Some Thoughts On the United States as a Developing Nation

There is a lot of anxiety about the state of the economy. Coronavirus is spreading, the stock market is falling, treasury yields have reached an all time low. So, of course, I decided to write a long post about the American economy in the early nineteenth century. 

                In  "The United States as a DevelopingNation: Revisiting the Peculiarities of American History." Past & Present (2019) Link and Maggor seek to direct our attention toward the peculiarity of America’s economic history by encouraging us to consider the United States in the first half of the nineteenth century as a developing country. They also suggest that the key to understanding this transformation may lie in industrial development policies at the state level. Link and Maggor encourage historians to think about the United States as a developing country, and how it escaped from the path followed by other developing countries. So, this post is me thinking about the U.S. as a developing nation.

On one hand, the U.S. was obviously a developing country. On the eve of the Civil War, real GDP per capita was still just under $3,000 (in 2012 dollars). Currently GDP per capita around $3,000 would place you around countries like the Philippines, not the bottom but well below high income countries. If we take this perspective, however, all countries were developing in the early nineteenth century, and the term would not have much value. By 1850, the United States was already among the highest income countries. It ranked high in GDP, GDP per capita, industrial production, literacy, and school attendance. By most measures the U.S was one of the most developed countries in the World by the mid-nineteenth century.

The United States as a Developing Country?

Estimates of income and output before the twentieth century are difficult, and reasonable people can disagree about them. Making international comparisons adds to the difficulty. But the disagreements are about where the U.S ranks among the top countries, not whether it is one of them.

The United States had among the highest levels of per capita output in the World at its founding. By the middle of the nineteenth century, rapid population and continuing increases in per capita output gave the United States the 5^th highest total GDP. China and India depended upon their large populations to place them at the top of the list. The US, like the UK and France had both a large population and high GDP per capita.

Table 1. Aggregate Product Relative to American

	1850	1870	1890	1913
U.K.	1.42	.97	.67	.41
France	1.43	.73	.44	.28
Germany	.45	.45	.33	.28
China		1.90	1.09	.58
India	2.42	1.20	.66	.32
Australia	.03	.06	.07	.05
Argentina		.02	.03	.06
Canada	.07	.06	.05	.06

Source: Gallman 2000,  3 and 4.

Table 2. Average Annual rate of Growth of Real GDP 1820-1913

Argentina	6.0 (1870-1913)
U.S.A.	4.1
Canada	3.8 (1850-1913
Australia	3.5 (1870-1913)
Netherlands	2.4
Germany	2.4
Denmark	2.3
Belgium	2.1
Finland	2.1
Brazil	2.0
U.K.	2.0

Source: Gallman 2000, 5.

Table 3. Per Capita Output Relative to American

	1850	1870	1890	1913
UK	1.3	1.33	1.21	.95
Netherlands	1.04	1.07	.99	.78
Belgium	.99	1.07	.99	.78
Denmark	.93	.78	.71	.71
France	.92	.76	.69	.65.
China		.21	.18	.13
India	.30	.23	.18	.12
Australia	1.69	1.55	1.41	1.04
Argentina		.53	.63	.72
Canada	.70	.66	.66	.79

Source: Gallman 2000, 20.

Lindert and Williamson estimate that real incomes in the United States were higher than England during the late colonial era, fell during the Revolution, passed the UK again in the early 1800s, but then fell back again during the Civil War.

 Source: https://voxeu.org/article/american-growth-and-inequality-1700

 

Agriculture was the most important sector of the American economy in the first half of the nineteenth century. Though it should be noted that by 1850 services accounted for about 40% of output, leaving 60% for commodities, and agriculture accounted for about 60% of commodity output. So, agriculture accounted for about 36% of total output (for sources see here). Although agriculture was still the most important sector, the United States was already one of the largest industrial economies by the middle of the nineteenth century.

