"...Differences in the growth rates in the U.S. and other Western countries during the 19th and 20th centuries also raise questions about the degree to which the basic supply-side formula is a sufficient (rather than a necessary) condition for rapid growth. By historical standards, economic growth in the 19th century—when per capita incomes doubled—was unprecedented. But in the 20th century, incomes increased four times as rapidly as they did in the 19th century. Given the higher “base,” one might have expected growth in the 20th century to have been slower. Strikingly, the modern economy has also been less prone to lurch from exhilarating boom to devastating bust. In the 19th century, several depressions interrupted economic growth, whereas in the 20th century, apart from the Great Depression, downturns were relatively mild and short-lived—in spite of two great wars. Yet conditions in the 19th century conformed to the basic supply-side formula more closely than those of the 20th century. In the United States, government expenditures and taxes were extremely low—and, except during the Civil War, there was no income tax. There was no federal bureaucracy to impose minimum-wage laws, regulate health and safety standards, or resist monopolies and trusts. No Clean Water or Securities and Exchange acts had been passed. Medicare, Medicaid, and Social Security programs had not been conceived. And property rights—another mainstay of supply-side recommendations—were at least as secure, if not more so, in the 19th century than they are now.
Another puzzle: according to Solow’s groundbreaking research, technical progress rather than capital accumulation was the source of nearly 90% of U.S. growth in the first half of the 20th century. In the 19th century, capital accumulation made a larger contribution to growth than did technical change. Yet the new products invented in the 19th century were extraordinary. Inventions between 1850 and 1900 include the monorail, telephone, microphone, cash register, phonograph, incandescent lamp, electric train, steam turbine, gasoline engine, and street car, as well as dynamite, movies, motorcycles, linotype printing, automobiles, refrigerators, concrete and steel construction, pneumatic tires, aspirin, and X-rays. These may well overshadow inventions credited to the entire 20th century.
The smaller economic impact of 19th-century inventions suggests that they weren’t effectively commercialized; their widespread use was hampered by some combination of inappropriate features, high costs, poor marketing, or a paucity of venturesome consumption. Why in spite of a more congenial supply-side climate was this so? What changed in the 20th century that allowed the United States—and other countries with advanced economies—to extract more value from technological and scientific breakthroughs?
..."
The Venturesome Economy
