The Rise and Fall of American Growth

The U.S. Standard of Living Since the Civil War

PRINCETON UNIVERSITY PRESS

Contents

INTRODUCTION

The Ascent and Descent of Growth

The century after the Civil War was to be an Age of Revolution — of countless, little-noticed revolutions, which occurred not in the halls of legislatures or on battlefields or on the barricades but in homes and farms and factories and schools and stores, across the landscape and in the air — so little noticed because they came so swiftly, because they touched Americans everywhere and every day. Not merely the continent but human experience itself, the very meaning of community, of time and space, of present and future, was being revised again and again, a new democratic world was being invented and was being discovered by Americans wherever they lived.

— Daniel J. Boorstin, 1973

THE SPECIAL CENTURY

The century of revolution in the United States after the Civil War was economic, not political, freeing households from an unremitting daily grind of painful manual labor, household drudgery, darkness, isolation, and early death. Only one hundred years later, daily life had changed beyond recognition. Manual outdoor jobs were replaced by work in air-conditioned environments, housework was increasingly performed by electric appliances, darkness was replaced by light, and isolation was replaced not just by travel, but also by color television images bringing the world into the living room. Most important, a newborn infant could expect to live not to age forty-five, but to age seventy-two. The economic revolution of 1870 to 1970 was unique in human history, unrepeatable because so many of its achievements could happen only once.

This book is based on an important idea having innumerable implications: Economic growth is not a steady process that creates economic advance at a regular pace, century after century. Instead, progress occurs much more rapidly in some times than in others. There was virtually no economic growth for millennia until 1770, only slow growth in the transition century before 1870, remarkably rapid growth in the century ending in 1970, and slower growth since then. Our central thesis is that some inventions are more important than others, and that the revolutionary century after the Civil War was made possible by a unique clustering, in the late nineteenth century, of what we will call the "Great Inventions."

This leads directly to the second big idea: that economic growth since 1970 has been simultaneously dazzling and disappointing. This paradox is resolved when we recognize that advances since 1970 have tended to be channeled into a narrow sphere of human activity having to do with entertainment, communications, and the collection and processing of information. For the rest of what humans care about — food, clothing, shelter, transportation, health, and working conditions both inside and outside the home — progress slowed down after 1970, both qualitatively and quantitatively. Our best measure of the pace of innovation and technical progress is total factor productivity (hereafter TFP), a measure of how quickly output is growing relative to the growth of labor and capital inputs. TFP grew after 1970 at barely a third the rate achieved between 1920 and 1970. The third big idea follows directly from the second. Our chronicle of the rise in the American standard of living over the past 150 years rests heavily on the history of innovations, great and small alike. However, any consideration of U.S. economic progress in the future must look beyond innovation to contemplate the headwinds that are blowing like a gale to slow down the vessel of progress. Chief among these headwinds is the rise of inequality that since 1970 has steadily directed an ever larger share of the fruits of the American growth machine to the top of the income distribution.

Our starting point, that a single hundred-year period, the "special century," was more important to economic progress than have been all other centuries, represents a rebellion against the theory of economic growth as it has evolved over the last sixty years. Growth theory features an economy operating in a "steady state" in which a continuing inflow of new ideas and technologies creates opportunities for investment. But articles on growth theory rarely mention that the model does not apply to most of human existence. According to the great historian of economic growth, Angus Maddison, the annual rate of growth in the Western world from AD 1 to AD 1820 was a mere 0.06 percent per year, or 6 percent per century. As succinctly stated by economic commentator Steven Landsburg,

Modern humans first emerged about 100,000 years ago. For the next 99,800 years or so, nothing happened. Well, not quite nothing. There were wars, political intrigue, the invention of agriculture — but none of that stuff had much effect on the quality of people's lives. Almost everyone lived on the modern equivalent of $400 to $600 a year, just above the subsistence level. ... Then — just a couple of hundred years ago — people started getting richer. And richer and richer still.