Table 4. Leading Countries in Total Manufacturing Output (index numbers relative to U.K. = 100 in 1900)

1860	1913
United Kingdom  45	United States 298
China 44	Germany 138
India 19	United Kingdom 127
France 18	Russia 77
United States 16	France 57

Source Bairoch 1982, 284

Table 5. Leading Countries in Per Capita Manufacturing output (level relative to UK=100 in 1900)

1860	1913
United Kingdom 64	United States 126
Belgium 28	United Kingdom 115
Switzerland 26	Belgium 88
United States 21	Switzerland 87
France 20	Germany 85

Source: Bairoch 1982, 286

Table 6: Productivity in manufacture equaled or exceed the UK by the 1840s.

	Agriculture	Manufacturing	Services	Total
1839/1841	78.1	159.7	84.8	93.8
1849/1851	98.9	162.7	65.2	89.9
1859/1861	100.0	152.8	73.0	95.0
1969/1871	92.4	145.1	77.4	94.0
1879/1881	103.9	146.3	103.6	98.1
1889/1891	96.7	167.8	104.1	100.3
1899/1901	112.0	170.9	116.1	114.8

Source: Broadberry and Irwin 2006, 261

The growth of industrial extended back to the 18^th century and took place at a steady pace. The figure below show Davis index of industrial production

.  

Industrial production in the U.S., like GDP per capita, began the nineteenth century at relatively high levels and continued to grow rapidly.

In addition to income and industrial production, the United States was one of the leading countries in educational attainment by the mid-nineteenth century.

Table 7. Adult Literacy in selected countries

Country	Ca. 1850	Ca. 1900
Sweden	90	99
United States	85-90	94
Scotland	80	97
Prussia	80	88
England and Wales	67-70	96
France	55-60	83
Austria	55-60	77
Belgium	55-60	81
Italy	20-25	52
Spain	20	44
Russia	5-10	28

 Source: Cameron 1993, 220

Table 8. Primary School Enrollment per 10,000 pop.

Country	1830	1850	1900
United States	1500	1800	1969
Germany	1700	1600	1576
United Kingdom	900	1045	1407
France	700	930	1412
Spain	400	663	1038
Italy	300	463 (1860)	881
Russia		98 (1870)	348

Source: Cameron 1993, 220

The Position of the U.S. in the Global Economy

The United States was one of the leading economies on almost every dimension by 1850, but Link and Maggor emphasized a different aspect of the economy: its position in the global economy.  Its exports were dominated by primary goods, and one product dominated all others:

"In 1850, the US was primarily a supplier of slave-produced cotton to industrializing Europe. American economic growth thus remained embedded in established patterns of Atlantic commerce. One hundred years later, the same country had become the world’s undisputed industrial leader and hegemonic provider of capital.”

They go on to note that

“The very triumph of the US has obscured how peculiar this trajectory, in fact, was. Not only did the US overcome its status as a peripheral exporter of cash crops; it also managed to defy the global division of labour that buttressed the liberal–imperial world order of the late nineteenth and early twentieth centuries. That era’s ‘Great Specialization’ (Findlay and O’Rourke), moulded by European and particularly British imperialism, divided the world into exporters of raw materials and primary products, on the one hand, and exporters of manufactured goods, on the other. Under this division of labour, the industrial core, primarily in Western Europe, turned ever more intensely to manufacturing, drawing for raw materials and agricultural produce on the resources of other countries far and wide. Countries elsewhere around the world, in turn, exported primary commodities in return for European finished goods. The trajectory of the US, however, ran askew of this divide. Neither core nor periphery, the country simultaneously exported an ever-growing stream of raw materials and agricultural produce while also rapidly industrializing. By the First World War, this former slave-owning, cotton-producing republic had become a net exporter of manufactured goods.”

Like the United States, Argentina and Australia both had high levels of GDP per capita and growth during periods in the nineteenth century, but then experienced extended periods of stagnation from the late 19^th century to the mid -20^th century.

