midwest

The East industrialized first, based on a prosperous agricultural and industrialization process, as some of its entrepreneurs shifted into the national market manufactures of shoes, cotton textiles, and diverse goods turned out in Connecticut. These industrialists made this shift prior to 1820, and they enhanced their dominance of these products during the subsequent two decades. Manufacturers in the Midwest did not have sufficient intraregional markets to begin producing these goods before 1840; therefore, they could not compete in these national market manufactures. Eastern firms had developed technologies and organizations of production and created sales channels which could not be readily duplicated, and these light, high-value goods were transported cheaply to the Midwest. When midwestern industrialists faced choices about which manufactures to enter, the eastern light, high-value goods were being sold in the Midwest at prices which were so low that it was too risky for midwestern firms to attempt to compete. Instead, these firms moved into a wide range of local and regional market manufactures which also existed in the East, but which cost too much to transport to the Midwest. These goods included lumber and food products (e.g., flour and whiskey), bricks, chemicals, machinery, and wagons.

The American Manufacturing Belt

The Midwest Joins the American Manufacturing Belt after 1860

Between 1840 and 1860, Midwestern manufacturers made strides in building an industrial infrastructure, and they were positioned to join with the East to constitute the American Manufacturing Belt, the great concentration of manufacturing which would sprawl from the East Coast to the edge of the Great Plains. This Belt became mostly set within a decade or so after 1860, because technologies and organizations of production and of sales channels had lowered costs across a wide array of manufactures, and improvements in transportation (such as an integrated railroad system) and communication (such as the telegraph) reduced distribution costs. Thus, increasing shares of industrial production were sold in interregional markets.

Lack of Industrialization in the South

Although the South had prosperous farms, it failed to build a deep and broad industrial infrastructure prior to 1860, because much of its economy rested on a slave agricultural system. In this economy, investments were heavily concentrated in slaves rather than in an urban and industrial infrastructure. Local and regional demand remained low across much of the South, because slaves were not able to freely express their consumption demands and population densities remained low, except in a few agricultural areas. Thus, the market thresholds for many manufactures were not met, and, if thresholds were met, the demand was insufficient to support more than a few factories. By the 1870s, when the South had recovered from the Civil War and its economy was reconstructed, eastern and midwestern industrialists had built strong positions in many manufactures. And, as new industries emerged, the northern manufacturers had the technological and organizational infrastructure and distribution channels to capture dominance in the new industries.

In a similar fashion, the Great Plains, the Southwest, and the West were settled too late for their industrialists to be major producers of national market goods. Manufacturers in these regions focused on local and regional market manufactures. Some low wage industries (such as textiles) began to move to the South in significant numbers after 1900, and the emergence of industries based on high technology after 1950 led to new manufacturing concentrations which rested on different technologies. Nonetheless, the American Manufacturing Belt housed the majority of the nation’s industry until the middle of the twentieth century.

This essay is based on David R. Meyer, The Roots of American Industrialization, Baltimore: Johns Hopkins University Press, 2003.

Additional Readings

Atack, Jeremy, and Fred Bateman. To Their Own Soil: Agriculture in the Antebellum North. Ames, IA: Iowa State University Press, 1987.

Baker, Andrew H., and Holly V. Izard. “New England Farmers and the Marketplace, 1780-1865: A Case Study.” Agricultural History 65 (1991): 29-52.

Barker, Theo, and Dorian Gerhold. The Rise and Rise of Road Transport, 1700-1990. New York: Cambridge University Press, 1995.

Bodenhorn, Howard. A History of Banking in Antebellum America: Financial Markets and Economic Development in an Era of Nation-Building. New York: Cambridge University Press, 2000.

Brown, Richard D. Knowledge is Power: The Diffusion of Information in Early America, 1700-1865. New York: Oxford University Press, 1989.

Clark, Christopher. The Roots of Rural Capitalism: Western Massachusetts, 1780-1860. Ithaca, NY: Cornell University Press, 1990.

Dalzell, Robert F., Jr. Enterprising Elite: The Boston Associates and the World They Made. Cambridge, MA: Harvard University Press, 1987.

Durrenberger, Joseph A. Turnpikes: A Study of the Toll Road Movement in the Middle Atlantic States and Maryland. Cos Cob, CT: John E. Edwards, 1968.

Field, Alexander J. “On the Unimportance of Machinery.” Explorations in Economic History 22 (1985): 378-401.

Fishlow, Albert. American Railroads and the Transformation of the Ante-Bellum Economy. Cambridge, MA: Harvard University Press, 1965.

Fishlow, Albert. “Antebellum Interregional Trade Reconsidered.” American Economic Review 54 (1964): 352-64.

Goodrich, Carter, ed. Canals and American Economic Development. New York: Columbia University Press, 1961.

Gross, Robert A. “Culture and Cultivation: Agriculture and Society in Thoreau’s Concord.” Journal of American History 69 (1982): 42-61.

Hoke, Donald R. Ingenious Yankees: The Rise of the American System of Manufactures in the Private Sector. New York: Columbia University Press, 1990.

Hounshell, David A. From the American System to Mass Production, 1800-1932: The Development of Manufacturing Technology in the United States. Baltimore: Johns Hopkins University Press, 1984.

Jeremy, David J. Transatlantic Industrial Revolution: The Diffusion of Textile Technologies between Britain and America, 1790-1830s. Cambridge, MA: MIT Press, 1981.

Jones, Chester L. The Economic History of the Anthracite-Tidewater Canals. University of Pennsylvania Series on Political Economy and Public Law, no. 22. Philadelphia: John C. Winston, 1908.

Karr, Ronald D. “The Transformation of Agriculture in Brookline, 1770-1885.” Historical Journal of Massachusetts 15 (1987): 33-49.

Lindstrom, Diane. Economic Development in the Philadelphia Region, 1810-1850. New York: Columbia University Press, 1978.

McClelland, Peter D. Sowing Modernity: America’s First Agricultural Revolution. Ithaca, NY: Cornell University Press, 1997.

McMurry, Sally. Transforming Rural Life: Dairying Families and Agricultural Change, 1820-1885. Baltimore: Johns Hopkins University Press, 1995.

McNall, Neil A. An Agricultural History of the Genesee Valley, 1790-1860. Philadelphia: University of Pennsylvania Press, 1952.

Majewski, John. A House Dividing: Economic Development in Pennsylvania and Virginia Before the Civil War. New York: Cambridge University Press, 2000.

Mancall, Peter C. Valley of Opportunity: Economic Culture along the Upper Susquehanna, 1700-1800. Ithaca, NY: Cornell University Press, 1991.

Margo, Robert A. Wages and Labor Markets in the United States, 1820-1860. Chicago: University of Chicago Press, 2000.

Meyer, David R. “The Division of Labor and the Market Areas of Manufacturing Firms.” Sociological Forum 3 (1988): 433-53.

Meyer, David R. “Emergence of the American Manufacturing Belt: An Interpretation.” Journal of Historical Geography 9 (1983): 145-74.

Meyer, David R. “The Industrial Retardation of Southern Cities, 1860-1880.” Explorations in Economic History 25 (1988): 366-86.

Meyer, David R. “Midwestern Industrialization and the American Manufacturing Belt in the Nineteenth Century.” Journal of Economic History 49 (1989): 921-37.

Ransom, Roger L. “Interregional Canals and Economic Specialization in the Antebellum United States.” Explorations in Entrepreneurial History 5, no. 1 (1967-68): 12-35.

Roberts, Christopher. The Middlesex Canal, 1793-1860. Cambridge, MA: Harvard University Press, 1938.

Rothenberg, Winifred B. From Market-Places to a Market Economy: The Transformation of Rural Massachusetts, 1750-1850. Chicago: University of Chicago Press, 1992.

Scranton, Philip. Proprietary Capitalism: The Textile Manufacture at Philadelphia, 1800-1885. New York: Cambridge University Press, 1983.

Shlakman, Vera. “Economic History of a Factory Town: A Study of Chicopee, Massachusetts.” Smith College Studies in History 20, nos. 1-4 (1934-35): 1-264.

Sokoloff, Kenneth L. “Invention, Innovation, and Manufacturing Productivity Growth in the Antebellum Northeast.” In American Economic Growth and Standards of Living before the Civil War, edited by Robert E. Gallman and John J. Wallis, 345-78. Chicago: University of Chicago Press, 1992.

