In the globalizing international economy of the late nineteenth century, the United States developed into the world's leading manufacturing power by the First World War. This development was somewhat paradoxical since a notable effect of the transportation improvements that underlay globalization was effectively to increase America's relative resource abundance, which simple trade theory would predict would increase specialization on raw material exports. At the same time, however, transportation improvements created a continental economy. The resource abundance and the continental scope of America, combined with a protective tariff on manufactured imports, in turn shaped American technological development. By the twentieth century it was apparent that the special conditions of America had led American firms to develop new and exceptionally productive technologies. In this process, Americans developed mass production factories and the managerial firm which dominate advanced manufacturing through the twentieth century. Globalization also dominated monetary economics, the principal feature of macroeconomics until the end of our period. Before the First World War, money essentially meant the gold standard, although the first years of our period involved America's return to gold after the inflationary greenback financing of the Civil War. The First World War, with its accompanying explosion of government debt and inflation, severely disrupted the international gold standard, although the effect on America appeared to be small. However, the currently prevailing view of the Great Depression attributes it primarily to monetary contraction. In the view of many blame for this contractions lies with the gold standard.

Topic 1: The Industrial Tariff, Political Economy and American Industrialization

It is tempting to equate economic growth with industrialization. Through most of its history the United States protected manufactured goods with a high tariff. The industries that grew up in America, particularly cotton textiles and iron, were heavily protected. During the antebellum period this had strong regional effects, benefiting the North and hurting the South.

1. Peter Temin, "Free Land and Federalism: A Synoptic View of American Economic History", Journal of Interdisciplinary History, 21 (Winter 1991). [In readings for Topic 1].
   
   Analysis of the issue is complicated, however, by America's strong position in the international cotton market that conveyed market power and makes it necessary to consider optimal tariff issues. That is that the tariff will decrease American demand for imports and thus the supply of cotton in the process forcing up the price of cotton on world markets. I have written on this topic:
2. C. Knick Harley, "The antebellum American tariff: food exports and manufacturing", EEcH 29 (Oct. 1992).
   
   The results of these simulations depend on elasticities that can only be guessed at from industry studies that present rather mixed conclusion:
3. C. Knick Harley, "Competitiveness of the antebellum American cotton textile industry", JEcH. 52 (Sept. 1992).
4. Douglas Irwin and Peter Temin, "The antebellum tariff and cotton textiles revisited" and Harley "The antebellum tariff" JEcH 61 (June 2002), pp. 777-805.
   
   Earlier work suggested that the tariff had little role in the growth of cotton output:
5. R. B. Zevin, "The Growth of Cotton Production after 1815", in R. Fogel and S. Engerman, eds., The Reinterpretation of American Economic History
   
   A leading study of the international iron industry indicates that the United States was a high cost producer and the tariff seems to have been necessary for the industry's profitability:
6. R. Allen, "International Competition in Iron and Steel, 1850-1913", JEcH 39:4 (Dec. 1979).
   
   Finally, it is useful to examine an attempt to explain the political process of tariff creation in:
7. J. J. Pincus, "Pressure Groups and the Pattern of Tariffs", JPE 83:4 (Aug. 1975).

Topic 2: American Technology and Mass Production: Superiority to Britain?

The Americans developed precocity in certain industries that evolved modern mass production technology. Many twentieth century manufacturing processes involved mass production using special process machines, unskilled labour and standardized products - the assembly line. This type of manufacturing first became common in America in the nineteenth century despite Britain's economic leadership at the time. American mass production began at Government armouries and spread to other metal working industries and culminated in Ford's moving assembly line.

Why did mass production technology develop initially in America? A classic view of (the HabaKkuk/Rothbarth hypothesis) postulated that high wages led Americans to adopt more capital intensive methods of production. This choice led to a path of learning by doing and American engineering leadership.

1. E. Rothbarth (1946) "Causes of the Superior Efficiency of U.S.A. Industry Compared with British Industry", Economic Journal 56, 383-90.
2. J. H. Habakkuk (1962) American and British technology in the nineteenth century: the search for labour-saving inventions.
   
   However, Peter Temin pointed out a logical problem when the issues is approached in economists' terms. Spend some time understanding the economic logic of this paper. It should serve as a focus for our discussion:
3. Peter Temin, "Labour Scarcity and the Problem of American Industrial Efficiency in the 1850's", JEcH 26 (Sept. 1966).
   
