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This lesson on the Economic History of the United States from 1861 to the present is divided into the following time frames:

1861 to 1900;

1900 to 1929;

1929 to the present.

The last three decades of the nineteenth century in the United States were marked by a tremendous economic growth that affected every American citizen.

The face of business changed as large corporations were created to produce the products needed by the expanding nation.

In addition, the frontier lands between the Mississippi River and the Pacific Ocean were settled and most of these territories became states of the union.

The United States had surpassed many European nations in manufacturing and industry and was considered one of the leading industrial nations in the world.

In the late nineteenth century, there was a scramble by the European nations to claim land in Africa for new colonies.

The United States was a late entrant into the race for colonies because it had been busy settling frontier lands.

In the last 30 years of the nineteenth century, the U. S. began to look beyond its borders for new land.

The Transcontinental Railroad was completed in 1869, connecting the nation by a steel rail that extended from the Atlantic to the Pacific Ocean.

The United States was growing rapidly, fueled by the productivity of an expanding economy.

For the first 100 hundred years, America was basically an agrarian nation, with more than half of our people engaged in farming.

Listed below is the percentage of farm workers compared to the total labor force.

In 1880, half of the American workers were working on farms.

By 1900, only 37% of the people earned their livings on the farm.

There was also a movement of the American population from the farms into the cities.

In 1860, only 20% of the nation lived in the cities - a figure which doubled to 40% in 1900.

Many people were coming to the cities in search of jobs in the factories.

The expansion of manufacturing over a wide area was made possible by an improved railway transportation system.

The increase of railroad mileage from 50,000 miles in 1850 had doubled to 100,000 by 1870.

In 1890 the United States had over 200,000 miles of railroads.

The spread of these railroads across the land allowed businesses to reach more and more people.

The increase in business activity continually fueled the increased growth of manufacturing in the U.S.

The use of new power sources including electricity and the internal combustion engine made it possible to build a factory in any location.

In addition, these large industries led to the creation of new business forms including corporation and monopolies.

Corporations such as U.S. Steel and the Standard Oil Company became so large that they literally swallowed up all of their competition.

By 1880, the Standard Oil Company controlled over 90% of the lamp-oil refining business in the United States.

These monopolies eventually came under the scrutiny of the federal government as laws were passed to lesson the control of large corporations over the American economy.

In July 1890, the Sherman Anti-trust Act was passed which made it a crime for businesses to combine to prevent competition. In other words, this legislation outlawed monopolies.

The federal government also developed new regulations and federal agencies to protect American workers and citizens.

The Meat Inspection Act, Pure Food and Drug Act allowed for federal inspection of products to ensure the safety health of the people.

In addition, the Employer Liability Act provided accident insurance for workers.

Many other reforms were passed by the Progressive movement.

The growth of American manufacturing would make the United States a leader of all of the nations in the latter part of the nineteenth century. In lesson 6 we discussed the leadership of Great Britain in the Industrial Revolution not only in Europe but also across the world.

In the latter half of the 19 century two nations, Germany and the United States, surpassed the British nation in industrial production. The United States was especially favored for economic growth because of its rich land, varied climate and abundant resources.

In addition, the industrial workforce of the United States had been increased by the farm workers and by scores of immigrants from Europe.

The American industries had earlier won a reputation for ingenuity, especially in the development of manufacturing of interchangeable parts, which came to be known as the U. S. system of manufacture.

Henry Ford would improve this process of manufacturing in his automobile company.

From 1839 to 1899, the value of American industry, which includes the areas of manufacturing, mining and construction, had increased in value over 25 times.

The U.S. has passed Great Britain in steel output in 1890, in coal in 1898, and in the consumption of raw cotton by the turn of the century.

In 1870, the United States had almost as much railroad mileage as all of the nations of Europe combined.

In effect, this made the United States the greatest industrial power in the world.

Even though the United States had experienced a tremendous expansion in manufacturing, it was still reluctant to accept a world leadership role.

Europe was still considered the political and economic center of the world, a position that lasted until 1914 and the beginning of World War I.

The European nations were also forming military alliances that had an effect on their economic growth.

1900-1929

Following World War I, the political and economic leadership in the world had shifted across the Atlantic Ocean to the United States of America.

The productivity of American industries continued to rise, fueled by the accumulation of capital and its concentration into large corporations.

The American system of manufacturing was considered to be the model for the world.

One source of this growth of capital was the American Stock Market.

Investors would buy stock on margin in these expanding companies.

Buying on margin meant that a person only had to pay 10 cents on the dollar, or in other words, $100.00 worth of stock would only cost you $10.00.

All of this speculation would end with the Stock Market crash on October 29, 1929.

