Colonial economy
The colonial economy was characterized by an abundance of land and natural resources and a severe scarcity of labor. This was the opposite of Europe and attracted immigrants despite the high death rate caused by New World diseases. From 1700 to 1774 the output of the thirteen colonies increased 12-fold, giving the colonies an economy about 30% the size of Britain's at the time of independence. Population growth was responsible for over three-quarters of the economic growth of the British American colonies. The free white population had the highest standard of living in the world. There was very little change in productivity and little in the way of introduction of new goods and services. Under the mercantilist system Britain put restrictions on the products that could be made in the colonies and put restrictions on trade outside the British Empire. The colonial economy differed significantly from that of most other regions in that land and natural resources were abundant in America but labor was scarce.Demographics
Initial colonization ofThe economy
The colonial economy of what would become the United States was pre-industrial, primarily characterized byNew England
TheUrban centers
Historian Carl Bridenbaugh examined in depth five key cities:Political environment
Mercantilism: old and new
The colonial economies of the world operated under the economic philosophy ofFree enterprise
The domestic economy of the British American colonies enjoyed a great deal of freedom, although some of their freedom was due to lack of enforcement of British regulations on commerce and industry.Taxation
The colonial governments had few expenses and taxes were minimal. Although the colonies provided an export market for finished goods made in Britain or sourced by British merchants and shipped from Britain, the British incurred the expenses of providing protection against piracy by the British Navy and other military expenses. An early tax became known as theThe American Revolution
Americans in the Thirteen Colonies demanded their rights as Englishmen, as they saw it, to select their own representatives to govern and tax themselves – which Britain refused. The Americans attempted resistance through boycotts of British manufactured items, but the British responded with a rejection of American rights and theConfederation: 1781–1789
A brief economic recession followed the war, but prosperity returned by 1786. About 60,000 to 80,000The new nation
TheIndustry and commerce
Transportation
There were very few roads outside of cities and no canals in the new nation. In 1792 it was reported that the cost of transport of many crops to seaport was from one-fifth to one half their cost. The cheapest form of transportation was by water, along the seacoast or on lakes and rivers. In 1816 it was reported that "A ton of goods could be brought 3000 miles from Europe for about $9, but for that same sum it could be moved only 30 miles in this country".Automatic flour mill
In the mid 1780s Oliver Evans invented a fully automatic mill that could process grain with practically no human labor or operator attention. This was a revolutionary development in two ways: 1) it used bucket elevators and conveyor belts, which would eventually revolutionize materials handling, and 2) it used governors, a forerunner of modern automation, for control.Cotton gin
Cotton was at first a small-scale crop in the South. Cotton farming boomed following the improvement of theMechanized textile manufacturing
In the final decade of the 18th century, England was beginning to enter the rapid growth period of theFinance, money and banking
TheEarly 19th century
The United States was pre-industrial throughout the first third of the 19th century. Most people lived on farms and produced much of what they consumed. A considerable percentage of the non-farm population was engaged in handling goods for export. The country was an exporter of agricultural products. The U.S. built the best ships in the world. The textile industry became established in New England, where there was abundant water power. Steam power began being used in factories, but water was the dominant source of industrial power until the Civil War. The building of roads and canals, the introduction ofPolitical developments
The institutional arrangements of the American System were initially formulated by Alexander Hamilton, who proposed the creation of a government-sponsored bank and increased tariffs to encourage industrial development. Following Hamilton's death, the American school of political economy was championed in the antebellum period byAgriculture, commerce and industry
Population growth
Although there was relatively little immigration from Europe, the rapid expansion of settlements to the West, and theLabor shortage
The U.S. economy of the early 19th century was characterized by labor shortages. It was attributed to the cheapness of land and the high returns on agriculture. All types of labor were in high demand, especially unskilled labor and experienced factory workers. Wages in the U.S. were typically between 30 and 50 percent higher than in Britain. Women factory workers were especially scarce. The elasticity of labor was low in part because of lack of transportation and low population density. The relative labor scarcity and high price was an incentive for capital investment, particularly in machinery.Agriculture
The U.S. economy was primarily agricultural in the early 19th century. Westward expansion plus the building of canals and the introduction of steamboats opened up new areas for agriculture. Much land was cleared and put into growing cotton in the Mississippi valley and in Alabama, and new grain growing areas were brought into production in the Midwestern United States, Midwest. Eventually this put severe downward pressure on prices, particularly of cotton, first from 1820 to 1823 and again from 1840 to 1843. Before theRoads
There were only a few roads outside of cities at the beginning of the 19th century, but turnpikes were being built. A ton-mile by wagon cost from between 30 and 70 cents in 1819. Robert Fulton's estimate for typical wagonage was 32 cents per ton-mile. The cost of transporting wheat or corn to Philadelphia exceeded the value at 218 and 135 miles, respectively. To facilitate westward expansion, in 1801 Thomas Jefferson began work on the Natchez Trace, which was to connect Daniel Boone's Wilderness Road, which ended in Nashville, Tennessee, with the Mississippi River. Following theCanals
Because a horse can pull a barge carrying a cargo of over 50 tons compared to the typical one ton or less hauled by wagon, and the horse required a wagoner versus a couple of men for the barge, water transportation costs were a small fraction of wagonage costs. Canals' shipping costs were between two and three cents per ton-mile, compared to 17–20 cents by wagon. The cost of constructing a typical canal was between $20,000 and $30,000 per mile. Only 100 miles of canals had been built in the U.S. by 1816, and only a few were longer than two miles. The early canals were typically financially successful, such as those carrying coal in eastern Pennsylvania, where canal building was concentrated until 1820. The 325-mileSteam power
In 1780 the United States had three major Steam engine, steam engines, all of which were used for pumping water: two in mines and one for New York City's water supply. Most power in the U.S. was supplied by water wheels and water turbines after their introduction in 1840. By 1807 when the ''North River Steamboat'' (unofficially called ''Clermont'') first sailed, there were estimated to be fewer than a dozen steam engines operating in the U.S. Steam power did not overtake water power until sometime after 1850. Oliver Evans began developing a high pressure steam engine that was more practical than the engine developed around the same time by Richard Trevithick in England. The high pressure engine did away with the separate condenser and thus did not require cooling water. It also had a higher power to weight ratio, making it suitable for poweringMechanical power transmission
In 1828 Paul Moody (inventor), Paul Moody substituted leather belting for gearing in mills. Leather belting from line shafts was the common way to distribute power from steam engines and water turbines in mills and factories. In the factory boom of the late 19th century it was common for large factories to have many miles of line shafts. Leather belting continued in use until it was displaced by unit drive electric motors in the early decades of the 20th century.Shipbuilding
Shipbuilding remained a sizable industry. U.S.-built ships were superior in design, required smaller crews and cost between 40 and 60 percent less to build than European ships. The British gained the lead in shipbuilding after they introduced iron-hulled ships in the mid-19th century.Steamboats and steam ships
Commercial steamboat operations began in 1807 within weeks of the launch of Robert Fulton's ''North River Steamboat'', often referred to as the ''Clermont''. The first steamboats were powered by Boulton and Watt type low pressure engines, which were very large and heavy in relation to the smaller high pressure engines. In 1807 Robert L. Stevens began operation of the ''Phoenix (steamboat), Phoenix'', which used a high pressure engine in combination with a low pressure condensing engine. The first steamboats powered only by high pressure were the ''Aetna'' and ''Pennsylvania'' designed and built by Oliver Evans. In the winter of 1811 to 1812, the ''New Orleans (steamboat), New Orleans'' became the first steamboat to travel down the Ohio and Mississippi Rivers from Pittsburgh to New Orleans. The commercial feasibility of steamboats on the Mississippi and its tributaries was demonstrated by the ''Enterprise (1814), Enterprise'' in 1814. By the time of Fulton's death in 1815 he operated 21 of the estimated 30 steamboats in the U.S. The number of steamboats steadily grew into the hundreds. There were more steamboats in the Mississippi valley than anywhere else in the world. Early steamboats took 30 days to travel from New Orleans to Louisville, which was from half to one-quarter the time by keel boat. Due to improvements in steamboat technology, by 1830 the time from New Orleans to Louisville was halved. In 1820 freight rates for keel boats were five cents per ton-mile versus two cents by steamboat, falling to one-half cent per pound by 1830. The SS Savannah crossed from Savannah to Liverpool in 1819 as the first trans-Atlantic steamship; however, until the development of more efficient engines, trans-ocean ships had to carry more coal than freight. Early trans-ocean steamships were used for passengers and soon some companies began offering regularly scheduled service.Railroads
Railroads were an English invention, and the first entrepreneurs imported British equipment in the 1830s. By the 1850s the Americans had developed their own technology. The early lines in the 1830s and 1840s were locally funded, and connected nearby cities or connected farms to navigable waterways. They primarily handled freight rather than passengers. The first locomotives were imported from England. One such locomotive was the John Bull (locomotive), John Bull which arrived in 1831. While awaiting assembly, Matthias W. Baldwin, who had designed and manufactured a highly successful stationary steam engine, was able to inspect the parts and obtain measurements. Baldwin was already working on an experimental locomotive based on designs shown at the Rainhill Trials in England. Baldwin produced his first locomotive in 1832; he went on to found the Baldwin Locomotive Works, one of the largest locomotive manufacturers. In 1833 when there were few locomotives in the U.S., three quarters were made in England. In 1838 there were 346 locomotives, three-fourths of which were made in the U.S. Ohio had more railroads built in the 1840s than any other state. Ohio's railroads put the canals out of business. A typical mile of railroad cost $30,000 compared to the $20,000 per mile of canal, but a railroad could carry 50 times as much traffic. Railroads appeared at the time of the canal boom, causing its abrupt end, although some canals flourished for an additional half-century.Manufacturing
Starting with textiles in the 1790s, factories were built to supply a regional and national market. The power came from waterfalls, and most of the factories were built alongside the rivers in rural New England and Upstate New York. Before 1800, most cloth was made in home workshops, and housewives sewed it into clothing for family use or trade with neighbors. In 1810 the secretary of the treasury estimated that two-thirds of rural household clothing, including hosiery and linen, was produced by households. By the 1820s, housewives bought the cloth at local stores, and continued their sewing chores. The American textile industry was established during the long period of wars from 1793 to 1815, when cheap cloth imports from Britain were unavailable.=Development of interchangeable parts
= Standardization and interchangeability have been cited as major contributors to the exceptional growth of the U.S. economy. The idea of standardization of armaments was originated the 1765 by French Jean-Baptiste Vaquette de Gribeauval#Gribeauval system, Gribeauval system. Honoré Blanc began producing muskets with interchangeable locks in France whenFinance, money and banking
The charter for theEconomics of the War of 1812
The War of 1812 was financed by borrowing, by new issues of private bank notes and by an inflation in prices of 15%. The government was a very poor manager during the war, with delays in payments and confusion, as the Treasury took in money months after it was scheduled to pay it out. Inexperience, indecision, incompetence, partisanship and confusion are the main hallmarks. The federal government's management system was designed to minimize the federal role before 1812. The Democratic-Republican Party in power deliberately wanted to downsize the power and roles of the federal government; when the war began, the Federalist opposition worked hard to sabotage operations. Problems multiplied rapidly in 1812, and all the weaknesses were magnified, especially regarding the Army and the Treasury. There were no serious reforms before the war ended. In financial matters, the decentralizing ideology of the Republicans meant they wanted theMiddle 19th century
The middle 19th century was a period of transition toward industrialization, particularly in the Northeast, which produced cotton textiles and shoes. The population of the West (generally meaning from Ohio to and including Wisconsin, Minnesota, Iowa and Missouri and south to include Kentucky) grew rapidly. The West was primarily a grain and pork producing region, with an important machine tool industry developing around Cincinnati, Cincinnati, Ohio. The Southern economy was based on plantation agriculture, primarily cotton, tobacco and sugar, produced with slave labor. The market economy and factory system were not typical before 1850, but developed along transportation routes. Steamboats and railroads, introduced in the early part of the century, became widespread and aided westward expansion. The telegraph was introduced in 1844 and was in widespread use by the mid 1850s. A machine tool industry developed and machinery became a major industry. Sewing machines began being manufactured. The shoe industry became mechanized. Horse drawn reapers became widely introduced, significantly increasing the productivity of farming. The use of steam engines in manufacturing increased and steam power exceeded water power after the Civil War. coal replaced wood as the major fuel. The combination of railroads, the telegraph and machinery and factories began to create an industrial economy. The longest economic expansion of the United States occurred in the recession-free period between 1841 and 1856. A 2017 study attributes this expansion primarily to "a boom in transportation-goods investment following the discovery of gold in California."Commerce, industry and agriculture
The depression that began in 1839 ended with an upswing in economic activity in 1843.Railroads
