AMERICAN EXCEPTIONALISM AS A PROBLEM OF GLOBAL HISTORY

By Robert Allen

ABSTRACT:
• THE CAUSES OF THE USA’S EXCEPTIONAL ECONOMIC PERFORMANCE ARE
INVESTIGATED BY COMPARING AMERICAN WAGES AND PRICES WITH WAGES AND
PRICES IN GREAT BRITAIN, EGYPT AND INDIA.
• Manufacturing isn’t promoted in the USA till international trade prices equalized with
Britain.
• Wages were higher in USA and capital services were also more expensive.
• Amercian industrialization needed tariffs (aranzels) because all input prices were higher.
• America’s comparative advantage turns to manufacturing after 1895 because of the
fall in energy prices
• American schooling policy, also child labour restriction (didn’t exist in Britain,) meant
more skilled adults that enable the improvement of technology and the increase of
productivity.
• Manufacturing investment increased thanks to the tariff.
• In Egypt and India wages were lower and energy cost high so what enable England and
America to growth didn’t work there.
• Egypt and India needed more intervention from the state than other factors.

QUESTION: Why is America exceptional economically?

• Aim of the author: asses and account for remarkable features in American economic
history with normal social scientific explanations.
• One of those reasons has been rapid economic growth and the flourish of democracy,
which it is claimed that economic has success because of democracy.
• In Habakkuk’s work it is said that the exceptionalism of America comes from the early
19th century when America had a lot of land and natural resources, and these led to
high wages and “the search for labour-saving inventions”.
• Today America’s economic lead it is not so pronounced, so they will need to find how
deep exceptionalism runs in American economic history.

• The author compares USA with Egypt and India because both were also major cotton
exporters
• Before 1895 American economic growth was extensive. GDP grew slower similar as UK.
• After 1895 GDP grew faster, factor 10 whereas UK, Egypt and India only doubled.
These growth was due to immigration, development of its agricultural potential and
large growth in manufacturing.
• Before 1895 agriculture production was higher, stability in 1895 and after
manufacturing began grow especially after the Second World War.
• Britain regained leadership with the mobilization of resources during the First WW, but
with the demobilization USA regained.
• At first decade of the 20th century productivity in USA manufacturing was double than
UK, but when this lead emerged is controversial.

• The gap between USA/UK and India/Egypt is because the great divergence

• The 18th Britain was unique in having particular high wages and low energy prices, the
breakthrough technologies of the industrial revolution increased the use of capital and
 energy per worker. These techniques, in their earliest, crudest forms were profitable
to use in Britain but not abroad in view of Britain’s unusual factor prices.
• Was nineteenth century America really the sequel to industrializing Britain, as I had
supposed?

• Approach differs from many others that emphasize culture or institutions or some
combination of the two
• Political institutions are the main stream explanation in economy today.
• Good institutions ensure that economic actors correctly perceive incentives whereas
bad institutions misdirect them
• Political institutions are not the only factor that need to be analyzed. Incentives can
be different.
• Features of 19th century no take into account: TECHNOLOGY (new machinery and
cheaper energy), GLOBALIZATION (transport costs fell, trade improved and prices
converged), ECONOMIC POLICY.
• Some countries their comparative advantage was agriculture and they failed to
industrialize.
• Standard model elaborated in USA:
- create a large internal market by eliminating internal barriers to trade and
constructing infrastructure
- Erect an external tariff to protect your industries from British competition
- Establish and effective banking system to stabilize the currency and promote
investment
- Found a system of universal education to prepare citizens for industrial employment
Natural resources and globalization
• USA had a lot of land available. The large ability of natural resources provide American
industry with essential materials.
• The large ability of natural resources isn’t the reason why of america’s exceptionalism
because of importation.
• USA had a lot of disadvantages in importing resources because of the cost of
transportation??
• However it improved with high tariffs on British imports
• With the appearance of mesabi iron ore Pittsburgh had the cheapest raw
materials, however the state saw its potential and increased its price for the
country and exportations??

• America did not benefit from having a lot of natural resources. Tariffs made America
pay more natural resources than British firms.
• The large ability of natural resources meant that America’s comparative advantage lay
unequivocally in agriculture and forestry.

• One of the main factors of the rise of America is exportation

• It industrialized fast
• They took most advantage in the second industrial revolution

QUESTION: WHY EXPLAINS THE GOWTH OF THE UNITED STATES AND WHY OF ITS
EXCEPTIONALISM?

OBJECTIVE: factors why the United States grew the most

Approach: compares with UK, Egypt and India. He compares prices (raw materials, the
cost of living, cost of inputs, energy) and wages

Relative cost of factors:

Relative price: price of a good in terms of another good

Example: Wages/energy, …

The relative cost of factors is crucial for explaining the American exceptionalism. They
were very different from other parts of the world.

What was different? The high wages in comparison of the cost of the inputs and the cost
of energy. The relative cost of labour were higher than the cost of inputs. That
stimulated the improve of technology in order to reduce labour, by using more capital
and more energy.

Research question:
• Explain the American “exception”
• Comparison not only to UK but also India and Egypt because the three countries where
big exporters of raw cotton, their economies were similar.

Approach:
• Comparative prices and wages

Factors that explain the American exception:

• Technology that increased output per worker (also increasing capital and energy per
worker)
• Globalization: refers to the formation of global markets, made possible the
competition between different parts of the world
• Economic policy: government policy that were crucial. Introduction of universal
schooling (improvement of labour skills), tariffs (defend the national producers,
because they were less efficient and couldn’t improve with the British). They made
possible the development of the national producers and were able to survive.

Natural Resources:
• For the majority of the commodities, American prices exceeded British prices during
the 19th century
• The USA had competitive advantage in agriculture and forestry

Labour market:
• Differences in the composition of the labour force (child and women participation). In
USA there were less women and child working so in Britain wages were cheaper.
• Greater provision of education in the USA
-
More democracy country
-
Elimination of established churches after the American Revolution (the Church of
England was an opponent to universal education)
-
Difficulties of assimilating a large and immigrant population (education had a great
role in the homogenization of the population)
Relative price of factors:
• Before 1880, the incentives to adopt coal steam technology were similar in the east
coast of the USA and in Britain
• After 1880, wages increased faster than energy prices in the USA: incentives to adopt
power intensive technology
• Capital services were more expensive in the USA
• However, fast increase in GDP and expansion of cities and manufacturing: fast increase
in the stock of capital. Fast increase in the demand for capital goods and great market
of inventors.

Egypt and India:

• Both countries had large manufacturing industries
• Use of handcraft methods due to low wages.
• Negative effects of globalization
• Labour was relatively cheap to capital and energy. Power intensive technologies did
not pay off.

Conclusions:
• USA became a leader industrial country thanks to:
- Cheap energy
- Universal public schooling
- Rapid growth of manufacturing (capital accumulation)
• Similar relative factor prices to Britain encouraged technological transfer.