   An argument that the history is more complex than Temin's simple model followed:
4. Edward Ames and Nathan Rosenberg, "The Enfield Arsenal in Theory and History", Economic Journal 78 (Dec. 1968).
5. John James and Jonathan Skinner (1985), "The resolution of the labor scarcity paradox", JECH 45: 513-40.
   
   As this literature makes clear, the economics of the choice of techniques is not trivial. The America's resource abundance certainly contributed to in its industrial success:
6. Gavin Wright, "The Origins of American Industrial Success", AER 80 (Sept. 1990).
   
   With this theoretical framework, it is useful to explore the history of American technology a bit more closely:
7. Nathan Rosenberg, Exploring the Black Box, cf. Ch. 6 "Why in America".
8. David A. Hounshell, From the American System to Mass Production, 1800-1932.
   
   Finally, some of my work has been on this subject and I cannot resist adding:
9. C. Knick Harley, "Skilled Labor and the Choice of Technique in Edwardian Britain", EEcH 11:4 (Summer 1974).
10. C. Knick Harley, "Substitution for prerequisites: endogenous institutions and comparative economic history", in R. Sylla and G. Toniolo, eds., Patterns of European Industrialization.
    
    Many of the themes are further explored in
11. S.N. Broadberry (1997), The productivity race: British manufacturing in international perspective, 1850-1990.

Topic 3: The rise of big business in America and the management revolution

The rise of big business went along with mass production in America's move to international manufacturing leadership. A recent summary of the rise of large corporations is:

1. Louis Galambos, "The U.S. Corporate Economy in the Twentieth Century", in S. Engerman and R. Gallman, eds., The Cambridge Economic History of the United States: Vol. III The Twentieth Century, pp. 927-47.
   
   The classical discussion of this issue is:
2. Alfred D. Chandler, Jr. (1977), The visible hand: the managerial revolution in American business.
3. Alfred D. Chandler, Jr. (1990), Scale and scope : the dynamics of industrial capitalism.
   
   A short summary is:
4. Alfred Chandler, "The United States: Seedbed of Managerial Capitalism", in A. Chandler and H. Daems, eds., Managerial Hierarchies: Comparative Perspectives on the Rise of the Modern Industrial Enterprise, pp. 9-40.
   
   A view of the emergence of big business somewhat at variance with Chandler's that stresses exploitation of market power is:
5. Naomi Lamoreaux, The great merger movement in American business, 1895-1904, cf. Ch. 1 "Introduction" and Ch. 5 "What changed?"
   
   Automobiles are often seen as the archetypical twentieth century big business. The economics of the rise of the large automobile firms is discussed in:
6. Richard Langlois and Paul Robertson, "Explaining Vertical Integration: Lessons from the American Automobile Industry," JEcH 49 (June 1989).

Topic 4: Labour markets and mass production

Reorganization of labour markets accompanied mass production and the large firm. Gavin Wright provides a valuable introduction in

1. Gavin Wright, "Labor History and Labor Economics", in A. J. Field, ed., The Future of Economic History.
   
   During the nineteenth century, Americans developed and adopted machine oriented production methods. The success of these techniques seems to have required changes in labour management that recall Wright's suggestion that there may have been multiple labour market equilibria. The automobile industry provides the best illustration:
2. Wayne Lewchuk, "Fordist Technology and Britain: The Diffusion of Labour Speed-up", in David Jeremy, ed., The Transfer of International Technology: Europe, Japan and the USA in the Twentieth Century.
3. Lewchuk, Wayne. (1987) American technology and the British vehicle industry
   
   William Lazonick has argued that American management's command of labour and industrial organization supported technological change in the American textile industry that the British industry failed to emulate:
4. William Lazonick (1981), "Production relations, labor productivity and the choice of techniques: British and U.S. cotton spinning", JEcH 41: 491-516.
5. William Lazonick (1983), "Industrial organization and technological change: the decline of the British Cotton Industry", Business History Review 57: 195-236.
   
