New England

The New England region's economy grew steadily over the entire colonial era, despite the lack of a staple crop that could be exported. All the provinces and many towns as well, tried to foster economic growth by subsidizing projects that improved the infrastructure, such as roads, bridges, inns and ferries. They gave bounties and subsidies or monopolies to sawmills, grist mills, iron mills, pulling mills (which treated cloth), salt works and glassworks. Most importantly, colonial legislatures set up a legal system that was conducive to business enterprise by resolving disputes, enforcing contracts, and protecting property rights. Hard work and entrepreneurship characterized the region, as the Puritans and Yankees endorsed the "Protestant Ethic", which enjoined men to work hard as part of their divine calling.^[20]

The benefits of growth were widely distributed in New England, reaching from merchants to farmers to hired laborers. The rapidly growing population led to shortages of good farm land on which young families could establish themselves; one result was to delay marriage, and another was to move to new lands farther west. In the towns and cities, there was strong entrepreneurship, and a steady increase in the specialization of labor. Wages for men went up steadily before 1775; new occupations were opening for women, including weaving, teaching, and tailoring. The region bordered New France, and in the numerous wars the British poured money in to purchase supplies, build roads and pay colonial soldiers. The coastal ports began to specialize in fishing, international trade and shipbuilding—and after 1780 in whaling. Combined with growing urban markets for farm products, these factors allowed the economy to flourish despite the lack of technological innovation.^[21]

The Connecticut economy began with subsistence farming in the 17th century, and developed with greater diversity and an increased focus on production for distant markets, especially the British colonies in the Caribbean. The American Revolution cut off imports from Britain, and stimulated a manufacturing sector that made heavy use of the entrepreneurship and mechanical skills of the people. In the second half of the 18th century, difficulties arose from the shortage of good farmland, periodic money problems, and downward price pressures in the export market.^[22] The colonial government from time to time attempted to promote various commodities such as hemp, potash, and lumber as export items to bolster its economy and improve its balance of trade with Great Britain.^[23][24]

Mercantilism: old and new

The colonial economies of the world operated under the economic philosophy of mercantilism, a policy by which countries attempted to run a trade surplus, with their own colonies or other countries, to accumulate gold reserves. Colonies were used as suppliers of raw materials and as markets for manufactured goods while being prohibited from engaging in most types of manufacturing.^[28]: 214 The colonial powers of England, France, Spain and the Dutch Republic tried to protect their investments in colonial ventures by limiting trade between each other's colonies.

The Spanish Empire clung to old style mercantilism, primarily concerned with enriching the Spanish government by accumulating gold and silver, mainly from mines in their colonies. The Dutch and particularly the British approach was more conducive to private business.^[29]

The Navigation Acts, passed by the British Parliament between 1651 and 1673, affected the British American colonies.

Important features of the Navigation Acts included:

• Foreign vessels were excluded from carrying trade between ports within the British Empire
• Manufactured goods from Europe to the colonies had to pass through England
• Enumerated items, which included furs, ship masts, rice, indigo and tobacco, were only allowed to be exported to Great Britain.

Although the Navigation Acts were enforced, they had a negligible effect on commerce and profitability of trade. In 1770 illegal exports and smuggling to the West Indies and Europe were about equal to exports to Britain.^[28]: 216

On the eve of independence Britain was in the early stage of the Industrial Revolution, with cottage industries and workshops providing finished goods for export to the colonies. At that time, half of the wrought iron, beaver hats, cordage, nails, linen, silk, and printed cotton produced in Britain were consumed by the British American colonies.^[30]

Free 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. Adam Smith used the colonies as an example of the benefits of free enterprise.^[31] Colonists paid minimal taxes.

Some colonies, such as Virginia, were founded principally as business ventures. England's success at establishing settlements on the North American coastline was due in large part to its use of charter companies. Charter companies were groups of stockholders (usually merchants and wealthy landowners) who sought personal economic gain and, perhaps, wanted also to advance England's national goals. While the private sector financed the companies, the king also provided each project with a charter or grant conferring economic rights as well as political and judicial authority. The colonies did not show profits, however, and the disappointed English investors often turned over their colonial charters to the settlers. The political implications, although not realized at the time, were enormous. The colonists were left to build their own governments and their own economy.

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 the Molasses Act of 1733.

