EH463

NICOLA BILOTTA

Question: The discovery of steam power has been considered one

of the most important GPT. Did it directly affect economic growth?
The collective unconscious identifies the process of USAs modernization
and industrialization with the railways development. The economic progress is
symbolically represented by the imagine of steam locomotives running through
the country from North to South, from West to East. Trains against free
grasslands, the progress wiped out the Old Wild West making rails became
the symbol of the transition to the modern world. This paper is divided in two
sections. The former tries to analyze if railroads were the main factor of the
USAs economic growth. The latter starting from the assumption that, always,
behind new technologys spread, it should be found out the technical
innovations investigates how the discovery of steam power fostered British
economic growth. The conclusion tries to confront Fagels and Crafts study in
order to demonstrate why steams development is considered a turning point
of economic history.
Section I
Firstly, it should be highlighted what GPT (General Purpose Technologies)
means. The concept GPT defines a technology that has had a significant and
protracted impact on economic growth. Normally, a GPT influence changes the
household lives and the way how business is organized. The most important
GPT are considered steam, energy and information technology because they
affected and transformed the whole economy. 1 Scholars argue that a GPT has a
determined cycle of exploitation. Initially, it would not have a considerable
impact on productivity growth. When its potential is discovered, it would deeply
affect the entire economic process, before being replaced by a new technology.
The best efficient example to explain this assumption, it is the path from steam
to electricity.2 In addition, the three main features of a GPT should be
explained. Firstly, pervasiveness its effects should regard many economic
sectors. Improvement it should develop more efficient way to exploit its
potential. Innovation spawning it should foster the invention of new products
or new production process.3

1 B. Jovanovic and P. L. Rousseau, General Purpose Technology, in Handbook of

Economic Growth, Vol. I B, Elsevier, 2005, p. 1884-1886
2 N. Crafts, General Purpose Technology: A growth Accounting Perspective, in The
Economic Journal, Vol. 114, 2004, p. 339

The main role of railroads as drive of the USAs development has been
recognized by many scholars. Actually, several studies have demonstrated its
positive effect. Firstly, encouraging the discovery of cheaper forms of goods
transportation. In addition, railroads construction generated a parallel inducted
economy increasing of products demand. According to R. W. Fogel, between
1839 and 1859, 26.000 miles of railroad were built. During these years, the
lumber industry increased its production by 150% and the pig iron industry
rose by 100%. Furthermore, it should be highlighted a relation proved by the
empirical observation between new railroads and the combination of
population and commercial growth as it can be studied in Ohio or Michigan.4
However, - in order to prove Fogels assumption these proofs are not
completely satisfactory. It should be analyzed how railroads affected trades
organization and, finally, if it was a necessary factor to arise economic growth.
To emerge as crucial condition of development, railroads should have been able
to offer a considerable lower price to transport goods thus, its costs per unit
should have significantly been lower than the alternative services of
transportation.
First of all, North American trades features should be highlighted.
Considering the agricultural production, before the 1890, the majority of the
USAs regions were self sufficient. However, it can be identified a segment of
market from the Midwest countries that produced a considerable surplus of
agricultural goods to the North Atlantic, South Atlantic and South central
region that recorded a demand for various agricultural goods. The process of
agricultural distribution interregional trade flows - involved three different
steps. First, the primary markets were set in the biggest cities in the Midwest.
Here, goods were transported in the secondary markets - biggest cities all over
the country - such as New York City, Boston or New Orleans. Finally, agricultural
products were sold to secondary markets circumstance areas or abroad. 5
Fogel suggests to calculate the difference costs of transporting agricultural
goods by railroads, water or wagons considering the interregional trade. Fogels
calculation consider social savings the result of the difference in resource
cost of supplying a given volume of output using old and new versions of the
technology.6 Interestingly, water transportation seems to offer a lower price
per unit than railroads for instance, the railroads rate on wheat from Chicago
to New York was about four time as much as the ton-mile rate by water. On the
3 B. Jovanovic and P. L. Rousseau, General Purpose Technology, in Handbook of
Economic Growth, Vol. I B, Elsevier, 2005, p. 1884-1885
4 R. W. Fogel, A quantitative approach to the Study of railroads in American Economic
Growth: A Report of Some Preliminary Findings, in The Journal of Economic History,
Vol. 22, 1962, p. 165
5 Ibidem, p. 168-170

other hand, water service required a longer journey thus, more time to reach
its destination , terminal charges and insurances were significantly high.
Furthermore, water routes were not able to be used for around five months per
yeas due to negative weather condition. Thus, the total costs of water
transportation started to exceed the railroad costs. Fogel focused its study to
build a pattern of trade taking into account four products: wheat, pork, corn
and beef that represent 42% of the total trade in 1890 studying the total
costs of water and railroad transportations. Fogels conclusion is that railroads
arose 158,000,000 dollars social savings 1.3% of gross national product in
the 1890.
Section II
Steam technology impacted the process of work organization providing
new forms of energetic supply to industry and allowing cheaper form of
domestic and international transportations. Especially, it can be observed that
the three main innovations implemented by steam powers exploitation were
used: stationary steam engines, railways and steamships. Craft suggests to
study if steam technologys exploitation affected British economic growth.
Firstly, it should be analyzed steam powers spread and taking into account
Kanefskys study it seems to have been characterized by a slow penetration
in all industries sectors - it can be noticed a earlier development in the cotton
textiles and mining industries. The constant technological progress brought
steam technology to become year by year cheaper and more efficient
continuously and gradually its machineries replaced the use of water power.
Craft suggests to replay Fogels methodological approach to analyze the
impact of steam power in British economic growth. Craft elaborates three
relations. He separately confronts the impact of stationary steam engine,
steamships and railroads with the growth of British labor productivity. Crafts
conclusions claim that steam technologys exploitation showed its effects not
during the Industrial Revolution it took nearly eighty years to record a
significant contribution to improve the labor productivity. According to Crafts
calculation, steam technology recorded a considerable contribution during the
period 1850-1870, in which it accounted for 0.31% of British labor productivity
growth per year. Finally, It can be argued that steam innovations stimulated a
significant increase of production in the second half of the XIX and it was not an
important factor of the Industrial Revolution.
Conclusion
Steam innovations have radically contributed worldwide economic
growth. Fagels paper and Crafts paper are efficient example how measure
GPTS impact over economic growth. Their studies cover a significant period of
6 N. Crafts, General Purpose Technology: A growth Accounting Perspective, p. 345346

human history. Indeed, they take into account the process of development of
the USA and England the two industrial leadership countries. It is crucial to
understand which factors characterized their economic progress. Although
Fagel and Craft adopt the same methodological approach, their papers address
different questions. Crafts assumption could be consider more complex. He
analyzed steam power effect in a longer term view from 1800 to 1910 - taking
into account the three main steam innovations. While Fagel is interested in
calculate railroads impact in North American economic growth taking as
pattern the study of only one year production. Without considering their
conclusion because they were looking for different answers -, it can be
concluded that both, Fagel and Craft, recognize the role of steam to develop
economic growth.