Working Paper: NBER ID: w1386
Authors: Kenneth L. Sokoloff
Abstract: There are few more dramatic episodes in economic history than the displacement of the artisanal shop by the factory during the early stages of the Industrial Revolution as the predominant form of manufacturing organization. Despite the attention this development has received, however, the issues of why and how it occurred remain in dispute. This paper employs recently-collected samples of data on northeastern firms from the 1820 and 1850 Federal Census of Manufactures to investigate this transition in the U.S. context. It argues that the evidence is consistent with the hypothesis that even the early non-mechanized factories enjoyed an efficiency advantage over the traditional artisanal shop organization. The growth of average firm size in nearly all manufacturing industries between 1820 and 1850 indicates a systematic movement toward the factory organizational form. Some shops did survive, but they accounted for only modest shares of industry value added and become increasingly concentrated in areas where the extent of the market was less likely to justify firm expansion. Moreover, the estimation of production functions suggests that the non-mechanized industries were generally characterized by scale economies up to a threshold size similar to that of a small factory.
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Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| growth in average firm size (L25) | systematic movement toward factory organization (L23) |
| larger firms (L25) | more efficient (D61) |
| production function estimations (E23) | scale economies in nonmechanized industries (F12) |
| scale coefficients from Cobb-Douglas production functions (E23) | efficiency advantages in nonmechanized industries (L69) |
| establishments with more than five employees (L26) | total factor productivity higher (O49) |
| nonmechanized factories (L64) | efficiency advantage over artisanal shops (L68) |