Railroads opened up remote areas and drastically cut the cost of moving freight and passengers. By 1860 long distance bulk rates had fallen by 95%, less than half of which was due to the general fall in prices. This large fall in transportation costs created "a major revolution in domestic commerce." As transportation improved, new markets continuously opened. Railroads greatly increased the importance of hub cities such as Atlanta, Billings, Chicago, and Dallas. Railroads were a highly capital intensive business, with a typical cost of $30,000 per mile with a considerable range depending on terrain and other factors. Private capital for Railroads during the period from 1830 to 1860 was inadequate. States awarded charters, funding, tax breaks, land grants, and provided some financing. Railroads were allowed banking privileges and lotteries in some states. Private investors provided a small but not insignificant share or railroad capital. A combination of domestic and foreign investment along with the discovery of gold and a major commitment of America's public and private wealth, enabled the nation to develop a large-scale railroad system, establishing the base for the country's industrialization. Railroad executives invented modern methods for running large-scale business operations, creating a blueprint that all large corporations basically followed. They created career tracks that took 18-year-old boys and turned them into brakemen, conductors and engineers. They were first to encounter managerial complexities, labor union issues, and problems of geographical competition. Due to these radical innovations, the railroad became the first large-scale business enterprise and the model for most large corporations. Historian Larry Haeg argues from the perspective of the end of the 19th century: :Railroads created virtually every major American industry: coal, oil, gas, steel, lumber, farm equipment, grain, cotton, textile factories, California citrus.Iron industry
The most important technological innovation in mid-19th-century pig iron production was the adoption of hot blast, which was developed and patented in Scotland in 1828. Hot blast is a method of using heat from the blast furnace exhaust gas to preheat combustion air, saving a considerable amount of fuel. It allowed much higher furnace temperatures and increased the capacity of furnaces. Hot blast allowed blast furnaces to use anthracite or lower grade coal. Anthracite was difficult to light with cold blast. High quality metallurgical coking coal deposits of sufficient size for iron making were only available in Great Britain and western Germany in the 19th century, but with less fuel required per unit of iron, it was possible to use lower grade coal. The use of anthracite was rather short lived because the size of blast furnaces increased enormously toward the end of the century, forcing the use of coke, which was more porous and did not impede the upflow of the gases through the furnace. Charcoal would have been crushed by the column of material in tall furnaces. Also, the capacity of furnaces would have eventually exceeded the wood supply, as happened with locomotives. Iron was used for a wide variety of purposes. In 1860 large consumers were numerous types of castings, especially stoves. Of the $32 million of bar, sheet and railroad iron produced, slightly less than half was railroad iron. The value added by stoves was equal to the value added by rails.Coal displaces wood
Coal replaced wood during the mid-19th century. In 1840 wood was the major fuel while coal production was minor. In 1850 wood was 90% of fuel consumption and 90% of that was for home heating. By 1880 wood was only 5% of fuel consumption. Cast iron stoves for heating and cooking displaced inefficient fireplaces. Wood was a byproduct of land clearing and was placed along the banks of rivers for steamboats. By mid-century the forests were being depleted while steamboats and locomotives were using enough wood to create shortages along their routes; however, railroads, canals and navigable internal waterways were able to bring coal to market at a price far below the cost of wood. Coal sold in Cincinnati for 10 cents per bushel (94 pounds) and in New Orleans for 14 cents. Charcoal production was very labor and land intensive. It was estimated that to fuel a typical sized 100 ton of pig iron per week furnace in 1833 at a sustained yield, a timber plantation of 20,000 acres was required. The trees had to be hauled by oxen to where they were cut, stacked on end and covered with earth or put in a kiln to be charred for about a week. Anthracite reduced labor cost to $2.50 per ton compared to charcoal at $15.50 per ton.Manufacturing
Manufacturing became well established during the mid-19th century. Labor in the U.S. was expensive and industry made every effort to economize by using machinery. Woodworking machinery such as circular saws, high speed lathes, planers and mortising machines and various other machines amazed British visitors, as was reported by Joseph Whitworth. See: American system of manufacturing#Use of machinery In the early 19th century machinery was made mostly of wood with iron parts. By the mid-century machines were being increasingly of all iron, which allowed them to operate at higher speeds and with higher precision. The demand for machinery created a machine tool industry that designed and manufactured lathes, metal planers, shapers and other precision metal cutting tools. The shoe industry was the second to be mechanized, beginning in the 1840s. Sewing machines were developed for sewing leather. A leather rolling machine eliminated hand hammering, and was thirty times faster. Thomas Blanchard (inventor)#Machine tools for gun making and pattern copying lathe, Blanchard lathes began being used for making shoe lasts (forms) in the 1850s, allowing the manufacture of standard sizes. By the 1850s much progress had been made in the development of the sewing machine, with a few companies making the machines, based on a number of patents, with no company controlling the right combination of patents to make a superior machine. To prevent damaging lawsuits, in 1856 several important patents were pooled under the Sewing Machine Combination, which licensed the patents for a fixed fee per machine sold. The sewing machine industry was a beneficiary of machine tools and the manufacturing methods developed at the Federal Armories. By 1860 two sewing machine manufacturers were using interchangeable parts. The sewing machine increased the productivity of sewing cloth by a factor of 5. In 1860 the textile industry was the largest manufacturing industry in terms of workers employed (mostly women and children), capital invest and value of goods produced. That year there were 5 million spindles in the U.S.Steam power
The Treasury Department's steam engine report of 1838 was the most valuable survey of steam power until the 1870 Census. According to the 1838 report there were an estimated 2,000 engines totaling 40,000 hp, of which 64% were used in transportation, mostly in steamboats. The Corliss steam engine, patented in 1848, was called the most significant development in steam engineering since Watt steam engine, James Watt. The Corliss engine was more efficient than previous engines and maintained more uniform speed in response to load changes, making it suitable for a wide variety of industrial applications. It was the first steam engine that was suitable for cotton spinning. Previously steam engines for cotton spinning pumped water to a water wheel that powered the machinery. Steam power greatly expanded during the late 19th century with the rise of large factories, the expanded railroad network and early Electric light, electric lighting and electric street railways.Steamboats and ships
The number of steamboats on western rivers in the U.S. grew from 187 in 1830 to 735 in 1860. Total registered tonnage of steam vessels for the U.S. grew from 63,052 in 1830 to 770,641 in 1860. Until the introduction of iron ships, the U. S. made the best in the world. The design of U.S. ships required fewer crew members to operate. U.S. made ships cost from 40% to 60% as much as European ships, and lasted longer. The Screw-propeller, screw propeller was tested on Lake Ontario in 1841 before being used on ocean ships. Propellers began being used on Lake freighter, Great Lakes ships in 1845. Propellers caused vibrations which were a problem for wooden ships. The SS Great Britain, SS ''Great Britain'', launched in 1845, was the first iron ship with a screw propeller. Iron ships became common and more efficient multiple expansion engines were developed. After the introduction of iron ships, Britain became the leading shipbuilding country. The U.S. tried to compete by building wooden Clipper, clipper ships, which were fast, but too narrow to carry economic volumes of low value freight.Telegraph
Congress approved funds for a short demonstration Electrical telegraph, telegraph Baltimore–Washington telegraph line, line from Baltimore to Washington D.C., which was operational in 1844. The telegraph was quickly adopted by the railroad industry, which needed rapid communication to coordinate Train schedule, train schedules, the importance of which had been highlighted by a collision on the Western Railroad in 1841. Railroads also needed to communicate over a vast network in order to keep track of freight and equipment. Consequently, railroads installed telegraphs lines on their existing Right-of-way (transportation), right-of-ways. By 1852 there were 22,000 miles of telegraph lines in the U.S., compared to 10,000 miles of track.Urbanization
By 1860, on the eve of the Civil War, 16% of the people lived in cities with 2500 or more people and one third of the nation's income came from manufacturing. Urbanized industry was limited primarily to the Northeast; cotton cloth production was the leading industry, with the manufacture of shoes, woolen clothing, and machinery also expanding. Most of the workers in the new factories were immigrants or their children. Between 1845 and 1855, some 300,000 European immigrants arrived annually. Many remained in eastern cities, especially mill towns and mining camps, while those with farm experience and some savings bought farms in the West.Walter Licht, ''Industrializing America: The Nineteenth Century'' (1995)Agriculture
In the antebellum period the U.S. supplied 80% of Britain's cotton imports. Just before the Civil War the value of cotton was 61% of all goods exported from the U.S. The westward expansion into the highly productive heartland was aided by the new railroads, and both population and grain production in the West expanded dramatically. Increased grain production was able to capitalize on high grain prices caused by poor harvests in Europe during the time of the Great Famine (Ireland), Great Famine in Ireland Grain prices also rose during the Crimean War, but when the war ended U.S. exports to Europe fell dramatically, depressing grain prices. Low grain prices were a cause of the Panic of 1857. Cotton and tobacco prices recovered after the panic. Agriculture was the largest single industry and it prospered during the war.Paul W. Gates, ''Agriculture and the Civil War'' (1965) covers 1850–1870 Prices were high, pulled up by a strong demand from the army and from Britain, which depended on American wheat for a fourth of its food imports. John Deere (inventor), John Deere developed a cast steel plow in 1837 which was lightweight and had a moldboard that efficiently turned over and shed the plowed earth. It was easy for a horse to pull and was well suited to cutting the thick prairie sod of the Midwest. He and his brother Charles founded John Deere, Deere and Company which continues into the 21st century as the largest maker of tractors, combines, harvesters and other farm implements. Threshing machine, Threshing machines, which were a novelty at the end of the 18th century, began being widely introduced in the 1830s and 1840s. Mechanized threshing required less than half the labor of hand threshing. The Civil War acted as a catalyst that encouraged the rapid adoption of horse-drawn machinery and other implements. The rapid spread of recent inventions such as the reaper and mower made the workforce efficient, even as hundreds of thousands of farmers were in the army. Many wives took their place, and often consulted by mail on what to do; increasingly they relied on community and extended kin for advice and help. The 1862 Homestead Acts, Homestead Act opened up the Public domain (land), public domain lands for free. Land grant, Land grants to the railroads meant they could sell tracts for family farms (80 to 200 acres) at low prices with extended credit. In addition the government sponsored fresh information, scientific methods and the latest techniques through the newly established United States Department of Agriculture, Department of Agriculture and the Morrill Land Grant College Act.=Slave labor
= In 1860, there were 4.5 million Americans of African descent, 4 million of which were slaves, worth $3 billion. They were mainly owned by southern planters of cotton and sugarcane. An estimated 60% of the value of farms in Alabama, Georgia, Louisiana, Mississippi and South Carolina was in slaves, with less than a third in land and buildings. In the aftermath of the Panic of 1857, which left many northern factory workers unemployed and deprived to the point of causing bread riots, supporters of slavery pointed out that slaves were generally better fed and had better living quarters than many free workers. It is estimated that slaves received 15% more in imputed wages than the free market.Finance, money and banking
After the expiration of the charter of thePanic of 1857
The recovery from the depression that followed theImmigration surge
Immigration to the U.S. surged following the Great Famine (Ireland). There were about 3 million immigrants during the decade of the 1850s. They were mainly from Germany, Ireland and England.Civil War economy
Union
The Union economy grew and prospered during the war while fielding a very large army and navy.Emerson David Fite, ''Social and industrial conditions in the North during the Civil War'' (1910=Financing the war
= In 1860 the Treasury was a small operation that funded the small-scale operations of the government through land sales and customs based on a low tariff. Peacetime revenues were trivial in comparison with the cost of a full-scale war but the Treasury Department under Secretary Salmon P. Chase showed unusual ingenuity in financing the war without crippling the economy.John Niven, ''Salmon P. Chase: a biography'' (1995) p. 331 Many new taxes were imposed and always with a patriotic theme comparing the financial sacrifice to the sacrifices of life and limb. The government paid for supplies in official currency, which encouraged people to sell to the government regardless of their politics. By contrast the Confederacy gave paper promissory notes when it seized property, so that even loyal Confederates would hide their horses and mules rather than sell them for dubious paper. Overall the Northern financial system was highly successful in raising money and turning patriotism into profit, while the Confederate system impoverished its patriots.Jane Flaherty, ''The revenue imperative'' (2009) The United States needed $3.1 billion to pay for the immense armies and fleets raised to fight the Civil War—over $400 million in 1862 alone. Apart from tariffs, the largest revenue by far came from Excise tax in the United States, new excise taxes that were imposed on every sort of manufactured item. Second came much higher tariffs, through several Morrill Tariff, Morrill tariff laws. Third came the nation's first income tax; only the wealthy paid and it was repealed at war's end. Apart from taxes, the second major source of income was government bonds. For the first time bonds in small denominations were sold directly to the people, with publicity and patriotism as key factors, as designed by banker Jay Cooke. State banks lost their power to issue banknotes. Only national banks could do that and Chase made it easy to become a national bank; it involved buying and holding federal bonds and financiers rushed to open these banks. Chase numbered them, so that the first one in each city was the "First National Bank".Bray Hammond, ''Sovereignty and the Empty Purse: Banks and Politics in the Civil War'' (1970). Third, the government printed paper money called "United States Note, greenbacks". They led to endless controversy because they caused inflation. The North's most important war measure was perhaps the creation of a system of national banks that provided a sound currency for the industrial expansion. Even more important, the hundreds of new banks that were allowed to open were required to purchase government bonds. Thereby the nation monetized the potential wealth represented by farms, urban buildings, factories, and businesses, and immediately turned that money over to the Treasury for war needs.Tariffs Secretary Salmon P. Chase, though a long-time free-trader, worked with Morrill to pass a second tariff bill in summer 1861, raising rates another 10 points in order to generate more revenues.Richardson, 100, 113 These subsequent bills were primarily revenue driven to meet the war's needs, though they enjoyed the support of protectionists such as Carey, who again assisted Morrill in the bill's drafting. The Morrill Tariff of 1861 was designed to raise revenue. The tariff act of 1862 served not only to raise revenue but also to encourage the establishment of factories free from British competition by taxing British imports. Furthermore, it protected American factory workers from low paid European workers, and as a major bonus attracted tens of thousands of those Europeans to immigrate to America for high wage factory and craftsman jobs. Customs revenue from tariffs totaled $345 million from 1861 through 1865 or 43% of all federal tax revenue.