This book adopts the "special century" approach to economic growth, holding that economic growth witnessed a singular interval of rapid growth that will not be repeated — the designation of the century between 1870 and 1970 as the special epoch applies only to the United States, the nation which has carved out the technological frontier for all developed nations since the Civil War. This book's focus on the United States, however, does not deny that other nations also made stupendous progress, that western Europe and Japan largely caught up to the United States in the second half of the twentieth century, and that China and other emerging nations are now well on their way in the catch-up process to the techniques and amenities enjoyed by the developed world.

Our first order of business is to identify those aspects of the post-1870 economic revolution that made it unique and impossible to repeat. We are so used to the essential comforts of everyday life, of being clean and warm, that we can easily forget how recently those comforts were achieved. In 1870, farm and urban working-class family members bathed in a large tub in the kitchen, often the only heated room in the home, after carrying cold water in pails from the outside and warming it over the open-hearth fireplace. All that carrying and heating of water was such a nuisance that baths were not a daily or even weekly event; some people bathed as seldom as once per month. Similarly, heat in every room was a distant dream — yet became a daily possibility in a few decades, between 1890 and 1940.

Progress did not suddenly begin in 1870. Rather, that year marks the start of our saga, for the Civil War provides a sharp historical marker separating the antebellum and postbellum ages. A tale of economic progress needs numbers to document that progress, and the raw data of economics became much more adequate with the first Census of Manufacturing, carried out in 1869, a year that coincidentally brought the nation together when the transcontinental railroad was joined at Promontory Summit in Utah.

Our starting point in 1870 should not be taken to diminish the progress that had been made in the previous half century. A newborn child in 1820 entered a world that was almost medieval: a dim world lit by candlelight, in which folk remedies treated health problems and in which travel was no faster than that possible by hoof or sail. Three great inventions of that half century — the railroad, steamship, and telegraph — set the stage for more rapid progress after 1870. The Civil War itself showcased these inventions when northern trains sped Yankee troops to the front and steamships blockaded supplies to the south from Britain, hastening southern defeat. And no longer was news delayed by days or weeks. Half a century earlier, the Battle of New Orleans had been fought on January 8, 1815, three weeks after the Treaty of Ghent was signed to end the War of 1812. Before development of the telegraph and undersea cable, news traveled very slowly. But during the Civil War, the daily newspapers carried dispatches announcing the outcomes of battles mere hours after they occurred.

The flood of inventions that followed the Civil War utterly transformed life, transferring human attention and energy from the mundane to soaring skyscrapers and airplanes. What makes the period 1870–1970 so special is that these inventions cannot be repeated. When electricity made it possible to create light with the flick of a switch instead of the strike of a match, the process of creating light was changed forever. When the electric elevator allowed buildings to extend vertically instead of horizontally, the very nature of land use was changed, and urban density was created. When small electric machines attached to the floor or held in the hand replaced huge and heavy steam boilers that transmitted power by leather or rubber belts, the scope for replacing human labor with machines broadened beyond recognition. And so it was with motor vehicles replacing horses as the primary form of intra-urban transportation; no longer did society have to allocate a quarter of its agricultural land to support the feeding of the horses or maintain a sizable labor force for removing their waste. Transportation among all the Great Inventions is noteworthy for achieving 100 percent of its potential increase in speed in little more than a century, from the first primitive railroads replacing the stagecoach in the 1830s to the Boeing 707 flying near the speed of sound in 1958.

Households in the late nineteenth century spent half their family budgets on food, and the transition of the food supply from medieval to modern also occurred during the special century. The Mason jar, invented in 1859 by John Landis Mason, made it possible to preserve food at home. The first canned meats were fed to Northern troops during the Civil War, and during the late nineteenth century a vast array of branded processed foods, from Kellogg's corn flakes and Borden's condensed milk to Jell-O, entered American homes. The last step to the modern era, the invention of a method for freezing food, was achieved by Clarence Birdseye in 1916, though his invention had to wait for decades to become practical at home until in the 1950s the electric refrigerator had finally progressed enough to be able to maintain a zero temperature in its freezer compartment. In 1870, shoes and men's clothing were purchased from stores, but women's clothing was made at home by mothers and daughters. The sewing machine had only recently reached the mass market and "held out the impossible promise that one of the great drudge pastimes of domestic life could actually be made exciting and fun." By the 1920s, most female clothing was purchased from retail outlets that did not exist in 1870 — namely, the great urban department stores and, for rural customers, the mail-order catalogs.

