Resource and Output Trends in the United States Since 1870 ⑧ Moses Abramovitz. The American Economic Review,vol.46,no.2, Papers and Proceedings of the Sixty-eighth Annual Meeting of the American Economic Association. (May, 1956), pp. 5-23. Stable URL http: //links. jstor.org/sici ? sici=0002-8282%28195605%2946%3a23C5%3ARAOTIT%3E2.0.C0%3B2-E The American Economic Review is currently published by American Economic Association. Your use of the JSTOR archive indicates your acceptance of JSTOR's Terms and Conditions of Use, available at http://w.jstor. org/abou/terms. html. jstor's terms and conditions of Use provides, in part, that unless you have obtained prior permission, you may not download an entire issue of a journal or multiple copies of articles, and you may use content in the JSTOR archive only for your personal, non-commercial use. Please contact the publisher regarding any further use of this work. Publisher contact information may be obtained at http://www.jstor. org/journals/aea. html. Each copy of any part of a JSTOR transmission must contain the same copyright notice that appears on the screen or printed page of such transmission. JSTOR is an independent not-for-profit organization dedicated to creating and preserving a digital archive of scholarly journals. For more information regarding JSTOR, please contact support@jstor.org. http://www.jstor.org/ Mon Sep1800:21:242006
RESOURCE AND OUTPUT TRENDS IN THE UNITED STATES SINCE 1870 By MosES ABRAMOVITZ Stanford University I. Introduction <u This paper is a very brief treatment of three questions relating to ne history of our economic growth since the Civil War:(1)How large has been the net increase of aggregate output per capita, and to what extent has this increase been obtained as a result of greater labor or capital input on the one hand and of a rise in productivity on the other? (2)Is there evidence of retardation, or conceivably acceleration, in the growth of per capita output?(3)Have there been fluctuations in the rate of growth of output, apart from the short-term fluctuations of business cycles, and, if so, what is the significance of these swings? The answers to these three questions, to the extent that they can be given, represent, of course, only a tiny fraction of the historical ex perience relevant to the problems of growth. Even so, anyone ac quainted with their complexity will realize that no one of them, much all three, can be treated satisfactorily in a short space. I shall have to pronounce upon them somewhat arbitrarily. My ability to deal with them at all is a reflection of one of the more important, though one of the less obvious, of the many aspects of our growing wealth; namely, the accumulation of historical statistics in this country during the last generation. For the most part, the figures which i present or which unde erle n qualitative statements are taken directly from tables of estimates of national product, labor force, productivity, and the like compiled by others. In a few cases i have ventured to compute ratios or extend the tables forward or backward by combining estimates. But no original estimates depending on the compilation or reworking of primary data are included * I should like to thank Professor Sir It is to be reprinted as no. 52 in the National Bureau s series of Occasional Papers
The period since 1870 has an important unifying characteristic in that throughout these eig as been response to the complex of cumulative forces which we generally call industrialization. It is quite clear, however, that 1870 was not the be- ginning of the process of industrialization in this country. The propor- tion of gainful workers in agriculture fell from 71 per cent in 1820 to 64 per cent in 1850. It fell another 10 percentage points by 1870 Steam transport by water and rail was already common when the period begins. The proportion of the gainfully employed engaged in manufacturing and construction rose from 12 to 21 per cent between 1820 and 1870. Real per capita output rose significantly during the 1850s. It was set back by the Civil War, but aggregate output well nigh doubled from 1850 to 1870. The data before 1870--and still more before 1850-are highly dubious, but it seems clear that the period since 1870 does not include the entire era of industrialization and rapid income rise in this country. We are, in an important sense, dealing with a period arbitrarily delimited by the availability of fairly reliable com- prehensive figures It may be of some use if i try to state at the very beginning the three ain conclusions of my paper. First, between the decade 1869-78 and the decade 1944-53, net national product per capita in constant prices pproximately quadrupled, while population more than tripled. The source of the great increase in net product per head was not mainly an increase in labor input per head, not even an increase in capital per head, as these resource elements are conventionally conceived and measured. Its source must be sought principally in the complex of tle understood forces which caused productivity, that is, output per unit of utilized resources, to rise. Second, it is not clear that there has been any significant trend in the rates of growth of total output and of output per head. It is true that national product estimates, on their face, suggest some decline in the rates of growth--somewhat more clearly for total output; some what less clearly for output per capita. It is doubtful, however, whether the data can be accepted with confidence for this purpose and still more doubtful whether the apparent retardation in growth, such as it is, rep- resents the effect of persistent forces. Insofar le can observe a de- cline in the rate of growth, its source is not in the productivity of re sources, which has continued to grow at a steady, perhaps an accelerat- These are W. I. Kings d Income of the People of the United g-Term Chang Sim by Simon Kuznets, Cambridge, Bowes es,1952,p.240)