=Land sales and grants
= The U.S. government owned vast amounts of good land (mostly from the Louisiana Purchase of 1803 and the Oregon Treaty with Britain in 1846). The challenge was to make the land useful to people and to provide the economic basis for the wealth that would pay off the war debt. Land grants went to railroad construction companies to open up the western plains and link up to California. Together with the free lands provided to farmers by the Homestead Law the low-cost farm lands provided by the land grants sped up the expansion of commercial agriculture in the West. The 1862 Homestead Act opened up the public domain lands. Land grants to the railroads meant they could sell tracts for family farms (80 to 200 acres) at low prices with extended credit. In addition the government sponsored fresh information, scientific methods and the latest techniques through the newly established United States Department of Agriculture, Department of Agriculture and the Morrill Land Grant College Act.=Agriculture
= Agriculture was the largest single industry and it prospered during the war. Prices were high, pulled up by a strong demand from the army and from Britain (which depended on American wheat for a fourth of its food imports). The war acted as a catalyst that encouraged the rapid adoption of horse-drawn machinery and other implements. The rapid spread of recent inventions such as the reaper and mower made the workforce efficient, even as hundreds of thousands of farmers were in the army. Many wives took their place and often consulted by mail on what to do; increasingly they relied on community and extended kin for advice and help. The Union used hundreds of thousands of animals. The Army had plenty of cash to purchase them from farmers and breeders but especially in the early months the quality was mixed. Horses were needed for cavalry and artillery. Mules pulled the wagons. The supply held up, despite an unprecedented epidemic of glanders, a fatal disease that baffled veterinarians. In the South, the Union Army shot all the horses it did not need to keep them out of Confederate hands. The Treasury started buying cotton during the war, for shipment to Europe and northern mills. The sellers were Southern planters who needed the cash, regardless of their patriotism.Collapse of the South
The wartime devastation of the South was great and poverty ensued; incomes of whites dropped, but income of the former slaves rose. During Reconstruction era, Reconstruction railroad construction was heavily subsidized (with much corruption), but the region maintained its dependence on cotton. Former slaves became wage laborers, tenant farmers, or Sharecropping, sharecroppers. They were joined by many poor whites, as the population grew faster than the economy. As late as 1940 the only significant manufacturing industries were textile mills (mostly in the upland Carolinas) and some steel in Alabama. The industrial advantages of the North over the South helped secure a Northern victory in the American Civil War (1861–1865). The Northern victory sealed the destiny of the nation and its economic system. The slave-labor system was abolished; sharecropping emerged and replaced slavery to supply the labor needed for Cotton production in the United States, cotton production, but cotton prices plunged in the Panic of 1873, leading Southern plantations to decline in profitability. Northern industry, which had expanded rapidly before and during the war, surged ahead. Industrialists came to dominate many aspects of the nation's life, including social and political affairs.Political developments
From the 1830s to 1860, Congress repeatedly rejected Whig Party (United States), Whig calls for higher tariffs, and its policies of economic nationalism, which included increased state control, regulation and Macroeconomics, macroeconomic development of infrastructure. PresidentTreasury
In 1860 the Treasury was a small operation that funded the small-scale operations of the government through the low tariff and land sales. Revenues were trivial in comparison with the cost of a full-scale war, but the Treasury Department under Secretary Salmon P. Chase showed unusual ingenuity in financing the war without crippling the economy. Many new taxes were imposed, and always with a patriotic theme comparing the financial sacrifice to the sacrifices of life and limb. The government paid for supplies in real money, which encouraged people to sell to the government regardless of their politics. By contrast the Confederacy gave paper promissory notes when it seized property, so that even loyal Confederates would hide their horses and mules rather than sell them for dubious paper. Overall the Northern financial system was highly successful in raising money and turning patriotism into profit, while the Confederate system impoverished its patriots. The United States needed $3.1 billion to pay for the immense armies and fleets raised to fight the Civil War — over $400 million just in 1862. The largest tax sum by far came from new excise taxes—a sort of Value-added tax, value added tax—that was imposed on every sort of manufactured item. Second came much higher tariffs, through several Morrill Tariff, Morrill tariff laws. Third came the nation's first income tax; only the wealthy paid and it was repealed at war's end. Apart from taxes, the second major source was government bonds. For the first time bonds in small denominations were sold directly to the people, with publicity and patriotism as key factors, as designed by banker Jay Cooke. State banks lost their power to issue banknotes. Only national banks could do that, and Chase made it easy to become a national bank; it involved buying and holding federal bonds and financiers rushed to open these banks. Chase numbered them, so that the first one in each city was the "First National Bank". Fourth the government printed "greenbacks"—paper money—which were controversial because they caused inflation. Secretary Chase, though a long-time free-trader, worked with Congressman Justin Morrill to pass a second tariff bill in summer 1861, raising rates another 10 points in order to generate more revenues. These subsequent bills were primarily revenue driven to meet the war's needs, though they enjoyed the support of protectionists such as Carey, who again assisted Morrill in the bill's drafting. The Morrill Tariff of 1861 was designed to raise revenue. The tariff act of 1862 served not only to raise revenue, but also to encourage the establishment of factories free from British competition by taxing British imports. Furthermore, it protected American factory workers from low paid European workers, and as a major bonus attracted tens of thousands of those Europeans to immigrate to America for high wage factory and craftsman jobs.Land grants
The U.S. government owned vast amounts of quality land (mostly from the Louisiana Purchase of 1803 and the Oregon Treaty with Britain in 1846). The challenge was to make the land useful to people and to provide the economic basis for the wealth that would pay off the war debt. The government did this by breaking it up into smaller plots for private ownership, through various federal laws. Bounty-land warrants were issued to military veterans in the United States from 1775 to 1855. The land grants were used extensively for settlement of pre-Louisiana Purchase lands east of the Mississippi River, including the Ohio Country, the Northwest Territory, and the Platte Purchase in Missouri. About 180 million acres were granted to railroad construction companies between 1850 and 1871.http://faculty.polytechnic.org/gfeldmeth/chart.land.pdf The Land Grant Act of 1850 provided for 3.75 million acres of land to the states to support railroad projects; by 1857 21 million acres of public lands were used for railroads in theBanking
The North's most important war measure was perhaps the creation of a system of national banks that provided a sound currency for the industrial expansion. Even more important, the hundreds of new banks that were allowed to open were required to purchase government bonds. Thereby the nation monetized the potential wealth represented by farms, urban buildings, factories, and businesses, and immediately turned that money over to the Treasury for war needs.Education
British Parliamentary Committee members Joseph Whitworth and George Wallis were very impressed at the educational level of workers in the U.S., commenting that "so that everybody reads ... and intelligence penetrates through the lowest grades of society." They also remarked that most states had compulsory education laws requiring a minimum of three months per year schooling for child factory workers.Civil War
The Union (American Civil War), Union grew rich fighting the war, as the Confederate economy was destroyed. The History of the Republican Party (United States), Republicans in control in Washington had a Whig vision of an industrial nation, with great cities, efficient factories, productive farms, national banks, and high-speed rail links. The South had resisted policies such as tariffs to promote industry and homestead laws to promote farming because slavery would not benefit; with the South gone, and Northern Democrats very weak in Congress, the Republicans enacted their legislation. At the same time they passed new taxes to pay for part of the war, and issued large amounts of bonds to pay for the most of the rest. (The remainder can be charged to inflation.) They wrote an elaborate program of economic modernization that had the dual purpose of winning the war and permanently transforming the economy. The key policy-maker in Congress was Thaddeus Stevens, as chairman of the United States House Committee on Ways and Means, Ways and Means Committee. He took charge of major legislation that funded the war effort and revolutionized the nation's economic policies regarding tariffs, bonds, income and excise taxes, national banks, suppression of money issued by state banks, greenback currency, and western railroad land grants. Historians have debated whether or not the Civil War sped up the rate of economic growth in the face of destruction throughout the South and the diversion of resources to military supplies and away from civilian goods. In any case the war taught new organizational methods, prioritized engineering skills, and shifted the national attention from politics to business.Financial issues of reconstruction
The Civil War had been financed primarily by issuing short-term and long-term bonds and loans, plus inflation caused by printing paper money, plus new taxes. Wholesale prices had more than doubled, and reduction of inflation was a priority for Secretary of the Treasury Hugh McCulloch. A high priority, and by far the most controversial, was the currency question. The old paper currency issued by state banks had been withdrawn, and Confederate States dollar, Confederate currency became worthless. The national banks had issued $207 million in currency, which was backed by gold and silver. The federal treasury had issued $428 million in greenbacks, which was legal tender but not backed by gold or silver. In addition, about $275 million of coin was in circulation. The new administration policy announced in October would be to make all the paper convertible into specie, if Congress so voted. The House of Representatives passed the Alley Resolution on December 18, 1865, by vote of 144 to 6. In the Senate it was a different matter, for the key player was Senator John Sherman, who said that inflation contraction was not nearly as important as refunding the short-term and long-term national debt. The war had been largely financed by national debt, in addition to taxation and inflation. The national debt stood at $2.8 billion. By October 1865, most of it in short term and temporary loans. Wall Street bankers typified by Jay Cooke believed that the economy was about to grow rapidly, thanks to the development of agriculture through the Homestead Act, the expansion of railroads, especially rebuilding the devastated Southern railroads and opening the Transcontinental railroad, transcontinental line to the West Coast of the United States, West Coast, and especially the flourishing of manufacturing during the war. The goal premium over greenbacks was hundred and $145 in greenbacks to $100 in gold, and the optimists thought that the heavy demand for currency in an era of prosperity would return the ratio to 100. A compromise was reached in April 1866, that limited the treasury to a currency contraction of only $10 million over six months. Meanwhile, the Senate refunded the entire national debt, but the House failed to act. By early 1867, postwar prosperity was a reality, and the optimists wanted an end to contraction, which Congress ordered in January 1868. Meanwhile, the Treasury issued new bonds at a lower interest rate to refinance the redemption of short-term debt. while the old state bank notes were disappearing from circulation, new national bank notes, backed by species, were expanding. By 1868 inflation was minimal.Late 19th century
Commerce, industry and agriculture
In the last third of the 19th century the United States entered a phase of rapid economic growth which doubled per capita income over the period. By 1895, the United States leaped ahead of Britain for first place in manufacturing output. For the first time, exports of machinery and consumer goods became important. For example, Standard Oil led the way in exporting kerosene; Russia was its main rival in international trade. Singer Corporation led the way in developing a global marketing strategy for its sewing machines. The greatly expanded railroad network, using inexpensive steel rails produced by new steel making processes, dramatically lowered transportation cost to areas without access to navigable waterways. Low freight rates allowed large manufacturing facilities with great economies of scale. Machinery became a large industry and many types of machines were developed. Businesses were able to operate over wide areas and chain stores arose. Mail order companies started operating. Rural Free Delivery began in the early 1890s, but it was not widely implemented for a decade. Companies created new management systems to carry out their operations on a large scale. Companies integrated processes to eliminate unnecessary steps and to eliminate middlemen. An explosion of new discoveries and inventions took place, a process called the Second Industrial Revolution. The electric light, telephone, steam turbine, internal combustion engine, automobile, phonograph, typewriter and tabulating machine were some of the many inventions of the period. New processes for making steel and chemicals such as dyes and explosives were invented. The pneumatic tire, improved ball bearings, machine tools and newly developed metal stamping (metalworking), stamping techniques enabled the large scale production of bicycles in the 1890s. Another significant development was the widespread introduction of electric street railways (trams, trolleys or streetcars) in the 1890s. Improvements in transportation and other technological progress caused prices to fall, especially during the so-called Long Depression, long depression, but the rising amount of gold and silver being mined eventually resulted in mild inflation during the 1890s and beyond.Railroads
