Unit 3: American Economy

Free Enterprise

Most Americans think that the rise of their nation as a leading producer of manufactured goods, food and services could not have occurred without the economic freedom of capitalism—which many prefer to call free enterprise.

The story of American economic growth is a story of people inventing new devices and processes, starting new businesses and launching new ventures. For each of these endeavors, money is needed. That money is known as capital.

Samuel Slater could not have opened that very important original textile factory unless people had been prepared to provide money to buy the land and build the factory. Slater and those capitalists would not have acted if they had not thought they would profit from their investment. Because they wanted a profit for themselves and a chance to establish even more factories later, they started a whole new American industry. This industry helped cotton growers by increasing the market for cotton. It also put more American ships to work in international trade.

The story of major companies in the United States is not much different from that of Samuel Slater's mill. Individuals started enterprises with money borrowed from others. They share the profit gained with those investors. When they wanted to expand their businesses, they again borrowed money.

Very early, people in the United States saw that they could make money by lending it to those who wanted to start or to expand a business. That led to the creation of an important part of the current economic scene: the selling of stock, or shares, in a business. This practice started in Europe centuries before the American Revolution, but the stock trading practice was greatly increased in the vigorous free-market climate of the young United States.

In order to invest, individuals do not have to have a great deal of money: they can buy just a small portion of a business—called a share. The business of buying and selling shares in enterprises has become so big that offices have had to be set up where the selling of shares, or stock , can take place. These places, located in many cities in the United States and around the world, are called stock exchanges. The best-known is perhaps the New York Stock Exchange, located in the Wall Street area of New York City, the nation's largest city and a major business center.

Stock Exchange	New York

Except for weekends and holidays, the stock exchanges are busy every day as people buy and sell stock. In general, individual stocks are rather low-priced, and many working Americans buy them in order to make a profit.

When people buy stock, they become part owner of the company. If the company makes a profit, they receive a share of it. Likewise, if the company lose money, the stockholders will not make a profit or the value of their shares will drop. If that happens, they lose money. For that reason, buying stock is a risk. Knowing about business is important if one wishes to make a profit in the stock market.

Not all businesses sell stock. Smaller ones usually do not. Their profits are shared by those who put their money into the business when it was started. A person who wants to start a small business—a shop, for example—may still need to borrow money. The money can come from a bank—if the bank is willing to take a risk on that business.

Adam Smith would easily recognize these elements of American business, but other aspects he would not. Many problems accompanied the development of modern American industrial capitalism during the past century. Immigration and the rapid growth of American cities resulted in a large urban population seeking to earn a living. Factory owners often exploited this situation by offering low wages for long working hours, by providing unsafe and unhealthy working conditions and by hiring the children of poor families. There was discrimination in hiring: Black Americans and members of some immigrant groups were refused work or were forced to work under even more unfavorable conditions than the average worker. Entrepreneurs also took full advantage of the lack of government oversight, under the doctrine of laissez-faire, to enrich themselves by forming monopolies, eliminating competition, setting high prices for goods and producing poor quality merchandise.

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