MIC GROWTE: STATEMENT OF THE PROBLEM ing, pace Its source has been a decline in the rate of growth of labor input per head and of capital input per head. Third, the rate of growth of output has not been even. In addition to ordinary business cycles, the rate of growth has risen and fallen since 1870 in long waves of approximately twenty years'duration, Pre liminary study suggests that these waves represent, in the main, surges in productivity or resource supply rather than in the proportion of our resources employed. An adequate understanding both of the history of our growth and of our prospects during the next generation depends on our ability to determine whether these surges and relapses are to some significant degree truly recurrent or wholly fortuit II. The Average Rate of Growth, 1869-1953 My first problem has to do with the over-all expansion of our ecor omy since 1870. My principal criterion of growth is net national prod uct per capita in 1929 prices, and since I use Kuznets' data, I follow him in measuring the increase by comparing average product and re- lated data for labor, capital, and so on, for the decade 1869-78 with that for the decade 1944-53. 2 Comparisons based on such decade averages eliminate most but, of course not all the effects of business cycles, which might otherwise serve to distort somewhat our impre sions of the long-term rate of growth. They do not protect our measures from the effects of fluctuations longer in duration than business cycles, the so-called <secular swings which I shall discuss later. It would be better to calculate rates of growth from properly derived trend values But in measures for a period as long as eighty years, when growth was so rapid, the distortion resulting from secular swings will not prevent us from seeing the broad outlines of the picture, and I judged it un- necessary to calculate statistical trend lines for this purpose 1. Net national product in the decade 1944-53 stood about thirteen times as high as it had in 1869-78(Table 1). This increase implies an average rate of growth of 3.5 per cent per annum. Population, how ever, more than tripled in the same period. Net product per capita therefore,approximately quadrupled, implying an average rate of growth of 1.9 per cent per annum. These calculated rates of increase are only rough approximation of the figures we are really after. Long-term estimates of national prod- Icts are inevitably marred by statistical weaknesses, biases, and un- certainties of conception.(Cf. Kuznets, "Long- Term Changes, " pages 2 Professor Kuznets has very kindly permitted me altered in certain details in ways which Professor will describe in a later
AMERICAN ECONOMIC ASSOCIATION 33-47. )We must accept the fact that even the most comprehensive and onsistent measures of our rate of expansion must be treated with a great deal of reserve 2. The quadrupling-more or less-of net national product per capita resulted in part from an increase in the input of resources per capita and in part from a rise in the productivity, that is, the output per unit, of representative units of resources. However, the shares of hese two elements, insofar as they can be separated, were very dif ferent. The input of resources per head of the population appears to have increased relatively little while the productivity of resources in creased a great deal. How does this arise? The input of resources is usually conceived to consist of labor serv ices, including salaried management, and property or capital services to which is attached the contributions of entrepreneurship made in connection with the investment of capital in industry. If we measure labor services in man-hours, as is usually done, we find that labor in TABLE 1 MEASURES OF U. S. ECONOMIC GROWTH, 1869-78 TO 1944-53 Relatives (1860-78=100) d product per capita ment to population ut of resources oyed worker 18) Index of net national product per unit of total input 348(367) 面: noted, were drawn from series of averages for ives were calculated are shown in the notes to (1)Newly revised estimates by Simon Kuznets(billions of dollars in 1929 prices )to be pub- lished and ibed in the Summary Volume on Capilal Formation and Financing, Part B