Sokoloff, Kenneth L. “Inventive Activity in Early Industrial America: Evidence from Patent Records, 1790-1846.” Journal of Economic History 48 (1988): 813-50.

Sokoloff, Kenneth L. “Productivity Growth in Manufacturing during Early Industrialization: Evidence from the American Northeast, 1820-1860.” In Long-Term Factors in American Economic Growth, edited by Stanley L. Engerman and Robert E. Gallman, 679-729. Chicago: University of Chicago Press, 1986.

Ware, Caroline F. The Early New England Cotton Manufacture: A Study in Industrial Beginnings. Boston: Houghton Mifflin, 1931.

Weiss, Thomas. “Economic Growth before 1860: Revised Conjectures.” In American Economic Development in Historical Perspective, edited by Thomas Weiss and Donald Schaefer, 11-27. Stanford, CA: Stanford University Press, 1994.

Weiss, Thomas. “Long-Term Changes in U.S. Agricultural Output per Worker, 1800-1900.” Economic History Review 46 (1993): 324-41.

Weiss, Thomas. “U.S. Labor Force Estimates and Economic Growth, 1800-1860.” In American Economic Growth and Standards of Living before the Civil War, edited by Robert E. Gallman and John Joseph Wallis, 19-75. Chicago University of Chicago Press, 1992.

Wood, Frederic J. The Turnpikes of New England. Boston: Marshall Jones, 1919.

Wood, Gordon S. The Radicalism of the American Revolution. New York: Alfred A. Knopf, 1992.

Zevin, Robert B. “The Growth of Cotton Textile Production after 1815.” In The Reinterpretation of American Economic History, edited by Robert W. Fogel and Stanley L. Engerman, 122-47. New York: Harper & Row, 1971.

Citation: Meyer, David. “American Industrialization”. EH.Net Encyclopedia, edited by Robert Whaples. March 16, 2008. URL http://eh.net/encyclopedia/the-roots-of-american-industrialization-1790-1860/

Railroaded: The Transcontinentals and the Making of Modern America

Author(s):White, Richard
Reviewer(s):Brown, John Howard

Published by EH.Net (June 2012)

Richard White, Railroaded: The Transcontinentals and the Making of Modern America. New York: Norton, 2011. xxxix + 621 pp. $35 (hardcover), ISBN: 978-0-393-06126-0.

Reviewed for EH.Net by John Howard Brown, School of Economic Development, Georgia Southern University.

Richard White?s Railroaded is a professional tour de force. This book provides an overview of the development of railroads in United States west of the Missouri River. The timeframe covered is the last third of the nineteenth century. The volume invites reflection on how the nineteenth century experience is related to the travails of our twenty-first century market economy.?

White?s thesis has several distinct themes. The first, and most prominent, theme is that there was no economic rationale for building even one railroad between the great valleys of the west coast and the Missouri basin.? (Or course, the federal government might well have entertained political, and what are now called national security, considerations in the decision to create a transcontinental railroad system.)? In the era of transcontinental railroad building between roughly 1865 and 1895, local populations in this vast region were too small to generate much in the way of paying freight. At the same time, California?s central valley and the Willamette in Oregon were adequately served by steamships and purely local railroads.

This led to the original sin in the creation of these roads. Government land grants were employed as subsidies for construction. Even more important, the U.S. government?s credit was employed to guarantee the creditworthiness of the enterprises. To put this into contemporary economic jargon, an opportunity for rent-seeking was created. The power of human cupidity in service of this opportunity for rent extraction is well documented.

This book lays to rest the fantasy that markets in the late nineteenth-century United States were any sort of libertarian idyll.? As White documents, the great transcontinental railroads recognized the need for ?friends? in government. This rather peculiar friendship was acquired, if not by out-and-out bribery, by substantial material considerations.? Both sides of the transaction were unembarrassed by the naked solicitation and dispensing of such ?tokens? of friendship.

The second major theme of the book is of endemic corruption and insider enrichment. White demonstrates that those in control of these vast honeypots viewed them more as a means to build personal fortunes than railroads. Self-dealing, by setting up a construction company to soak up the largest share of the wealth made available, was routine.?

In addition to the U.S. government, a more or less willing victim, the biggest losers in these frauds were foreign investors in American railroads. It hardly needs emphasizing that foreign (and domestic) investors have suffered a similar fate during the recent sub-prime mortgage initiated debacle.

White?s third theme is the economic, and related environmental, effects of the transcontinental railroad systems. The fourth chapter, ?Spatial Politics,? is a brilliant exposition of the transformation of the economic geography wrought by the coming of railroads. In simplest terms, rail transportation integrated localities out of reach of tidewater into the world economy by making it feasible to ship relatively low valued goods over great distances.

However, in a later chapter, ironically titled, ?Creative Destruction,? White compellingly demonstrates that this integration was not an unmixed blessing.? In fact, from the point of view of the integrity of ecosystems and the natural environment, he labels it an unmitigated disaster.? The transcontinental railroads? thirst for freight drove several successive economic booms with devastating effects on both the native flora and fauna and distant investors.

The first of these involved the trade in buffalo hides.? Cheap transportation provided by the southern transcontinentals was the catalyst for the industrial-scale slaughter of the great southern buffalo herd. The extermination of these beasts was accomplished in a matter of a few years, and the speculators moved on to find the next big thing.

As it happens the next boom is etched into the romantic imagination of American history, the long distance cattle drive, and subsequently, free range ranching.? The original drives were intended not only to move cattle efficiently to market, but also to eliminate parasites that were potentially devastating to other cattle breeds. The rail towns west of the Missouri were appealing precisely because there were few cattle to be infected by the parasites carried by Texas longhorn cattle. This boom was short-lived because longhorns were not very satisfactory beef cattle.

The lure of the vast, unfenced grasslands of the Great Plains soon created industrial-scale ranching. These enterprises were fueled by foreign capital and ?perhaps irrational exuberance.?? The promoters thought natural increase and free grazing would result in vast herds which might be sold with only the expense of gathering them and delivering them to the rails. White takes great pains to note the accounting tricks employed by the cattle companies were as egregious as Enron?s a century and a quarter later. This boom also collapsed quickly when it turned out that Corn Belt farmers could raise higher quality cattle more cheaply than free ranging cattle.? In addition to the excessive mortality of free range cattle, these cattle damaged the fragile riverine ecologies of these semiarid regions.

After the collapse of the cattle boom, the railroads attempted to promote dry farming exploiting the claim that, ?rain follows the plow.? Thus the final boom which White charts was wheat-growing in what later became North Dakota, and throughout the semiarid Great Plains generally.? This industry, too, had its day. This occurred largely, according to White, because freight rates fell even more rapidly than wheat prices. A combination of technical advance and the transcontinental roads? hunger for traffic was sufficient to secure this result.? In addition, the weather was unusually wet on the high plains in the 1880s.? When more normal conditions subsequently returned, farmers abandoned the plains in great numbers.?

What connects these episodes?? All of the booms involved the appropriation of resources that either had not been exploited previously or, as in the case of grazing, were available as a usufruct right. The chapter title where these events are related references Joseph Schumpeter?s (1942), Capitalism, Socialism, and Democracy.? In one sense, this is unfair, since Schumpeter saw ?creative destruction? as the force within the capitalist market system which limited the scope and force of monopoly. Thus for him, creative destruction worked at the level of the individual firm, undermining any transitory monopoly a firm might acquire.? A firm with an established monopoly in a product category inevitably faced challenges from innovators offering improved versions of a product. These innovators threatened the erstwhile monopolist with displacement from its dominant role in the market.

Schumpeter?s optimism about capitalist outcomes was grounded in the notion that competition for monopoly rents must always redound to the benefit of the consumer and society as a whole.? However, he never addressed resources which were outside of the existing scope of the market economy.

Heilbroner (1985) posited that a capitalist economy expands, at least in part, by creating market commodities where none existed before.? Seen in this light, the transcontinental railroads facilitated this commodification process in the high plains and intermountain West. The attendant booms were fueled by an exuberance that, at least in retrospect, appears to have been irrational.?

What lessons do these historical episodes have a century and a quarter later?? Both the Internet boom of the 1990s and the subprime episode of early in this century have roots in the same process of commodity creation. In both, novel forms of property were being created and a ?land rush? atmosphere prevailed. In parallel with the nineteenth century events, the bubbles were driven by irrational exuberance, and the chief victims were not the ?boomers.? Instead, the investors drawn by the promise of easy returns in a transformed economy were the victims.