In the 1760s the London government raised small sums by new taxes on the colonies. This occasioned an enormous uproar, from which historians date the origins of the American Revolution. The issue was not the amount of the taxes—they were quite small—but rather the constitutional authority of Parliament versus the colonial assemblies to vote taxes.^[32][33] New taxes included the Sugar Act of 1764, the Stamp Act of 1765 and taxes on tea and other colonial imports. Historians have debated back and forth about the cost imposed by the Navigation Acts, which were less visible and rarely complained about.^[34] However, by 1795, the consensus view among economic historians and economists was that the "costs imposed on [American] colonists by the trade restrictions of the Navigation Acts were small."^[35]

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.^[62] 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".^[63]

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.^[64]

Cotton gin

"The First Cotton Gin" conjectural image from 1869

Cotton was at first a small-scale crop in the South. Cotton farming boomed following the improvement of the cotton gin by Eli Whitney.^[65] It was 50 times more productive at removing the seeds than with a roller. Soon, large cotton plantations, based on slave labor, expanded in the richest lands from the Carolinas westward to Texas. The raw cotton was shipped to textile mills in Britain, France and New England.^[66]

Mechanized textile manufacturing

Samuel Slater (1768–1835)

In the final decade of the 18th century, England was beginning to enter the rapid growth period of the Industrial Revolution, but the rest of the world was completely devoid of any type of large scale mechanized industry. Britain prohibited the export of textile machinery and designs and did not allow mechanics with such skills to emigrate. Samuel Slater, who worked as mechanic at a cotton spinning operation in England, memorized the design of the machinery. He was able to disguise himself as a laborer and emigrated to the U.S., where he heard there was a demand for his knowledge. In 1789 Slater began working as a consultant to Almy & Brown in Rhode Island who were trying to successfully spin cotton on some equipment they had recently purchased. Slater determined that the machinery was not capable of producing good quality yarn and persuaded the owners to have him design new machinery. Slater found no mechanics in the U.S. when he arrived and had great difficulty finding someone to build the machinery. Eventually he located Oziel Wilkinson and his son David to produce iron castings and forgings for the machinery. According to David Wilkinson: "all the turning of the iron for the cotton machinery built by Mr. Slater was done with hand chisels or tools in lathes turned by cranks with hand power".^[67] By 1791 Slater had some of the equipment operating. In 1793 Slater and Brown opened a factory in Pawtucket, Rhode Island, which was the first successful water powered roller spinning cotton factory in the U.S. ( See: Slater Mill Historic Site ). David Wilkinson went on to invent a metalworking lathe which won him a Congressional prize.

Population growth

Although there was relatively little immigration from Europe, the rapid expansion of settlements to the West, and the Louisiana Purchase of 1803, opened up vast frontier lands. The high birth rate, and the availability of cheap land caused the rapid expansion of population. The average age was under 20, with children everywhere. The population grew from 5.3 million people in 1800, living on 865,000 square miles of land to 9.6 million in 1820 on 1,749,000 square miles. By 1840, the population had reached 17,069,000 on the same land.^[79]

New Orleans and St. Louis joined the United States and grew rapidly; entirely new cities were begun at Pittsburgh, Marietta, Cincinnati, Louisville, Lexington, Nashville and points west. The coming of the steamboat after 1810 made upstream traffic economical on major rivers, especially the Hudson, Ohio, Mississippi, Illinois, Missouri, Tennessee, and Cumberland rivers.^[80] Historian Richard Wade has emphasized the importance of the new cities in the Westward expansion in settlement of the farmlands. They were the transportation centers, and nodes for migration and financing of the westward expansion. The newly opened regions had few roads, but a very good river system in which everything flowed downstream to New Orleans. With the coming of the steamboat after 1815, it became possible to move merchandise imported from the Northeast and from Europe upstream to new settlements. The opening of the Erie Canal made Buffalo the jumping off point for the lake transportation system that made major trading centers in Cleveland, Detroit, and especially Chicago.^[81]

Labor 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 due in part to a lack of transportation and low population density.^[82] The relative labor scarcity and high price was an incentive for capital investment, particularly in machinery.^[83]

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 Midwest. Eventually this put severe downward pressure on prices, particularly of cotton, first from 1820 to 1823 and again from 1840 to 1843.^[84]

