Seminars

We examine the long transition from water to steam power in US manufacturing, fo- cusing on early users of mechanical power: lumber and flour mills. Digitizing Census of Manufactures manuscripts for 1850-1880, we show that as steam costs declined, manufacturing activity grew faster in counties with less waterpower potential. This growth was driven by steam powered entrants and agglomeration, as water powered incumbents faced switching barriers from sunk costs. Estimating a dynamic model of entry and steam adoption, we find that the interaction of switching barriers and high fixed costs creates a quantitatively important and socially inefficient drag on technology adoption.

In 1925, the Russian economist, Nikolai D. Kondratieff first presented his identification and analysis of a ‘long wave’ cycle of approximately 50 years in twenty-five economic and financial time series across the major capitalist economies. The statistical evidence for their existence was based on nine-year centered moving averages of residuals from econometric time-trend models for eight English and five French time series that spanned the 18th, 19th and early 20th centuries. Schumpeter supported and promoted Kondratieff’s estimate of a long wave periodicity which was consistent with his trigonometric models published in Business Cycles (1939). While Schumpeter never attempted to measure the statistical association between his theoretical values and historical observations, he identified long waves in the numerous graphs and charts in Business Cycles. Kondratieff’s original data is used to estimate long wave periodicities by replicating his published models and smoothed residuals to verify specific years of turning points. ‘Unobserved component models’ are also used to extract long wave periodicities from Kondratieff’s data as well as from new long-term time series recently published by the Bank of England. The new estimates confirm an endogenously-propagated long cycle of about fifty ears.