This suggests that Schumpeter?s framework ought to be extended by recognizing both an intensive and extensive margin in an economy for those struggling for economic rents.? The intensive margin was what Schumpeter analyzed.? Competition within an existing framework of markets functions as the source of creative destruction.? An example of this process was Apple?s introduction of the iPod.? There were already devices offering playback of digital audio files, however, the iPod overwhelmed them because of its superior design.

The extensive margin exists where entirely novel varieties of property rights are being created.? Irrational exuberance plays its part here, because there is no frame of reference for evaluating the claims of insiders. Apple?s creation of the Apple II is an example rent-seeking on the extensive margin. Microcomputers represented an entirely new class of product.? The resulting ?land rush? in the early 1980s was as chaotic as the booms described by White, before it was prematurely ended by IBM?s introduction of its Personal Computer (PC).? Competition in this market then proceeded along what I have characterized as the intensive margin with IBM ultimately exiting, the victim of creative destruction.

White?s history thus demonstrates the essential continuity of American-style capitalism from the latter half of the nineteenth century to the early twenty-first.? Irrational exuberance is not a new phenomenon, rather it seems inherent where technical or legal change creates new opportunities for acquiring property rights.?? Financial shenanigans and ?creative? bookkeeping are likewise not novelties enabled by some uniquely modern depravity.? Finally, a noteworthy role for government in business, and business in government, was not an invention of Franklin Roosevelt and the New Deal.? None of this will surprise economic historians.? However, White?s prose is lively and his presentation highly engaging.? A non-specialist will find this book to be rewarding reading.

References:

Heilbroner, Robert L. (1985), The Nature and Logic of Capitalism, New York: W.W. Norton & Company.

Schumpeter, Joseph (1942), Capitalism, Socialism, and Democracy, New York: Harper and Brothers.

John Howard Brown is an Associate Professor in the Finance and Economics Department at Georgia Southern University.? He recently served as guest editor and author in a special issue of the Review of Industrial Organization memorializing the centennial of the Standard Oil antitrust decision.

Copyright (c) 2012 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator (administrator@eh.net). Published by EH.Net (June 2012). All EH.Net reviews are archived at http://www.eh.net/BookReview.

Subject(s):Agriculture, Natural Resources, and Extractive Industries
Business History
Transport and Distribution, Energy, and Other Services
Geographic Area(s):North America
Time Period(s):19th Century

Economic Evolution and Revolution in Historical Time

Author(s):Rhode, Paul W.
Rosenbloom, Joshua L.
Weiman, David F.
Reviewer(s):Moehling, Carolyn M.

Published by EH.Net (January 2012)

Paul W. Rhode, Joshua L. Rosenbloom, and David F. Weiman, editors, Economic Evolution and Revolution in Historical Time. Stanford, CA: Stanford University Press, 2011. xx + 461 pp. $60 (hardcover), ISBN: 978-0-8047-7185-6.

Carolyn M. Moehling, Department of Economics, Rutgers University.

A recent review in this series described festschrifts as ?an honored tradition? but ?also a somewhat antiquated and awkward form of scholarly communication.?? That awkwardness has been increasing in recent years.? More and more young scholars are being told that book chapters will receive little, if any, weight in tenure reviews, and many citation indices ? which are fast-becoming the ?summary statistics? of scholarly productivity ? ignore such contributions.? Given these trends, it is becoming more and more difficult to produce a collective volume that is relevant for current scholarship.? However, in the volume under review, Paul Rhode, Joshua Rosenbloom and David Weiman have proved that this can be done.? They do start with a tremendous advantage in that the scholar they honor, Gavin Wright, is one of the true greats in our profession.? Wright?s research is remarkable for both its scope and its diversity of method, and the editors have put together a volume that shares these qualities.? Several of the chapters are review essays which take a particular area of Wright?s research and place it in the context of the broader economic and historical literature.? These essays are more than just genuflections on the work of a beloved scholar and teacher; they discuss the challenges to Wright?s conclusions posed by other scholars and propose directions for future research.? Other chapters report the results of new or on-going research projects, many of which were inspired by Wright?s work.? For the most part, these essays make substantive and provocative contributions to the literature.? The editors achieve this feat by soliciting papers from well-established scholars who are no longer tormented by the ticking of the tenure clock.? The end result is a hefty volume of 17 chapters and over 400 pages.

Given space constraints, this review cannot adequately discuss the merits of each of the essays included in the volume.? The goal, instead, is to provide an overall sense of the volume by highlighting some of the more notable contributions.? Strong entries in the review essay category are the chapters by Karen Clay, Robert Fleck, and Joshua Rosenbloom and William Sundstrom.? Clay reviews Wright?s work on the role of natural resources on the development of the U.S. economy.? In a seminal paper published in the American Economic Review in 1990, Wright challenged conventional wisdom by claiming that the success of American manufacturing before 1940 was due to its intensive use of natural resources.? He went further to argue that this natural resource abundance was due less to the size of America’s geological endowment than to the ability to exploit that endowment.? Clay discusses the factors that led to this successful exploitation: federal and state geological surveys, the development of American mining and engineering colleges, and incentives for private agents to search for and extract natural resources.? Clay draws upon her own research with Wright on the Gold Rush to argue that these incentives existed even when the government could not effectively guarantee property rights.? Mining communities, building on cultural conceptions of fairness, created private-order institutions to secure such rights.? Clay then turns to the $64,000 question: why didn’t the U.S. suffer from the “resource curse?”? Clay believes that it was the strength of American political institutions and the high transportation costs of the period that made natural resources facilitate rather than hinder growth.? She then proposes a framework for future research to test this hypothesis.

Fleck situates Wright’s research on the New Deal and the transformation of the Southern economy in the broader political economy literature.? He provides a nice overview of the empirical studies of the politics of New Deal spending and re-interprets the findings to emphasize their more general implications for the interplay between policy and institutions.? Fleck goes on to connect this work to the very recent research on the role of institutions and economic development.? He focuses, in particular, on theoretical models of the extension of voting rights and how these models draw upon and complement Wright’s much earlier work on the South.

Rosenbloom and Sundstrom take on an even more ambitious agenda: using Wright’s concept of institutional regimes to provide a history of American labor markets from the colonial period to the present.? In this framework, political and economic institutions evolve to be complementary and mutually reinforcing, hence making them stable over long periods of time.? Only a shock or crisis precipitates change and then change can happen rapidly, as it did in Southern labor markets in response to the Civil War and then again in the mid-twentieth century.? The overarching theme of Rosenbloom and Sundstrom’s narrative is that changes in labor market outcomes cannot be interpreted simply in terms of shifts of supply and demand.? Instead, they must be examined in the context of the prevailing labor market institutions and how those institutions change and evolve over time.

Frank Levy and Peter Temin follow up on the theme of institutional regimes in their study of trends in income inequality in the second half of the twentieth century.? They argue that the declining position of the average worker reflects more than just the effects of globalization and skill-biased technological change.? They place the blame instead on the political and economic changes in the late 1970s and early 1980s that led to the erosion of organized labor’s bargaining power.? The institutional regime changed in a way that disadvantaged the average worker.

Leonard Carlson’s chapter also focuses on how outcomes are shaped by institutions.? Carlson contrasts the experiences of the aboriginal peoples of North America and Australia.? As he notes, there are many parallels in the settlement and development of these two areas.? Yet, they dealt very differently with their native populations.? In Australia, settlers developed a new legal concept, “terra nullius,” which asserted that the land belonged to no one prior to the arrival of the English in 1788.? In North America, native peoples were viewed as having “aboriginal rights” to the lands they occupied.? The result was that in North America, settlers had to negotiate land sales or treaties with natives in order to claim the land whereas in Australia, they did not.? Carlson presents a compelling case that the differences in these initial institutions can help to explain the very different experiences of these two native populations all the way up to the present.

Alan Olmstead and Paul Rhode return to the question of the productivity of slave agriculture.? Building on their previously published work, they argue that the expansion of cotton production into the New South and the increased labor productivity in cotton that generated, relied heavily on the continuing biological innovations in cotton varieties.? A nice feature of this essay is that Olmstead and Rhode provide a re-evaluation of the economics of slavery literature based on their new findings.?

