The American Economic Miracle

In 1893, Frederick Jackson Turner presented his landmark essay The Significance of the Frontier in American History to a gathering of academics at the World’s Columbian Exposition. Turner, in his thesis, argued that the unique American frontier experience shaped the United States’ development and created a distinct culture and political condition. In essence, the frontier was responsible for molding the American character into what it is. While his thesis certainly stands true, the “Old West” also brought with it an economic anomaly — a differentiating aspect that made the United States’ economic upbringing particularly strange. From its colonial origins and throughout the 1800s, the U.S economy was consistently plagued with shortages of labor. These shortages would influence the development of slavery in the South, where plantation owners find it necessary to import more slaves to sustain their agricultural output. These shortages would also be the reason for the influx of immigrants throughout the 1800s, who where subject to extreme prejudice from nativists once some forms of unemployment actually became evident.

The above graph depicts estimates made by the Bureau of Labor Statistics. However, they are relatively high due to the impossibility of knowing the actual levels of unemployment. Little surveying was done, regional statistics were not kept, and much of the American population was self-employed. This makes assessing the unemployment rate during this period of exceptional American growth difficult. And further complications arise when youth employment is added into the calculations — which customarily started the from age of 10 in most areas. Since not all households required their children to work, making fully accurate estimates is nearly impossible. However, given the growth of American industry during the 1800s, basic assumptions can be made. For one, the inventiveness of the U.S industrial economy can be properly explained if the labor shortages are taken into account. Because of the lack of labor in the United States, industrial capitalists had to rely on new technology to be able to increase their output and balance the lack of laborers. From this predicament, the American System of Manufacturing, as it was called, was developed. Because of its efficiency, it was revered amongst industrialists in Europe. The most important contribution being — the creation of interchangeable parts. This allowed industry to drastically increase their output and keep costs to a minimum. This also coincided with the high degree of mechanization that was starting to take root in the United States with the beginnings of the first Industrial Revolution.

Much of this technological advancement was also a product of the contention between agricultural and industrial regions during the United States’ great economic expansion. Although these clashing interests date far back to colonial times, the creation of the General Land Office in 1812 was a turning point. This independent federal agency was responsible for distributing and surveying public domain land in the largely unexplored territories of the United States. Two laws in particular addresses the rationing of these lands — the Preemption Act of 1841 and the Homestead Act. The former was passed to ration pieces of the uncultivated territory at a price. Up to 160 acres could be purchased at a time, and at very low prices. It was done to encourage those already occupying federal lands to purchase them. The Homestead Act, first enacted in 1862, was similar in its intent. Its aim was giving applicants roughly 160 acres of land free of charge west of the Mississippi River. Now, northern industrialists not only had to deal with labor shortages — they also had to satisfy their workers enough so they would not opportunistically leave and go westward. The frontier experience did much more than cultivate the unexplored land westward; it intensified the shortages of labor in the United States. This scarcity created an inventive industrial sector that had to compensate by developing new technology, which would ultimately lead the United States to the economic dominance it enjoys today. Economist Richard Wolff, in a few of his lectures and writings, theorizes that it was this remarkable condition that created a very different experience for those living in the United States.

“What distinguishes the United States from almost every other capitalist experiment is that from 1820 to 1970, as best we can tell from the statistics we have, the amount of money an average worker earned kept rising decade after decade. This is measured in “real wages,” which means the money you earn compared to the prices you have to pay. That’s remarkable. There’s probably no other capitalist system that has delivered to its working class that kind of 150-year history. It produced in the U.S. the expectation that every generation would live better than the one before it, that if you worked hard, you could deliver a higher standard of living to your kids.”