Railroads saw their greatest growth in new track added in the last three decades of the 19th century. (See #Middle 19th century, Table 2) Railroads also enjoyed high productivity growth during this time, mainly because of the introduction of new processes that made steel inexpensive. Steel rails lasted roughly ten times longer than iron rails. Steel rails, which became heavier as steel prices fell, enabled heavier, more powerful locomotives that could pull longer trains. Rail cars made of steel on steel rails could be made longer and cars and a load carrying to car weight ratio of 2:1 compared to cars made of iron at 1:1. In 1890 David Ames Wells estimated wagon transport at 16 cents per ton-mile compared to railroads at less than one cent per ton-mile. Railroads competed fiercely for passengers and freight by expanding their routes, too often into increasingly marginal ones. The high capital required for expansion plus the low rates, driven by competition and by what the market would bear, resulted in a large percentage of railroad track in bankruptcy. A practical refrigerated (ice cooled) railcar was introduced in 1881. This made it possible to ship cattle and hog carcasses, which weighed only 40% as much as live animals. Gustavus Franklin Swift developed an integrated network of cattle procurement, slaughtering, meat-packing and shipping meat to market. Up to that time cattle were driven great distances to railroad shipping points, causing the cattle to lose considerable weight. Swift developed a large business, which grew in size with the entry of several competitors.Steel
In the last three decades of the 19th century iron and steel became a leading industry, in second place by value added, with machinery being in first place. The Bessemer process was the first large scale process for producing steel, which it was able to do at low cost. The first U.S. licensed Bessemer plant began operation in 1865. Bessemer steel was used mostly for rails. Due to difficulty in controlling quality and embrittlement with aging, Bessemer steel was not suitable for structural purposes. The Siemens-Martin process, or open hearth furnace, open hearth process, produced a suitable grade of structural steel. Open hearth steel displaced wrought iron as a structural material in the 1880s. Open hearth steel began being used in a wide variety of applications including high rise buildings, ships, machinery, pipelines, rails and bridges.Electric lights and electric street railways
Early electrification was too limited to have a big impact on the late 19th-century economy. Electricity was also very expensive because of the low conversion efficiency of fuel to power, the small scale of power plants and the fact that most utilities offered only nighttime service. Daytime service became common during the early 20th century after the introduction of the AC motor, which tended to be used more during the day, balancing the load. Until that time a large share of power was self-generated by the user, such as a factory, hotel or electric street railway (tram or streetcar). Electric street railways were introduced in the U.S. in 1888 when Frank J. Sprague designed and built the first practical system, the Richmond Union Passenger Railway in Richmond, Virginia. Electric street railways rapidly spread to cities around the country in the following years. The early electric street railways typically generated their own power and also operated as electric utilities, which served to even out daily load because the main use of power for lighting was after the peak usage by railways. Until the early 1880s electricity had been used mainly in telegraphy and electroplating. Efficient dynamos were introduced in the 1870s and began being used to power electric Arc lamp#Arc lamp, carbon arc lamps after 1879. In 1880 Thomas Edison patented his invention of a long lasting incandescent light bulb and a system for distributing electrical power. In 1882 he opened the Pearl Street Station in Manhattan, which was the first central power station in the U.S. Using DC placed severe restrictions on the distance power could be transmitted due to power losses. With DC there was no way to transform power to high voltages, which would have reduced the current and lowered the transmission losses. Power can be safely generated to about 2000 volts, but this is a dangerous voltage for household use. With alternating current voltage can be changed up or down using a transformer. AC power began being widely introduced in the 1890s.Communications
Following the failure of the first short lived Transatlantic telegraph cable of 1858, a second, more durable cable was completed in 1865, connecting Nova Scotia to England. By 1890 there was an international telegraph network. After the invention of the telephone in 1876 additional development work was required to make it commercially viable. The first telephones were for local calls. Long-distance calling came into being in the 1890s, but the technology to make transcontinental calls took until 1915 to be operational. Automatic telephone switching, which eliminated the need for telephone operators to manually connect local calls on a switchboard, was introduced in 1892; however it did not become widespread for several decades.Modern business management
Before railroads most businesses were run by a sole proprietor or were a partnership. The owners typically ran the daily operations. The railroad industry was the first to adopt modern business management practices in response to the need to operate over vast areas, to maintain continuous long-distance communications, to manage a complex network, to track trains and freight. Railroads hired professional managers and divided work into various corporate departments, and developed the organization diagram. Another modern business innovation was vertical integration, by which companies expanded to encompass all stages of a business, from producing the raw materials, processing them into saleable products and selling the finished products. Notable examples occurred in the steel and petroleum industries.Agriculture
A dramatic expansion in farming took place.Fred A. Shannon, ''The farmer's last frontier: agriculture, 1860–1897'' (1945Oil, minerals and mining
=Oil
= In the 1850s an advance in lighting was the use of Kerosene lamp, kerosene lamps with glass chimneys, which produced a good quality light at a relatively affordable price. Kerosene lighting effectively extended the day and made it easier to read at night. An industry developed to produce coal oil, as kerosene was then called. Kerosene was also being distilled from Pennsylvania crude oil by Samuel Kier. George Bissell (industrialist), George Bissell paid a visit to Dartmouth College, which he had attended, and saw a sample of "rock oil" from Pennsylvania. Suspecting that the oil may have potential as an illuminant and lubricant, he organized an investor group. In 1853 Bissell's group, which became the Pennsylvania Rock Oil Co., hired Yale chemistry professor Benjamin Silliman Jr., Benjamin Silliman, Jr. to perform an analysis of "rock oil". Silliman's report of April 1864 stated that "rock oil" could yield an excellent illuminating oil. However, there was no economical means for producing sufficient commercial quantities of oil. Bissell had a chance insight when he saw a picture of oil derricks used to produce an oil based patent medicine obtained as a byproduct of a brine well. Following a shareholder disagreement, Bissell and fellow investor Jonathan Greenleaf Eveleth, Jonathan Eveleth investor split with Pennsylvania Rock Oil Co. and formed Seneca Oil in 1858. Edwin Drake, a shareholder, was hired by the company to drill for oil. The site chosen to drill the well was on Oil Creek State Park, Oil Creek near Titusville, Pennsylvania, Titusville, PA, where a water well was producing oil. Drake chose to use brine well drilling technology based on the technique used in China since ancient times that reached the West in the late 1820s, except that Drake used iron cable, an iron well casing and a steam engine. The Drake Well hit oil at a depth of 69.55 feet on August 27, 1858, starting a drilling boom in the region. Among the numerous refineries that were started were several along a new rail link to Cleveland, Cleveland, Ohio, where John D. Rockefeller and his partner Maurice Clark owned a grocery produce shipping business. Rockefeller and Clark also got into the refining business, and in 1865 the partners decided to hold a private auction between the two, with Rockefeller being the successful bidder. The refining industry was intensely competitive, and by 1869 there was three times the capacity needed, a situation which lasted many years, with the number of refineries reaching 6000. In 1870 John D. Rockefeller, his brother William Rockefeller Jr., William Rockefeller, Henry Flagler, Oliver Burr Jennings and silent partner Stephen V. Harkness formed Standard Oil. John D. Rockefeller was the master planner and organizer of the systematic plan to form combinations with or acquire competitors and enter all phases of the oil industry from production to transportation, refining and distribution, a concept called vertical integration. Standard Oil sought every possible advantage over its competitors. One method was using Standard's high shipping volume to secure discounts and drawbacks (payments from railroads for transporting competitors products) from railroads. By 1879 Standard oil controlled 90% of U.S. refining capacity. Producers in the Pennsylvania oil rush, Pennsylvania oil region tried to counter Standard Oil's transportation arrangements by building the first long distance pipeline, the 110 mile long Tidewater Pipeline to Williamsport, Pennsylvania, which was on the Reading Railroad. Standard Oil fought back by building four pipelines of its own. Standard continued to monopolize the oil industry in the U.S. until it was broken up by the 1911 Supreme Court of the United States, U.S. Supreme Court case Standard Oil Co. of New Jersey v. United States. Efficient gas mantles and electric lighting were eroding the illuminating oil market beginning in the 1880s; however a previously low value byproduct of refining was gasoline, which more than offset the role of kerosene in the early 20th century.=Coal
= Coal was found in abundance in the Appalachian Mountains from Pennsylvania south to Kentucky.=Iron ore
= Large iron ore mines opened in the Lake Superior region of the upper Midwest. Steel mills thrived in places where these coal and iron ore could be brought together to produce steel. Large copper and silver mines opened, followed by lead mines and cement factories.Finance, money and banking
During the period, a series of recessions happened. The recession of 1869 resulted from a stock market panic, which lowered stock prices 20% and briefly cut wheat prices in half. It was one of the shortest and mildest recessions in American economic history. Panic of 1873 created one of the worst and longest depressions in American history, seriously affecting every aspect of the economy and bringing the railroad expansion to a halt. The New York Stock Exchange closed for ten days. Of the country's 364 railroads, 89 went bankrupt, a total of 18,000 businesses failed between 1873 and 1875, unemployment reached 14% by 1876, during a time which became known in Britain as the Long Depression. Contemporary economist David Ames Wells argued against calling it a depression in the U.S. (which then meant depressed prices) because output rose dramatically. Politically, the Democrats took control of Congress in 1874, the election of 1876 was deadlocked. The end of the Gilded Age coincided with the Panic of 1893, a deep depression that lasted until 1897. Wheat and cotton farmers in the West and South were especially hard hit, and moved toward radicalism. President Grover Cleveland was forced to ask the Wall Street bankers to help keep the Treasury liquid. Agrarian spokesmen William Jennings Bryan called for an inflationary policy of using cheap silver to effectively replace expensive gold. Bryan lost in a major political realignment in favor of the conservative pro-gold Republicans in the 1896 United States presidential election, election of 1896.Water supply and sewers
Europe had a substantial amount of water supply and sewer infrastructure installed by the mid 1870s. In 1880 only 0.3% of urban households had Water purification#Treatment, filtered water, with this figure rising to 1.5% in 1890 and 6.3% in 1900.Labor unions
The American labor movement began with the first significant labor union, the Knights of Labor in 1869. The Knights collapsed in the 1880s and were displaced by strong international unions that banded together as the American Federation of Labor under Samuel Gompers. Rejecting socialism, the AFL unions negotiated with owners for higher wages and better working conditions. Union growth was slow until 1900, then grew to a peak during World War I.Political developments
Concern over railroads' unfair practices, such as freight rates favoring certain shippers, led to the Interstate Commerce Act of 1887 which created the nation's first regulatory agency, the Interstate Commerce Commission.Trade and tariffs
From the Civil War to 1913, the United States had a high tariff regime, as did most countries with the exception of Great Britain, which clung to free trade. Most Democrats wanted a lower tariff, but failed to make much difference. The Republican Party stressed the goal of rapid economic growth, as well as high wage rates for industrial workers. Indeed the high American wage rates attracted large numbers of skilled European workers, who filled the upper ranks of the American working class. According to Benjamin O. Fordham the United States:Protectionism had several important consequences for American foreign policy on both economic and security issues. It led to a focus on less developed areas of the world that would not export manufactured goods to the United States instead of on wealthier European markets. It limited the tactics available for promoting American exports, forcing policymakers to seek exclusive bilateral agreements or unilateral concessions from trading partners instead of multilateral arrangements. It inhibited political cooperation with other major powers and implied an aggressive posture toward these states.