ECONOMIC GROWTH: STATEMENT OF THE PROBLEM 9 (2)Ibid., Part E Decade averages computed from annual data underlying five- year moving ine(1)+line(2)(1929 dollars per person) line(2) 18902snCm、sm+w,2 rces. From 1889-1918, the labor force figures were fir and adding armed force and adding armed forces. le7,col.(1).1944-53 supplied to the author for 1934 and 1944. The given data ar 78d -e ditn plated tiom137-g by mo erment ot estimates by Schmoker, o), ci 1944-53: Extrapolated from 1939-48 on basis of estimates kindly supplied by J.w eighties itn esrf relate es cisl9-28- 2100), combining man- hours per capita and capital per employed in 1929 1 1)(cents per dollar of cap Index of NNP+index of total input of resources(1919-28=100). put per capita declined slightly between the seventies and the present. This resulted from the counteraction of two trends. The labor force ratio, that is, the ratio of labor force to population, grew about 25 per cent as a result of changes in the age composition of the populatio because of the shift of people from farms to cities, and because the great increase in the participation of women in work offset the with- drawal of young people to school and of elderly men to earlier retire- ment On the other hand the reduction in working hours more than unterbalanced the increase in the labor force ratio te(National ent between the 1870 s and the 1950 s the ours of work. The appearing in Kuznets"Long-Term Changes"extended an extra decade on the basis of
AMERICAN ECONOMIC ASSOCIATION The physical volume of capital, of course, increased much more rap ly than population. An estimate of total capital, which takes accoun of land, structures, producers' durable equipment, inventories and net ago. Capital per head of the population approximately tripled e years foreign claims, increased to nearly ten times its size seventy-fiv What has been the increase in the input of all resources per capita? Suppose we combine our indexes of labor input per capita and of cap- Kendricks figures. But other estimates make the long-term decline somewhat les more. For comparison, the following alternatives are of interest: Given Average Kuznets, Standard Hours Dewhurst and Fichlander Actual Hours in Commodity 1869-79 (4) Barger, Actual Hours in Distribution 1869- 894-1903 (6)Kendrick, Actual Hours Line (1)-Long-Term Changes, "Table 7. Figures extended from 1939-48 to 1944-53 on th shuf tiamat s es plimdricd 3. Needendnd Resources, A New Survey Distribution's Place in the American Economy since 1869, Table 5 ine(6)-Supplied by J. w. Kendrick treated with great GRod s stt'sies tim atms me eridatioenau f. y i p.18) Relatives for 1944 (2)÷(1) Land 133 Structures, producers' durable equipment, inventories and net foreign claims. Neither Goldsmith's figur Kuznets' are free of serious difficulties due to weak esses in the statistical sources of capital data an 0 nent. The decline in abor hours is not a reliable indication since casita s often Itiple shifts ch practic have grown or declined
ECONOMIC GROWTH: STATEMENT OF THE PROBLEM ital supply per capita with weights proportionate to the base period produes. going to labor and property, respectively. If we may equate tivity with earnings, we obtain a combined index of resources which has a particular meaning. It tells us how net national product per capita would have grown had the productivity of resources re- mained constant at base period levels while only the supplies of re- sources per head increased Such an index, based on the twenties, rises only some 14 per cent between the seventies and the last decade. To account for the quadrupling of net national product per capita, the productivity of a representative unit of all resources must have in creased some 250 per cent. This seems to imply that almost the entire increase in net product per capita is associated with the rise in produc tivity. This result may arise in some part from our choice of a base period. We chose a fairly recent base period, 1919-28, close to the valuation base of the national product estimates, 1929. Since the rela- tive importance of service and property incomes remains fairly stable over the entire period (cf. Kuznets, "Long- Term Changes, "pages 135 137), and since capital increased far more rapidly than labor, the price of a unit of capital service must have fallen over time compared with that of a unit of labor. The choice of a fairly recent year as a base for our relatives in effect means weighting each unit of capital by a relatively low price. Experiment, however, indicates that choice of base is of minor im- portance for the question at hand. If we shift the base of the index of resources to 1869-78, the increase of total input between 1869-78 and national product per capita in 1929 prices, the indicated rise in pro- ductivity is still much greater, 175 per cent. This calculation, how- ever, overstates the importance of the shift in base If we shift the base for our resource index to 1869-78, we should also value national prod uct in the prices of that decade This would, in all likelihood, make the trend of national product steeper and so indicate a greater increase in productivity than the 175 per cent mentioned above. (See Kuznets Long-Term Changes, " pages 44-47. pears to give to productivity increase, and it should be, in a sense ss ap- 3. This result is surprising in the lopsided importance wl ing, if not discouraging, to students of economic growth. Since we know little about the causes of productivity increase the indicated importance of this element may be taken to be some sort of measure of our ig lorance about the causes of economic growth in the United States and some sort of indication of where we need to concentrate our attention Since it will do little good to provide a catalogue of the possible causes of the rise in efficiency i shall merely add two notes which have to