I still think there are a couple of problems with this perspective on the U.S as a developing country. First, although the United States became a net-exporter of manufactured goods, its most valuable exports continued to be primary products, especially cotton. Exports of machinery did not begin to surpass exports of cotton until the 1930s.

Table 9. Value of selected exports in 1911

Export	Millions $s
Cotton	585
Wheat	77
Petroleum	105
Machinery	151
Iron and Steel	79
Automobiles	16

Source Historical Statistics EE569-589

          Moreover, the foreign sector was a relatively small part of the U.S. economy. Link and Maggor emphasize the atypicality of the U.S.’s shifting role in the global economy, but another way in which the U.S. was atypical was its relative self-sufficiency. In Argentina before the WWI the foreign sector equaled more half of GDP (Campos https://voxeu.org/article/riddle-argentina). The foreign sector not only accounted for a smaller fraction of GDP than developing countries, it accounted for a noticeably smaller percentage of GDP than in the developed countries in Western Europe (See Table 10).  The foreign sector as a share of GDP was small and declining in the nineteenth century. Focusing on the U.S role as an exporter of primary product may make sense in terms of understanding its role in the international economy, but it is not clear that its role in the international economy was a central part of the economy.

Table 10. Foreign Sector as a Percentage of National Product

Country	Date	Percent	Date	Percent
UK	1837-45	26	1909-13	51.5
France	1845-54	21.9	1908-10	35.2
Germany	1872-79	36.7	1910-13	38.3
Canada	1870-80	30.9	1911-13	32.2
Australia	1861-70	53.4	1911-13	41.9
U.S	1834-43	14.5	1904-13	12.2

Source: Kuznets 1967, 19-20.

Variation Within the United States

                How does one reconcile the picture I have presented of the United States as one of the most developed countries with Link and Maggor’s characterization of the United States as a developing country? One possibility is that the United States was both. It was two economies. One was a developing country, dominated by agricultural exports, lack of industrialization, and low levels of education and innovation. The other was one of the leading countries in income, industry, education and innovation. A distinctive feature of the United States in the middle of the nineteenth century was the extent to which the features associated with underdevelopment were associated with one part of the country, the South, and the features associated with the North.

This, of course, is not a new argument. The view that the South was some sort of “colonial dependency was one of the primary targets of Fogel and Engerman in Time on the Cross. While Fogel changed his position on a number of issues by the time he finished Without Consent or Contract, this was not one of them. He still argued that high incomes and rapid growth of per capita income in the South between 1840 and 1860 underscored “the dubious nature of attempts to classify the South as a ‘colonial dependency.’” Several authors have suggested that Fogel and Engerman overstated the case. First, Wright (1978) argued that 1840 and 1860 census years were not representative; 1840 was below trend and 1860 was above trend.  Consequently, differences between those two years would tend to exaggerate growth. Second, Cohn (1981) argued that the Fogel and Engerman estimates, like the Easterlin estimates before them, mis-measured services, and that reasonable corrections eliminate the advantage of the South over the Midwest. Third, I think some of the comparisons Fogel makes are somewhat misleading. He notes that only some parts of the North had higher incomes than the South, but the more than half the U.S. population lived in New England and the Mid Atlantic, the North’s high income areas, while only 6 percent lived in the Southwest Central, per capita incomes in the other subregions of the South were below the lowest subregion in the North.

I tend to lean toward the Ransom and Sutch side on the debate about the economic development of the South:

 “Economic historians have portrayed the South as a modern, well developed economy that utilized its comparative advantage in staple crops to produce a per capita income that ranked among the richest economies of the world in the middle of the nineteenth century. However, this interpretation of the South as a “modern” economy in the mid-nineteenth century rests on a very narrow interpretation of the available measures of economic activity. Even if we grant that the southern economy experienced high levels of income growth in the antebellum period, the fact remains that the continued growth of the southern economy depended on continued expansion into new lands in the west; a sustained demand for cotton in the industrial world, and the preservation of a chattel labor system that stifled investment.” (Ransom and Sutch 2001, 265).