Early 20th century
Economic growth and the 1910 break
The period from 1890 to 1910 was one of rapid economic growth of above 4%, in part due to rapid population growth. However, a sharp break in the growth rate to around 2.8% occurred from 1910 to 1929. Economists are uncertain what combination of supply and demand factors caused the break, but productivity growth was strong, enabling the labor cost per unit of output to decline from 1910 to 1929. The growth rate in hours worked fell 57% compared to the decline in the growth rate of output of 27%. It is generally accepted that the new technologies and more efficient business methods permanently shifted the supply and demand relationship for labor, with labor being in surplus (except during both world wars when the economy was engaged in war-time production and millions of men served in the armed forces). The technologies that became widespread after 1910, such as electrification, internal combustion powered transportation and mass production, were capital saving. Total non-residential fixed business fell after 1910 due to the fall of investment in structures.Industry, commerce and agriculture
Two of the most transformative technologies of the century were widely introduced during the early decades: electrification, powered by high pressure boilers and steam turbines and automobiles and trucks powered by the internal combustion engine. Chain stores experienced rapid growth. Standardization was urged by the United States Department of Commerce, Department of Commerce for consumer goods such as bedspreads and screws. A simplified standardization program was issued during World War I.Electrification
Electrification was one of the most important drivers of economic growth in the early 20th century. The revolutionary design of electric powered factories caused the period of the highest productivity growth in manufacturing. There was large growth in the electric utility industry and the productivity growth of electric utilities was high as well. At the turn of the 20th century electricity was used primarily for lighting and most electric companies did not provide daytime service. Electric motors that were used in daytime, such as the DC motors that powered street railways, helped balance the load, and many street railways generated their own electricity and also operated as electric utilities. The AC motor, developed in the 1890s, was ideal for industrial and commercial power and greatly increased the demand for electricity, particular during daytime. Electrification in the U.S. started in industry around 1900, and by 1930 about 80% of power used in industry was electric. Electric utilities with central generating stations using steam turbines greatly lowered the cost of power, with businesses and houses in cities becoming electrified. In 1900 only 3% of households had electricity, increasing to 30% by 1930. By 1940 almost all urban households had electricity. Electrical appliances such as irons, cooking appliances and washing machines were slowly adopted by households. Household mechanical refrigerators were introduced in 1919 but were in only about 8% of households by 1930, mainly because of their high cost. The electrical power industry had high productivity growth. Many large central power stations, equipped with high pressure boilers and steam turbine generators began being built after 1913. These central stations were designed for efficient handling of coal from the layout of the rail yards to the conveyor systems. They were also much more fuel efficient, lowering the amount of fuel per kilowatt-hour of electricity to a small fraction of what it had been. In 1900 it took 7 lbs coal to generate one kilowatt hour. In 1960 it took 0.9 lb/kw hr.Manufacturing
Rapid economic growth in the early decades of the 20th century were largely due to productivity growth in manufacturing. Mass production#Factory electrification, Factory electrification revolutionized manufacturing. Unit drive, which means using a single electric motor for powering a single machine, eliminated line shafts previously used to transmit power from a small number of steam engines or hydraulic turbines. Line shafts created constraints on building arrangement that impeded the efficient flow of materials because they presented traffic barriers and required multi-story buildings for economy. It was not uncommon for large manufacturing sites to have many miles of line shafts. Electric motors were much more economical to operate than steam engines in terms of energy efficiency and operator attention. Electric motors were also lower in capital cost. Frederick Winslow Taylor, Frederick W. Taylor was the best known pioneer in the field of scientific management in the late 19th century, carefully timing and plotting the functions of various workers and then devising new, more efficient ways for them to do their jobs. Ford Motor Co. used techniques of scientific management although Henry Ford claimed not to know of Taylor's system. Ford Motor used every practical means to reduce the effort and movement of workers in order to reduce the time involved in making parts, moving parts and assembling parts into automobiles. Ford used electric powered factories and in 1913 Ford introduced the assembly line, a step in the process that became known as ''mass production''. The price of a Ford Model T fell from $900 in 1908–9 to $360 in 1916, despite the fact that wages doubled to $5 per day in 1914. Production grew from 13,840 in 1909 to 132,702 in 1916. Productivity for this period, measured in output of Model T's per worker, rose 150%. Ford offered a very generous wage—$5 a day—to his workers, arguing that a mass production enterprise could not survive if average workers could not buy the goods. However, Ford expanded the company's Sociological Department to monitor his workers and ensure that they did not spend their newfound bounty on "vice and cheap thrills".Electric street railways
Electric street railways developed into a major mode of transportation, and electric inter-urban service connected many cities in the Northeast and Midwest. Electric street railways also carried freight, which was important before trucks became widely introduced. The widespread adoption of the automobile and motor bus halted the expansion of the electric street railways during the 1920s.Railroads
At the beginning of the 20th century the railroad network had over-expanded with many miles of unprofitable routes. In 1906 Congress gave the Interstate Commerce Commission the power to regulate freight rates and the industry was unable to increase revenue enough to cover rising costs. By 1916, the peak year of track mileage, one-sixth of the nation's railroad trackage was in bankruptcy. The railroads proved inadequate to handle the increased freight volume created by World War I. There were major traffic jams in the system and critical supplies were experiencing delays. In December 1917 the railroads were taken over by the government and put under control of the United States Railroad Administration (USRA). The USRA ordered 1,930 new standardized steam locomotives and over 100,000 railcars. The USRA's control over the railroads ended in March 1920.Automobiles and trucks
By the dawn of the 20th century, automobiles had begun to replace horse-drawn carriages. Numerous companies were building cars, but car manufacturing was challenging. Consequently, prices were high and production was low. Mass production techniques of the mid 1910s brought down the cost of automobiles and sales grew dramatically. By 1919 automobile registrations were 6.6 million and truck registrations were 898,000. Replacing horses with cars and trucks eliminated enormous quantities of horse manure and urine from city streets, greatly reducing the labor for street cleaning and also improving sanitation and living conditions. Reducing the number of horses for transportation freed up between one- sixth and one-quarter of all farm land.Highway system
In 1900 there were only 200 miles of paved roads outside of cities in the U.S. By the late 1920s automobiles were becoming common, but there were few highways connecting cities. The Federal road building program ended in 1818, leaving states to build roads until the Federal Road act of 1916. A national highway system was agreed on in 1926, when an interstate program (not to be confused with the Interstate Highway System, Dwight D. Eisenhower National System of Interstate and Defense Highways) began, there were 23.1 million cars and 3.5 million trucks. The system was nearly complete when the U. S. entered World War II in December 1941.Water supply and sewers
At the turn of the century approximately one-third of urban households had running water; however, most of it was untreated and carried disease causing microorganisms. The widespread building of water treatment plants and piping of water to and sewage from urban households occurred in the early decades of the century. The number of urban households supplied with running filtered water increased from 6.3% in 1900 to 25% in 1910 and 42% in 1925. In 1908 the Jersey City Water Works in New Jersey was the first to sterilize water using sodium hypochlorite (chlorine bleach). Chlorination of drinking water became common in urban water supplies by the 1930s and contributed to a sharp reduction in many diseases such as hepatitis A, typhoid fever, cholera and dysentery.Agriculture
Internal combustion powered tractors appeared on farms in the mid 1910s and farmers began using automobiles and trucks to haul produce. By 1924 tractors and trucks on farms numbered 450,000 and 370,000 respectively. Combined harvester-threshers reduced labor cost 85% compared to using binders and stationary threshers. Farms have decreased in the United States. The number of farms in the U.S have decreased from 7 million in the 1930s to just a little over 2 million in 2000. The rate of decline was most rapid in the 1950s and 1960s. The reason for this was because of the increased innovation in farms where new technology was able to create more product which resulted in the need for fewer farms. Also during the 1950s–1960s people moved from the bigger cities and farms to more suburban areas so these smaller farms would be sold and people would move closer to cities. People also could not afford the new technologies to help them farm so bigger farms would be very successful during this time, while smaller farms would close.Finance, money and banking
A major economic downturn in 1906 ended the expansion from the late 1890s. This was followed by the Panic of 1907. The Panic of 1907 was a factor in the establishment of the Federal Reserve Bank in 1913. The mild inflation of the 1890s, attributed to the rising gold supply from mining, continued until World War I, at which time inflation rose sharply with wartime shortages including labor shortages. Following the war the rate of inflation fell, but prices remained above the prewar level. The U.S. economy prospered during World War I, partly due to sales of war goods to Europe. The stock market had its best year in history in 1916. The U.S. gold reserves doubled between 1913 and 1918, causing the price level to rise. Interest rates had been held low to minimize interest on war bonds, but after the final war bonds were sold in 1919, the Federal Reserve raised the discount rate from 4% to 6%. Interest rates rose and the money supply contracted. The economy entered the Depression of 1920–1921, Depression of 1920-21, which was a sharp decline financially. By 1923, the economy had returned to full employment. A debt-fueled boom developed following the war. Jerome (1934) gives an unattributed quote about finance conditions that allowed the great industrial expansion of the post World War I period:Probably never before in this country had such a volume of funds been available at such low rates for such a long period.There was also a real estate and housing bubble in the 1920s, especially in Florida, which burst in 1925. Alvin Hansen stated that housing construction during the 1920s decade exceeded population growth by 25%. See also:Florida land boom of the 1920s Debt reached unsustainable levels. Speculation in stocks drove prices up to unprecedented valuation levels. The stock market crashed in late October 1929.
