...AND CHEAPER...:

America's predominance isn't new; indeed, it has existed since the early nineteenth century. But where did it come from? And is it in danger of disappearing?

By the 1830s, the late British economist Angus Maddison showed, American per-capita income was already the highest in the world. [...]

The replacement of labor with capital investment helped usher in the American industrial revolution, as the first industrial entrepreneurs took advantage of engineering advances developed in the fields. The southern states made a great economic as well as moral error in deciding to keep exploiting slaves instead of hiring well-paid workers and embracing new engineering technologies. The South started to catch up with the rest of the nation economically only after turning fully to advanced engineering in the 1960s as a response to rising labor costs.

The enormous American territory and the freedom that people had to move and work across it--guilds were nonexistent in the new country--also encouraged an advanced division of labor, which is essential to high productivity, as Adam Smith argued in The Wealth of Nations. And Americans' mobility had a second benefit: by allowing entrepreneurs and workers to shift from location to location and find the best uses of their talents, it reduced prices, following David Ricardo's law of comparative advantage. Today, globalization has the same effect, making prices drop by assigning the production of goods to countries that are relatively efficient at making them. But in nineteenth-century America, the effect was concentrated within a single large nation. Both the extended division of labor and the law of comparative advantage reduced prices to a level lower than any seen before, despite America's high wages.

Democracy, too, encouraged ever-cheaper products. In Europe, an entrepreneur could thrive by serving a limited number of wealthy aristocrats--or even just one, provided that he was a king or a prince. Not so in the democratic United States, where entrepreneurs had to satisfy the needs of a large number of clients who compared prices among various vendors. America's leading entrepreneurs haven't always been the greatest innovators, but they have been the greatest cheapeners and tinkerers. Henry Ford didn't invent the automobile, but he figured out how to make it less expensive--a mass product for a democratic market, at first American and then global.

The ultimate American economic invention was standardization, which further reduced production costs. Standardization evolved in America because consumers there tended to share a taste for the same products and services. Companies consequently began providing similarly priced goods and services of the same general quality to citizens constantly on the move across the American expanse. Not only did Coca-Cola, Hilton hotels, and McDonald's become successful companies; they became forces for stability in a remarkably mobile society.

Immigration has been another component of American economic dynamism, for evident quantitative reasons: national GDP grows when total population and productivity increase simultaneously. But this effect has worked particularly well in the United States because its immigrants have tended to be young, energetic, and open to American values. Immigration is a self-selecting process: those who find the courage to leave behind their roots, traditions, and family often have an entrepreneurial spirit. (Indeed, prior to the emergence of the modern welfare state, it was tough to survive in America without such a spirit.) The newcomers, from Irish workingmen in the nineteenth century to Russian scientists in the twentieth, have continually reenergized the economy with their skills and knowledge.

They have also added a wild variety to American life, which helps explain why American culture--highbrow or lowbrow, sophisticated or pop--has dominated the world. In the cultural arena, at least, the globalization of the modern world is actually its Americanization. Roughly 80 percent of the movies seen in the world every year, for instance, are produced in the United States. This surely has something to do with the fact that, from the first days of the film industry, Hollywood's producers and directors hailed from all parts of the globe, intuitively knowing what kind of movies would appeal not just to Americans but to people across the planet.

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