   This view has been challenged:
6. Gary Saxonhouse and Gavin Wright (1984), "New Evidence on the Stubborn English Mule and the Cotton Industry, 1878-1920", EcHR 37: 507-519.
7. Gary Saxonhouse and Gavin Wright (2003), "The Global Transition from Craft to Semi-Skilled Technology: Mules vs. Rings, 1879-1933". Paper presented at the Economic History Association Conference, Sept.
8. Timothy Leunig (2001) "New answers to old questions: explaining the slow adoption of ring spinning in Lancashire, 1880-1913", JEcH 61: 439-66.
9. Timothy Leunig (2003) "A British industrial success: productivity in the Lancashire and New England cotton spinning industries a century ago", EcHR 56: 90-117.
   
   More generally on labour effort and managerial behaviour see
10. Gregory Clark, "Authority and Efficiency: The Labor Market and the Managerial Revolution in the late Nineteenth Century", JEcH 44 (Dec. 1984).

Topic 5: American Technological Change as a Network Process

New Growth theory has drawn economists' attention beyond exploration of the effects of exogenous technological change to externalities that endogenize technology. Economic historians have explored such topics for some time. An important early work was

1. Paul A. David (1975), Technical choice, innovation and economic growth: essays on American and British experience in the nineteenth century. Particularly chapter 1.
2. Nathan Rosenberg (1963). 'Technological Change in the Machine Tool Industry", JEcH 23, 414-43 explored the role of the machine tool industry in diffusing and refining mass-production technology.
   
   Gavin Wright has made a number of important contributions:
3. Wright, Gavin (1997) "Towards a More Historical Approach to Technological Change", Economic Journal 107, 1560-66.
4. Wright, Gavin (1999) "Can a Nation Learn? American Technology as a Network Phenomenon", in Naomi R. Lamoreaux, Daniel M. G. Raff, and Peter Temin, eds. Learning by doing in markets, firms, and countries. (Chicago: Chicago). 295-326.
5. David, Paul and Gavin Wright (1997) "Increasing Returns and the Genesis of American Resource Abundance", Industrial and Corporate Change 6, 203-45.
   
   Paul David and Moses Abramovitz explored another aspect of interrelatedness in the American growth in a series of articles:
6. Abramovitz, Moses and Paul A. David (1973) "Reinterpreting Economic Growth: Parables and Reality", American Economic Review 63, 428-39.
7. David, Paul A. (1977), "Invention and Accumulation in America's Economic Growth: A Nineteenth Century Parable", in Karl Bruner and Allan H. Meltzer, International Organization, National Policies and Economic Development, 179-227. (Also Supplement to the Journal of Monetary Economics, 3)
8. Abramovitz, Moses and Paul A. David (1996), "Convergence and Deferred Catch-up: Productivity Leadership and the Waning of American Exceptionalism", in Ralph Landau, Timothy Taylor and Gavin Wright, eds., The mosaic of economic growth (Stanford: Stanford), 21-62.
   
   I have recently looked at industrialization in America (and Britain) in the contest of new growth theory in an overview article:
9. Knick Harley (2003) "Growth Theory and Industrial Revolutions in Britain and America", Canadian Journal of Economics 36: 809-831

Topic 6: Money, Domestic and International, before the First World War

American monetary arrangements, which had both domestic and international aspects, have been central to several aspects of American growth and were of central importance in the Great Depression. Somewhat surprisingly monetary arrangements, particularly the issue of the "free" coinage of silver, were central issues in American politics in the late nineteenth century. Examination of the issues provides an insight into the monetary issues.

1. Milton Friedman, "The Crime of 1873", JPE 98 (1990), pp. 1159-94, provides a look at the issues involved in a bimetallic standard and the post Civil War shift to a gold standard. The Civil War inflation required a subsequent deflation to restore the gold standard.
2. James Kindahl, "Economic Factors in Specie Resumption: The United States 1865-1879", in R. Fogel and S. Engerman, eds., The Reinterpretation of American Economic History, pp. 468-79.
   
   An introduction to the political issues surrounding Populism and Free Silver is:
3. Hugh Rockoff, "The 'Wizard of Oz' as a Monetary Allegory", JPE 98 (1990), pp. 739-60.
   
   American monetary politics took place with in an international gold standard system whose importance became clear when it failed in the early 1930s. An introduction is:
4. Barry Eichengreen, Golden Fetters, Chapter 2: "The Classical Gold Standard in Interwar Perspective".
   