Richard Sutch contributes a provocative essay linking the minimum wage to increases in education.? He argues that the minimum wage binds in the youth labor market.? Decreasing labor market opportunities for young workers could create what Sutch calls an educational cascade whereby teenagers stay in school longer both because of peer effects and the declining opportunity of schooling.? Using data from the Current Population Surveys and the decennial censuses, Sutch shows that birth cohorts which were in high school during periods in which the minimum wage was being increased, have higher than expected average years of schooling.? He proposes, therefore, that raising the minimum wage may be a way to lower high school dropout rates.

Stacey Jones offers an intriguing alternative explanation for the dramatic changes in women’s occupational choices starting in the 1960s: the declining demand for teachers.? The demographic changes in the 1960s led to a drop in the number of school children at the same time that the number of college-educated women was growing by leaps and bounds.? Educated women needed to find occupations outside of teaching, and as more and more of them did, they changed societal expectations about what was appropriate work for women.? Jones’ argument nicely complements the many recent studies that examine the effects of contraceptive technology on women’s career and educational choices.

The remaining chapters are remarkable for the variety of scope, data, and method.? George Grantham explores the history of science in Europe between 1650 and 1850.? Warren Whatley and Rob Gillezeau develop a theoretical model to consider how the effective demand for slaves in the New World affected the development of African economies.? Ta-Chen Wang compares the textile industries in Boston and Philadelphia in the early 1800s to examine how differences in state banking systems affected industrial development.? Jeremy Atack, Michael Haines, and Robert Margo present preliminary results from their large-scale research project on the impact of railroads on economic development.? Scott Redenius and David Weiman seek to explain the seasonality in financial markets in the South after the Civil War and then to examine its impact on the National Banking System.? Susan Wolcott studies rural credit markets in colonial India.? Susan Carter links the rise of Chinese restaurants in the U.S. to the Chinese Exclusion Act.

Finally, this volume contains a bonus chapter.? Wright himself provides an essay reflecting on the tradition of economic history research at Stanford.? This essay provides a rare glimpse at how a scholar and teacher evaluates his own body of work and those of his students and colleagues.

Carolyn M. Moehling is an Associate Professor of Economics at Rutgers University.? She is the author of ?The Political Economy of Saving Mothers and Babies: The Politics of State Participation in the Sheppard-Towner Program? (with Melissa A. Thomasson), Journal of Economic History (forthcoming).

Copyright (c) 2012 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator (administrator@eh.net). Published by EH.Net (January 2012). All EH.Net reviews are archived at http://www.eh.net/BookReview

Subject(s):Agriculture, Natural Resources, and Extractive Industries
Education and Human Resource Development
Financial Markets, Financial Institutions, and Monetary History
Government, Law and Regulation, Public Finance
Servitude and Slavery
Industry: Manufacturing and Construction
Labor and Employment History
Markets and Institutions
Geographic Area(s):Africa
Australia/New Zealand, incl. Pacific Islands
North America
Time Period(s):18th Century
19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII

The First Tycoon: The Epic Life of Cornelius Vanderbilt

Author(s):Stiles, T. J.
Reviewer(s):Whaples, Robert

Published by EH.NET (December 2009)

T.J. Stiles, The First Tycoon: The Epic Life of Cornelius Vanderbilt. New York: Knopf, 2009. xiii + 719 pp. $37.50 (cloth), ISBN: 978-0-375-41542-5.

Reviewed for EH.NET by Robert Whaples, Department of Economics, Wake Forest University.

Economists have always had a hard time dealing with entrepreneurs ? as individuals and in the aggregate. We sort of know what entrepreneurship is and that it can have a profound impact on economic performance, but it?s usually just too difficult to model and measure. What we do not understand, we simply ignore and leave to others. After all, we are firm believers in comparative advantage and studying entrepreneurship ? even if it is economically important ? doesn?t seem to be our comparative advantage. In the view of most economic historians, it is the rules of the game ? the incentives and the institutions ? that really matter, not the players. American economic history has been cast as the story of millions of diligent and clever beavers working away and transforming the landscape. Take one of them away and nothing of great importance will really change. (In fact, most of us seem to believe that if you take away an entire technological complex, like the railroads, little of much importance would really change.)

Why, then, should economic historians study the careers of entrepreneurs? Not all of us should. But for some, the study of entrepreneurs will illuminate the past and the present ? and put life into our cliometric narrative. If any entrepreneur deserves our attention it is surely Cornelius Vanderbilt. As T.J. Stiles aptly puts it: ?One person cannot move the national economy single-handedly ? but no one else kept his hands on the lever for so long or pushed so hard? (p. 7).

Vanderbilt, born on Staten Island in 1794, had only about three months of formal education. He set to work hauling cargo and passengers across the waters surrounding New York Bay before he was a teenager and immediately showed an ambitious, enterprising streak while working for his father and soon thereafter for himself. He entered the national stage while working for Thomas Gibbons in establishing a steamboat line between New York City and New Brunswick, New Jersey. Vanderbilt began as captain of Gibbons? boat, but he soon acted as the line?s general agent and played the crucial role in besting the market?s incumbent, flouting its state-back monopoly before this monopoly was famously struck down by John Marshall?s Supreme Court in Gibbons v. Ogden (1824).

In the ensuing decades Vanderbilt emerged as one of the industry?s shrewdest, most relentless operators. Stiles? descriptions of the free-wheeling competition and collusion in the steamboat industry are enough to make a game theorist?s pay-off matrix explode. The understood rules of the game were that ?the first proprietor to occupy a line assumed a sort of natural right to the route. A challenger who lasted long enough could expect an offer of a bribe to abandon the market and, should he accept it, would be expected to abstain from further competition? (p. 103-04). As Vanderbilt?s operations grew, he repeatedly preyed on existing lines ? in New Jersey, on the Hudson River and on Long Island Sound ? and often took payoffs to go away. But he occasionally straddled the line between honor and duplicity in this game. The record is replete with episodes of buy outs, no-compete payments, and pooling arrangements, but also fierce face-to-face competition along a vector of price, speed, safety, comfort, amenities (many steamboats were essentially floating saloons), and infrastructure along with hidden ownership arrangements and rapid changes in technology. There simply was no lasting equilibrium in this dynamic market. Above-normal profits were fleeting, but Vanderbilt mastered the arts of motivating his employees and partners, holding down costs, making design improvements to his fleet, operating efficiently and building up a deep capital base. ?His main strength was, in a word, everything? (p. 140), as he emerged as the ?Prince of Long Island Sound? ? the key route between Boston and New York ? by the mid-1840s.

Soon legends about his physical prowess and indomitable personality arose. The legends became mythic with Vanderbilt?s commanding response to the ripe opportunity of transporting men to California during the Gold Rush. As rivals struggled to build a link across Panama, Vanderbilt overcame a series of daunting political, diplomatic, financial, logistical, and physical obstacles to complete a route to San Juan del Norte, Nicaragua, up the San Juan River, across Lake Nicaragua, and down a plank road to the Pacific. The ?Commodore? himself was the first to pilot a steamboat up the Toro rapids (before explosives removed most of the obstacles). The line opened in the summer of 1851, outflanking the Panama route, whose railroad wouldn?t be completed until early 1855. As is the case for earlier and subsequent Vanderbilt endeavors, it appears that the biggest winners were his customers. Unfortunately for Vanderbilt, the longer-term profitably of the line was imperiled by a series of intrigues and the filibustering of William Walker, whose armed force seized control of Nicaragua in 1855. Stiles convincingly argues that Vanderbilt never provided assistance to Walker and was crucial in bringing about his downfall. He also dismisses ?one of the most famous letters in the history of American business,? in which Vanderbilt allegedly informed two double-crossing Nicaragua-line partners: ?Gentlemen: You have undertaken to cheat me. I won?t sue, for the law is too slow. I?ll ruin you. Yours truly, Cornelius Vanderbilt.? Stiles explains that Vanderbilt ?never wrote ?Yours truly,? . . . And it never would have occurred to him to give up legal redress? (p. 237).

Stiles is just as convincing in downplaying legends about Vanderbilt?s bawdiness and in discrediting the contention/fabrication in Edward J. Renehan Jr.?s Commodore: The Life of Cornelius Vanderbilt (2007) that Vanderbilt contracted syphilis in 1839 and began to suffer from syphilitic dementia late in life. Renehan has refused to produce the source of this diagnosis ? alleged diaries of Vanderbilt?s doctor ? and the contention of dementia doesn?t comport with eyewitness accounts of Vanderbilt?s active, lucid behavior. [As if the seal the case, Renehan is now serving time in prison for selling stolen historical letters.]

