Britain’s head start in making machines gave the British a great advantage in manufacturing. Their machines typically embodied specific technological forms that reflected British relative costs of labor, capital, and raw materials. The relative costs of these inputs were different in the United States. Nineteenth-century Americans were short on labor and capital but long on raw materials and natural power sources (water). American industrialists had not only to copy English machines but also to adapt them to economize on labor, perhaps at the sacrifice of raw material usage. One example of their success is reflected in the comparison of the textile industries in each country. English textile firms averaged 17,000 spindles and 276 looms compared with 7,000 spindles and 163 looms in the United States. Robert Zevin’s 1971 study of textiles reveals that the American cotton textiles industry had only 20 percent of Britain’s spindles and 25 percent of its workers but processed 40 percent as much cotton. Clearly, the Americans had successfully adapted their equipment to save on scarce labor and capital.
The works of Lars Sandberg (1969) and later William Lazonick (1981) on the choice of techniques and their adoption reveals that technology was not uniform on both sides of the Atlantic. In textiles, the British became increasingly labor intensive and lowered the quality of their raw material inputs. Americans conserved labor by upgrading machinery and adopting higher grades of raw cotton or wool materials. Because Americans did not unionize as did British workers and were more mobile than British workers, American management could more easily substitute new machines to reduce its labor dependence and labor costs. Claudia Goldin and Kenneth Sokoloff (1982) add another consideration: Early manufacturers depended primarily on women and children. Where the opportunity costs of this labor were low, as in New England where farming produced a poor livelihood, women and children were relatively more available to supply factory labor. This encouraged the location of manufacturing there and supplied a labor force accepting of technological changes. These propositions by Goldin and Sokoloff have been scrutinized, tested, and supported by Lee Craig and Elizabeth Field-Hendry (1993).
In textiles, firearms, clocks and watches, and many other items, the ideas of standardization, interchangeable parts, and division of labor in assembly production processes were being widely applied. In 1851, at the Great Exhibition in London (in many ways like the World’s Fair today), American products were a primary attraction. Though simple in design and not elegant or long lasting, they were practical, cheap, and functional. After all, they reflected the characteristics demanded by a population dominated by masses of farmers, pioneers, and workers who were, for the most part, unpretentious, practical people. Recall Economic Reasoning Proposition 1, scarcity forces us to make choices. In 1855, a British parliamentary committee visited the United States to determine the secret of the “American system,” as it became known. They found, to their surprise, that American machinery was often technologically more sophisticated than its British counterpart. “Yankee Ingenuity” had become the wonder of the world.
But a paradox remains. Capital was relatively scarce in the United States—interest rates were high compared with those in Britain. Why, then, was it the Americans who built the ingenious machines, not the British? The answer is that skilled labor was even scarcer in the United States. In those industries that required skilled labor (firearms), it paid the Americans to substitute capital and natural resources (water power) for skilled labor. In industries that used less skilled labor, American industries used less capital per worker than their British counterparts. (James and Skinner 1985)