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Factor Biases and Technical Change in Manufacturing: The American System, 1850–1919

Published online by Cambridge University Press:  03 March 2009

Louis P. Cain  and
Donald G. Paterson
Louis P. Cain
Affiliation:
Professors of Economics at Loyola University of Chicago, IL 60611
Donald G. Paterson
Affiliation:
Professors of Economics at the University of British Columbia, Vancouver, BC V6T lW5
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Abstract

This paper examines the proposition that U.S. manufacturing experienced biased technical change during the period 1850–1919. Tests for bias, in Hicksian terms, are conducted using the translog cost dual. Redefined census data permit these tests to be made at the two-digit level of industry classification and with four inputs considered—labor, capital, materials, and a residual factor input. The tests demonstrate that labor-saving and capital-using biases existed, but material-using biases also were present. Furthermore, the patterns of bias varied considerably from industry to industry and often were of such a magnitude as to overpower ordinary substitution effects.

Type
Articles
Information
The Journal of Economic History , Volume 41 , Issue 2 , June 1981 , pp. 341 - 360
Copyright
Copyright © The Economic History Association 1981

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References

1 Habakkuk, H. J., American and British Technology in the Nineteenth Century (Cambridge 1962).Google Scholar See also Rothbarth, Erwin, “Causes of the Superior Efficiency of the U.S.A. Industry as Compared with British Industry,” Economic Journal, 56 (09 1946), 383–90.Google Scholar

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12 For instance, Bateman and Weiss have taken samples for Florida and Texas from the manuscript census and recalculated the data. They then compared the recalculated data with the published data. They found, for example, that in Florida in 1850, 56 percent of total investment capital, 21 percent of employment, and 7 percent of output value were omitted from the published census tables. In Texas in 1850, the figures were 13 percent, 3 percent, and 2 percent, respectively. Their supposition is that the Florida figures probably define the outer boundary of that type of error, and that in most states, particularly those in the industrialized North, the error factor would be below that of Texas. This is only supposition inasmuch as similar recalculations have not been attempted for other states. Furthermore, there is the whole set of measurement errors that cannot be rectified by recalculations from the manuscript census.

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18 The Allen own-elasticity of substitution (σii) and Allen cross-elasticity of substitution (σii) are given by:

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20 Elasticities of factor demand are calculated as πii = θ~iσiis where θi is the estimated factor share and σii is the Allen own-elasticity of substitution. Detailed estimates of the Allen partial elasticities of substitution and the price elasticities of factor demand are available from the authors on request.Google Scholar

21 See Berndt and Wood, “Technology.”Google Scholar

22 A crude rate of total factor productivity was calculated to be 0.417 percent a year on average between 1850 and 1914 for all manufacturing. It was computed using a Divisia index where * indicates a rate of change, F is total factor productivity, and Q is real output. Prices to deflate current value of output were constructed in the same manner as those used to impute material prices. The weighted mean (weights being mean real output in each Sector) was computed and averaged over the period. It should be noted that the above figure should be viewed with caution especially if comparison is made with economy-wide measures of total factor productivity. It understates the value because of intra-industry shipments and overstates because of the value of shipments from manufacturing with reference to the economy as a whole. The year 1914 was used, rather than 1919, to eliminate the effects of World War I.Google Scholar

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25 Uselding, Paul, “Factor Substitution,” p. 675.Google Scholar

26 Reference is to the literature originating from Habakkuk such as Rosenberg, Nathan, The Ameican can System of Manufactures (Chicago, IL, 1969)Google Scholar, and Harley, C. K., “Skilled Labour and the Choice of Technique in Edwardian Industry,” Explorations in Economic History, 11 (04 1974), 391–414.Google Scholar

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29 See Diewert, W. E., “Application of Duality Theory,” Intrilligator, M. and Kendrick, D., eds., Frontiers of Quantitative Economics, vol. 2 (Amsterdam, 1974), pp. 106–70 for a thorough interpretation.Google Scholar