Politics and regulation
Systematic regulation of major sectors of the economy and society was a priority of the federal government in this era. In the 19th century the federal government was not heavily involved in the private sector, except in the areas of land sales and transportation. In general, the concept of laissez-faire prevailes. It was a doctrine opposing government interference in the economy except to maintain law and order. This attitude started to change during the latter part of the 19th century, when small business, farm, and labor movements began asking the government to intercede on their behalf.Harold U. Faulkner, ''The Decline of Laissez Faire, 1897–1917'' (1951) By 1900, a middle class had developed that was leery of both the business elite and the somewhat radical political movements of farmers and laborers in the Midwest and West. Known as Progressivism, Progressives, these people favored government regulation of business practices to, in their minds, ensure competition and free enterprise. Congress enacted a law regulating railroads in 1887 (the Interstate Commerce Act of 1887, Interstate Commerce Act), and one preventing large firms from controlling a single industry in 1890 (the Sherman Antitrust Act of 1890, Sherman Antitrust Act). These laws were not rigorously enforced, however, until the years between 1900 and 1920, when Republican President Theodore Roosevelt (1901–1909), Democrat President Woodrow Wilson (1913–1921), and others sympathetic to the views of the Progressives came to power. Many of today's U.S. regulatory agencies were created during these years, including the Interstate Commerce Commission and the Federal Trade Commission. Ida Tarbell, Ida M. Tarbell wrote a series of articles against the Standard Oil monopoly. The series helped pave the way for the breakup of the monopoly. Muckrakers were journalists who encouraged readers to demand more regulation of business. Upton Sinclair's ''The Jungle'' (1906) showed America the horrors of the Chicago Union Stock Yards, a giant complex of meat processing that developed in the 1870s. The federal government responded to Sinclair's book with the new regulatory Food and Drug Administration. When Democrat Woodrow Wilson was elected president with a Democrat controlled Congress in 1912 he implemented a series of progressive policies. In 1913, the Sixteenth Amendment to the United States Constitution, Sixteenth Amendment was ratified, and the income tax was instituted in the United States. Wilson resolved the longstanding debates over tariffs and antitrust, and created the Federal Reserve, a complex business-government partnership that to this day dominates the financial world. The Pure Food and Drug Act, Pure Food and Drug Act of 1906 was the first of a series of legislation that led to the establishment of the Food and Drug Administration (FDA). Another such act passed the same year was the Federal Meat Inspection Act. The new laws helped the large packers, and hurt small operations that lacked economy of scale or quality controls. The Sixteenth Amendment to the United States Constitution, which allowed the Federal Government to tax all income, was adopted in 1913. Starting small, the tax shot us pin 1917 to pay for the war, then declined in the 1920s. The Emergency Quota Act (1921) established a quota system on immigrants by country of origin, with the maximum number of annual immigrants from a country limited to 3% of the number of that national background living in the U.S. according to the 1910 United States census, 1910 United States Census. The Immigration Act of 1924 reduced the quota from 3% to 2% and added additional restrictions on certain nationalities.World War I
The World War involved a massive mobilization of money, taxes, and banking resources to pay for the American war effort and, through government-to-government loans, most of the Allied war effort as well.Roaring Twenties: 1920–1929
Under Republican President Warren G. Harding, who called for normalcy and an end to high wartime taxes, Secretary of the Treasury Andrew Mellon raised the tariff, cut marginal tax rates and used the large surplus to reduce the federal debt by about a third from 1920 to 1930. Secretary of Commerce Herbert Hoover worked to introduce efficiency, by regulating business practices. This period of prosperity, along with the culture of the time, was known as the Roaring Twenties. The rapid growth of the automobile industry stimulated industries such as oil, glass, and road-building. Tourism soared and consumers with cars had a much wider radius for their shopping. Small cities prospered, and large cities had their best decade ever, with a boom in construction of offices, factories and homes. The new electric power industry transformed both business and everyday life. Telephones and electricity spread to the countryside, but farmers never recovered from the wartime bubble in land prices. Millions migrated to nearby cities. However, in October 1929, the Stock market crashed and banks began to fail in the Wall Street Crash of 1929.Quality of life
The early decades of the 20th century were remarkable for the improvements of the quality of life in the U.S. The quality of housing improved, with houses offering better protection against cold. Floor space per occupant increased. Sanitation was greatly improved by the building of water supply and sewage systems, plus the treatment of drinking water by filtration and chlorination. The change over to internal combustion took horses off the streets and eliminated horse manure and urine and the flies they attracted. Federal regulation of food products and processing, including government inspection of meat processing plants helped lower the incidence of food related illness and death. Infant mortality, which had been declining dramatically in the last quarter of the 19th century, continued to decline. The workweek, which averaged 53 hours in 1900, continued to decline. The burden of household chores lessened considerably. Hauling water and firewood into the home every day was no longer necessary for an increasing number of households. Electric light was far less expensive and higher quality than kerosene lamp light. Electric light also eliminated smoke and fumes and reduced the fire hazard.Welfare capitalism
Beginning in the 1880s but especially by the 1920s, some large non-union corporations such as Kodak, Sears, and IBM, adopted the philosophy of paternalistic welfare capitalism. In this system, workers are considered an important stakeholder alongside owners and customers. In return for loyalty to the company, workers get long-term job security, health care, defined benefit pension plans, and other perks. Welfare capitalism was seen as good for society, but also for the economic interests of the company as a way to prevent unionization, government regulation, and socialism or Communism, which became a major concern in the 1910s. By the 1980s, the philosophy had declined in popularity in favor of maximizing shareholder value at the expense of workers, and defined contribution plans such as 401(k)s, replaced guaranteed pensions.Great Depression and World War II: 1929–1945
Pre-war industry, commerce, and agriculture
Despite the Great Depression and World War II, the middle decades of the 20th century were among the highest for productivity growth. The research developed through informal cooperation between U.S. industry and academia grew rapidly and by the late 1930s exceeded the size of that taking place in Britain (although the quality of U.S. research was not yet on par with British and German research at the time).Manufacturing
Productivity growth in manufacturing slowed from the electrification era of the early century, but remained moderate. Automation of factories became widespread during the middle decades as industry invested in newly developed Process control, instruments and controls that allowed fewer workers to operate vast factories, refineries and chemical plants.Great Depression: 1929–1941
Following the Wall Street Crash of 1929, the World economy, worldwide economy plunged into the Great Depression. The U.S. money supply began to contract by one-third. The protectionist Smoot–Hawley Tariff Act incited retaliation from Canada, Britain, Germany and other trading partners. Congress, in 1932, worried about the rapidly growing deficit and national debt, and raised income tax rates. Economists generally agree that these measures deepened an already serious crisis. By 1932, the unemployment rate was 25%. Conditions were worse in heavy industry, lumbering, export agriculture (cotton, wheat, tobacco), and mining. Conditions were not quite as bad in white collar sectors and in light manufacturing. Franklin D. Roosevelt, Franklin Delano Roosevelt was elected President in 1932 without a specific program. He relied on a highly eclectic group of advisors who patched together many programs, known as the New Deal. 1 in 1929 dollarsSpending
Government spending increased from 8.0% of GNP under Herbert Hoover, Herber Hoover in 1932 to 10.2% of GNP in 1936. Franklin D. Roosevelt balanced the "regular" budget the emergency budget was funded by debt, which increased from 33.6% of GNP in 1932 to 40.9% in 1936. Deficit spending had been recommended by some economists, most notably the Briton John Maynard Keynes. Roosevelt met Keynes but did not pay attention to his recommendations. After a meeting with Keynes, who kept drawing diagrams, Roosevelt remarked that "He must be a mathematician rather than a political economist". John Keynes' approach to the Great Depression could have been a solution. His method was to keep the feds spending as much as they could even on random purchases but the money had to keep moving. It is believed that if America went through with John Keynes plan the Great Depression could have been avoided entirely. The Feds started to spend more when President Roosevelt came into office as the federal government doubled income tax rates in 1932. Total government tax revenues as a percentage of GDP shot up from 10.8% in 1929 to 16.6% in 1933. Higher tax rates tended to reduce consumption and aggregate demand. Spending would go up and America would get out of the great depression when World War II happened after Attack on Pearl Harbor, Japan’s attack on American forces in Pearl Harbor in December 1941 led to much sharper increases in government purchases, and the economy pushed quickly into an inflationary gap.Banking crisis
In 1929–33 the economy was destabilized by bank failures. The initial reasons were substantial losses in investment banking, followed by bank runs. Bank runs occurred when a large number of customers lost confidence in their deposits (which were not insured) and rushed to withdraw their deposits. Runs destabilized many banks to the point where they faced bankruptcy. Between 1929 and 1933 40% of all banks (9,490 out of 23,697 banks) went bankrupt. Much of the Great Depression's economic damage was caused directly by bank runs. Hoover had already considered a ''bank holiday'' to prevent further bank runs, but rejected the idea because he was afraid to trip a panic. Roosevelt acted as soon as he took office; he closed all the banks in the country and kept them all closed until he could pass new legislation. On March 9, Roosevelt sent to Congress the Emergency Banking Act, drafted in large part by Hoover's top advisors. The act was passed and signed into law the same day. It provided for a system of reopening sound banks under United States Department of the Treasury, Treasury supervision, with federal loans available if needed. Three-quarters of the banks in the Federal Reserve, Federal Reserve System reopened within the next three days. Billions of dollars in hoarded currency and gold flowed back into them within a month, thus stabilizing the banking system. By the end of 1933, 4,004 small local banks were permanently closed and merged into larger banks. Their deposits totaled $3.6 billion; depositors lost a total of $540 million, and eventually received on average 85 cents on the dollar of their deposits; it is a common myth that they received nothing back. The Glass–Steagall legislation, Glass–Steagall Act limited commercial bank securities activities and affiliations between commercial banks and securities firms to regulate speculations. It also established the Federal Deposit Insurance Corporation (FDIC), which insured deposits for up to $250,000, ending the risk of runs on banks.Unemployment
Unemployment reached 25 percent in the worst days of 1932–33, but it was unevenly distributed. Job losses were less severe among women than men, among workers in nondurable industries (such as food and clothing), in services and sales, and in government jobs. The least skilled inner city men had much higher unemployment rates, as did young people who had a hard time getting their first job, and men over the age of 45 who if they lost their job would seldom find another one because employers had their choice of younger men. Millions were hired in the Great Depression, but men with weaker credentials were never hired, and fell into a long-term unemployment trap. The migration that brought millions of farmers and townspeople to the bigger cities in the 1920s suddenly reversed itself, as unemployment made the cities unattractive, and the network of kinfolk and more ample food supplies made it wise for many to go back. Local government in the United States, City governments in 1930–31 tried to meet the depression by expanding public works projects, as president Herbert Hoover strongly encouraged. However tax revenues were plunging, and the cities as well as private relief agencies were totally overwhelmed by 1931 men were unable to provide significant additional relief. They fell back on the cheapest possible relief, soup kitchens which provided free meals for anyone who showed up. After 1933 new sales taxes and infusions of federal money helped relieve the fiscal distress of the cities, but the budgets did not fully recover until 1941. The federal programs launched by Hoover and greatly expanded by president Roosevelt's New Deal used massive construction projects to try to jump start the economy and solve the unemployment crisis. The alphabet agencies ERA, Civilian Conservation Corps, CCC, Federal Emergency Relief Administration, FERA, Works Progress Administration, WPA and Public Works Administration, PWA built and repaired the public infrastructure in dramatic fashion, but did little to foster the recovery of the private sector. FERA, CCC, and especially WPA focused on providing unskilled jobs for long-term unemployed men.Relief
The extent to which the spending for relief and public works provided a sufficient stimulus to revive the U.S. economy, or whether it harmed the economy, is also debated. If one defines economic health entirely by the gross domestic product, the U.S. had gotten back on track by 1934, and made a full recovery by 1936, but as Roosevelt said, one third of the nation was ill fed, ill-housed and ill-clothed. See Chart 3. GNP was 34% higher in 1936 than 1932, and 58% higher in 1940 on the eve of war. The economy grew 58% from 1932 to 1940 in 8 years of peacetime, and then grew another 56% from 1940 to 1945 in 5 years of wartime. The unemployment rate fell from 25.2% in 1932 to 13.9% in 1940 when the draft started. During the war the economy operated under so many different conditions that comparison is impossible with peacetime, such as massive spending, price controls, bond campaigns, controls over raw materials, prohibitions on new housing and new automobiles, rationing, guaranteed cost-plus profits, subsidized wages, and the draft of 12 million soldiers. In 1995 economist Robert Whaples stated that measuring the effect of the New Deal remains a thorny issue for economists because it is so difficult to measure the effects it had on the country. A survey of academic specialists by Whaples showed that in regards to the statement "The New Deal lengthened and deepened the Great Depression", 27% generally agreed, 22% agreed but with provisos, and 51% disagreed. Among professional historians, 6% agreed, 21% agreed with provisos, and 74% disagreed. However, economist Eric Rauchway of the University of California stated "very few people disapprove of most of the New Deal reforms", which include Social Security (United States), Social Security, the U.S. Securities and Exchange Commission, Securities and Exchange Commission, the Federal Deposit Insurance Corporation, Federal Deposit Insurance Corp., and Fannie Mae. Regardless, unemployment peaked in 1932 at 25% and was reduced to 13.9% by 1940. As Broadus Mitchell summarized, "Most indexes worsened until the summer of 1932, which may be called the low point of the depression economically and psychologically". Economic indicators show the American economy declined until February 1933. After Roosevelt took office, there began a steady, sharp upward recovery that persisted until the brief Recession of 1937–1938 (see graph) after which they continued their upward climb. Thus the Federal Reserve Index of Industrial Production bottomed at 52.8 on July 1, 1932, and was practically unchanged at 54.3 on March 1, 1933; however by July 1, 1933, it had climbed to 85.5 (with 1935–39 = 100, and for comparison 2005 = 1,342).New Deal impact
A 2017 review of the published scholarship summarized the findings of researchers as follows:The studies find that public works and relief spending had state income multipliers of around one, increased consumption activity, attracted internal migration, reduced crime rates, and lowered several types of mortality. The farm programs typically aided large farm owners but eliminated opportunities for share croppers, tenants, and farm workers. The Home Owners' Loan Corporation's purchases and refinancing of troubled mortgages staved off drops in housing prices and home ownership rates at relatively low ex post cost to taxpayers. The Reconstruction Finance Corporation's loans to banks and railroads appear to have had little positive impact, although the banks were aided when the RFC took ownership stakes.
