The New History of Capitalism Is Bunk

by Don Boudreaux on June 30, 2020

in Complexity & Emergence, Growth, History, Innovation, Myths and Fallacies

I recently read the late Stanford University economist Nathan Rosenberg’s excellent 1981 paper “Why in America?” (which is reprinted as Chapter 6 in the 1994 collection of some of Rosenberg’s papers, Exploring the Black Box). In this paper, Rosenberg mentions a fact about 19th-century America that casts further doubt on the so-called “new history of capitalism” – the “history” that purports to show that American capitalism and economic growth are chiefly, or at least largely, the product of chattel slavery.

Here’s Rosenberg (from pages 116-117 of the 1994 reprint of the paper):

An abundance of natural resources means, in economic terms, that it is rational to employ methods of production which are resource intensive. Much of American inventive activity in the first half of the nineteenth century aimed at substituting abundant natural resources for scarcer labor and capital …. The substitution of abundant wood for scarce labor was, in fact, highly rational….

In the gunmaking trade, usually regarded as the locus classicus of the distinctly American mass-production technology, some of the most original contributions were in the development and elaboration of a set of lathes for shaping the gunstock with a minimum amount of labor….

What is the relevance of these woodworking and agricultural machines to the emergence, by midcentury, of the American system of manufactures? The essential point is that resource abundance provided an incentive in America to explore the possibilities of certain new machine technologies easier and more deeply than in Europe.

As Paul Romer, in 1996, summarized Rosenberg’s point,

Entrepreneurs and inventors developed specialized machines that economized on human effort and made prolific use of the natural resources and energy that were available.

The lesson to draw about the so-called “new history of capitalism” from Rosenberg’s point is straightforward. Because distinctive American innovation in the first half of the 19th century – the half of that century in which slavery still existed in some of the United States – was aimed at economizing on labor, this innovation is not explained by the availability of artificially cheap labor in the American south. Indeed, the bulk of the 19th-century American entrepreneurs who innovated – the bulk of the Americans who are truly responsible for driving forward American capitalism – were driven to do what they did by the unusual scarcity in America of labor relative to land and other natural resources. If American capitalism were rooted in slavery, nineteenth century innovation would not have been aimed at economizing on labor but, instead, at using labor more intensely.

There are, of course, many reasons in addition to the one identified here for dismissing the “new history of capitalism” as the bunk that it is. Indeed, the reason identified here is hardly the most fundamental or important one. And I do not claim any originality in pointing out the reason that I here point out. But it’s nevertheless a reason worth mentioning.


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