Economic historians generally agree that improvements in transportation were a significant aspect of nineteenth-century United States development, and the dramatic fall in transportation costs, 1815–1860, has been given special emphasis by a number of scholars. According to George R. Taylor, nothing less than a transportation revolution was experienced in the United States during this period

This condition of affairs in the South introduced a vast credit system whose tremendous evils and exorbitant exactions have brought poverty and bankruptcy to thousands of families. As a policy, it is vindictive in its subtle sophistry; as a system, it has crushed out all independence and reduced its victims to a coarse species of servile slavery.…

The work of H. J. Habakkuk, Peter Temin, Robert Fogel, and Nathan Rosenberg on the effect of relative factor price differentials between America and England in the nineteenth century on the course of technological development has generated considerable interest in providing some empirical evidence on the labor scarcity hypothesis. Briefly stated, the hypothesis claims that relatively higher wages in America brought about the invention and use in production of a relatively capital intensive technology, and since “technical possibilities were richest at the capital intensive end of the spectrum,” this phenomenon was somehow responsible for the unique characteristics of American technology, that is, interchangeable parts, certain machine tool developments, and the proliferation of self-acting mechanisms.

Discussion of the role of internally generated funds as a dynamic and influential determinant of investment decisions has been renewed lately in the macroeconomic investment literature. While there is a current revival, the hypothesis is not a new one. In the classic study of the financial history of eight leading American automobile manufacturers over the period 1910 to 1926, Lawrence H. Seltzer concludes that “the greatest part of the growth in their capital resources was derived from reinvested profits; and that this source accounts for much the greater part of their present invested capital.” He estimates that for the period through 1926 net aggregate reinvested profits were equal, on average, to almost 80 percent of the value of tangible invested capital.3 Seltzer suggests that this remarkably high percentage was the result of the unique situation of the automobile industry, although carefully pointing out that the general importance of internal funds may be greater than commonly realized.

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.

Jeffrey Williamson's provocative discussion opens up a range of questions that surely will be of concern to students of industrial growth in the antebellum United States. Three distinct empirical prongs are advanced by his probing critique of my study of the nature and implications of the production function characterizing the manufacture of powerloom cotton cloth.