Frankly, Wolff’s analysis makes sense. Rising wages kept the worker class’s morale high, and attracted immigrants — it also served as an incentive for working people to stay as laborers rather than receive land and move westward. So, fundamentally speaking, American employers experienced competition in the labor market for two specific reasons. One, the federal land programs provided incentives for workers to move westward and entrepreneurs had to provide reasons for them to stay and work in the form of higher wages. And second, since the labor supply was constantly in high demand, workers were not easily replaceable. This implicitly forced firms to increase their wages, to attract laborers to their respective industries. In 2006, Michael Lind published an article in the Financial Times titled “A Labour Shortage Can be a Blessing,” which indirectly supports Wolff’s thesis on wages. He writes: “In the ageing nations of the first world, the benefits of a labour shortage, in the form of higher productivity growth and higher wages, might outweigh the costs. Where labour is scarce and expensive, businesses have an incentive to invest in labour-saving technology, which boosts productivity growth by enabling fewer workers to produce more. It is no accident that the industrial revolution began in countries where workers were relatively few and had legal rights, rather than in serf societies where people were cheaper than machines.” In order to validate Lind’s and Wolff’s claims, two specific economic topics must be properly historically analyzed. The first one being — is there evidence for such a labor shortage, and if so, how severe was it? Given the estimates made by the Bureau of Labor Statistics, it would be safe to assume that unemployment was not a major issue during the 1800s. When youth employment is taken into consideration, the estimates become very inflated, since the labor pool was so large. However, beside macroeconomic analysis, there are specific scenarios which shows that such a dilemma in production was indeed persistent in the United States during the 19th century. The PBS television series “American Experience” gives one particular scenario during the construction of railroads in the 1860s that validates this assumption. “In early 1865 the Central Pacific had work enough for 4,000 men. Yet contractor Charles Crocker barely managed to hold onto 800 laborers at any given time. Most of the early workers were Irish immigrants. Railroad work was hard, and management was chaotic, leading to a high attrition rate. The Central Pacific management puzzled over how it could attract and retain a work force up to the enormous task. In keeping with prejudices of the day, some Central Pacific officials believed that Irishmen were inclined to spend their wages on liquor, and that the Chinese were also unreliable. Yet, due to the critical shortage, Crocker suggested that reconsideration be given to hiring Chinese…” Historian Rickie Lazzerini portrays a similar issue in Cincinnati, Ohio during the beginning of the 1800s. “…the busy industries created a constant and chronic labor shortage in Cincinnati during the first half of the 19th century. This labor shortage drew a stream of Irish and German immigrants who provided cheap labor for the growing industries.” The second question that must be asked is — was there actually a persistent increase in wages during the 1800s?

To properly answer this question is immensely complex, since such little data is available. However, there exists one specific academic paper on the subject that addresses this question and the one posed prior. In 1960, economist Stanley Lebergott authored a chapter addressing wages in 19th century United States in a full volume called “Trends in the American Economy in the Nineteenth Century” published by the Conference on Research in Income and Wealth. The chapter itself was titled “Wages Trends, 1800 – 1900.” He writes: “Associated with the enormous size of these establishments was the

need to draw employees from some distance away. Local labor supplies

were nowhere near adequate. One result was the black “slaver’s wagon”

of New England tradition, recruiting labor for the mills. The other was

the distinctly higher wage rate paid by such mills in order to attract

labor from other towns and states. Humanitarian inclinations and the

requirements of labor supply went hand in hand. Thus while hundreds

of small plants in New York, in Maine, and in Rhode Island paid 30 to

33 cents a day to women and girls, the Lowell mills generally paid

50 cents” [451]. Regions that lacked adequate quantities of labor had to rely on larger wages to attract workers from afar. However, apart from the industrial north of the United States, farm wages also increased — perhaps signifying a competitive rift between the agricultural sectors and the industrial ones.

Professor Lebergott, later in his analysis, then provides the full wage computations that he was able to calculate given individual data and trends recorded by local media. He combined the data he acquired on a state by state basis, starting locally and then branching out to create a national average. Also note, the drop in wages between 1818 – 1830 he attributes to “the close of the Napoleonic Wars and the end of the non-importation agreement.”

Based on economist Stanley Lebergott’s analysis, Richard D. Wolff’s assertions are validated; the United States, for the most part, did enjoy increasing real wages throughout the 19th century. Even more so, it goes further in proving Michael Lind’s claim that shortages of labor can indeed cause wage increases and heighten technological innovation. It is very likely that the combined frontier experience and shortages in the production processes created a unique variant of capitalism that was unique to the United States. It gave American households the confidence that if they worked harder, they would earn a better living. It also gave to them the optimism that their children would enjoy a better standard of living. This unprecedented century of growth and success also had often overlooked impact on the American psyche. Because of the inflated expectations, it instilled a unique mentality amongst working class Americans. As John Steinbeck put it, the poor don’t see themselves as victims — but rather as “temporarily-embarrassed millionaires.” It is this aspect of the American psyche that has allowed the broken system to flourish in the decades since the persistent stagnation of wages of the 1970s. Admitting the issue is just to difficult, for some; if we believe enough, the American dream just might become real again, as it was for those traveling out West to find riches and fortunes. In retrospect, the sooner working class Americans awake from this fantasy, the sooner they will realize that times have changed — and not in their favor.

*** – A lecture where Wolff discusses the frontier experience and 19th century wage increases. – Some statistics and fact on U.S economic growth during this time period. – A decent article on this topic from the Wall Street Journal (you need a subscription to view it).