The History & Background of the United States Economy

The U.S. economy has grown into a modern industrial giant.

Since becoming an independent nation in the 18th century, the United States has grown from a small, largely agrarian economy to become the world's leading industrial power. The U.S. has a diversified, technologically complex economy with a per capita gross domestic product of $46,000, according to the CIA World Factbook. The history of the U.S. economy shows that technological innovation, entrepreneurial drive and some government involvement fueled its rise over the years.

Colonial Times and Independence

During the 18th century, when the United States consisted of British colonies, the economy was based largely on fur trapping, fishing and farming. As the colonies grew, industries developed and regional economies emerged. The website Country Studies, which reprints studies from the Library of Congress's Federal Research Division, reports that the New England colonies relied on ship building; other states exported crops and furs. Virginia and the Carolinas grew tobacco and other crops on large plantations staffed by slave labor.

In the 1780s, after the war for independence from England and the ratification of the U.S. Constitution, two differing views of the U.S. economy emerged. The nation's first treasury secretary, Alexander Hamilton, wanted the new government to subsidize new industries, creating a diverse economy of shipping, manufacturing and finance. Thomas Jefferson, who would become the third president, promoted a more decentralized economy based on farming.

Regional Growth

Eli Whitney's invention of the cotton gin in 1793 made cotton a significant crop in the South. Owners of large plantations, with the help of slave labor, became wealthy. As the U.S. government built roads and developed waterways, settlers moved west, and the U.S. economy expanded. By 1860, most urban industry was in the northern states, where factories produced shoes, clothing, machinery and other goods. The South remained largely agricultural and dependent on slave labor. The Civil War ended slavery and made northern industry even more dominant.

Industrial Revolution

The years after the Civil War saw a rapid pace of economic and industrial growth. Technological innovations, such as the telephone, electric light and refrigerated rail cars, developed. Later, the automobile displaced the horse-drawn carriage. At the same time, discoveries of coal and oil aided U.S. economic growth. As the economy grew, mass production methods developed. Henry Ford developed the modern assembly line in 1913.

This period of American history also saw the emergence of powerful industrial tycoons, such as John D. Rockefeller, Andrew Carnegie and J.P. Morgan. These and other powerful leaders gained substantial political and financial power, triggering the Progressive Era in American history, which sought to rein in the power and influence of industry through new business regulations and taxation of incomes.

Government Intervention

Historically, the U.S. has been reluctant to allow much government intervention in the economy, except to maintain law and order and provide transportation infrastructure. In the late 19th century, however, this changed as more small farmers and labor movements sought government action on their behalf. Government intervention increased during the Great Depression, the nation's greatest economic crisis. Various programs under then-President Franklin D. Roosevelt helped alleviate the problem.

Modern U.S. Economy

The end of World War II unleashed new consumer demand, setting off tremendous economic growth. New industries developed, such as aviation and electronics. A housing boom accelerated home ownership rates. The Cold War, meanwhile, made production of military goods a permanent part of the U.S. economy. The U.S. workforce transformed as well. Country Studies reports that by 1956, a majority of Americans had white-collar rather than blue-collar jobs. Agriculture declined as small farms found it increasingly difficult to compete with large corporate agricultural operations.

The U.S. continues to face economic challenges, including the loss of manufacturing jobs, government debt and competition from overseas, but it remains the world's leading industrial superpower.

References

• Country Studies: The U.S. Economy: A Brief History
• CIA World Factbook: United States

Resources

• San Jose State University: The Economic History of the United States