Before the Industrial Revolution most cotton was spun and woven near where it was grown, leaving little raw cotton for the international marketplace. World cotton demand experienced strong growth due to mechanized spinning and weaving technologies of the Industrial Revolution. Although cotton was grown in India, China, Egypt, the Middle East and other tropical and subtropical areas, the Americas, particularly the U.S., had sufficient suitable land available to support large scale cotton plantations, which were highly profitable.^[85] A strain of cotton seed brought from New Spain to Natchez, Mississippi, in 1806 would become the parent genetic material for over 90% of world cotton production today; it produced bolls that were three to four times faster to pick.^[85]: 114 The cotton trade, excluding financing, transport and marketing, was 6 percent or less of national income in the 1830s.^[86] Cotton became the United States' largest export.

Sugarcane was being grown in Louisiana, where it was refined into granular sugar. Growing and refining sugar required a large amount of capital. Some of the nation's wealthiest people owned sugar plantations, which often had their own sugar mills.

Southern plantations, which grew cotton, sugarcane and tobacco, used African slave labor. Per capita food production did not keep pace with the rapidly expanding urban population and industrial labor force in the Antebellum decades.^[87]

Roads

Construction of the first macadamized road in the United States (1823). In the foreground, workers are breaking stones "so as not to exceed 6 ounces [170 g] in weight or to pass a two-inch [5 cm] ring".^[88]

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.^[89] 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 the Louisiana Purchase the need for additional roads to the West were recognized by Thomas Jefferson, who authorized the construction of the Cumberland Road in 1806. The Cumberland Road was to connect Cumberland Maryland on the Potomac River with the Wheeling (West) Virginia on the Ohio River, which was on the other side of the Allegheny Mountains. Mail roads were also built to New Orleans.

The building of roads in the early years of the 19th century greatly lowered transportation costs and was a factor in the deflation of 1819 to 1821, which was one of the most severe in U.S. history.^[89]

Some turnpikes were wooden plank roads, which typically cost about $1,500 to $1,800 per mile, but wore out quickly. Macadam roads in New York cost an average of $3,500 per mile,^[90] while high-quality roads cost between $5,000 and $10,000 per mile.

Canals

Scene of Lockport on the Erie Canal (W. H. Bartlett 1839)

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.^[14] The cost of constructing a typical canal was between $20,000 and $30,000 per mile.^[91]

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 the Coal Region of Northeastern Pennsylvania, where canal construction was concentrated until 1820.^[92]

The 325-mile Erie Canal, which connected Albany, New York, on the Hudson River with Buffalo, New York, on Lake Erie, began operation in 1825. Wagon cost from Buffalo to New York City in 1817 was 19.2 cents per ton-mile. By Erie Canal c. 1857 to 1860 the cost was 0.81 cents.^[93] The Erie Canal was a great commercial success and had a large regional economic impact.

The Delaware and Raritan Canal was also very successful. Also important was the 2.5-mile canal bypassing the falls of the Ohio River at Louisville, which opened in 1830.^[71]

The success of some of the early canals led to a canal building boom, during which work began on many canals which would prove to be financially unsuccessful. As the canal boom was underway in the late 1820s, a small number of horse railways were being built. These were quickly followed by the first steam railways in the 1830s.

Steam power

In 1780 the United States had three major 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.^[94]

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 powering steamboats and locomotives.

Evans produced a few custom steam engines from 1801 to 1806, when he opened the Mars Works iron foundry and factory in Philadelphia, where he produced additional engines. In 1812, he produced a successful Colombian engine at Mars Works. As his business grew and orders were being shipped, Evans and a partner formed the Pittsburgh Steam Engine Company in Pittsburgh, Pennsylvania. Steam engines soon became common in public water supply, sawmills and flour milling, especially in areas with little or no water power.^[95]

Mechanical power transmission

In 1828, Paul Moody substituted leather belting for gearing in mills.^[96] 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.^[97]

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.^[71]

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, 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.^[98]

In the winter of 1811 to 1812, the 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 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.^[99]

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.^[100]

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.^[101] The first locomotives were imported from England. One such locomotive was the 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 of locomotives were made in England. In 1838, there were 346 locomotives, three-fourths of which were made in the U.S.^[102]