AMERICAN ECONOMIC ASSOCIATION do with a proper understanding of calculations which resolve the growth of output into the growth of resources and productivity, re- spectively. They will, I hope also take some of the edge off my con clusion and serve to put the importance of factor input in somewhat etter perspective. First, although input of resources per capita has not increased much this does not mean that the increase of resources has not contributed significantly to the rise in output per head. Total input of labor and capital has increased a great deal. Population more than tripled. The nearly constant number of man-hours per capita, therefore, meant a tripling of total man-hours. The tripling of capital per head meant a more than ninefold increase in total capital. The quadrupling of net national product per capita meant a twelvefold rise of total national product. But"the division of labor is limited by the extent of the market. If there is anything to the notion that when raw materials re plentiful resources and output will be connected according to a law of increasing returns to scale, then the great expansion of total resources must have contributed substantially to the increase in pro- ductivity Second, our calculations of resource inputs are based on usual defi nitions of labor supply and capital. These conventional methods of measuring resource inputs are faulty and, in the case of this country during the last seventy-five years, probably understate the increase in factor input. We therefore tend to overstate the rise in productivity. On the side of labor, it is clear that the reduction in the importance of teenagers and old men in the labor force has concentrated employ ment in the age groups whose output per man is relatively high. It also seems likely that with the urbanization and commercialization of work there has been an increase in the intensity of labor. These changes may perhaps be offset by the augmented importance of women in the labor force. It seems possible, however, that a properly weighted index of man-hour input would have increased significantly over the period even if we leave out of account such matters as improvements in skill and managerial capacity which reflect training and other capital in- vestment.(Cf Kuznets, Long-Term Changes, page 77.) On the side of capital, there is a chronic underestimate of investment and accumulated stock because, for purposes of measurement,we identify capital formation with the net increase of land, structures durable equipment, commodity stocks, and foreign claims. But under lying this conventional definition of investment is a more fundamental concept which is broader; namely, any use of resources which help increase our output in future periods. And if we attempt to broaden the operational definition, then a number of additional categories of
ECONOMIC GROWTH: STATEMENT OF THE PROBLEM expenditures would have to be included, principally those for health, education and training, and research. These are fairly obvious because one is conscious both of an income motivation and an income effect But there are other classes of expenditures where motives are mixed or disguised but which have at least the incidental effect of increasing productivity; namely, expenditures for food, clothing, and some recrea tion. The fact is that, in a thoroughly commercialized economy, dis posing of a large surplus above its requirements for minimum con- ry few expenditures are wholly without the aim and effect of increasing income. If this is so, effective capital formation, broadly conceived, must be sought in certain types of consumption and govern mental expenditures as well as in conventional net investment. The point of these two comments is simply that the relation between the contributions of resource expansion and of productivity growth is more complicated than our conventional measures can reveal. Two morals may be drawn. First, the long-term expansion of the labor supply must be restudied so as to provide a measure of the value of its changing composition as well as its changing size. And the expansion of the capital stock must be restudied to take account of a broader conception of accumulated resources. It may well be that we shall find it inconvenient to merge these additional categories of accumulation with conventional capital. But whatever our terminology, we have to pay close attention to all the ways our society uses its resources to increase its future product. When all due allowance for the concealed increase in resource expan sion has been made, however, there will remain a huge area to be explained as an increase in productivity. Our capital stock of knowledge concerning the organization and technique of production has grown at a phenomenal pace. a portion of this increase--presumably an increas- ing proportion-is due to an investment of resources in research, edu cation, and the like. This part we may possibly be able to attribute accurately to the input of these resources insofar as we learn to trace the connection between such investment in knowledge and its marginal social contribution, as distinct from those small parts of its value which can be privately appropriated. Beyond this, however, lies the gradual growth of applied knowledge which is, no doubt, the result of human activity, but not of that kind of activity involving costly choice which we think of as economic input. To identify the causes which explain not only the rate at which our opportunities to raise efficiency increase ut also the pace at which we take advantage of those opportuniti