The time period of 1929 to the present has witnessed an expanded role of the federal government in the areas of social programs, government regulations and the economy.

It is important to compare and contrast the expanded role of government with the laissez-faire doctrine proposed by Adam Smith in the late 18th century.

Adam Smith proposed in 1776 that the economy should have free trade and market competition.

You will formally meet Mr. Smith in the next lesson.

The implication this economic theory is that private enterprise and competitive markets will lead to unimpeded international commerce, which will create the best standard of living for all people.

Economists generally assumed before 1929 that government intervention into the economy should be minimal.

Some economists believed that the crash of the stock market was partly caused by too much government interference already.

Take the Wheel!

You are an advisor to President Roosevelt as he is planning the New Deal. What advice would you give to the president in light of the economic problems of the country?

You know that money must be put into the economy. Where do you put the money? Do you give it to businesses, so they can reopen, or do you give it to the consumers, the people, so they can have money to buy the items they need? Does the government have to do more to put the people back to work? What do you tell the President?

The crash of the stock market plunged the United States into the deepest and most prolonged business depression in its history.

ECONOMIC APPLICATION TOOL

A depression is a time of tremendous economic slowdown. A depression is defined as a phase of the business cycle characterized by a severe decline (slump) in the level of economic activity. Many businesses had failed, causing high unemployment.

Since people were out of work, there was little demand for consumer goods.

Many people unable to find work lost their homes, businesses and farms to the banks.

A large number of banks failed because they were unable to sell the foreclosed property for enough money to pay off the outstanding loans.

In 1933, President Franklin Roosevelt initiated the New Deal, which addressed the economic problems of the Great Depression.

When Roosevelt took office in 1933, average income was about half what it had been before 1929. Over 90,000 businesses had failed and 15,000,000 people were unemployed. The government programs and agencies created under the New Deal provided assistance to all sectors to the economy.

For example, the Agricultural Adjustment Act helped farmers through price support subsidies and the restriction of production. The National Industrial Recovery Act embraced a series of measures based on a code of "fair competition" for each industry.

Again, the intention was to raise prices by reducing competition. At the same time, wages were also to be raised.

The New Deal included large public works outlays that brought the federal budget into a deficit (meaning you spend more money than you take in).

Although Roosevelt set out to save

U. S. capitalism, his policies were strongly opposed by many businessmen.

The New Deal helped America overcome the dire economic emergency that confronted Roosevelt on his inauguration.

The entry of America into World War II in 1941 greatly expanded the economy as the nation geared its industries to produce weapons to fight the Axis nations.

At the end of the war, a tremendous difference existed between the United States and the dislocated economy of the war-torn nations of Europe and Asia.

Only loans and other financial support from the United States could supply the foodstuffs, raw materials, semi-finished products, machinery and machine tools that were in scarce supply.

Many countries could not earn foreign exchange, because their factors of production had been destroyed by the war.

Factories, transportation systems, farms, machinery, and entire cities had been destroyed in the war.

The American loans and aid prevented an economic and social breakdown in the war-torn nations.

The United States experienced sustained economic growth during the decades of the 1950s and 1960s.

The Gross National Product (the final market value of all final goods and services produced in the United States in a year) rose from 300 billion dollars to 500 billion dollars.

The average income for each person in the United States rose from about $1,364 in 1950 to about $3,376 at the end of the 1960s.

The building of the national interstate system of highways improved the efficient movement of economic goods.

In 1950 there were two million miles of surfaced roads and 3 million miles of hard surfaced roads in 1969.

The domestic airline passenger miles travelled increased from half a billion in 1950 to over 5 billion miles in 1969.

In addition, America began its space program, which culminated in 1969 with a man walking on the moon.

The long economic expansion in the U. S. ended with the recession of 1969-1970, but inflation continued and accelerated, undermining the dollar's role as an international reserve currency.

Please note other events in the 1960s, 1970s, 1980s and 1990s listed below.

ECONOMIC APPLICATION TOOLS

Please note these two new ECONOMIC APPLICATION TOOLS:

A RECESSION is a phase in the business cycle characterized by a modest downturn in the level of economic activity. Real output of goods and investments fall, resulting in rising unemployment.

INFLATION is the general level of prices in an economy that is sustained over a period of time. Inflation is considered undesirable because of its adverse effects on income distribution.

Summary

By the early 1970s, it was clear that the long-sustained postwar expansion had come to an end.

The United States, like most countries, was subject to a higher inflation rate coupled with slower growth.

Heavy industries such as steel shipbuilding were hardest hit as investment rates declined and some traditional consumer goods industries were subject to sharper foreign competition.

We will have a further discussion of the United States economy in other lessons.