Ohio had more railroads built in the 1840s than any other state. Ohio's railroads put the canals out of business.^[103] 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.^[104]

Boston Manufacturing Co., Waltham, Massachusetts

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.^[105] By the 1820s, housewives bought the cloth at local stores and continued their sewing chores.^[106] The American textile industry was established during the long period of wars from 1793 to 1815, when cheap cloth imports from Britain were unavailable. Samuel Slater secretly brought in the plans for complex textile machinery from Britain, and he built new factories in Rhode Island using the stolen designs.^[107] By the time the Embargo Act of 1807 cut off trade with Britain, there were 15 cotton spinning mills in operation. These cotton spinning mills were all small operations, typically employing fewer than 50 people, and most used Arkwright water frames powered by small streams; all of these mills were located in southeastern New England.^[108]

In 1809, the number of mills had grown to 62, with 25 under construction. To meet increased demand for cloth, several manufacturers resorted to the putting-out system of having the handloom weaving done in homes. The putting-out system was inefficient because of the difficulty of distributing the yarn and collecting the cloth, embezzlement of supplies, lack of supervision and poor quality. To overcome these problems the textile manufacturers began to consolidate work in central workshops locations where they could supervise operations. Taking this to the next level, in 1813 Francis Cabot Lowell of the Boston Manufacturing Company built the first integrated spinning and weaving factory in the world at Waltham, Massachusetts. Using plans for a power loom that he smuggled out of England, this factory was the largest in the U.S., with a workforce of about 300. It was a very efficient, highly profitable mill that, with the aid of the Tariff of 1816, competed effectively with British textiles at a time when many smaller operations were being forced out of business.^[109]

The Fall River Manufactory, located on the Quequechan River in Fall River, Massachusetts, was founded in 1813 by Dexter Wheeler and cousin David Anthony. By 1827, there were 10 cotton mills in the Fall River area, which soon became the country's leading producer of printed cotton cloth.^[85]: 384

Beginning with Lowell, Massachusetts, in the 1820s, large-scale factory towns, mostly mill towns, began growing around rapidly expanding manufacturing plants, especially in New England, New York, and New Jersey. Some were established as company towns, where either from idealism or economic exploitation, the same corporation that owned the factory also owned all local worker housing and retail establishments. This paternalistic model experienced significant pushback with the Pullman Strike of 1894, and significantly declined with increasing worker affluence during the Roaring Twenties, development of the automobile that allowed workers to live outside of the factory town, and New Deal policies.

The U.S. began exporting textiles in the 1830s; the Americans specialized in coarse fabrics, while the British exported finer cloth that reached a somewhat different market.^[110] Cloth production—mostly cotton but also wool, linen and silk—became the leading American industry.^[111] The building of textile machinery became a major driving force in the development of advanced mechanical devices.^[112]

The shoe industry began transitioning from production by craftsmen to the factory system, with division of labor.^[113]

Low return freight rates from Europe offered little protection from imports to domestic industries.^[114]

Economics 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 were 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.^[127] In financial matters, the decentralizing ideology of the Democratic-Republicans meant they wanted the First Bank of the United States to expire in 1811, when its 20-year charter ran out. The bank's absence made the financing of the war much more difficult to handle, and it caused special problems in terms of moving money from state to state, since state banks were not allowed to operate across state lines. The bureaucracy was terrible, often missing deadlines. On the positive side, over 120 new state banks were created all over the country, and they issued notes that financed much of the war effort, along with loans raised by Washington. Some key Democratic-Republicans, especially Secretary of the Treasury Albert Gallatin realized the need for new taxes, but the Democratic-Republican Congress was very reluctant and only raised small amounts. The whole time, the Federalist Party in Congress and especially the Federalist-controlled state governments in the Northeast, and the Federalist-aligned financial system in the Northeast, were strongly opposed to the war and refused to help in the financing.^[128] Indeed, they facilitated smuggling across the Canadian border and sent large amounts of gold and silver to Canada. This smuggling created serious shortages of specie in the US.^[129]