Vanderbilt was a planner and an improviser. While he oversaw the Nicaragua project, he also launched a profitable trans-Atlantic steamboat service that drove its subsidized competitor to the wall and gained control over a major New York shipyard and the city?s leading engine works. Rather than enjoying a leisured retirement, the Commodore built his fortune up from $11 million in 1853 (about $320 million in today?s dollars according to our colleagues at measuringworth.com) to roughly $100 million at the time of his death in 1877 ($2.1 billion in today?s dollars). This final set of triumphs came in railroading, as Vanderbilt built up stakes in struggling or underperforming lines (the Harlem, the Hudson, the New York Central, and the Lake Shore) and made them profitable. Again and again, he cut costs and improved efficiency. Much of this appears to have come by reining in the principal-agent problem by ousting top executives who had been making self-serving side-deals, from introducing (a la Alfred Chandler) professional managers, and from carefully constructing the optimal amount of infrastructure. These final chapters are replete with episodes of crooked politicians stung while trying to shake down Vanderbilt?s businesses (the two Harlem road corners), sharp dealing during financial panics, and unresolvable family problems.

Although Stiles occasionally interjects a bit too much hyperbole ? the deep-pocketed Vanderbilt is portrayed as teetering on the brink of disaster much too often ? he has done extensive archival work which enables him to draw a thorough and compelling picture of the evolution of Vanderbilt and his enterprises. Moreover, he has a capable grasp of economic theory and economic history, which allows him to knowledgeably discuss the transformation of the economy, monetary policy, financial panics, business practices and a whole range of other important issues. Stiles? book joins the ranks of an encouraging string of recent biographies that have overturned misconceptions about important nineteenth-century entrepreneurs, standing alongside Murray Klein?s The Life and Legend of Jay Gould (1986), Ron Chernow?s Titan: The Life of John D. Rockefeller, Sr. (1998), David Nasaw?s Andrew Carnegie (2006) and others.

?That Vanderbilt is a great ________ (you must fill in the blank)? (Courtlandt Palmer, quoted on page 1). T.J. Stiles? definitive biography not only allows us to fill in this blank ? it also helps fill in many blanks about how the American economy behaved during the Commodore?s life.

Robert Whaples?s recent publications include ?The Policy Views of American Economic Association Members: The Results of a New Survey,? Econ Journal Watch (2009) and ?Is Economic History a Neglected Field of Study?? Historically Speaking (forthcoming). He teaches a course on Entrepreneurs in American History at Wake Forest University.

Subject(s):Transport and Distribution, Energy, and Other Services
Geographic Area(s):North America
Time Period(s):19th Century

Mass Motorization and Mass Transit: An American History and Policy Analysis

Author(s):Jones, David W.
Reviewer(s):Dunn Jr., James A.

Published by EH.NET (December 2008)

David W. Jones, Mass Motorization and Mass Transit: An American History and Policy Analysis. Bloomington, IN: Indiana University Press, 2008. xiii + 269 pp. $40 (hardcover), ISBN: 978-0-253-35152-4.

Reviewed for EH.NET by James A. Dunn, Jr., Department of Political Science, Rutgers University ? Camden.

David Jones, a historian who served as research manager at the University of California?s Institute for Transportation Studies, critically examines the key policy junctures in the intertwined paths of the mass transit sector and the automobile/highway system in America. He draws on a wealth of historical data, market trends, private decisions and public policies that shaped urban mobility from the 1880s to the 2000s. He highlights America?s ?exceptionalism? with instructive comparisons to other nations? experience.

American has been ?uniquely proficient in the commercialization of new transportation technologies.? The U.S. led the world into the electric transit era. In 1890, New York, Chicago, Boston and Philadelphia each had two to three times more per capita transit trips than London. Then speculative overinvestment damaged the industry?s credit. When this combined with souring relations with local governments and labor union troubles, the industry?s financial position became one of steady capital disinvestment ? even before the First World War. Peacetime transit ridership peaked in 1926, as prosperity and motorization took off. Again the U.S. led the world, this time into the automotive era. In 1925 the U.S. motorization rate was 172 motor vehicles per 1,000 population. Britain and France had only 20 and 18 motor vehicles per 1,000 people, respectively. Despite the Depression and the total cessation of automobile production during World War II, the American motorization rate doubled by 1950.

The transit industry, despite heavy ridership during the Second World War, could not attract new capital or hold onto its riders after 1945. As he did in his excellent 1985 book, Urban Transit Policy: An Economic and Political History, Jones here points out that the transit industry?s labor-management rigidities, organizational weaknesses and the unsuitability of its radial networks to post industrial, decentralized metropolitan regions were holdovers from its glory years of 1890-1910, when it had a virtual monopoly on motorized mobility. He correctly has no time for conspiracy theories about auto, oil and tire interests forcing the abandonment of streetcars. He even argues that the 1956 Interstate Highway Bill can not be blamed for transit?s problems in the 1950s and 1960s. Motorization and suburbanization would have proceeded almost as fast without the Interstate, as states would have upgraded four lane highways and authorized toll roads.

When the Congress decided to rescue transit in the 1960s, it paid too much attention to big city mayors, downtown businesses, and commuter railroads. It focused federal subsidies too narrowly on expensive new rail systems. In hindsight, Jones argues, it would have been better to have dangled federal subsidies to entice transit unions and local bus operators to abolish outdated labor contracts and adopt new work rules to permit part time labor and contracting out of some service to owner operators of taxi-vans. This is what Las Vegas and its union finally did in 1993. Since then Las Vegas? transit trips have grown from 15 million to 50 million and transit?s share of commute trips has risen by 128 percent. Nationwide, however, the hundreds of billions in public investment in the transit sector over the last four decades have stabilized ridership per capita, but at a level very close to its historic low. Thus transit can play only a limited role in reducing the externalities of our mass motorization, particularly the balance of payments burden of imported oil, growing CO2 emissions, and the cost of military intervention in the Middle East.

Jones? final five chapters focus on the problem of making our ?pervasively? motorized society more sustainable. A large part of the problem is the U.S. auto industry itself. In his ominously prescient words: ?in 2004-2007, the American automobile industry has experienced financial difficulties strikingly similar to those experienced by street railways following World War I … recent revenues have been insufficient to support the cost structures created during the golden days when they dominated the U.S. market.? (p. 189) With almost all their profits coming from the ?light truck? segment of the market, American auto makers are vulnerable to gasoline price spikes as well as to political pressure to improve fuel economy and lower CO2 emissions. They will have to make a ?transformational change in the technology of the automobile,? and they will need a great deal of financial and regulatory support from public policy to pull it off. Hydrogen fuel cell vehicles seem to be Jones? candidate for the transformational change. He identifies five preconditions that have to be met before hydrogen fuel cell vehicles can be widely diffused: cost competiveness with conventional vehicles, creation of a fueling infrastructure, decentralized reformation of natural gas into hydrogen at fueling stations, sequestration of the CO2 emissions associated with reformation, and acceptance of hydrogen?s safety by the public. He admits that the best estimates of the time frame for this extend from 15 to 40 years in the future. Curiously, he gives almost no attention to electric vehicles, whether all-electric or plug-in hybrids. Electric power faces far fewer infrastructure and CO2 sequestration issues than hydrogen. And even GM?s California-mandated EV1 from the 1990s seemed popular with its ?owners? who did not want to give it up at the end of their leases.

Finally, given how low American motor fuel taxes are compared to other highly motorized countries, Jones makes the case that a fuel surtax is the single best step we could take now. A 50 cent per gallon surcharge would barely bring U.S. gas taxes up to Canada?s level. But it would trigger a ?cascade? of incremental, positive adjustments: people would buy more fuel efficient cars, manufacturers would produce more of them; more expensive gas would encourage more people to ride transit, and also provide more money to make transit more attractive. Jones admits that the surtax is ?not an easy sale,? which is putting it mildly.

Jones has given us an excellent and insightful guide to the achievements and mistakes of twentieth century mobility policy. Looking forward, he is both appropriately modest in recognizing that historians can not predict the future and appropriately urgent in pointing out the serious policy problems we must solve to preserve the American system of mass motorization.