Table 11. Income per capita (1840$s)

	1800	1850	1860
New England	56.44	167.28	178.51
Mid Atlantic	68.46	149.83	184.37
East North Central		120.13	136.83
West North Central		112.47	141.09
South Atlantic	73.99	104.81	126.90
East South Central		103.85	133.96
West South Central		140.7	171.20
Mountain		195.94	229.03
Pacific		1,009.05	525.81
Original 13 Colonies		137.9	163.85
U.S.		132.66	158.35

Source: Lindert and Williamson 2016, 102.

Table 12. Growth of Per capita Income (% per annum)

	1800-50	1850-60	1800-60
New England	2.20	.65	1.94
Mid Atlantic	1.58	2.10	1.66
East North Central		1.31
West North Central		2.29
South Atlantic	.70	1.93	.90
East South Central		2.58
West South Central		1.98
Mountain		1.57
Pacific		-6.31
		1.74	1.48
		1.79	1.42

Source: Lindert and Williamson2016, 102. States included in each census region can be found here.

                The North clearly held the lead in industrialization as well. The table below shows the value added in manufacturing in each state in 1850. Free states, which accounted for about 2/3 of the population accounted for more than 80% of value added in manufacturing. Moreover, the manufacturing activity in the South was mostly located in the border states of Maryland, Virginia, Kentucky and Missouri, three of which, although slave states, did not secede.

Table 13. Manufacturing Output, 1850

Free States	Value of Manufactures $s	% of Total		Slave States	Value of Manufactures $s	% of Total
New York	237,597,249	23.50%		Maryland	32,477,702	3.21%
Pennsylvania	155,044,910	15.33%		Virginia	29,705,387	2.94%
Massachusetts	151,137,145	14.95%		Kentucky	24,588,483	2.43%
Ohio	62,647,259	6.20%		Missouri	23,749,265	2.35%
Connecticut	45,110,102	4.46%		Tennessee	9,728,438	0.96%
New Jersey	39,713,586	3.93%		North Carolina	9,111,245	0.90%
Maine	24,664,135	2.44%		Louisiana	7,320,948	0.72%
New Hampshire	23,164,503	2.29%		Georgia	7,086,525	0.70%
Rhode Island	22,093,258	2.19%		South Carolina	7,063,513	0.70%
Indiana	18,922,651	1.87%		Delaware	4,649,296	0.46%
Illinois	17,236,073	1.70%		Alabama	4,528,878	0.45%
California	12,862,522	1.27%		Mississippi	2,972,038	0.29%
Michigan	10,976,894	1.09%		Texas	1,165,538	0.12%
Wisconsin	9,293,068	0.92%		Florida	668,335	0.07%
Vermont	8,570,920	0.85%		Arkansas	607,436	0.06%
Iowa	3,551,783	0.35%		Total Slave	165,423,027	16.36%
Total Free	842,586,058	83.33%

The South also lagged the North in educational attainment. The next table shows literacy and school attendance in 1850 ranked from highest to lowest. The same pattern can be seen in both measures of education. New England states, followed by Mid-Atlantic and Midwestern states, with Southern states at the bottom. The percentages are based on the free population. Clearly the rates of education in the South would have been even lower if they were calculated for the whole school age population in the South.