Across the two and half years of the war, 1812–1815, the federal government took in more money than it spent. Cash out was $119.5 million, cash in was $154.0 million.^[130] Two-thirds of the income was borrowed and had to be paid back in later years; the national debt went from $56.0 million in 1812 to $127.3 million in 1815. Out of the GDP (gross domestic product) of about $925 million (in 1815), this was not a large burden for a national population of 8 million people; it was paid off in 1835.^[131] A new Second Bank of the United States was set up in 1816, and after that the financial system performed very well despite the fact that there was still a shortage of gold and silver.^[132]

U.S. per capita GDP 1810–1815 in constant 2009 dollars^[133]

The economy grew every year from 1812 to 1815 despite a large loss of business by East Coast shipping interests. Wartime inflation averaged 4.8% a year.^[134] The national economy grew 1812–1815 at the rate of 3.7% a year, after accounting for inflation. Per capita GDP grew at 2.2% a year, after accounting for inflation.^[135] Money that would have been spent on imports—mostly cloth—was diverted to opening new factories, which were profitable since British cloth was not available.^[136] This gave a major boost to the industrial revolution, as typified by the Boston Associates. The Boston Manufacturing Company built the first integrated spinning and weaving factory in the world at Waltham, Massachusetts, in 1813.^[137]

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.^[142] This large fall in transportation costs created "a major revolution in domestic commerce."^[143]

As transportation improved, new markets continuously opened. Railroads greatly increased the importance of hub cities such as Atlanta, Billings, Chicago, and Dallas.^[144]

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.^[99] 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.^[145] 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.

1864, Pennsylvania oil drilling early in the history of the petroleum industry in the United States

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.^[146] 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.^[147]

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.^[148]

1900 panoramic image of the Chicago slaughter houses

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,^[149] 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.^[150]

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.^[86]

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.^[151] 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.^[152]

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.^[153][154]

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.^[116] 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.^[155] 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.^[156]

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. Blanchard lathes began being used for making shoe lasts (forms) in the 1850s, allowing the manufacture of standard sizes.^[113]

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.^[116]

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 invested and value of goods produced. That year there were 5 million spindles in the U.S.^[157]

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.^[158]

The Corliss steam engine, patented in 1848, was called the most significant development in steam engineering since 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 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.^[159]

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.^[70]

The screw propeller was tested on Lake Ontario in 1841 before being used on ocean ships.^[160] Propellers began being used on Great Lakes ships in 1845.^[161] Propellers caused vibrations which were a problem for wooden ships.^[162] The 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 ships, which were fast, but too narrow to carry economic volumes of low value freight.

Telegraph

Congress approved funds for a short demonstration telegraph 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 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.^[163] Consequently, railroads installed telegraphs lines on their existing right-of-ways. By 1852 there were 22,000 miles of telegraph lines in the U.S., compared to 10,000 miles of track.^[164]

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.^[165]

Agriculture

Threshing machine from 1881. Steam engines were also used instead of horses.

Adriance reaper, late 19th century

In the antebellum period the U.S. supplied 80% of Britain's cotton imports.^[166] Just before the Civil War the value of cotton was 61% of all goods exported from the U.S.^[167]

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 in Ireland^[75] 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.^[168]

Agriculture was the largest single industry and it prospered during the war.^[169][170] 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 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 Deere and Company which continues into the 21st century as the largest maker of tractors, combines, harvesters and other farm implements.^[171][172]

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.^[173][174]

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.^[175] 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.^[176]

The 1862 Homestead Act opened up the public domain lands for free. 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 Department of Agriculture and the Morrill Land Grant College Act.^[177]

Panic of 1857

The recovery from the depression that followed the Panic of 1837 began in 1843 and lasted until the Panic of 1857.

The panic was triggered by the August 24 failure of the well regarded Ohio Life Insurance and Trust Co. A manager in the New York branch, one of the city's largest financial institutions, had embezzled funds and made excessive loans. The company's president announced suspension of specie redemption, which triggered a rush to redeem banknotes, causing many banks to fail because of lack of specie.^[168]

The United States had been running a trade deficit, draining gold out of the country. Because of the tariff revenues, the U.S. Treasury held a considerable amount of gold, which kept it out of circulation. On September 12, the SS Central America, which was carrying $1.5 million in gold from California, sank, contributing to the panic. Secretary of the Treasury Howell Cobb came to the aid of New York mercantile interests by buying back some of the national debt. On September 25 the Bank of Pennsylvania suspended specie payment, starting a nationwide bank run.^[168]