Wartime output and controls: 1940–1945
Unemployment dropped to 2%, relief programs largely ended, and the industrial economy grew rapidly to new heights as millions of people moved to new jobs in war centers, and 16 million men and 300,000 women were drafted or volunteered for military service. All economic sectors grew during the war. Farm output went from an index (by volume) of 106 in 1939 to 128 in 1943. Coal output went from 446 million tons in 1939 to 651 in 1943; oil from 1.3 billion barrels to 1.5 billion. Manufacturing output doubled, from a volume index of 109 in 1939 to 239 in 1943. Railroads strained to move it all to market, going from an output of 13.6 billion loaded car miles in 1939 to 23.3 in 1943. The War Production Board coordinated the nation's productive capabilities so that military priorities would be met. Converted consumer-products plants filled many military orders. Automakers built tanks and aircraft, for example, making the United States the "arsenal of democracy". In an effort to prevent rising national income and scarce consumer products from causing inflation, the newly created Office of Price Administration rationed and set prices for consumer items ranging from sugar to meat, clothing and gasoline, and otherwise tried to restrain price increases. It also set rent in war centers. Six million women took jobs in manufacturing and production; most were newly created temporary jobs in munitions. Some were replacing men away in the military. These working women were symbolized by the fictional character of Rosie the Riveter. After the war many women returned to household work as men returned from military service. The nation turned to the suburbs, as a pent-up demand for new housing was finally unleashed.Household gas, water, electricity, sanitation, heating, refrigeration
By 1940 nearly 100% of urban homes had electricity, 80% had indoor flush toilets, 73% had gas heating or cooking, 58% central heating, 56% had mechanical refrigerators.Post-World War II prosperity: 1945–1973
The period from the end of World War II to the early 1970s was a golden era of economic growth. $200 billion in war bonds matured, and the G.I. Bill financed a well-educated workforce. The middle class swelled, as did GDP and productivity. This growth was distributed fairly evenly across the economic classes though not Racial pay gap in the United States, race, which some attribute to the strength of labor unions in this period—labor union membership peaked historically in the U.S. during the 1950s, in the midst of this massive economic growth. Much of the growth came from the movement of low income farm workers into better paying jobs in the towns and cities—a process largely completed by 1960. Congress created the Council of Economic Advisers, Council of Economic Advisors, to promote high employment, high profits and low inflation. The Presidency of Dwight D. Eisenhower, Eisenhower administration (1953–1961) supported an activist contracyclical approach that helped to establish Keynesian economics, Keynesianism as a bipartisan economic policy for the nation. Especially important in formulating the CEA response to the recession—accelerating public works programs, easing credit, and reducing taxes—were Arthur F. Burns and Neil H. Jacoby. "I am now a Keynesian in economics", proclaimed Republican President Richard Nixon in 1969. Although this period brought economic expansion to the country as a whole, it was not recession proof. The recessions of 1945, 1949, 1953, 1958, and 1960 saw a drastic decline in GDP. The Mid-20th century baby boom, "Baby Boom" saw a dramatic increase in fertility in the period 1942–1957; it was caused by delayed marriages and childbearing during depression years, a surge in prosperity, a demand for suburban single-family homes (as opposed to inner city apartments) and new optimism about the future. The boom crested about 1957, then slowly declined.Agriculture
Farm machinery, fertilizer and high yield seed varieties
Ammonia from plants built during World War II to make explosives became available for making fertilizers, leading to a permanent decline in real fertilizer prices. The early 1950s was the peak period for tractor sales in the U.S. as the few remaining horses and mules were phased out. The horsepower of farm machinery underwent a large expansion. A successful cotton picking machine was introduced in 1949. The machine could do the work of 50 men picking by hand. Research on plant breeding produced varieties of grain crops that could produce high yields with heavy fertilizer input. This resulted in the Green Revolution, Green revolution, beginning in the 1940s. By the century's end yields of corn (maize) rose by a factor of over four. Wheat and soybean yields also rose significantly.Government policies
The New Deal era farm programs were continued into the 1940s and 1950s, with the goal of supporting the prices received by farmers. Typical programs involved farm loans, commodity subsidies, and price supports. The rapid decline in the farm population led to a smaller voice in Congress. So the well-organized Farm Bureau and other lobbyists, worked in the 1970s to appeal to urban Congressman through food stamp programs for the poor. By 2000, the food stamp program was the largest component of the farm bill. In 2010, the Tea Party movement brought in many Republicans committed to cutting all federal subsidies, including those in agriculture. Meanwhile, urban Democrats strongly opposed reductions, pointing to the severe hardships caused by the 2008–10 economic recession. The Agricultural Act of 2014 saw many rural Republican Congressman voting against the program despite its support from farmers; it passed with urban support.Aircraft and air transportation industries
Air transport was a major beneficiary of the war. The United States was the leading producer of combat aircraft during World War II and had a large surplus of machine tools and manufacturing facilities for airplanes at the end of the war. There were also experienced airplane manufacturing and maintenance personnel. Additionally, radar had been developed just before the war. The aircraft industry had the highest productivity growth of any major industry, growing by 8.9% per year in 1929–1966. During World War II the United States hired hundreds of thousands of workers, put them all in 4 major factories and had a government budget of over $3 billion (). The Boeing B-29 Superfortress, B-29 project required the United States Army Air Forces, US Army Air Forces to have unprecedented organizational capabilities as this project included several major private contractors and labor unions. American aircraft production was the single largest sector of the war economy, costing $45 billion (almost a quarter of the $183 billion spent on war production), employing a staggering two million workers, and, most importantly, producing over 125,000 aircraft. Production of Selected U.S. Military Aircraft (1941–1945): Bombers-49,123 Fighters-63,933 Cargo-14,710 Total-127,766.Housing
Very little housing had been built during the Great Depression and World War II, except for emergency quarters near war industries. Overcrowded and inadequate apartments was the common condition. Some suburbs had developed around large cities where there was rail transportation to the jobs downtown. However, the real growth in suburbia depended on the availability of automobiles, highways, and inexpensive housing. The population had grown, and the stock of family savings had accumulated the money for down payments, automobiles and appliances. The product was a great housing boom. Whereas an average of 316,000 new housing non-farm units had been constructed from the 1930s through 1945, there were 1,450,000 units built annually from 1946 through 1955. The G.I. Bill, G.I. Bill of Rights guaranteed low cost loans for veterans, with very low down payments, and low interest rates. With 16 million eligible veterans, the opportunity to buy a house was suddenly at hand. In 1947 alone, 540,000 veterans bought one; their average price was $7300. The construction industry kept prices low by standardization – for example standardizing sizes for kitchen cabinets, refrigerators and stoves, allowed for mass production of kitchen furnishings. Developers purchased empty land just outside the city, installed tract houses based on a handful of designs, and provided streets and utilities, or local public officials race to build schools. The most famous development was Levittown, New York, Levittown, in Long Island just east of New York City. It offered a new house for $1000 down, and $70 a month; it featured three bedrooms, fireplace, gas range and gas furnace, and a landscaped lot of 75 by 100 feet, all for a total price of $10,000. Veterans could get one with a much lower down payment.Interstate highway system
Construction of the Interstate Highway System began in 1956 under Presidency of Dwight D. Eisenhower, President Eisenhower. In long-term perspective the interstate highway system was a remarkable success, that has done much to sustain Eisenhower's positive reputation. Although there have been objections to the negative impact of clearing neighborhoods in cities, the system has been well received. The railroad system for passengers and freight declined sharply, but the trucking expanded dramatically and the cost of shipping and travel fell sharply. Suburbanization became possible, with the rapid growth of easily accessible, larger, cheaper housing than was available in the overcrowded central cities. Tourism dramatically expanded as well, creating a demand for more service stations, motels, restaurants and visitor attractions. There was much more long-distance movement to the Sun Belt, Sunbelt for winter vacations, or for permanent relocation, with convenient access to visits to relatives back home. In rural areas, towns and small cities off the grid lost out as shoppers followed the interstate, and new factories were located near them.Computer technology
Mainframe business computer systems were introduced in the 1950s following the manufacture of transistors. Mainframe computers were in widespread use by the 1960s. These computers handled a variety of accounting, billing and payroll applications. One highly significant application was the Sabre (computer system), Sabre airline reservations system, which first went into operation in 1960. With Sabre reservations could be placed remotely using teleprinters and all functions were done automatically, including ticket printing. This eliminated manually handling file cards.Fiscal policy
Federal taxes on incomes, profits and payrolls had risen to high levels during World War II and had been cut back only slowly; the highest rates for individuals reached the 90% level. Congress cut tax rates in 1964. President Lyndon B. Johnson (1963–69) dreamed of creating a "Great Society", and began many new social programs to that end, such as Medicaid and Medicare (United States), Medicare.Military and space spending
After the Cold War began in 1947, and especially after the Korean War began in 1950, the government adopted a strategy in NSC 68 military spending. Economists examined how much this "military Keynesianism" stimulated the economy. President Eisenhower feared that excessive military spending would damage the economy, so he downsized the Army after Korea and shifted priorities to missiles and nuclear weapons (which were much less expensive than army divisions). He also promoted the Interstate Highway System, Interstate Highway system as necessary for national defense, and made space exploration a priority. His successor John F. Kennedy made a manned mission to the moon a national priority. Much of the new spending went to California and the West, a continuation of wartime spending. An even greater impact came in the South, where it stimulated a modernization of the economy away from cotton towards manufacturing and high technology. For example, there were new, large technologically sophisticated installations at the Atomic Energy Commission's Savannah River Site in South Carolina; the Redstone Arsenal at Huntsville, Alabama; nuclear research facilities at Oak Ridge National Laboratory, Oak Ridge, Tennessee; and space facilities at Space Coast, Cape Canaveral, Florida, at the Johnson Space Center, Lyndon B. Johnson Space Center in Houston, and at the Stennis Space Center, John C. Stennis Space Center in Mississippi. The Defense Department financed some of private industry's research and development throughout these decades, most notably ARPANET (which would become the Internet).Decline of labor unions
The percentage of workers belonging to a union (or "density") in the United States peaked in 1954 at almost 35% and the total number of union members peaked in 1979 at an estimated 21.0 million. Union membership has continued to decline into the 2010s due to right-to-work laws adopted by many states, globalization undermining higher-wage firms, and increasing political opposition exemplified by the breaking of the 1981 strike of the Professional Air Traffic Controllers Organization (1968) by President Ronald Reagan.Late 20th century
Post industrial (service) economy
Manufacturing employment and nominal value added shares of the economy have been in a steady decline since World War II. In the late 1960s manufacturing's share of both employment and nominal value added was about 26%, falling to about 11% and 12% respectively by the end of the century. See: Chart 2 Per-capita steel consumption in the U.S. peaked in 1977, then fell by half before staging a modest recovery to levels well below the peak.Service sector expansion
The decline in the relative size of manufacturing coincided with a rise in the size of the service sector.Productivity slowdown
Technological innovations of the final third of the 20th century were significant, but were not as powerful as those of the first two-thirds of the century. Manufacturing productivity growth continued at a somewhat slower rate than in earlier decades, but overall productivity was dragged down by the relative increase in size of the government and service sectors.Inflation woes: 1970s
The postwar boom ended with a number of events in the early 1970s: * the collapse of the Bretton Woods system in 1971 * the growing influx of imported manufacturing goods, such as automobiles and electronics * the 1973 oil crisis, * productivity growth fell to a low level after 1973 and remained low until the 1990s, * the 1973–1974 stock market crash, * and the ensuing displacement of Keynesian economics by monetarism, monetarist economics, especially by the free-market Chicago school of economics, Chicago School of Economics, led by economist Milton Friedman. At the same time, the consensus among experts moved against New-Deal-style regulation, in favor of deregulation. In the late 1960s it was apparent to some that this juggernaut of economic growth was slowing down, and it began to become visibly apparent in the early 1970s. The United States grew increasingly dependent on oil importation from OPEC after Oil reserves in the United States, peaking production in 1970, resulting in oil supply shocks in 1973 and 1979. Stagflation gripped the nation, and the government experimented with incomes policy, wage and price controls under Richard Nixon, President Nixon. The Bretton Woods system, Bretton Woods Agreement collapsed in 1971–1972, and President Nixon closed the gold window at the Federal Reserve, taking the United States entirely off the gold standard. President Gerald Ford introduced the slogan, "Whip inflation now, Whip Inflation Now" (WIN). In 1974, productivity shrunk by 1.5%, though this soon recovered. In 1976, Jimmy Carter won the Presidency. Carter would later take much of the blame for the even more turbulent economic times to come, though some say circumstances were outside his control. Inflation continued to climb skyward. Productivity growth was small, when not negative. Interest rates remained high, with the prime reaching 20% in January 1981; Art Buchwald quipped that 1980 would go down in history as the year when it was cheaper to borrow money from the American Mafia, Mafia than the local bank.Michael French, ''US Economic History since 1945'' (1997) Unemployment dropped mostly steadily from 1975 to 1979, although it then began to rise sharply. This period also saw the increased rise of the environmental and consumer movements, and the government established new regulations and regulatory agencies such as the Occupational Safety and Health Administration, the U.S. Consumer Product Safety Commission, Consumer Product Safety Commission, the Nuclear Regulatory Commission, and others.Deregulation and Reaganomics: 1976–1992
