ECONOMIC GROWTH
IN THE UNITED STATES

We think of ourselves as the richest and most progressive nation in the world. We have a right to. Starting from nowhere only two centuries ago, the United States’ economy has produced results that are spectacular by any standards. Our 1967 g.n.p. of nearly $800 billion was one-third of the world’s total, yet we have only 6 per cent of the world’s population. It was more than double that of our nearest competitor, the U.S.S.R.; and on a per capita basis it led the world by a wide margin.

Since World War II, the American economy has grown at about 4 per cent annually in total output, nearly one-third faster than over the preceding century. But many of the other advanced industrial nations have done even better.

How have we done so well over the longpull? What is the outlook for the future? This chapter tries to answer the first question. Chapter 17 looks to the future.

The U.S. Record

Figure 16-1 shows the record. Over the past century total U.S. real g.n.p. (in 1964 prices) has risen from about $18 billion to $750 billion, or nearly fortyfold. Over the same period per capita g.n.p. (also in 1964 prices) rose from about $450 to $3,700, or about eightfold. Total output has grown at a rate of 3+ per cent, and per capita output at about 2 per cent annually.

FIG. 16..T Both total and per capita real g.n.p. have

risen persistently over the past century, faltering seriously
only during the 1930’s, Data are plotted only at 5 year
intervals to show the main growth trends. (Source: U.S.
Department of Commerce.)

The historical record raises some intriguing problems. Table 15-1 showed our long-term growth rate compared to those of other leading industrialized countries over the past century. We come off well, but some of the .rates are surprisingly close. If these facts are correct, and they are the estimates of the best research workers in the world today, how shall we explain the wide lead of present United States output per capita over that Of other nations such as Japan and the U.S.S.R.? A plausible inference from the estimates would be that somehow the United States grew very fast during the first century of its existence, so that we had already established a substantial lead over the other nations by the middle of the nineteenth century, since which time the growth rates have not differed so widely. But many observers reject this explanation, arguing that the U.S. growth rate began to pick up with the Industrial Revolution here in the middle 1800’s. Whatever the answer, don’t forget one impressive fact. Only a fraction of a percentage point difference in annual growth rate can accumulate to enormous totals over a century or more.

To fill in the factual backdrop, let us take a closer look at the anatomy of U.S. economic growth since 1900. Figure 16-2 shows the trends since 1900 in the major variables in the growth process which were stressed in the theory of Chapter 15.

FIG. 16..2 Since 1900 the capital stock has grown much faster than the labor force, and g.n.p. has grown faster than have the combined inputs of labor and capital, Real wages and interest rates have moved about as would be expected from our theory of growth, recog. nizing the big role played by technological advance and other elements beyond the growth in labor and capital. (Source: Long Term Economic Growth, 1860—1965, U.S. Department of Commerce, 1966. This volume summarizes much of the available statistical data on U.S. growth.)

What can we see here? A rapid but jagged rate of growth in real g.n.p., reflecting a roughly similar rate of growth in the capital stock and a much slower growth in population. The theory of Chapter 15 would suggest rising real wages relative to the return on capital, and this is indeed what we see in the lower part of the chart. Further, the theory would predict that, without technical progress, the rate of return on capital would fall absolutely. But, interestingly, the return on capital, though fluctuating widely in the great depression, is roughly flat in trend. Something, presumably technical advance, has buoyed up both real wages and the return to capital, as the theory suggests. And the capital-output ratio, not shown on the chart, was also roughly flat in trend, contrary to the increase we would expect with rapid capital deepening in the absence of technical advance. Our growth theory from Chapter 15, with technical advance included, is confirmed by the evidence.