The danger of interest bearing deposits became apparent when bankers had to call loans made to stock brokers, many of whom were unable to pay. Banks then had to curtail credit to commercial and industrial customers. Many businesses were unable to pay workers back wages because the banknotes they held were now worthless.^[168]

The Crimean War, which had cut off Russian wheat exports, ended in 1856. The war had caused high wheat prices and overexpansion in the U.S., which had been exporting wheat to Europe.^[183] Bountiful western harvests in 1857 caused grain prices to fall. Good harvests in England, France and Russia caused collapse in demand for U.S. grains in 1858 and 1859. This caused railroad shipments from the West to fall, which resulted in the bankruptcy of some railroads.^[168]

The inability of the West to sell its crops hurt businesses in other regions, such as New England, which manufactured shoes sold in the West. Cotton and tobacco prices fell, but unlike grains, soon recovered.^[168]

The panic left many northern wage earners unemployed, most temporarily, but high unemployment lingered for a couple of years.^[168]

Union

The Union economy grew and prospered during the war while fielding a very large army and navy.^[185] The Republicans in Washington had a Whiggish vision of an industrial nation, with great cities, efficient factories, productive farms, all national banks, all knit together by a modern railroad system, to be mobilized by the United States Military Railroad. 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 weak, 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 most of the rest. Economic historians attribute the remainder of the cost of the war to inflation. Congress wrote an elaborate program of economic modernization that had the dual purpose of winning the war and permanently transforming the economy.^[186]

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.^[187] 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.^[188] 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.^[189]

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.^[190] Apart from tariffs, the largest revenue by far came from new excise taxes that were imposed on every sort of manufactured item. Second came much higher tariffs, through several Morrill tariff laws. Third came the nation's first income tax; only the wealthy paid and it was repealed at war's end.

1862 Greenbacks

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".^[191] Third, the government printed paper money called "greenbacks". They led to endless controversy because they caused inflation.^[192]

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.^[193]

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.^[194] 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.^[195]

Customs revenue from tariffs totaled $345 million from 1861 through 1865 or 43% of all federal tax revenue.

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 railroad construction was heavily subsidized (with much corruption), but the region maintained its dependence on cotton. Former slaves became wage laborers, tenant farmers, or 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.^[203][204]

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, 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.^[205]

Treasury

In 1860 the Treasury was a small operation that funded the small-scale operations of the government through the low tariff and land sales.^[207] 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.^[188] 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.^[189]

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.^[208] The largest tax sum by far came from new excise taxes—a sort of value added tax—that was imposed on every sort of manufactured item. Second came much higher tariffs, through several Morrill tariff laws. Third came the nation's first income tax; only the wealthy paid and it was repealed at war's end.^[209]

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".^[191] 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.^[194] 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.^[210]

Land grants

Homesteaders in central Nebraska in 1886

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.^[211][212]

About 180 million acres were granted to railroad construction companies between 1850 and 1871.^[213] 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 the Mississippi River valley, and the stage was set for more substantial Congressional subsidies to future railroads.^[214]

The Pacific Railroad Acts financed several transcontinental railroads by granting land directly to corporations for the first time. In addition to operating revenues, railroads were able to finance networks crossing vast distances by selling granted property adjacent to the tracks; these would become highly desirable plots for new settlers and businesses because of the easy access to long-distance transportation.

Morrill Land-Grant Acts starting in 1860 benefited colleges and universities.

Various Homestead Acts distributed land nearly for free in return for improvements such as building a house, farming, or planting trees. Between 1862 and 1934, the federal government granted 1.6 million homesteads and distributed 270,000,000 acres (420,000 sq mi) of federal land for private ownership. This was a total of 10% of all land in the United States.^[215] Eligibility for the last such program, in Alaska, ended in 1986.^[216] The Land Office made about 100 million acres of direct sales in the western United States from 1850 to 1900, benefiting cattle ranchers and speculators.

