Unit 3: American Economy

Text

Industrial Revolution

Industrial Revolution

The birth of the United States and the publication of Adam Smith's book came at a time when yet another kind of revolution was taking place, the Industrial Revolution. In England, especially, machinery run by water power and later by steam power was used to manufacture cloth. This changed the ways that people worked. Instead of weaving cloth at home, people worked in factories where the machinery made much more cloth in a short time.

Americans lost no time in industrializing their new nation and in building trade with other countries.

The United States that emerged from the American Revolution of 1776 was principally an agricultural country. It would remain so for another century, but some early decisions by American social and political leaders planted the seeds of industrial growth. For example, the first Secretary of the Treasury, Alexander Hamilton, persuaded Congress to establish a protective tariff—a tariff high enough to discourage imports and give domestic industries time to grow. This and other Hamiltonian measures gave great encouragement to business in general.

Early American industries depended largely on skilled artisans working in small shops to serve a local market. But the Industrial Revolution that started in England during the 18th century did not take long to cross the Atlantic. It brought many changes to American industry between 1776 and 1860. Because labor was scarce in the United States and wages were high, employers welcomed any new method that could reduce the requirement for labor.

Slater Mill

One key development was the introduction of the factory system, which gathered many workers together in one workplace and produced goods for distribution over a wide area. The first factory in the United States is generally dated to 1793. It was a cotton textile mill in Pawtucket, Rhode Island, that combined carding, roving and spinning operation.

A Cotton Office in 1873

In 1793, an Englishman named Samuel Slater came to America to build a cotton cloth factory. He built the machinery from memory, because it was a crime to carry factory plant out of England. The success of Slater's factory started a process of change that turned the northeastern region of the United States into an important manufacturing center. The making of textiles also meant increased demand for cotton, grown in the southern region of the United States. As a result, the nation became a major cotton producer.

A second development was the "American system" of mass production, which originated in the firearms industry about 1800. The new system required precision engineering to create parts that were interchangeable. This, in turn, allowed the final product to be assembled in stages, each worker specializing in a specific operation.

Just as Slater's new factory system was being introduced, an American named Eli Whitney made cotton production more efficient by inventing a machine—the cotton gin—that rapidly removed the seeds from the bolls of cotton. Removing the seeds by hand was a difficult task; Whitney's machine made the job almost easy.

Whitney also began manufacturing rifles in a new way. Guns had always been made by gun makers working in their homes or small shops. Because the guns were handmade individually, a part from one gun would not necessarily fit another gun. Whitney began making guns with machinery, so that all the parts were the same in each gun. This method of manufacturing goods in a factory, with interchangeable parts, helped to advance American industry. In 1913, the auto-maker Henry Ford introduced the "moving assembly" line. This was a variation on the earlier practice of continuous assembly. By improving efficiency, it made possible a major saving in labor costs. A new breed of industrial managers began the careful study of factory operations with the aim of finding the most efficient ways of organizing tasks. Their concepts of "scientific management" helped to lower the costs of production still further.

Eli Whitney Gun Factory	An Assemly Line

Lower costs made possible both higher wages for workers and lower prices for consumers. More and more Americans were gaining the ability to purchase products made in the United States. During the first half of the 20th century, mass production of consumer goods such as cars, refrigerators and kitchen ranges helped to revolutionize the ways in which Americans lived.

The Early Locomotive

A third development was the application of new technologies to industrial tasks. Large water wheels and water turbines drove the machinery of early factories. As the steam engine was perfected, it provided an alternative source of energy, first for mobile operations such as powering steamboats and locomotives, then for factories. The textile industry, the dominant American industry for many decades, completed the switch to steam power after 1860.

The economic activity increased as a result of new inventions. Some of the inventions were original American ideas; others were adapted from inventions created elsewhere. The 19th century saw the introduction of new farm machinery, sewing machines, the telegraph, railroads, food-processing plant, the telephone, the perfection of the electric light bulb, the phonograph, the camera, moving pictures and many other devices. The 20th century brought still more, among them the airplane, the use of aluminum, mass production of automobiles, radio, television, various electric household products and computers.

A fourth development was the emergency of new forms of business organization, notably the bank and the corporation, which facilitated the growth of industry. The first American commercial bank appeared in the 1780s and more banks soon followed. For many years, the only paper money consisted of "bank notes" that represented a particular bank's promise to pay. Banking policy was highly controversial and early attempts to establish a national or central bank were short-lived. Not until 1863 did the United States create a truly national banking system with a standard paper currency.

In the early years of the United States, banks were one of the few businesses organized in the form of corporations. The creation of each corporation required a special law. As time passed, business people found the corporation to have irresistible advantages over the sole proprietorship and the partnership. Unlike those types of businesses, the corporation survived the death of its founder or founders. Because it could draw on a pool of investors, it was a much more efficient tool for raising the large amounts of capital needed by expanding businesses. And, as it finally evolved, it enjoyed limited liability, so investors risked only the amount of their investment and not their entire assets.

Many people objected to the very idea of the corporation. It had, as one critic said, “no body to be kicked and no soul to be damned.” But the rise of the corporation proved unstoppable. Connecticut, in 1837, became the first state to pass a general act of incorporation, making it relatively simple for any group to get a corporate charter by complying with a set of standard rules. As late as 1860, however, most manufacturing enterprises were still organized as sole proprietorships or partnerships.

Building Railways

Finally, the construction of railroads beginning in the 1830s, marked the start of a new era for the United States. Large infusions of private capital from Europe mainly after 1850, helped to pay for the railroad lines that soon snaked across the North American continent. Local, state and national governments contributed both money and land. Private American investors contributed, too. The greatest thrust in railroad building came after 1862, when Congress set aside public land for the first transcontinental railroad.

By providing transportation links between far-flung parts of the United States, the railroads increased business activities and the spread of settlements. But that was not all. Railroad construction created a growing demand for coal, iron and steel, helping to support the heavy industries that expanded rapidly in the decades after the Civil War (1861-1865). One growing industry specialized in machine tools—that is, tools used in the production of other goods. An expanding agricultural equipment industry turned out many kinds of machines for use on American farms.

Up to the 1880s, the bulk of Americans' income came from farming. The census of 1890 was the first in which the output of American factories was shown to exceed that of American farms. Thereafter industry in the United States grew by leaps and bounds. By 1913, more than one-third of the world's industrial production came from the United States.

The century's two world wars spared the United States the devastation suffered by Europe and Asia, and American industries proved capable of great production increases to meet war needs. By the time World War II ended in 1945, the United States had the greatest productive capacity of all of the world's nations.

Car Industry

The 20th century has seen the rise and decline of a succession of industries in the United States. The auto industry, long the centerpiece of the American economy, has had to struggle to meet the challenge of foreign competition. But over the years many new industries have appeared. Their products range from airplanes to television sets; from microchips to space satellites; from microwave ovens to ultra-high speed computers. Many of the currently rising

Aircraft Industry	Space Science

industries are among what are known as high-technology or "high-tech" industries because of their dependence on the latest developments in technology.

Bill Gates	High-Tech

Service Industry

High-tech industries tend to be highly automated and thus to need fewer workers than traditional industries such as steel making. As high-tech industries have grown and older industries have declined in recent years, the proportion of American workers employed in manufacturing has declined. Service industries—industries that sell a service rather than make a product—now dominate the economy. Service industries range from banking to telecommunications to the provision of meals in restaurants. It is sometimes said that the United States has moved into a "post-industrial era".

Previous Page        Next Page