James A. Dunn, Jr. is Professor of Political Science at Rutgers University ? Camden. He is the author of Driving Forces: The Automobile, Its Enemies, and the Politics of Mobility (Brookings Institution Press, 1998), and co-author, with Anthony Perl, of ?Reframing Automobile Fuel Economy Policy in North America: The Politics of Punctuating a Policy Equilibrium? Transport Reviews 27, no.1 (January 2007), 1-35. His email address is jadunn@camden.rutgers.edu.

Subject(s):Urban and Regional History
Geographic Area(s):North America
Time Period(s):20th Century: WWII and post-WWII

Planting a Capitalist South: Masters, Merchants, and Manufacturers in the Southern Interior, 1790-1860

Author(s):Downey, Tom
Reviewer(s):Peskin, Lawrence A.

Published by EH.NET (January 2007)

Tom Downey, Planting a Capitalist South: Masters, Merchants, and Manufacturers in the Southern Interior, 1790-1860. Baton Rouge: Louisiana State University Press, 2006. xiii + 262 pp. $50 (cloth), ISBN: 0-8071-3107-5.

Reviewed for EH.NET by Lawrence A. Peskin, Department of History, Morgan State University.

Let us now praise town studies. They proliferated in the days before literary criticism and post-modernism, when positivism and progress still held sway. Modest, and implicitly collaborative, they generally eschewed broad theoretical statements in favor of intensive archival research. When well designed they offered a powerful way to address larger historical debates and to advance knowledge one step at a time.

Tom Downey’s history of South Carolina’s upcountry Edgefield and Barnwell districts is a fine town study. Deeply rooted in local archives, it also makes good use of the widely scattered papers of area capitalists and planters and of the R.G. Dun and Company credit reports. Furthermore, it focuses on a particularly important and vexing question: the extent and nature of capitalism in the antebellum South.

Downey, an assistant editor of the Thomas Jefferson Papers, views this hoary question through the lens of the recent debate over the extent of the market revolution in the North rather than revisiting the older Genovese-Oakes debate over planter mentalit?. This approach dictates a focus on economic development and political-economy, and consequently Downey’s concerns tend more toward words than hard numbers.

The first chapter offers a broad view of the economic bases of Edgefield and Barnwell. Downey demonstrates the relative successes of tobacco and cotton culture in ostensibly unpromising, sandy soil. By 1860, Edgefield and Barnwell respectively ranked first and second in gross cotton production among South Carolina districts. Edgefield’s and Barnwell’s agricultural prosperity suggests that, far from an alternative to agriculture, relatively extensive mercantile and manufacturing development might exist quite comfortably in plantation country.

In subsequent chapters, Downey convincingly demonstrates the parallels to the northern Market Revolution. Despite the Jeffersonian rhetoric of economic independence and the yeoman farmer, commercial enterprises such as sawmills played a role in Edgefield and Barnwell from the American Revolution on. Moreover, just as in the North, local government provided support for entrepreneurs with the construction of roads and other internal improvements. As an upcountry merchant class grew and expanded, it developed a taste for what other historians have termed “state mercantilism” — utilization of South Carolina’s resources to assist the state’s commercial interests, particularly in competition with their rivals across the Savannah River in Georgia. Most notably, the state underwrote the new commercial town of Hamburg, conceived in 1821and hyped as a means of bypassing the merchants of Augusta, Georgia, who received most of Edgefield and Barnwell’s cotton shipments.

As in the North, this market revolution was further facilitated by new railroads and factories. They arrived in the guise of the South Carolina Canal and Railroad Company and William Gregg’s factories, all of which received important incentives from the state. By 1849, Gregg’s Graniteville factory produced more than a quarter million dollars worth of cotton textiles annually. Soon the region also welcomed new banks and even new towns, again with state incentives.

Still, Edgefield and Barnwell were hardly late blooming imitations of northern towns. They remained vociferously pro-slavery throughout the antebellum period. Far from seeing slavery and northern-style market capitalism as incompatible, pro-manufacturing leaders from the region promoted paternalistic factory villages as a way to provide income and teach “habits of industry” to poor white laborers who might otherwise become discontented (p. 133). Even the area’s most famous planter, James Henry Hammond, held out hope that under the proper circumstances planters and manufacturers might “mutually enrich and strengthen one another” (p. 122). However, such a harmony of interests was tricky to maintain. Downey suggests that with the rise of large capitalists and corporations, the state began supporting corporate projects at the expense of the old single proprietor mills, most notably in its riparian laws. Furthermore, the old emphasis on the public good, which was always implicit within the commonwealth rhetoric of state mercantilism, faded away as large corporations such as the railroads began to focus on more profitable intra-state projects.

Downey shows that by the time of the Civil War, a new class of capitalists had arisen and begun to transform Edgefield and Barnwell’s economies. The transformation was far from complete, but, as Downey concludes, the agrarian landscape was “in transition from being a society with capitalist features toward becoming a capitalist society” (p. 227). This formulation cleverly mirrors Ira Berlin’s evaluation of the antebellum North as a society with slaves rather than a slave society.

It is here that some of the limitations of the town study become apparent. Clearly it is an open question as to how far Downey can generalize based on these two admittedly unusual districts. One can only hope that other studies will come along to add more bricks to the edifice that he has so capably begun.

Beyond issues of representativeness, Downey leaves the reader yearning for more analysis of the broader significance of the story of Edgefield and Barnwell. Is this a study, as the author occasionally implies, that seeks to complicate the commonly accepted North/South dichotomies of capitalism/pre-capitalism, industry/agriculture, intensive versus extensive development and so forth? If so, it also, perhaps inadvertently, reveals the great gulf between North and South. One fascinating example is the famous Hayne-Webster debate of 1830 which was prompted in part by Hayne’s refusal to support openly a petition by the South Carolina Canal and Railroad Company for federal assistance in its efforts to construct the Hamburg railroad, presumably due to southern fears of federal interference in slavery. This incident prompted Daniel Webster’s once immortal speech, which culminated in his declaration, “Liberty and union, now and forever, one and inseparable.”

For northern Whigs like Webster, federal assistance, the tariff, internal improvements and banking all fit together neatly to create an American System. But clearly for antebellum South Carolinians like Hayne, no matter how interested in Whiggish issues of capitalist development, the problem of slavery trumped all other concerns. One wishes Downey had dug a bit deeper into the politics of political economy here to offer more insight into the Whigs’ failures in South Carolina. Unfortunately, Downey seems to be unaware of Joseph Persky’s excellent study of southern economic thought, The Burden of Dependency (Johns Hopkins University Press, 1992) which might have provided more of an analytical framework to address the contradictions between free-trade and mercantilism, agrarianism and economic development, and anti-capitalism and pro-capitalism that frequently and seemingly improbably coexisted within the thought of southern promoters and political economists and which certainly differentiated them from their northern counterparts.

Lawrence A. Peskin is Associate Professor of History at Morgan State University in Baltimore and author of Manufacturing Revolution: The Intellectual Origins of Early American Industry (Johns Hopkins University Press, 2003).

Subject(s):Social and Cultural History, including Race, Ethnicity and Gender
Geographic Area(s):North America
Time Period(s):19th Century

Manpower in Economic Growth: The American Record since 1800

Author(s):Lebergott, Stanley
Reviewer(s):Margo, Robert A.

Classic Reviews in Economic History

Stanley Lebergott, Manpower in Economic Growth: The American Record since 1800. New York: McGraw-Hill, 1964. xii + 561 pp.

Review Essay by Robert A. Margo, Department of Economics, Boston University.

Manpower after Forty Years

During the first half of the twentieth century classical musicians routinely incorporated their personalities into their performances. One recognizes immediately Schnabel in Beethoven, Fisher in Bach, Cortot in Chopin, or Segovia in just about anything written for guitar. As the century progressed performance practice evolved to where the “text” — the music — became paramount. The ideal was to reveal the composer’s intent rather than putting one’s own stamp on the notes — the performer as conduit per se rather than co-composer.

Personal style played a major role in the early years of the cliometrics revolution. Hand a cliometrician an unpublished essay by Robert Fogel or Stanley Engerman, and I am quite sure she could identify the author after reading the first couple of paragraphs (if not the first couple of sentences). No one can possibly mistake a book by Doug North for a book by Peter Temin or an essay by Paul David for one by Lance Davis or Jeffrey Williamson. To some extent this is because personal style mattered at the time in economics generally — think Milton Friedman or Robert Solow. But mostly it mattered, I think, because these cliometricians were on a mission. Men and women on a mission put their personalities up front, because they are trying to shake up the status quo.