Deregulation gained momentum in the mid-1970s, spurred by slow productivity growth and increasing operation and capital costs in several key sectors. It was not until 1978 that the first meaningful deregulation legislation, the Airline Deregulation Act, was cleared by Congress. Transportation deregulation accelerated in 1980, with the deregulation of railroads and trucking. Deregulation of interstate buses followed in 1982. In addition to transportation deregulation, savings and loan associations and banks were partially deregulated with the Depository Institutions Deregulation and Monetary Control Act in 1980 and the Garn–St. Germain Depository Institutions Act in 1982. On a broader front, the economy initially recovered at a brisk pace from the 1973–1975 recession, 1973–75 recession. Incoming president Jimmy Carter instituted a large Economic Stimulus Appropriations Act of 1977, fiscal stimulus package in 1977 in order to boost the economy. However, inflation began a steep rise beginning in late 1978, and rose by double digits following the 1979 oil crisis, 1979 energy crisis. In order to combat inflation, Carter appointed Paul Volcker to the Federal Reserve, who raised interest rates and caused a sharp recession in the first six months of 1980. In March 1980, Carter introduced his own policies for reducing inflation, and the Federal Reserve brought down interest rates to cooperate with the initiatives. During the 1980 recession, manufacturing shed 1.1 million jobs, while service industries remained intact. Employment in automotive manufacturing in particular suffered, experiencing a 33% reduction by the end of the recession. Collectively these factors contributed to the election of Ronald Reagan in 1980. The Federal Reserve once again began to raise interest rates in 1981, which plunged the economy back into recession. Unemployment rose to a peak of 10.8% in December 1982, a post-war high. In 1981, Ronald Reagan introduced Reaganomics. That is, fiscally expansive economic policies, cutting marginal federal income tax rates by 25%. Inflation dropped dramatically from 13.5% annually in 1980 to just 3% annually in 1983 due to a short recession and the Federal Reserve Chairman Paul Volcker's tighter control of the money supply and interest rates. Real GDP began to grow after contracting in 1980 and 1982. The unemployment rate continued to rise to a peak of 10.8% by late 1982, but dropped well under 6% unemployment at the end of Reagan's presidency in January 1989.Gregg Jackson, "Conservative Comebacks to Liberal Lies" (2011) 20 million jobs were created under Reagan's presidency – which were made up of 82 percent high-paying and long-term jobs. From 1982 to 1987 the Dow Jones Industrial Average gained over 1900 points from 776 in 1982 to 2722 in 1987 – about a 350% increase. An economic boom took place from 1983 until a recession began in 1990. Between 1983 and 1989 the number of people below the poverty line decreased by 3.8 million. The boom saw the increasing popularity of electronic appliances like computers, cell phones, music players and video games. Credit cards were a symbol of the boom. The Reagan tax cuts seemed to work and Americans were able to shrug off the crash of 1987 by the beginning of 1988. The growth ended by 1990 after seven years of stock market growth and prosperity for the upper and middle class. The Government debt, federal debt spawned by his policies tripled (from $930 billion in 1981 to $2.6 trillion in 1988), reaching record levels. Though debt almost always increased under every president in the latter half of the 20th century, it declined as a percentage of GDP under all presidents after 1950 and prior to Reagan. In addition to the fiscal deficits, the U.S. started to have large Balance of trade, trade deficits. Also it was during his second term that the Tax Reform Act of 1986 was passed. Vice President George H. W. Bush was elected to succeed Reagan in 1988 United States presidential election, 1988. The early Bush Presidency's economic policies were sometimes seen as a continuation of Reagan's policies, but in the early 1990s, Bush went back on a promise and increased taxes in a compromise with Congressional Democrats. He ended his presidency on a moderate note, signing regulatory bills such as the Americans with Disabilities Act of 1990, Americans With Disabilities Act, and negotiating the North American Free Trade Agreement. In 1992, Bush and third-party candidate Ross Perot lost to Democrat Bill Clinton. The advent of deindustrialization in the late 1960s and early 1970s Great Divergence (inequality), saw income inequality increase dramatically to levels never seen before. But at the same time, most orthodox economists, and most policy makers, pointed to the fact that consumers could buy so many goods, even with the inflation of the 1970s, as evidence that the general shift away from manufacturing and into services was creating widespread prosperity. In 1968, the U.S. Gini coefficient was 0.386. In 2005, the American Gini coefficient had reached 0.469. Critics of economic policies favored by Republican and Democratic administrations since the 1960s, particularly those expanding "free trade" and "open markets" (see Neoliberalism) say that these policies, though benefiting trading as well as the cost of products in the U.S., could have taken their own on the prosperity of the America middle-class. But in this period, consumers were buying as never before with so many products and goods at such low costs and in high quantities. Critics however argued that this consumer behavior was giving a false reading of the health of the economy, because it was being paid for by taking on rapidly increasing levels of indebtedness, thus covering up the stagnating wages and earnings of most of the workforce.The rise of globalization: 1990s – late 2000
During the 1990s, government debt increased by 75%, GDP rose by 69%, and the stock market as measured by the S&P 500 grew more than threefold. From 1994 to 2000 real output increased, inflation was manageable and unemployment dropped to below 5%, resulting in a soaring stock market known as the Dot-com bubble, dot-com boom. The second half of the 1990s was characterized by well-publicized initial public offerings of high-tech and "dot-com company, dot-com" companies. By 2000, however, it was evident a bubble in stock valuations ''had'' occurred, such that beginning in March 2000, the market would give back some 50% to 75% of the growth of the 1990s.Executive compensation
In the late 20th century, business executives started being paid more in stock and less in salary, and at a disproportionately greater rate compared to other employees and to their own performance. CEO compensation at the top 350 firms increased by 940.3% from 1978 to 2018 in the United States. The typical worker's annual compensation grew just 11.9% within the same period. This disparity has been criticized as unfair, and large payouts after bad performance have been criticized as bad for shareholders.21st century
The economy worsened in 2001 with output increasing only 0.3% and unemployment and business failures rising substantially, and early 2000s recession, triggering a recession that is often blamed on the September 11 attacks. An additional factor in the fall of the US markets and in investor confidence included numerous List of corporate collapses and scandals, corporate scandals. In 2001–2007, the red-hot housing market across the United States fueled a false sense of security regarding the strength of the U.S. economy.Decline of labor unions
Most unions in America are aligned with one of two larger umbrella organizations: the AFL–CIO created in 1955, and the Change to Win Federation which split from the AFL-CIO in 2005. Both advocate policies and legislation on behalf of workers in the United States and Canada, and take an active role in politics. The AFL–CIO is especially concerned with global trade issues. In 2010, the percentage of workers belonging to a union in the United States (or total labor union "density") was 11.4%, compared to 18.3% in Japan, 27.5% in Canada and 70% in Finland. The most prominent unions are among public sector employees such as teachers, police and other non-managerial or non-executive federal, state, county and municipal employees. Members of unions are disproportionately older, male and residents of the Northeast, the Midwest, and California. The majority of union members come from the public sector. Nearly 34.8% of public sector employees are union members. In the private sector, just 6.3% of employees are union membersUnion Members SummaryGreat Recession and aftermath (2007–2019)
The Great Recession was a sharp decline in the United States' economy. In 2008, a series of related economic disasters hit the American and European financial systems. The bursting of a worldwide bubble in housing set the recession in motion. The end of United States housing bubble, housing bubbles in California, Florida and Arizona led to the collapse of housing prices and the shrinkage of the construction sector. Millions of Mortgage loan, mortgages (averaging about $200,000 each) had been bundled into securities called collateralized debt obligations that were resold worldwide. Many banks and hedge funds had borrowed hundreds of billions of dollars to buy these securities, which were now "toxic asset#Debt repackaging and subprime crisis, toxic" because their value was unknown and no one wanted to buy them. A series of the largest banks in the U.S. and Europe collapsed; some went bankrupt, such as Lehman Brothers with $690 billion in assets; others such as the leading American International Group, insurance company AIG, the leading bank Citigroup, and the two largest mortgage companies were bailed out by the government. Congress voted $700 billion in bailout money, and the Treasury and Federal Reserve committed trillions of dollars to shoring up the financial system, but the measures did not reverse the declines. Banks drastically tightened their lending policies, despite infusions of federal money. The government for the first time took major ownership positions in the largest banks. The stock market plunged 40%, wiping out tens of trillions of dollars in wealth; housing prices fell 20% nationwide wiping out trillions more. By late 2008 distress was spreading beyond the financial and housing sectors, especially as the "Big Three" of the automobile industry (General Motors, Ford Motor Company, Ford and Chrysler) were on the verge of bankruptcy, and the retail sector showed major weaknesses. Critics of the $700 billion Troubled Asset Relief Program, Troubled Assets Relief Program (TARP) expressed anger that much of the TARP money that has been distributed to banks is seemingly unaccounted for, with banks being secretive on the issue. President Barack Obama signed the American Recovery and Reinvestment Act of 2009 in February 2009; the bill provides $787 billion in stimulus through a combination of spending and tax cuts. The plan is largely based on the Keynesian economics, Keynesian theory that government spending should offset the fall in private spending during an economic downturn; otherwise the fall in private spending may perpetuate itself and productive resources, such as the labor hours of the unemployed, will be wasted. Critics claim that government spending cannot offset a fall in private spending because the government must borrow money from the private sector in order to add money to it. However, most economists do not think such "crowding out (economics), crowding out" is an issue when Zero interest-rate policy, interest rates are near zero and the economy is economic stagnation, stagnant. Opponents of the stimulus also point to problems of possible future inflation and government debt caused by such a large expenditure. In the U.S., jobs paying between $14 and $21 per hour made up about 60% those lost during the recession, but such mid-wage jobs have comprised only about 27% of jobs gained during the recovery through mid-2012. In contrast, lower-paying jobs constituted about 58% of the jobs regained.Gig work
In the 21st century, proliferation of smartphones and increasing reliance on outsourced labor led to a class of "gig workers" who perform work such as package delivery for a company like Amazon.com or Walmart, food delivery for a company like DoorDash, or driving for a ridehailing company like Uber or Lyft. This has led to disputes alleging misclassification of employees as independent contractors.Great Lockdown and aftermath (2019–present)
On September 16, 2019, the Federal Reserve announced that it would begin acting as the role of investor in order to provide funds in the Repurchase agreement, repo markets after the overnight lending rate jumped above 8% due to a series of technical factors that limited the supply of available funds. Five months after the decision was made, the American stock markets 2020 stock market crash, suffered their biggest crash in modern U.S. history as a result of concerns surrounding the COVID-19 pandemic, coronavirus pandemic and the 2020 Russia–Saudi Arabia oil price war, Russia-Saudi Arabia oil price war. Before the crash happened, the Unemployment in the United States, unemployment rate in the United States stood at 3.6% in late 2019, which was the lowest unemployment rate since World War II. Although the unemployment rate decreased substantially between 2009 and 2019, Income inequality in the United States, income inequality continued to increase. In September 2019, the United States Census Bureau reported that income inequality in the United States had reached its highest level in 50 years, with the Gini coefficient, Gini index increasing from 48.2 in 2017 to 48.5 in 2018. Despite the low unemployment, the ISM Report On Business, ISM Manufacturing Index dropped below 50% in August 2019, reaching a record low of 48.3% in October of that year (which was the lowest level since June 2009); it would continue to remain below 50% in the months leading up to the crash.Historical statistics
GDP
1790–2006 GDP
Employment
Manufacturing
Wealth and income
Productivity
The share of national income going to employees is at approximately the same level now as it was in 1970.
Much of the apparent divergence between pay and productivity stems from using different surveys and formulas to calculate inflation.
Inequality
Health spending
Tariff rates
Trade balance
Inflation
US federal tax
Government spending
Debt
Deficit
See also
* Tariff in United States history * American System (economic plan) * Credit in the Thirteen Colonies * History of agriculture in the United States * History of banking in the United States * History of coal mining in the United States * Wall Street#History, Wall Street's history * U.S. economic performance under Democratic and Republican presidentsReferences
Bibliography
* 1st edition was Lee, Susan Previant, and Peter Passell. ''A New Economic View of American History'' (1979Special studies
* Chandler, Alfred D. ''The Visible Hand: The Managerial Revolution in American Business'' (1977), business history * Chandler, Alfred D.; ''Strategy and Structure: Chapters in the History of the Industrial Enterprise'Sources for economic data
* Bureau of the Census, ''Historical Statistics of the United States: Colonial Times to 1970'' (1976External links