Staging Post for 2025-02-26 We Econ 113 "American Exceptionalism: Some Numbers on the 'Great Traverse' Counterfactual" Lecture...

Scratch notes Tuesday afternoon…

Jupyter Notebook Python File: <https://delong.typepad.com/--2025-files/2025-02-25-econ-113-great-traverse.ipynb>

Robert Allen: American Exceptionalism as a Problem in Global History: ‘How countries could respond to the environment was an important question, and a standard development model was elaborated in the United States, in the first instance (Allen 2011). This model consisted of four imperatives: Create a large internal market by eliminating domestic barriers to trade and constructing infrastructure. Erect an external tariff to protect your industries from British competition. Establish an effective banking system to stabilize the currency and promote investment. Found a system of universal education to prepare the citizens for industrial employment. How successful were these policies in the United States? Nationalists around the world wanted these policies, too. Would they have worked well had they been adopted in Egypt and India?…

To make the point in monetary terms, the very large volumes of exports of farm and forest products were inflationary–they produced a “Dutch disease” situation in which prices of non-tradable, protected imports, and labor were raised to levels that made manufacturing uncompetitive. The effect of abundant natural resources in a global economy was to retard the industrialization of United States–not to promote it…

After 1880, however, the incentives to invent higher productivity technology led to an American lead. The incentives to use more power per worker in America increased significantly in this period–without a corresponding change in Britain. As well, the restricted supply of child labor may have created a long-run tendency in American industry to invent technology that took the place of the children who populated British factories…

Expansion also entailed an extremely rapid growth in the American capital stock. In 1870 the capital stock of the United States was about 25 percent greater than that United Kingdom’s; in 1910 the U.S. capital stock was almost four times larger. Over that period, the increase in the U.S. capital stock was six times greater than the growth of the British stock (Allen 2012). Rapid growth in the demand for capital goods provided a great market for inventors. Improvement in technology (including organization methods, e.g., Chandler 1977) depends on experimental data, and that data is often generated as a byproduct of investment…

Why didn’t Egypt or India industrialize by adopting British technology like the United States did?… One problem was that labor in these countries was not trained for factory work…. The bigger problem was that, at the low wage, handicraft methods were the cost-minimizing choice of technique for most production…. Labor was cheap relative to energy and capital. It did not pay to adopt the technology that would have alleviated their poverty. In the United States, a tariff was necessary to make industry pay, but once in place American industry chose the modern methods. Development of the Third World required policies that ignored comparative advantage. From this perspective, Egypt is one of history’s great missed opportunities. In 1805 Mohammed Ali seized power and tried to turn Egypt into a modern military-industrial power. A Soviet-style procurement policy financed stated led industrialization. It all came undone in 1838 when the British forced a treaty on the Ottoman overlords that ended the fiscal system. The Egyptian economy reverted to the pattern implied by comparative advantage, and Egypt remained an underdeveloped country…

After 1895 America became a leading industrial power by developing high productivity manufacturing. This was a more unusual achievement that rested on three factors–(1) cheap energy, (2) universal public schooling that induced firms to develop technology to raise the productivity of adult labor while at the same time training children to meet that demand, and (3) the rapid growth of manufacturing before 1895. While the nineteenth-century industrial sector was not internationally competitive, the high rate of capital accumulation led to a rapidly growing demand for capital goods as well as learning by doing and collective invention. The accumulation of engineering experience provided knowledge inputs for the inventions that augmented adult labor…

The American development model was exceptional in the sense that it would not have delivered similar results if applied in poor countries…. Transportation investment, universal schooling, and tariff protection…. The tariff raised prices for consumers but… since relative factor prices were similar to those in Britain, so the transfer of advanced technology was profit maximizing…. [In] Egypt and India… it was not worth investing large sums to save cheap labor…. Traditional hand technology remained the least-cost choice of technique. In that circumstance, the America model was a non-starter, and more draconian policies were necessary for successful industrialization…

The United States was an outlying province of Britain–albeit an increasingly dynamic one. Both Britain and the United States were rich, while much of the rest of the world was poor. Indeed, globalization and the character of technological change widened the gap…

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