So it is with Stanley Lebergott. Indeed, of all the personalities who figured in the transformation of economic history from a sub-field of economics (I am tempted to write “intellectual backwater”) that eschewed advances in economic theory and econometrics to one that embraced them (I am tempted to write “for better and for worse”), Lebergott’s style was perhaps the most personal. In re-reading Lebergott’s most famous book — his Manpower in Economic Growth: The American Record since 1800 (1964) — one sees that style front and center on nearly every page, as well as the conflicting emotions as its author tried, not always successfully, to marry the anecdotal and archival snippets beloved by historians with the methods of economics. Manpower was (and is) substantively important for two reasons. First, prior to Manpower, the “economic history of labor” meant unions and labor legislation. By contrast, Lebergott made the labor market — the demand and supply of labor — his central focus and in doing so elevated markets and market forces to a central tendency in the writing of economic history. Second, Lebergott produced absolutely fundamental data — estimates of the labor force, industrial composition, unemployment, real wages, self-employment, and the like — that economic historians have relied on (or embellished) ever since.

These two accomplishments aside, I emphasize style not because, in Manpower‘s case, it is light years from the average article that I accept for publication in Explorations in Economic History. Economic history, like all economics, is vastly more technical than it was in the early 1960s. Burrowing into the style of Manpower reveals an author transfixed with what he perceived to be the grandness of the American experiment, the transformation of a second-rate colony into the greatest economy the world had yet seen. The core of Manpower would always be its 33 appendix tables and 252 (!) pages of accompanying explanatory text lovingly produced and so relentlessly documented as to drive any reader to distraction (or tears). So much the line in the sand, daring — indeed, taunting — the reader to do better. Lebergott knew that, in principle, one could do better, because he did not have ready access to all the relevant archival materials. I would conjecture, however, that he would always be surprised if anyone did, in fact, do better. Tom Weiss, himself one of the great compilers of American economic statistics, spent several years redoing Lebergott’s labor force estimates using census micro data rather than the published volumes that Lebergott relied on (Weiss 1986). In commenting on Weiss’s work, Lebergott (1986) characterized the differences between his original figures and the revisions as “very small beer” and then took Weiss to task for failing (in Lebergott’s) view to fully justify the revisions. “One awaits with interest,” he concluded, “further work by the National Bureau of Economic Research project of which this is a part.” When Georgia Villaflor and I (Margo and Villaflor 1987) produced a series of real wage estimates for the antebellum period drawing on archival sources that Lebergott did not use, I received a polite letter congratulating me but requesting more details and admonishing me to think harder about certain estimates that Lebergott felt did not mesh fully with his priors. There are thousands of numbers in those 33 appendix tables and one’s sense is that each number received the undivided attention of its creator for many, many, many hours.

But numbers do not a narrative make. Chapter One, “The Matrix,” has little in common with the archetypal introduction that gives the reader a roadmap and a flavor of the findings. It begins rather with an 1802 quote from “The Reverend Stanley Griswold” about the frontier that lay before the good minister. “This good land, which stretches around us to such a vast extent … large like the munificence of heaven … [s]uch a noble present never before was given to any people.” (Reviewer’s note: any people? Which people?) The first sentence goes on to describe an incongruous scene from Kentucky in 1832, “a petit bon homme” and his wife and their “little pile of trunks” sitting in a restaurant in the middle of (literally) nowhere. We then learn of a “great theme” of American history, that which motivated those who wrested the land from the “wilderness” — a belief in an open society, of which there were three elements. First, “hope” — an unabashed belief that things will always get better, and were better in America than in Europe. Second, “ignorance” — Americans were always willing to try something new, no matter how crazy. Third, America had a huge amount of space for people to spread out in. OK, the reader says, but where’s the economics? Ca. page 13 Lebergott emphasizes that the three elements made Americans unusually restless people, willing to move all the time. Ordinarily, Lebergott opines, it is the smaller (geographically-speaking) countries that have higher labor productivity because, ordinarily, people do not like to move. But Americans liked to move, he claims, and they did so on the slightest provocation. Excessive optimism, misinformation, and folly are core attributes of the American spirit and key factors in the American success story. In the end, the errors didn’t matter anyway (“small beer” indeed) because the land was so rich. More people moved to California in 1850 than could be rationally justified by the expected returns to gold mining but, as a result, California entered the aggregate production function sooner than otherwise. Labor mobility per se was a Good Thing, and American had it in abundance.

Chapter Two asks where all the workers would come from. Lebergott notes that certain labor supplies were highly predictable — slaves, for example. But once the slave trade was abolished the supply of slave labor grew at whatever the natural rate of increase. If the riches of America were to be tapped, free labor would have to be found — all the more difficult if the required number of workers to be assembled in any given spot was very large.

Another element of the Lebergott style is a dry wit, as evidenced in his exchange with Weiss. In a section on “[t]he Labor Force: Definition” we are told that ‘[t]he baby has contributed more to the gaiety of nations than have all the nightclub comics in history. We include the comic in the labor force … as we include [his] wages in the national income but set no value on the endearing talents provided by the baby.” In discussing the then-fashionable notion that the aggregate labor force participation rate (like other Great Ratios) was “invariant to economic conditions” Lebergott notes that small changes can nevertheless have great import. “The United States Calvary,” he observes, “was sent to the State of Utah because of the difference between 1.0 wives per husband and a slightly greater number.” The remainder of the chapter considers segments of the labor force whose labor was, indeed, “responsive to economic conditions” — European immigrants, internal migrants, (some) women and children as well as the impact of social and political factors on labor supply; it demonstrates the extraordinary flexibility of the American labor force and its responsiveness to incentives. While this conclusion would not surprise anyone today it was, I think, quite revolutionary at the time. It is as good an example of any I know of the power of historical thinking to debunk conventional wisdom derived from today’s numbers.

By now the reader is accustomed to Lebergott’s modus operandi — the opening paragraph that sometimes seems to be beside the point but really isn’t; quotations in the text from travelogues, diaries, plays, literature and what-not; obscure (to say the least) references in the footnotes; all interspersed with economic reasoning that has more than a tinge of what would be called today “behavioral” economics. In Chapter Three Lebergott talks about the “process” of labor mobility, which is really one extended probing into the relationship between mobility of various sorts and wage differentials. We get to see some univariate regression lines, superimposed in scatter-plots of decade-by-decade changes in the labor force at, say, the state level, against initial wage rates. Generally, labor flows were directed at states with higher initial wage rates, although Lebergott is quick to assert that “[m]igrants suboptimized” because the cross-state pattern was far less apparent at the level of regions. Next, Lebergott takes on the notion that economic development is an inexorable process of labor shifting out of agriculture. The American case, Lebergott claimed, challenges this notion. American workers shifted out of agriculture when the economic incentives were right; that is, when the value of the marginal product of labor was higher outside of agriculture.

The remainder of Chapter 3 is divided into two brief sections, both of which contain some of the most interesting writing in the book. In “Social Mobility and the Division of Labor,” Lebergott examines the relationship between occupational specialization and growth. In the nineteenth century most workers possessed a myriad of skills, farmers especially. They were jacks of all trades, masters of none. Lebergott speculates that this was a good thing because the master of none was more inclined to try something new, rather than assume he was, well, the master and therefore knew everything. If some fraction of novel techniques were successful, this could (under strong assumptions) lead to a higher rate of technical progress. “Origins of the Factory System” considers the problem posed earlier in the book of assembling large numbers of workers at a given location. Rather than pay higher wages, manufacturers turned to an under-utilized source of labor, women and children. Some years later, the ideas presented in this section would develop in full bloom in a celebrated article by Claudia Goldin and Kenneth Sokoloff (Goldin and Sokoloff 1982) on the role of female and child labor in early industrialization.

At 89 pages, Chapter Four, “Some Consequences,” is the longest chapter in the book. The first few pages, highly influential, are given to the formation of a national labor market, revealed by changes over time in the coefficient of variation of wages across locations. We are then given an extended tour of the history of American real wages, back and forth between the relevant tables in the appendix, quotations from contemporaries and other anecdotal evidence. The “Determinants of Real Wage Trends” comes next. The first, productivity, is no surprise. The second, “Slavery,” isn’t really either, but here Lebergott’s contrarian instincts, I think, get the better of him. Lebergott would have the reader believe that, first, free and slave labor were close to perfect substitutes; and, second, slave rental rates contained a premium above what the slave would have commanded in a free labor market. Consequently, when slavery ended, wages fell and there was downward pressure on real wage growth for a time. No question that wages fell in the South after the Civil War but Lebergott’s analysis is incomplete at best. Slave labor was highly productive before the Civil War because of the gang system, and when the gang system ended, the demand for labor fell in the South. Because labor supplies were not perfectly elastic, wages fell too. “Immigration,” the third purported influence, had negative short run effects on wages but positive long run effects via productivity growth.

