America Outgrew Europe In The Mid-19th Century

David Leonhardt’s last “Economic Scene” column is basically awesome, but as he rides into the sunset of his new Washington Bureauchiefdom, he did offer one offhand remark that I don’t think is quite right:

When it comes to economics, we know that a market economy with a significant government role is the only proven model of success. The United States has outgrown Europe partly because of our greater comfort with market forces. China and India boomed after allowing more of a market economy. On the other hand, unencumbered market forces often lead to disaster, as 1929 and 2008 made clear.

Here’s a chart Matt Cameron made based on Angus Maddison’s data (XLS). The definition of Western Europe here is Austria, Belgium, Denmark, Finland, France, Germany, Italy, Netherlands, Norway, Sweden, Switzerland, and the UK. The United States, it’s worth noting, was richer than most of these countries as far back as 1820. Presumably the reason we were so rich in 1820 is the same as the reason Australia was so rich in 1820 — we were stealing valuable land from its indigenous occupants. And as you can see, the gap in per capita output long predates the emergence of the postwar welfare state.

The past 140 years worth of growth rates don’t display any consistent trend. You can make the case that anti-market public policies explain why Europe hasn’t converged on American per capita output. But I think it’s difficult to characterize the pre-1870 U.S. economy as primarily “comfort with market forces” as opposed to high tariffs, expropriation of Native American land, and chattel slavery. The interesting question is perhaps not why American outgrew Europe during this period, but why American outgrew Mexico, Peru, and Brazil. Daron Acemoglu, Simon Johnson, and James A. Robinson (PDF) “Reversal of Fortune: Geography and Institutions in the Making of the Modern World IncomeDistribution” is the closest thing to a persuasive argument I’ve seen on this score.