| Summary: | The causes of the USA's exceptional economic performance are investigated by comparing American wages and prices with wages and prices in Great Britain, Egypt, and India. Habakkuk's views on the causes of American industrial pre-eminence are reassessed. While the USA had abundant natural resources, they did not promote manufacturing since international trade equalized prices in Britain and the USA or American tariffs made resources dearer in the USA. Wages were higher in the USA than in Britain since labor markets were tightly integrated and labor was drawn to the USA as the continent was settled. Capital services were also more expensive in USA. American industrialization required tariffs since virtually all input prices were higher than in Britain and industrial productivity was comparable. America's comparative advantage shifted from agriculture to manufacturing after 1895 was industrial productivity soured. This was due to a fall in energy prices in the USA, the American policy of mass schooling which increased the supply of skilled adults and induced firms to invent technology to raise their productivity since the supply of child labor was restricted in comparison to Britain, and the great growth of manufacturing investment induced by the tariff which provide a large market for inventions and generated technical knowledge through learning by doing. Egypt and India could not have industrialized by following American policies since their wages were so low and their energy costs so high that the modern technology that was cost effective in Britain and the USA would not have paid in their circumstances. The development of Egypt and India required more draconian state intervention than a protective tariff, mass education, and infrastructure investment - the American model.
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