What follows next is a 25-page section that years later produced two high-profile controversies in macroeconomics. This is the (celebrated) section where Lebergott presents his long-term estimates of unemployment. In thinking today about his work, we would do well to remember that, at the time he prepared his estimates, the United States had only a relatively brief experience with the direct and regular measurement of unemployment, courtesy of the 1940 Census and the subsequent Current Population Survey (CPS). (By “direct” I mean answers to questions about a worker’s time allocation during a specific period of time — if you did not have a job during the survey week, were you looking for one?)

Like all the estimates in the book, Lebergott’s unemployment figures were the product of detailed, painstaking work that, inevitably, required strong assumptions. The fundamental problem was that, if one wanted annual estimates of unemployment, there was no way to obtain these directly from survey evidence prior to the CPS. For some benchmark dates one could produce tolerable direct estimates from the federal census, but the federal census was useless if one wanted to generate an estimate, say, for 1893 or, for that matter, 1933.

Lebergott’s solution was to rely on an identity. By definition, the labor force was the sum of employed and unemployed workers. One might not know the number of unemployed workers but perhaps one could extrapolate between benchmark dates the number of workers in the labor force and employment, one could estimate unemployment levels via subtraction.

The first high profile controversy involved Lebergott’s estimates for the 1930s, which included in the count of unemployed workers persons on work relief. After 1933 there were many such workers, and so, by historical standards, unemployment looks, of course, rather high. This generated a lot of theoretical work for macroeconomists who thought they had to explain how unemployment rates could remain above 10 percent while real wages were rising (after 1933).

Michael Darby (1976) suggested that this effort was misplaced because Lebergott “should” have included the persons on work relief in the count of employed workers. Darby showed that doing so made the recovery after 1933 look much more normal. I’ve written a few papers on this issue, and my view is somewhere in-between Darby and Lebergott (Margo 1991; Finegan and Margo 1994; see also Kesselman and Savin 1978). Ideally, in constructing labor force statistics we should be consistent over time, so if persons on work relief were “employed” in the 1930s we should consider adding, say, “workfare” recipients to the labor force (or, possibly, prisoners making license plates) today, but this ideal may not be achievable in practice. The real issue with New Deal work relief is not the resolution of a crusty debate between competing macroeconomic theories but whether the program affected individual behavior. Here I think the answer is a resounding yes — unemployed individuals in the 1930s did respond to incentives built into New Deal policies. Wives were far more likely to be “added workers” if their unemployed spouses had no work whatsoever, than if the spouse held a work relief job, so much so that, in the aggregate, the added work effect disappeared entirely in the late 1930s, because so many unemployed men were on work relief.

The second high-profile debate involved Christina Romer’s important work on the long-term properties of the American business cycle. Prior to her work it was (and in some quarters still is) a “stylized fact” that the business cycle today is less volatile than it was in the past. Lebergott’s original unemployment series combined with standard post-war series were often used to buttress claims that the macroeconomy become much more stable over time. Statistical measures of volatility estimated from the combined series clearly suggest this, whether volatility is measured by the average “distance” (in percentage points) between peaks and troughs or standard deviations.

Romer (1986) argued that, to a large degree, this apparent decline in volatility was a figment of the way the original data were constructed. In particular, in constructing his annual series, Lebergott assumed (among other things) that deviations in employment followed one-for-one deviations in output. Romer invoked Okun’s law, arguing that the true relationship was more like 1:3. Constructing post-war series by replicating (as close as possible) Lebergott’s procedures produced a new series that was not less volatile than the pre-war series, thereby contradicting the stylized fact that the macroeconomy became more stable over time. This was, needless to say, a controversial conclusion, with many subsequently weighing in. Now that the dust is settled, my own view — a view I think that many share, although I could be wrong — is that there is definitely something to Romer’s argument; at the very least, she demonstrated (as she claimed in her original article) that before one draws conclusions from historical time series, one should be very familiar with how the series are constructed. Chapter Four ends with another of Lebergott’s meditations on the alleged constancy of aggregate parameters — in this case, factor shares.

Chapter Five (“Some Inferences”) concludes the narrative portion of the book. It repeats the book’s earlier mantra that “Yankee ingenuity” and initiative, especially that embodied in immigrants, were central to American success as opposed, say, to “factor endowments.” It ruminates on how highly mobile labor influenced the choice of technique, in ways familiar to the first generation of cliometricians, especially those who found H.J. Habakkuk a source of (repeated) inspiration. It notes how “thickening markets” made finding continuous work easier over time, reducing the wage premium associated with unemployment risk. Today’s economic historians, infatuated with “institutions” v. “geography” would probably disagree with the emphases in the chapter but I think there is much to admire in Lebergott’s “inferences.”

Some economic historians make their mark as much through their graduate students as their writings. Lebergott spent his academic career in a liberal arts college and did not, therefore, directly produce graduate students like a William Parker, Robert Fogel or (more recently) Joel Mokyr. In certain ways he was an outsider to economic history, an economist with a vast and deep appreciation for history in all of its flavors, who saw the past for what it can say about the present, not as an end in itself like a more “traditional” historian would. Compared with other classic works of cliometrics such as Fogel’s Railroads and American Economic Growth or North and Thomas’s The Rise of the Western World, Manpower‘s quirkiness can be a frustrating, more suitable for dabbling than a sustained read. By today’s standards the book falls short in its treatment of racial and ethnic differences (gender is more balanced) although this would hardly distinguish it from most other work in economics and economic history at the time. Yet Lebergott’s influence on economic history has been profound. There are few activities that economic historians can engage in of greater consequence than reconstructing the hard numbers. In this line of work Lebergott had few peers. Manpower put the labor force — people — at the center of economic history, not the bloodless “agents” of economic models but real people. As if to underscore this, the style asserts, like a triple fff in music: a real person not a (bloodless) “social scientist” wrote this book, one in deep and abiding awe of the economic accomplishment of his forbearers.

References:

Darby, Michael. 1976. “Three and a Half Million US Employees Have Been Mislaid: Or, An Explanation of Unemployment, 1934-1941,” Journal of Political Economy 84 (February): 1-16.

Finegan, T. Aldrich and Robert A. Margo. 1994. “Work Relief and the Labor Force Participation of Married Women in 1940,” Journal of Economic History 54 (March): 64-84.

Goldin, Claudia and Kenneth Sokoloff. 1982. “Women, Children, and Industrialization in the Early Republic: Evidence from the Manufacturing Censuses,” Journal of Economic History 42 (December): 741-774.

Kesselman, Jonathan R. and N. E. Savin. 1978. “Three and a Half Million Workers Were Never Lost,” Economic Inquiry 16 (April): 186-191.

Lebergott, Stanley. 1964. Manpower in Economic Growth: The American Record since 1800. New York: McGraw-Hill.

Lebergott, Stanley. 1986. “Comment,” in Stanley Engerman and Robert Gallman, eds., Long Term Factors in American Economic Growth, pp. 671-673. Chicago: University of Chicago Press.

Margo, Robert A. 1991 “The Microeconomics of Depression Unemployment,” Journal of Economic History 51 (June): 333-341.

Margo, Robert A. and Georgia Villaflor. 1987. “The Growth of Wages in Antebellum America: New Evidence,” Journal of Economic History 47 (December): 873-895.

Romer, Christina. 1986. “Spurious Volatility in Historical Unemployment Data,” Journal of Political Economy 94 (February): 1-37.

Weiss, Thomas. 1986. “Revised Estimates of the United States Workforce, 1880-1860,” in Stanley Engerman and Robert Gallman, eds., Long Term Factors in American Economic Growth, pp.641-671. Chicago: University of Chicago Press.

Robert A. Margo is Professor of Economics and African-American Studies, Boston University, and Research Associate, National Bureau of Economic Research. He is also the editor of Explorations in Economic History.

Subject(s):Labor and Employment History
Geographic Area(s):North America
Time Period(s):20th Century: WWII and post-WWII