   An influential article that emphasized the monetary aspects of the balance of payments under the gold standard is:
5. D. N. McCloskey and R. Zecher, "How the gold standard worked, 1880-1913", in J. Frenkel and H. Johnson, The Monetary Approach to the Balance of Payments.
   
   The Great Depression of the 1930 demonstrated that the monetary system's ability to adjust to shocks was a key to a successful macro-economy. I have a small contribution:
6. C. Knick Harley, "The Classical Gold Standard's Adjustment to Shocks: American Railroads and British Investment in the 1880s", in Jaime Reis, ed., International Monetary Systems in Historical Perspective.
   
   The monetary history of the crisis of 1907 is also worth examining. Here we see how American dealt with a monetary crisis with a temporary suspension of specie payments and the clearinghouses that playing a key role:
7. Gary Gorton, "Clearinghouses and the Origins of Central Banking in the United States", JEcH 45 (June 1985).
8. Milton Friedman and Anna Schwartz, A Monetary History of the United States, 1867-1960, particularly pp. 156-73.
   
   New data and consideration of the behaviour of the American monetary system over the very long run appears in:
9. Lawrence Officer (2002), "The U.S. specie standard, 1792-1932: some monetarist arithmetic, EEcH 39: 113-153,

Topic 7: An Unstable World Economy and the Coming of the Great Depression

The Great Depression in the United States was probably the greatest economic event of this century. We still do not understand it completely although there is now something of a consensus that the gold standard in the context of the post first world war world was a major causal factor. An economic historian's overview of the depression is provided by

1. Jeremy Atack and Peter Passell, A New Economic View of American History, Ch. 21: "The Great Depression: Explaining the Contraction".
   
   The belief that capitalism had failed and new leadership provided the only answer was widespread among liberal thinkers until quite recently. This view well captured in narrative, if not analytical way in:
2. Arthur M. Schlesinger, Jr., The Age of Roosevelt, Vol. 1. The Crisis of the Old Order. All of Part IV, Ch. 19-26 are well worth reading quickly. See particularly Ch. 19-21 and 24-5.
   
   The First World War severely disrupted the international economy of the late Nineteenth century. This disruption is seen by many, particularly European, commentators as a major cause of the Great Depression of the 1930s. A good summary of this view is:
3. Barry Eichengreen, "The origins and nature of the Great Slump revisited", EcHR 45 (May 1992).
4. Barry Eichengreen, Golden Fetters, Chapter 8, "Cracks in the Facade" and Chapter 9, "Crisis and Opportunity".
   
   A similar but somewhat different perspective is provided by:
5. Peter Temin, Lessons from the Great Depression, Lecture 1, "The Spoils of War".

Topic 8: Monetary Failure and the Great Depression

There can be no doubt that the American monetary system performed disastrously in the early 1930s. The failure of the Federal Reserve to act as a lender of last reserve to a fractional reserve monetary system is indicted as the factor that changed a recession into the Great Depression.

1. Milton Friedman and Anna Schwartz, A Monetary History of the United States, 1867-1960, pp. 299-332; 391-9; 407-19. Presenters should read all of Chapter 7, "The Great Contraction".
2. Ben Bernanke, "Non-monetary Effects of the Financial Crisis in the Propagation of the Great Depression", AER 73 (1983), pp. 257-76 discusses channels by which financial crisis effect output.
   
   Peter Temin provided a contradictory view that sees an autonomous shift in the consumption function:
3. Peter Temin (1976), Did monetary forces cause the Great Depression?
4. Peter Temin (1981), "Notes on the Causes of the Great Depression" in K. Brunner, ed., The Great Depression Revisited,108-24.
   
   The 1981 Brunner volume mentioned above provides some valuable interpretation. A balanced but not convinced review of the monetarist position is provided in:
5. Robert J. Gordon and James A. Wilcox (1981) "Monetarist Interpretations of the Great Depression: An Evaluation and Critique", in Karl Brunner, ed., The Great Depression Revisited, 49-99.
   
   Similarly useful discussion from a monetarist point of view are:
6. Allan H. Meltzer (1981) "Comments on 'Monetary Interpretations of the Great Depression' ", in Brunner, Great Depression Revisited, 148-164.
7. Karl Brunner (1981) "Epilogue: Understanding the Great Depression", in Brunner, Great Depression Revisited, 319-58

top of page

Back to advanced papers