Table 14. Literacy and School Attendance, 1850

State	Literacy of Free Adults	Literacy of All Adults	State	School Attendance
New Hampshire	98.3%		Maine	87.3%
Maine	97.9%		Vermont	84.9%
Connecticut	97.5%		New Hampshire	84.5%
Vermont	96.3%		Massachusetts	72.5%
Rhode Island	95.7%		Connecticut	71.7%
Wisconsin	95.7%		Michigan	69.7%
Michigan	95.5%		Ohio	67.1%
Massachusetts	95.1%		New York	65.8%
New York	94.0%		Rhode Island	62.9%
California	93.5%		Pennsylvania	59.9%
Pennsylvania	93.2%		Indiana	54.7%
Ohio	92.7%		Illinois	54.0%
New Jersey	92.4%		Wisconsin	53.7%
Iowa	90.0%		New Jersey	52.6%
Mississippi	89.1%	42.5%	Iowa	46.4%
Illinois	88.9%		Tennessee	46.2%
South Carolina	87.2%	37.6%	North Carolina	44.5%
Missouri	85.8%	75.8%	Kentucky	42.9%
Texas	84.5%	62.3%	Delaware	42.7%
Maryland	83.1%	71.9%	Missouri	40.5%
Louisiana	82.8%	43.2%	Mississippi	40.2%
Indiana	82.5%		Louisiana	37.7%
Alabama	81.1%	44.4%	South Carolina	36.2%
Florida	81.0%	44.5%	Georgia	35.6%
Georgia	81.0%	46.8%	Maryland	35.6%
Virginia	79.8%	54.0%	Alabama	35.4%
Kentucky	79.4%	63.4%	Arkansas	34.5%
Delaware	76.0%	74.6%	Texas	32.6%
Tennessee	75.4%	58.0%	Virginia	30.0%
Arkansas	74.0%	56.7%	Florida	26.1%
North Carolina	69.5%	48.1%	California	10.3%

Source: Social Explorer, 1850 Census

Innovation, as measured by patents, shows a similar pattern to education: New England followed by Mid-Atlantic and Midwest, with the South taking up the rear.

Table 15. Annual Patent Rates (patents per million residents)

	1840-49	1850-59	1860-69	1870-79	1890-91	1910-11
New England	55.5	175.6	483.3	775.8	772	534.3
Middle Atlantic	51.7	129.4	332.3	563.4	607	488.6
East North Central	16.6	57.3	210.3	312.3	429.9	442.3
West North Central	9.5	22.9	95.4	146.5	248.7	272
South	5.5	15.5	26	85.8	103.1	114.4
West		24.8	164.5	366.7	381.6	458.4
U.S. Ave	27.5	91.5	195.7	325.4	360.4	334.2

Source: Lamoreaux and Sokoloff 1999, Table 1

              

  To what extent are these differences due to slavery rather than other differences between the North and South? John Majewski has tried to understand the problem by studying slave and free areas with similar geographies. Recently he compared the Limestone South with free areas adjacent to it. He argues that despite agriculture, urbanization and manufacturing that resembled the Midwest more than the rest of the South, like the rest of the slave states these areas failed to achieve the democratization of education and innovation that characterized the North. Even when they provided funding for education it appears to have gone primarily to the children of the wealthiest families. For instance, in Kentucky funding was provided based upon the number of children, but high tuition made school impossible for poorer families, so the state funding simply provided a subsidy to the education of the children of wealthy families. Consequently, innovation suffered as well. Majewski found that “In 1860 alone, Ohioans filed for 329 patents, or about 141 per million residents. Despite having a similar economic structure as Ohio, the resident of the Limestone South filed for fifty-two patents in 1860 or about 50 per million residents (Majewski 2015, 293).”

       

         Majewski’s work emphasizes the outsize role of slaveowners in the political system even in places where slavery was of less importance economically, a point that Egnal emphasized. Even in states where the economy was not dominated by cotton production, slave owners, especially large slave owners, could play a disproportionately large role in the political system.

Table 16. Slave Ownership and Political Representation

State	% white families owning slaves	% lawmakers owning slaves	% families owning more than 20 slaves	% lawmakers owning more than 20 slaves
Arkansas	18.5	53.6	1.6	10.3
Tennessee	22.3	41	1.6	7
Virginia	30..8	67.1	3.2	22.9

Source: Egnal, Clash of Extremes, Table 7.2.

Noting the similarities between the South and countries that relied upon exports of primary products suggests a counterfactual. The North was already among the highest income, most industrialized countries, but If Southern secession succeeded, what would the Confederate States of America have looked like 50 or 100 years later. Would it look more like the North or like Argentina, or Brazil? 

