Development of the American Economy

March 1, 2014
Claudia Goldin of Harvard University, Organizer

Douglass North, Washington University in St. Louis, and John Wallis, University of Maryland and NBER

Leviathan Denied: Governments, Rules, and Social Dynamics

Robert Margo, Boston University and NBER

Economies of Scale in Nineteenth Century American Manufacturing Revisited: A Solution to the Entrepreneurial Labor Input Problem (NBER Working Paper 19147)

In a famous paper, Kenneth Sokoloff argued that the labor input of entrepreneurs was generally not included in the count of workers in manufacturing establishments in the early censuses of manufacturing. According to Sokoloff, this biased downward econometric estimates of economies of scale if left uncorrected. As a fix Sokoloff proposed a particular "rule of thumb" imputation for the entrepreneurial labor input. Using establishment level manufacturing data from the 1850–80 censuses and textual evidence Margo argues that, contrary to Sokoloff's claim, the census did generally include the labor of entrepreneurs if it was economically relevant to do so, and therefore Sokoloff's imputation is not warranted for these census years. However, he also finds that the census did understate the labor input in small relative to large establishments as Sokoloff asserted, but for a very different reason. The census purported to collect data on the average labor input but in fact the data most likely measure the typical number of workers present. For very small establishments the reported figures on the typical number of workers are biased downward relative to a true average but this is not the case for large establishments. As a result, the early censuses of manufacturing did overstate labor productivity in small relative to large establishments but the size of the bias is smaller than alleged by Sokoloff.

Peter Lindert, University of California at Davis and NBER, and Jeffrey Williamson, University of Wisconsin, Madison and NBER

American Incomes 1650-1870: New Evidence, Controlled Conjectures

Significant gains in knowledge flow from measuring national product on the income side, unlike all past measures for America before 1929. Building "social tables" opens up new views of the distribution of income. Lindert and Williamson confront the accepted production- and expenditure-side estimates of GDP. The resulting income estimates reinterpret the history of American growth and inequality. Before the World Wars, the time period in which Americans most clearly led Britain in purchasing power per capita was in the colonial era — when we were British. We then lost that lead temporarily in the Revolution, and again in the Civil War. The South's relative income fell for at least 220 years, 1650 to 1870, starting from its being clearly the richest part of the 13 colonies, even when slaves are counted as low-income residents. Income inequality rose as much between 1774 and 1860 as it did in our current rise of inequality since the late 1970s. In the Civil War decade, inequality declined among Southern whites but rose in the North. Southern blacks gained perhaps 33 percent in real purchasing power over that same decade, despite some decline in their labor force participation.

Erik Loualiche, MIT, and Nicolas Ziebarth, University of Iowa and NBER

Internal Capital Markets during the Great Depression

Much attention has been focused on understanding the role of external capital markets in deepening and lengthening the Great Depression. This focus has come at the cost of neglecting the role of internal capital markets within a firm. Loualiche and Ziebarth construct a plant-level dataset from the Census of Manufactures for a select set of industries linked to their parent company. First, they document that plants that are part of multi-plant firms have more volatile monthly employment. Furthermore, they show that multi-plant firms themselves have more monthly volatile employment. The authors provide evidence that this excess volatility is attributable to the reallocation of resources inside the firm. In particular, plants that are part of multi-plant firms are more sensitive to shocks to local economic conditions. Finally, the authors discuss the implications of these results for the magnitude of the Depression and models of internal capital markets.

Joshua Rosenbloom, University of Kansas and NBER

Forging a Research Mission for the University of Kansas

As late as the mid-1950s most academic research was concentrated in a relatively small group of elite research universities. However, after Sputnik federal funding for academic research and development accelerated rapidly and precipitated a substantial broadening of the nation's research capacity. Rosenbloom traces the history of research at the University of Kansas since the early 1960s, illuminating how shifts at the national level interacted with specific institutional characteristics to produce a distinctive set of research capabilities. During the 1960s rising federal funding and rising student numbers encouraged a substantial expansion of faculty numbers and facilitated the retention and recruitment of a number of influential researchers who established successful research programs. Turnover among the senior leadership and slower growth ended this episode of growth by the early 1970s, however. In the mid-1990s, growth resumed following a reorganization of senior leadership that made pursuit of research excellence a central goal and provided the resources to achieve this end. Since this time, the University has risen from 55th in sponsored research expenditures at public universities in 1996 to 38th by 2012.

Carl Kitchens, University of Mississippi and NBER, and Price Fishback, University of Arizona and NBER

Flip the Switch: The Spatial Impact of the Rural Electrification Administration 1935-1940 (NBER Working Paper 19743)

To isolate the impact of access to electricity on local economies, Kitchens and Fishback examine the impact of the Rural Electrification Administration (REA) low interest loans in the 1930s. The REA provided loans to cooperatives to lay distribution lines to farms and to aid in wiring homes. Consequently, the number of electrified rural farm homes doubled in the United States within five years. The authors develop a panel dataset for the 1930s and use changes within counties over time to identify the effect of the REA loans on a wide range of socio-economic measures. The REA loans contributed significantly to increases in crop output and crop productivity, and helped stave off declines in overall farm output, productivity, and land values, but had much smaller effects on non-agricultural parts of the economy. The ex ante subsidy from the low interest loans was large, but after the program was completed nearly all of the loans were fully repaid and the ultimate cost to the taxpayer was relatively low.

Leander Heldring, University of Oxford; James Robinson, Harvard University and NBER; and Sebastian Vollmer, University of Göttingen

Long Run Impact of the Dissolution of the Monasteries

Heldring, Robinson, and Vollmer investigate the long-run economic impact of the dissolution of the English monasteries by Henry VIII in the 1530s. This event is plausibly linked to the "rise of the gentry," the commercialization of agriculture, and political and economic change in early modern England, potentially facilitating its precocious industrialization. To measure the dissolution, the authors digitized the Valor Ecclesiasticus, the census Henry commissioned of monastic incomes in 1534, and use monastic income at the parish level from the Valor as a measure of the local impact of the dissolution. They show that parishes where the dissolution had more effect were more likely to have a textile mill in 1838, and tended to have more mills and greater mill employment. The authors also show that they tended to have a lower proportion of their labor force in agriculture in 1831 and a higher proportion in retail trade. In addition, parishes where the dissolution had a greater impact had more gentry in 1700, were more likely to have land enclosed by parliament, and had more innovative agriculture as measured by patents. The authors show these results are robust to controlling for many other potential determinants of the location and extent of industry and for a variety of strategies for accounting for unobservables. The results are consistent with Tawney's famous thesis of the "rise of the gentry" but extend it by making the link between social change and the Industrial Revolution.