Some measures of progress are subjective, but lengthened life expectancy and the conquest of infant mortality are solid quantitative indicators of the advances made over the special century in the realms of medicine and public health. Public waterworks not only revolutionized the daily routine of the housewife but also protected every family against waterborne diseases. The development of anesthetics in the late nineteenth century made the gruesome pain of amputations a thing of the past, and the invention of antiseptic surgery cleaned up the squalor of the nineteenth-century hospital. X-rays, antibiotics, and modern treatments for cancer were all invented and implemented in the special century.

What made the century so unique is not only the magnitude of its transitions, but also the speed with which they were completed. Though not a single household was wired for electricity in 1880, nearly 100 percent of U.S. urban homes were wired by 1940, and in the same time interval the percentage of urban homes with clean running piped water and sewer pipes for waste disposal had reached 94 percent. More than 80 percent of urban homes in 1940 had interior flush toilets, 73 percent had gas for heating and cooking, 58 percent had central heating, and 56 percent had mechanical refrigerators. In short, the 1870 house was isolated from the rest of the world, but 1940 houses were "networked," most having the five connections of electricity, gas, telephone, water, and sewer.

The networked house, together with modern appliances, changed the nature of housework. The long days previously devoted to doing laundry on a scrub board, hanging clothes outside to dry, making and mending clothing, and baking and preserving food had now transitioned into fewer hours of housework. Hours released from housework were now available for women to participate in market work. The improvement in working conditions for men was even more profound. In 1870, more than half of men were engaged in farming, either as proprietors or as farm laborers. Their hours were long and hard; they were exposed to heat in the summer and cold in the winter, and the fruits of their labor were at the mercy of droughts, floods, and infestations of insects. Working-class jobs in the city required sixty hours of work per week — ten hours per day, including Saturdays. More than half of teenage boys were engaged in child labor, and male heads of households worked until they were disabled or dead. But by 1970, the whole concept of time had changed, including the introduction of blocks of time that were barely known a century earlier, including the two-day weekend and retirement.

Thanks to all these irreversible changes, the overarching transition in the half century after the Civil War was from an agrarian society of loosely linked small towns to an increasingly urban and industrial society with stronger private and governmental institutions and an increasingly diverse population. Milestones on the one-way road from a rural society to an urban one are marked off by the urban percentage of the population, defined as those living in organized governmental units with a population of 2,500 or more. The percent of the nation classified as urban grew from 24.9 percent in 1870 to 73.7 percent in 1970.

There is no greater example of the importance of the inventions of the special century than the aftermath of Hurricane Sandy, a freakishly powerful storm that devastated much of New York City and the seacoast of New Jersey in late October 2012. Floods have been common throughout human history, but interaction between the weather and the Great Inventions had not previously occurred on such a scale. Sandy pushed many of its victims back to the nineteenth century. Residents of New York City below Thirty-Fourth Street learned what it was like to lose the elevators that routinely had carried them to and from their apartments. Not only was vertical movement impeded, but the loss of the subways to flooding, along with the electrical blackout, eliminated the primary means of horizontal movement as well. Anyone who had no power also lost such modern inventions as electric lighting, air-conditioning and fans to ventilate dwelling spaces, and refrigerators and freezers to keep food from spoiling. Many residents had no heat, no hot food, and even no running water. Those living in New Jersey were often unable to find gasoline needed for commuting, because gas station pumps could not function without electricity. Moreover, communication was shut off after batteries were drained on laptops and mobile phones.

SINCE 1970: A NARROWER PALETTE OF PROGRESS COMBINES WITH DIMINISHING RETURNS

Designating 1870–1970 the "special century" implies that the years since 1970 have been less special. First, the technological advance started to show its age. With a few notable exceptions, the pace of innovation since 1970 has not been as broad or as deep as that spurred by the inventions of the special century. Second, after 1970, rising inequality meant that the fruits of innovation were no longer shared equally: though those at the top of the income distribution continued to prosper, a shrinking share of the growing economic pie made its way to the Americans in the middle and bottom of the income distribution.