The economic and military power of the federal government was used to clear Native Americans from land desired by European-American settlers. Land grants creating the Indian Reservation system were used by the Indian Appropriations Act of 1851 to segregate native tribes, but later acts opened some of that land to white settlement, notably including a land run opening the Unassigned Lands in Oklahoma. The Dawes Act of 1887 pressured Native Americans to assimilate to European-American culture, offering former tribal land to individuals separating from their tribes and putting "surplus" reservation land up for auction. Overall, about half of Indian Reservation land was sold to white Americans by 1906, about 75 million acres.^[213]

Banking

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.^[217]

Civil War

The Union grew rich fighting the war, as the Confederate economy was destroyed.^[185] The 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 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.^[218]

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.^[219]

$20 banknote with portrait of Secretary of the Treasury Hugh McCulloch

Railroads

Real gross national product per capita of the United States 1869–1918

Pork packing in Cincinnati, 1873

Railroads saw their greatest growth in new track added in the last three decades of the 19th century. (See 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.^[115]

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.^[231]

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.^[163]

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.^[233]

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 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).^[234]

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.^[235] Electric street railways rapidly spread to cities around the country in the following years.^[236]

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.^[236]

Thomas Edison in 1877

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 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.^[234][236]

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.^[234]

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.^[231]

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.^[163] Long-distance calling came into being in the 1890s, but the technology to make transcontinental calls took until 1915 to be operational.^[237]

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.^[238]

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.^[163]

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.^[239] The number of farms tripled from 2.0 million in 1860 to 6.0 million in 1905. The number of people living on farms grew from about 10 million in 1860 to 22 million in 1880 to 31 million in 1905. The value of farms soared from $8.0 billion in 1860 to $30 billion in 1906.^[240]

The federal government issued 160-acre (65 ha) tracts virtually free to settlers under the Homestead Act of 1862. Even larger numbers of settlers purchased lands at very low interest from the new railroads, which were trying to create markets. The railroads advertised heavily in Europe and brought over, at low fares, hundreds of thousands of farmers from Northern Europe.^[241]

Despite their remarkable progress and general prosperity, 19th-century U.S. farmers experienced recurring cycles of hardship, caused primarily by falling world prices for cotton and wheat.^[242]

Along with the mechanical improvements which greatly increased yield per unit area, the amount of land under cultivation grew rapidly throughout the second half of the century, as the railroads opened up new areas of the West for settlement. The wheat farmers enjoyed abundant output and good years from 1876 to 1881 when bad European harvests kept the world price high. They then suffered from a slump in the 1880s when conditions in Europe improved. The farther west the settlers went, the more dependent they became on the monopolistic railroads to move their goods to market, and the more inclined they were to protest, as in the Populist movement of the 1890s. Wheat farmers blamed local grain elevator owners (who purchased their crop), railroads and eastern bankers for the low prices.^[243] Sales of various types of horse pulled harvesting machines increased dramatically between the Civil war and the end of the century.^[116] Harvesting machine improvements included automatic rakers, which eliminated the manual raker, allowing operation by a single man, and combination harvester and binders.^[175]

To modernize traditional agriculture reformers founded the Grange movement, in 1867. The Granges focused initially on social activities to counter the isolation most farm families experienced. Women's participation was actively encouraged. Spurred by the Panic of 1873, the Grange soon grew to 20,000 chapters and 1.5 million members. The Granges set up their own marketing systems, stores, processing plants, factories and cooperatives. Most went bankrupt. The movement also enjoyed some political success during the 1870s. A few Midwestern states passed "Granger Laws", limiting railroad and warehouse fees.^[244]

Federal land grants helped each state create an agricultural college and a network of extension agents who demonstrated modern techniques to farmers. Wheat and cotton farmers in the 1890s supported the Populist movement, but failed in their demands for free silver and inflation. Instead the 1896 election committed the nation to the gold standard and a program of sustained industrialization. Farmers in the Midwest and East gave verbal support to the Populists. They focused on the nearby urban markets, rather than on highly fluctuating European markets for weaving cotton.

Oil, minerals and mining

Oil

Further information: Standard Oil

John D. Rockefeller

In the 1850s an advance in lighting was the use of 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.^[245] Kerosene was also being distilled from Pennsylvania crude oil by Samuel Kier.

