Working Paper: NBER ID: w1504
Authors: John A. James; Jonathan S. Skinner
Abstract: This paper reconciles the apparently contradictory evidence about American and British technology in the first half of the nineteenth century. Past studies have focused on the writings of a number of distinguished British engineers, who toured the United States during the 1850s and commented extensively on the highly mechanized state of the manufacturing sector. Other studies, however, have marshalled evidence that the interest rate was higher, and the aggregate manufacturing capital stock was lower, in the United States relative to Britain. We resolve this paradox by noting that British engineers were most impressed by only a few industries which relied on skilled workers. Using the 1849 Census of Manufactures, we estimate separate production functions for the skilled sector and for the remaining, less skilled manufacturing sector. We find strong relative complementarity between capital and natural resources in the skilled sector, and relative substitutability between skilled labor and capital. Using these parameters in a computable general equilibrium model of the U.S. and British economies indicates greater capital intensity (or labor scarcity) in the skilled manufacturing sector, but overall capital scarcity and higher interest rates, in the U.S. relative to Britain.
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Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| technological complementarity between capital and natural resources in the skilled manufacturing sector (J24) | incentivized manufacturers to substitute capital for labor (E22) |
| the presence of cheap natural resources (Q33) | increased capital investment in skilled industries (J24) |
| the skilled sector was relatively capital intensive (J24) | the less skilled sector remained capital scarce (J24) |
| higher nominal and real wage rates in the US compared to Britain (J39) | consistent with the labor scarcity hypothesis (J89) |
| higher returns to capital (D29) | consistent with the labor scarcity hypothesis (J89) |
| labor scarcity observed in the US manufacturing sector (F66) | reflects differences in production technology and labor supply dynamics (F16) |