Conclusion

I’m sympathetic to Link and Maggor’s desire to develop a better understanding of the history of the American economy that does not treat growth American growth as inevitable, as a merely an unfolding. But the task is actually a daunting one because the most notable feature of American economy history is that when one steps back and looks at the big picture it does appear to be almost inevitable. The figure below shows American per capita GDP graphed on a log scale. 

When you use a log scale the slope of the line reflects the rate of change. If you see a roughly straight line that means that the percentage changes from year to year are relatively constant. That is the case with the United States. What is remarkable about this is that the U.S appears to have experienced significant structural changes that did not alter the course of economic growth. After the Panic of 1837, states re-wrote their constitutions and changed the way they promoted transportation and financial development. The Civil War caused the destruction of labor and capital, and ended slavery, wiping out much of the wealth of the South and fundamentally altering its economic institutions. The Depressions in 1893 and 1929, led to reactions against the political parties that had been in control that facilitated major economic changes. The list goes on: shifts from periods of high tariffs to periods of low tariffs, a shift from free immigration in the nineteenth century to restricted immigration in much of the twentieth century, two World Wars, the Cold War, and the expansion of federal government relative to state and local governments, central bank or no central bank, state banks or federal banks.  Nothing appears to make any difference. Yes, there are business cycle movements, but only the Great Depression appears as even a blip in the long run.

But, as I said, I am sympathetic to Link and Maggor. This apparently inexorable growth requires explanation. And incantations about capitalism and entrepreneurial spirit won’t do the trick.  

References

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Broadberry, Stephen N., and Douglas A. Irwin. "Labor productivity in the United States and the United Kingdom during the nineteenth century." Explorations in Economic History 43, no. 2 (2006): 257-279.

Cameron, Rondo E. A concise economic history of the world: from Paleolithic times to the present. Oxford University Press, USA, 1993.

Coclanis, Peter A. "Tracking the Economic Divergence of the North and the South." Southern Cultures 6, no. 4 (2000): 82-103.

Cohn, Raymond L. "Antebellum regional incomes: Another look." Explorations in Economic History 18, no. 4 (1981): 330.

Egnal, Marc. Clash of Extremes: The Economic Origins of the Civil War. Hill and Wang, 2010.

Engerman, Stanley L., and Kenneth L. Sokoloff. Economic development in the Americas since 1500: endowments and institutions. Cambridge University Press, 2012.

Fogel, Robert William, and Stanley L. Engerman. "Time On The Cross: The Economics Of American Negro Slavery." (1974).

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Kuznets, Simon. "Quantitative Aspects of the Economic Growth of Nations: X. Level and Structure of Foreign Trade: Long-Term Trends." Economic Development and Cultural Change 15, no. 2, Part 2 (1967): 1-140.

Lamoreaux, Naomi R., and Kenneth L. Sokoloff. Inventive activity and the market for technology in the United States, 1840-1920. No. w7107. National Bureau of Economic Research, 1999.     

Lindert, Peter H., and Jeffrey G. Williamson. Unequal Gains: American Growth and Inequality since 1700.  Princeton University Press, 2017.

Link, Stefan, and Noam Maggor. "The United States as a DevelopingNation: Revisiting the Peculiarities of American History." Past & Present (2019).

Majewski, John. "Why did northerners oppose the expansion of slavery? Economic development and education in the limestone south." In Sven Beckert and Seth Rockman (ed.) Slavery’s capitalism: a new history of American economic development, 2016.

Pessen, Edward. "How different from each other were the Antebellum North and South?." The American Historical Review 85, no. 5 (1980): 1119-1149.

Ransom, Roger L., and Richard Sutch. "Conflicting visions: The American Civil War as a revolutionary event." Research in Economic History 20 (2001): 249-301.

Wright, Gavin. The political economy of the cotton South: households, markets, and wealth in the nineteenth century. New York: Norton, 1978.