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. 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.^[245]

Following a shareholder disagreement, Bissell and fellow investor 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 near 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.^[245]

Among the numerous refineries that were started were several along a new rail link to 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, 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 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 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.^[236][245]

Finance, money and banking

A bank run on the Fourth National Bank No. 20 Nassau Street, New York City, October 4, 1873

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.^[247]

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.^[248] 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.^[231]

Politically, the Democrats took control of Congress in 1874, the election of 1876 was deadlocked.^[249]

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 election of 1896.^[250][251]

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 filtered water, with this figure rising to 1.5% in 1890 and 6.3% in 1900.^{[230]: 216–7}

Labor unions

Workers in New York in 1871 demand the eight-hour day

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.^[252]

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.^[253]

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.^[238]

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.^[97]

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.^[97] 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.^[230]

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.^[257]

Manufacturing

Rapid economic growth in the early decades of the 20th century were largely due to productivity growth in manufacturing.

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.^[258][259]

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.^[116] 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%.^[260]

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".^[261]

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.^[236] The widespread adoption of the automobile and motor bus halted the expansion of the electric street railways during the 1920s.^[262]

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

Harvey Firestone, Thomas Edison, Henry Ford, and Fred Seely in Asheville, North Carolina, 1918

By the dawn of the 20th century, automobiles had begun to replace horse-drawn carriages.^[263] 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.^[264]: 71

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.^[265] 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.^[266] 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 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.^{[264]: 71–3}

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.^[230] In 1908 the Jersey City Water Works in New Jersey was the first to sterilize water using sodium hypochlorite (chlorine bleach).^[255] 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.^[230] Combined harvester-threshers reduced labor cost 85% compared to using binders and stationary threshers.^[238] 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.^[267]

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.^[268]

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.^[232]

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 1920-21, which was a sharp decline financially. By 1923, the economy had returned to full employment.^[269]

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.^[270]

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%.^[271] 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.

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.^[277]

Roaring Twenties: 1920–1929

People filing tax forms in 1920

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.^[278]

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 instruments and controls that allowed fewer workers to operate vast factories, refineries and chemical plants.^[281][238]

Spending

Government spending increased from 8.0% of GNP under Herbert 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 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.^{[284] [285]}

Banking crisis

  Inflation

  Deflation

  M2 money supply increases Year/Year

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.^[286] Much of the Great Depression's economic damage was caused directly by bank runs.^[287]

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.^[288] 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 Treasury supervision, with federal loans available if needed. Three-quarters of the banks in the 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.^[289] The 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.^[290]

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.^[291][292]

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.^[293] 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, CCC, FERA, WPA and 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.^[294]

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.

Chart 3: GDP annual pattern and long-term trend, 1920–40, in billions of constant dollars^[295]

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.^[296] 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, the Securities and Exchange Commission, the Federal Deposit Insurance Corp., and Fannie Mae. Regardless, unemployment peaked in 1932 at 25% and was reduced to 13.9% by 1940.^[297]

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".^[298] 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).^[299]

New Deal impact

A 2017 review of the published scholarship summarized the findings of researchers as follows:^[300]

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.

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.^[307] 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.^[308] A successful cotton picking machine was introduced in 1949. The machine could do the work of 50 men picking by hand.^[309][310]

Research on plant breeding produced varieties of grain crops that could produce high yields with heavy fertilizer input. This resulted in the Green revolution, beginning in the 1940s.^[311] By the century's end yields of corn (maize) rose by a factor of over four. Wheat and soybean yields also rose significantly.^[312][313]

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.^[314] 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.^{[315][316][317]}

1790–2006 GDP

• 
  Contributions to Percent Change in Real GDP (1930–1946); source: Bureau of Economic Analysis
• 
  Contributions to Percent Change in Real GDP (1947–1973); source: Bureau of Economic Analysis
• 
  Contributions to Percent Change in Real GDP (1974–1990); source: Bureau of Economic Analysis
• 
  Contributions to Percent Change in Real GDP (1991–2008), source Bureau of Economic Analysis
• 
  GDP per capita growth.
• 
  Real GDP per capita in the United States
• 
  Historical growth of the U.S. economy from 1961 to 2015
• 
  GDP per person in the United States
• 
  US Gross Private Domestic Investment and Corporate Profits After Tax as shares of Gross Domestic Product
• 
  US share of world GDP (%) since 1980.
  US share of world GDP (nominal) peaked in 1985 with 32.74% of global GDP (nominal). The second-highest share was 32.24% in 2001.
  US share of world GDP (PPP) peaked in 1999 with 23.78% of global GDP (PPP). The share has been declining each year since then.
• 
  U.S. in global economy