A Great Leap Forward: 1930s Depression and U.S. Economic Growth

Published by EH.NET (December 2011)

Alexander J. Field, A Great Leap Forward: 1930s Depression and U.S. Economic Growth. New Haven, CT: Yale University Press, 2011.? ix + 387 pp. $45 (hardcover), ISBN: 978-0-300-15109-1.

Reviewed for EH.Net by Paul Rhode, Department of Economics, University of Michigan.

Sometimes if you look at a familiar object in a slightly different way, it takes on an entirely new appearance.? Many examples of the phenomenon are offered by Alexander Field?s path-breaking book, A Great Leap Forward, which re-examines the history of productivity growth in the United States.? In his leading example, Field observes that if one uses 1941 as a breakpoint, instead of the more conventional year 1937, then the rate of total factor productivity (TFP) growth of the private non-farm economy (PNE) during the Great Depression period is the fastest of any period on record.? The core facts are simple — hours of labor in the PNE were roughly the same in 1941 as in 1929 and the capital stock was slightly smaller, yet output was 33 to 40 percent higher.? Labor productivity and total factor productivity grew rapidly despite high unemployment and weak income growth.? Indeed, the rates of productivity growth exceeded those in the 1920s or in the so-called Golden Age (1948-1973).

Field argues that growth of TFP in the 1930s was broadly based and not narrowly concentrated in manufacturing, as in the 1920s.? It was not due to changes in labor quality (pp. 36-40).? In annual data for the 1930s (as in the surrounding periods), TFP growth was pro-cyclical, rising as the unemployment rate fell (see chapter 7).? In addition, 1941 was chosen as a benchmark because it is the closest thing to a pre-war economic peak for use in comparison with 1929.? Field locates the sources of the 1930s productivity advance in the maturation of the private R&D system and the expansion of the surface road system.? Chapter 2 ends with a highly readable narrative of how the improvement of America?s roads in the 1920s and 1930s allowed commercial trucking to become a complement to the nation?s long-haul railroads, raising the productivity of the transportation and distribution sectors. He further shows that even if the public investments in the transportation system are included in the capital stock in the productivity calculations, the decade?s record TFP performance in the PNE sector still holds (pp. 62-65).

Field?s discovery that the long 1930s (1929-1941) were ?the most technologically progressive decade? in U.S. history raises questions about many other interpretations, including the roles of World War II advances and ?catching up? growth in the postwar period, the importance of General Purpose Technologies (GPT), and the protean qualities some assign to investment in capital equipment as opposed to structures. In the 1930s, none of the technologies singled out in the recent literature on GPTs was especially prominent.? And while the stock of capital equipment did increase on net (unlike that of structures), its growth was slow.? Drawing on these lessons from the 1930s, Field develops extended critiques in Chapters 8 and 9 respectively, of the validity of the De Long-Summers equipment hypothesis and the value of the GPT concept.? It might have been possible to shine similar light on the literature on intellectual property rights — patenting activity slumped in the 1930s in contrast to Field?s findings on TFP.?

In his main analysis, Field focuses on the private non-farm economy, which excludes the government sector, agriculture, and in many if not all cases, the implicit rental services flowing from owner-occupied housing.? This treatment of the agricultural sector is, from this reviewer?s perspective, unfortunate.? The sector was large, representing about one-tenth of national income and one-fifth of the labor force in 1929.? Statistics about its performance are readily available.? The 1930s were known as the beginning of the biological revolution in U.S. farming, as highlighted by the rapid adoption of hybrid corn.? So at first blush, adding agriculture should support his story.? But the decade?s low rate of reallocation of labor out of the farm jobs into more productive employment elsewhere would tend to work the other way.

At times, Field extends his analysis within and beyond the PNE sector.? The impact of shifting benchmark dates is evaluated. These shifts require making statistical adjustments and refinements to the existing series, which are explained with great care.? Field?s clear writing style allows the interested reader to follow the calculations in detail.? One consequence of these efforts to place the 1930s experience into context is that Field re-examines the nineteenth century record of productivity growth.? The standard account, offered by Moses Abramovitz and Paul David, is that rapid TFP growth was a twentieth-century phenomenon.? While Abramovitz and David report TFP grew only 0.5 percent per annum over the 1855-1905 period, Field uncovers a more impressive growth record over the 1871-1892 subperiod, one fitting Alfred Chandler?s well-known account of the rise of modern business enterprise and Vaclav Smil?s recent narrative of the diverse stream of great innovations of the Second Industrial Revolution.? In Field?s retelling of the U.S. economic history, periods of war — including the Civil War, World War I, and World War II — exhibit the weakest performances.

The final section of A Great Leap Forward draws on the lessons of the Great Depression to consider the causes and consequences of the Great Slump of today.? The chapters compare the sources of financial fragility in the 2007-2009 period with those of 1927-1933 and then trace the course of investment by type of capital over the interwar period, and contrast the uncontrolled land development of the 1920s and its overhang in the 1930s with the real estate boom and bust of the 2000s.? The section finally turns to timely question: do economic downturns have silver linings? Field shows during the 1930s, economic adversity shocked the railroad sector into making productivity-enhancing adjustments.? But such cases are hard to come by and Field is not optimistic that bad times ?pave the way to a better tomorrow? (p. 311).

The ?new growth narrative? offered in A Great Leap Forward allows readers to see the familiar in a different way.? It promises to become the standard, stimulating the next wave of reassessments of the American productivity record.

Paul Rhode is the author (with Alan L. Olmstead) of Creating Abundance: Biological Innovation and American Agricultural Development (Cambridge University Press, 2008).

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