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Early Twentieth Century Productivity Growth Dynamics: An Inquiry into the Economic History of “Our Ignorance”


  • Paul A. David

    (All Souls College & Stanford University)

  • Gavin Wright

    (Stanford University)


A marked acceleration of total factor productivity (TFP) growth in U.S. manufacturing followed World War I. This development contributed substantially to the absolute and relative rise of the domestic economy's aggregate TFP residual, which is observed when the 'growth accounts' for the first quarter of the twentieth century are compared with those for the second half of the nineteenth century. Two visions of the dynamics of productivity growth are germane to an understanding of these developments. One emphasizes the role of forces affecting broad sections of the economy, through spillovers of knowledge and the diffusion of general purpose technologies (GPT's). The second view considers that possible sources of productivity increase are multiple and idiosyncratic. Setting aside possible measurement errors, the latter approach regards sectoral and economy-wide surges of the TFP growth to be simply the result of which carried more weight than others. Although there is room for both views in an analysis of the sources of the industrial TFP acceleration during the 1920's, we find the evidence more compelling in support of the first approach. The proximate source of the TFP surge lay in the switch from declining or stable capital productivity to a rising output-capital ratio, which occurred at this time in many branches of manufacturing, and which was not accompanied by slowed growth in labor productivity. The 1920's saw critical advances in the electrification industry, the diffusion of a GTP that brought significant fixed capital-savings. But the same era also witnessed profound transformations in the American industrial labor market, followed the stoppage of mass immigration from Europe; rising real wages provided strong impetus to changes in workforce recruitment and management practices that were underway in some branches of the economy before the War. The productivity surge reflected the confluence of these two forces. This historical study has direct relevance for policies intended to increase the rate of productivity growth. In many respects, the decade of the 1920's launched the US economy on a high-growth path that lasted until the 1970's. If we hope to return to the growth performance of that era, we would be well advised to understand how it began.

Suggested Citation

  • Paul A. David & Gavin Wright, 2005. "Early Twentieth Century Productivity Growth Dynamics: An Inquiry into the Economic History of “Our Ignorance”," Macroeconomics 0502023, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpma:0502023
    Note: Type of Document - pdf; pages: 46

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    References listed on IDEAS

    1. Daniel Creamer & Sergei Dobrovolsky & Israel Borenstein, 1960. "Capital in Manufacturing and Mining: Its Formation and Financing," NBER Books, National Bureau of Economic Research, Inc, number crea60-1, July.
    2. Harberger, Arnold C, 1998. "A Vision of the Growth Process," American Economic Review, American Economic Association, vol. 88(1), pages 1-32, March.
    3. J. Stanley Metcalfe, 1997. "The Evolutionary Explanation of Total Factor Productivity Growth : Macro Measurement and Micro Process," Revue d'Économie Industrielle, Programme National Persée, vol. 80(1), pages 93-114.
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    Cited by:

    1. Robert J. Gordon, 2004. "Five Puzzles in the Behavior of Productivity, Investment, and Innovation," NBER Working Papers 10660, National Bureau of Economic Research, Inc.
    2. Juan M. Gallego & Luis H. Gutiérrez & Sang H. Lee, 2015. "A firm-level analysis of ICT adoption in an emerging economy: evidence from the Colombian manufacturing industries," Industrial and Corporate Change, Oxford University Press, vol. 24(1), pages 191-221.
    3. Edquist, Harald & Henrekson, Magnus, 2004. "Technological Breakthroughs and Productivity Growth," SSE/EFI Working Paper Series in Economics and Finance 0562, Stockholm School of Economics, revised 23 Jan 2006.
    4. Crafts, Nicholas, 2002. "The Solow Productivity Paradox in Historical Perspective," CEPR Discussion Papers 3142, C.E.P.R. Discussion Papers.
    5. George Speight, 2000. "Who Bought the Inter-War Semi? The Socio-Economic Characteristics of New-House Buyers in the 1930s," Oxford University Economic and Social History Series _038, University of Oxford, Department of Economics.
    6. Ristuccia , C.A. & Solomou, S., 2002. "Electricity Diffusion and Trend Acceleration in Inter-War Manufacturing Productivity," Cambridge Working Papers in Economics 0202, Faculty of Economics, University of Cambridge.
    7. Gordon, Robert J, 2004. "Two Centuries of Economic Growth: Europe Chasing the American Frontier," CEPR Discussion Papers 4415, C.E.P.R. Discussion Papers.
    8. Paul A. David & Gavin Wright, 2005. "General Purpose Technologies and Productivity Surges: Historical Reflections on the Future of the ICT Revolution," Economic History 0502002, EconWPA.
    9. George Speight, 2000. "Who Bought the Inter-War Semi? The Socio-Economic Characteristics of New-House Buyers in the 1930s," Oxford University Economic and Social History Series _038, Economics Group, Nuffield College, University of Oxford.
    10. S. Solomou & C. A. Ristuccia, 2002. "British Episodic Economic Growth 1850-1938," Cambridge Working Papers in Economics 0208, Faculty of Economics, University of Cambridge.
    11. Michele Boldrin & David K Levine, 2007. "All the Interesting Questions, Almost All the Wrong Reasons," Levine's Working Paper Archive 784828000000000706, David K. Levine.
    12. Andreas Reinstaller & Werner Hölzl, 2001. "The creative response in economic development: the case of information processing technologies in US manufacturing, 1870-1930," Working Papers geewp15, Vienna University of Economics and Business Research Group: Growth and Employment in Europe: Sustainability and Competitiveness.
    13. Kenneth Carlaw & Richard Lipsey, 2011. "Sustained endogenous growth driven by structured and evolving general purpose technologies," Journal of Evolutionary Economics, Springer, vol. 21(4), pages 563-593, October.
    14. Paul A. David, 2005. "Productivity growth prospects and the new economy in historical perspective," Economic History 0502005, EconWPA.

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