 Okay, hi, this is Professor Gerald Friedman, Department of Economics, University of Massachusetts. And we're here to talk about early American economic growth, that is patterns of growth and determinants of expansion in the economy before the American Civil War. And our focus is going to be on the northern states. We'll talk about the south later when we talk about slavery. But for the country as a whole, economic growth really began to pick up in the 1820s. And if you compare the growth of the gross domestic product, the whole economy, with the growth in wages, right away we see something interesting. Okay, over here we've got a little chart showing an index of economic growth per capita. That is the gross domestic product, the sum of everything that's produced and sold, divided by the population. It's a rough measure of average well-being. I mean, it doesn't talk about distribution, it leaves out home production and a lot of other stuff, but this is the standard measure used, PCY, per capita income. And you notice that not much happens to this. It goes up a little bit in the 30 years after the Constitution, and then it starts going up more steadily until the Civil War. And actually this growth rate continues, accelerates a bit, down to today. So from here it's onward and upwards. Wages are different, which is kind of interesting. The average wage paid common labor actually grew faster before 1820 than afterwards. Starting in the 1820s, they're pretty much flat until the 1850s. From 1820 to 1850, very little growth, and then after 1850 it picks up again. So if they end at about the same point, you know, by definition we define where they end as 100. But most, wages start from a lower level, and most of the growth in wages comes earlier during the period when there's very little growth in the economy. That's something to keep in mind for when we're going to talk about workers and wages later. Now in terms of what caused this growth, this is important because before the 1820s, steady economic growth of this sort had happened in maybe one country, Great Britain. A little bit in France, a little bit in the Netherlands, and you could say, well, the wealthiest places in the world, the slave colonies and the Caribbean, but they're kind of a whole different business. But in terms of a full-fledged economy, sustained economic growth was very unusual and to the point where the United States arguably only the second country in the world. And the rate of growth in the United States in the 1820s very quickly surpassed the rate of growth in Britain. And for a century, more than a century, down until World War II, the United States had just about the fastest sustained long-term rate of growth in the world. Since World War II, we've had a relatively slow rate of growth in per capita income compared to other affluent countries, but there are various reasons for that that maybe we'll get to talk about later in the semester. But this is important. This is an unusual experience in terms of world history. You take all the history of the world, human history, several thousands of years, and no other place other than Great Britain had had sustained economic growth. And the United States quickly became the fastest. So this is something worth thinking about. The way economists have thought about it is shaped by a Nobel Prize-winning economist who went to high school with my mother-in-law, Robert Solow, at MIT. I'd say one thing, two things about Solow, three things about Solow. First is he's actually a very nice human being, which is really kind of unusual among big-name academics. Second, he has a wonderful writing style and a good sense of humor, which has something to do with the success of his most important book, Growth Theory, which is over 50 years old. The third thing is it's worth mentioning that while he won the Nobel Prize for his book on growth theory, it's wrong. He has, it's not logically consistent. He does not have an explanation for how you measure capital. This is a technical point. It's actually very important. Don't believe what economists say, since their orthodox model is all wrong. That said, we'll go to talk about Solow's growth model because it leads to some interesting ideas that don't depend on his error in measuring capital. Solow starts with what's called a Cobb-Douglas production function, where output relates to some constant, well it's not a constant, a measure of efficiency, A, times the quantity of capital raised to some exponent, the elasticity of output with respect to capital, and the quantity of labor raised to an exponent, the elasticity of output with respect to labor. More labor, more output, more capital, more output, more efficiency, more output. Change in output can be decomposed into the elasticity of output with respect to capital, times the change in the amount of capital, plus the elasticity of output with respect to labor, times the change in the quantity of labor, plus change in the efficiency. If you want to, you can change this to change the terms here. Just move this stuff over to the other side. Output minus these things, what's due to capital and what's due to changes in labor, gives you the residual, which Solow took as a measure of technological change. What he found for American history is that while increasing amounts of capital accounted for some of the increased in output, increasing amounts of labor accounted for some, a lot was due to this. Changes in technology, that's how he interpreted it. Now this is just a measure of our ignorance. We think we know that increase in capital and increase in labor caused increase in output. We don't know what's in here. We don't know what causes increases in output beyond what's due to capital and labor. It could be technology. It could be that people are working harder. We can't distinguish between people working more minutes out of every hour and people working better. That is using a better technology. We can't distinguish between those two. That's important. People are producing more. It could be they're using a better method, or it could be for some other reason. They're not taking coffee breaks, they're not going to the bathroom, they're not talking to each other, they're just working harder. Now what is it that accounts for technological progress? Later the next couple lectures we'll be talking about changes in how hard people work. But here, Solo and people following him, notably Paul David, an economist at Stanford. Paul David's an interesting person. He's really bright. He moved out to, but he never finishes anything. His major finished works are very short articles. He never finished his dissertation. He went to Stanford, hired without his dissertation, and it came up when he was promoted to chair because somebody looked and said, oh, you don't have a PhD yet. He had been at Stanford for 20 years. So they put together some articles and gave him his PhD. Okay, explaining technological progress. The traditional view is great people. Henry Ford, Alexander Graham Bell, Andrew Carnegie, Eli Whitney. You have a few great people that come up with great ideas and yeah. So every time you look at one of these great inventions, you find that they were like five people figuring it out at the same time. Leibniz invented calculus, Newton invented calculus, somebody else invented calculus. I mean, these things are products of their times to some extent because they're a bunch of people doing it. And also, even if you get a great invention, it's usually not good for much until you figure out how to apply it, how to integrate it into the production process. What we've found in looking at invention after invention is it's not invention that matters, it's innovation. And this is one of the major points that Paul David, I'd say Henry David, Paul's father, who was a famous historian, that Paul David found in looking at American textiles. During starting in this period, the 1820s to 40s, when we started getting that spurt in growth and when wages were flat. What Paul David finds is that most of the growth in output in that period is not associated with any significant change in observed technology. Most of the growth comes using what appear to be the same machines. But from year to year, there is a steady increase in output. He calls this learning by doing. And it goes back to a factory, a steel mill in Horndahl, Sweden of all places, where economists observe sex phenomena. They kept being more productive, same workers, same technology, same machinery, but they became more productive. Liberty ships in the United States were all built the same design at the same places, but they were being done faster and faster. People, workers figured out better ways to do things. They used the technology better. They innovated, not invented. They innovated and became more productive. David associated this growth, or he found it was associated with a quantity of production. The more they had produced, the more opportunities for learning, the better they became. Hey, you ever study the violin? Ever play basketball? Practice. How do you get to Carnegie Hall? Practice, practice, practice. How do you become more productive? Practice, practice, practice. Increasing practice, you become more productive. Note, in David's case, he argues this is actually a good argument for tariffs and trade protection, because it gives companies opportunity to practice until they become more efficient than anybody else. And that's what happened in the United States. And we'll keep on talking about this. So, till then, thank you very much and have a nice day. Bye-bye.