The Changing Efficiency of the American Economy, 1869-1938

Abstract

T HE index of output per unit of total input that is discussed in this article is intended to describe the pattern and magnitude of technical change for the United States as a whole from I869 to I938. Based on national output and input, the index possesses the following attributes: I. Output equals gross national product in I929 prices (the Kuznets series). 2. Input equals the sum of labor, land, capital, and enterprise inputs in I929 prices. a. Labor input, involving separate weighting of agricultural and non-agricultural labor by I929 wage rates, is presented in two variants one measuring labor in manhours, the other, in man-years. Two alternate total input measures result. b. Other than capital consumption, property input (including enterprise) is determined by weighting the given-period's combined value of land and reproducible producers' wealth in I929 prices by the I929 rate of return on property. c. Changes in the amount of farm acreage dominate the land component. The land valuation weight, however, reflects the I929 value per acre of both urban and farm land. d. Reproducible producers' wealth in I929 prices is derived from one of Kuznets' series. e. Capital consumed in I929 prices is included in nonlabor input. 3. Input and output are presented in overlapping decade averages. We may now note the leading merits and shortcomings of the indexes. Formally our statistics measure output and input for the period in I929 prices. Our objective is, however, to measure them as though valued by baseperiod buyers. Since relative quantities of different products and resources varied over the period, we can assume that base-period buyers would have valued each ingredient otherwise than in the base period. Because of these variations, the precise relation of our indexes to the true valuation of aggregate inputs and outputs is indemonstrable. This flows from the permanent and insoluble defect of index numbers. For the index exactly to fulfill its intended purpose, the measurement of technical change, linearity should pervade transformation relationships between goods, substitution relationships between factors, consumer indifference relationships between goods, and production relationships between factors and goods (including constant returns to scale). Though these requirements are not met, so long as the defects are not destructive of all significance of results, a defective tool is preferable to none at all. For shorter-period comparisons, an index number can give fairly valid results. For longer-term comparisons, the uncertainties mount, but the need for at least a rough approximation remains. Linked by a common language, government, and monetary system. America's economy with all its manifold diversity has been a fairly coherent whole. Averages of attributes of its parts are not only computationally possible: the averages themselves in a real sense significantly influence the parts. For this reason aggregative measures, conceptual flaws notwithstanding, are indispensable. That the secular and cyclical position of the economy exerts great force upon the corresponding characteristics of its components cannot be gainsaid. In this paper adumbrations of one.more such influence will appear. As we shall also see, our indexes describe patterns of technical change corroborated by independent vidence. We shall discuss first the components of the indexes, and then compare the aggregative efficiency index with similar indexes for major industrial segments.