Embodiment, Disembodiment, Learning by Doing, and Returns to Scale in Nineteenth-Century Cotton Textiles

As the key conveyance of nineteenth-century American industrialization and early experimentation with tariff policy, the antebellum textile sector has always received extensive attention by economic historians. In the past two decades, we have learned much about industrial financing, investment behavior, productivity growth, the nature of the production function, and the optimality of tariff policy, yet we remain ignorant still on some fundamental issues. One of these involves a better understanding of the equipment replacement decision under conditions of rapid growth, technological improvement, and variable tariff policies. But most importantly, the identification of sources of productivity improvement and their magnitude had remained inadequately understood until very recently with the appearance of Paul David's article in this Journal. David's important contribution applies aggregate production function analysis to textiles in an effort to isolate the determinants of labor productivity growth during the three decades preceding the Civil War. The model is neoclassical with a Cobb-Douglas specification, variable returns to scale, disembodied technical progress and with a learning variable explicitly introduced into the production function. David finds evidence of constant returns to scale, strong learning effects, high rates of disembodied technical progress, and improved labor quality, the latter sufficient to offset the alleged downward pressure on productivity attributable to a long-run decline in input (especially labor) utilization rates.