HISTORY OF AMERICAN ECONOMY

The Legacy of Industrial Expansion and Concentration Part One - The Key Economic Principals as they relate to the American Industrial Expansion The industrial expansion of the late nineteenth century had an undeniable impact on the growth of the American economy. Although earlier industrial revolutions occurred in Great Britain, the American industrial revolution truly innovated mass-production and changed the way the world does business. Technological advances, new sources of energy, and managerial changes all created new economies of scale. Now, over a hundred years later, we’re still using the same techniques that were developed during this time period to produce goods and manage services. People choose, and individual choices are the source of social outcomes The main precursor to the American industrial expansion was the War of 1812. The United States declared war on Great Britain in 1812 for a number reasons, but mainly because of the Embargo Act of 1807, in which Britain placed restrictions on American trade with other countries. The United States wanted greater access to international markets because their economy would not be able to grow without the ability to import and export their goods. The War of 1812 was ended with a treaty that stopped the repressive trade restrictions and the US got significantly more economic independence. This sparked the era of industrial expansion and gave Americans the incentive to be inventive and innovative. Incentives matter After the Americans gained their precious economic freedom, the import and export markets were able to prosper. Prior to 1860, agriculture had been the United State’s main source of income, but it wasn’t long until a shift in output started to occur. Advances in technology such as refrigerated cars, long-distance pipelines, and the electric typewriter all contributed to growing labor forces in other sectors of the economy. New innovations in mass-production such as the assembly line and interchangeable parts had a huge influence on the manufacturing sector.

Between 1860 and 1910, the agricultural labor force only grew by a factor of 2, whereas total labor in manufacturing grew by a multiple of 5.4 and railroads grew by a factor of 23.2 (Walton and Rockoff, page 327). As the manufacturing sector grew, other new industries were also able to expand. Economies of scale made many goods cheaper and people were starting to become more willing to pay for things at market price. This shift in consumer demand was visible in industries like printing and publishing, malt liquor, and tobacco - goods that were previously hand made at home could now be purchased at local stores. Institutions matter and influence choices Economies of scale and mass production were not the only things that made goods cheaper. A new national distribution system was created with the help of new steel processes, the transcontinental railroad, and a national telegraph network. The expansion of the transportation industry, especially in railroads, had a major effect on how long it took items to get from place to place. The US government heavily subsidized the railroad industry. Although the subsidies were controversial at the time, it has been theorized that American would not be where it is today without the benefits that came from the transcontinental railroads. It’s completion in 1869 opened up the United States as marketplace for goods – manufacturers were now able to connect raw materials to factories quicker and easier than ever. With the introduction of standard time in 1883, it became even more efficient to ship goods from one side of the country to the other. The invention of the refrigerated rail car made hauling goods over long distances cheaper, therefore further dropping the prices of goods in the market. Choices impose costs As the railroads increased efficiency in transportation and lowered costs that way, new sources of energy like electricity were also making improvements to costs of goods. Every single industry was able to benefit from the use of electricity. There were some trade-offs involved with switching power sources, but long-run benefits surely outweighed the costs. Businesses had to adapt their manufacturing processes to use new sources of energy, which was costly and time consuming. However over time, the use of electricity played a huge role in increasing efficiency and decreasing costs in industrialization. It inspired the creation of new manufacturing processes, such as the electric sewing machine for the production of textiles. Electricity also helped to improve upon existing goods, as in with the electric rail car. Many entrepreneurs took advantage of new sources of energy as a way to better their firm’s productivity. Understanding based on knowledge and evidence imparts value to opinions.

All of these technological advances during the industrial expansion allowed manufacturing businesses to grow to unbelievable sizes. Firms would employ hundreds, sometimes thousands of workers in one factory. Productivity has always been incredibly important to business owners, but it wasn’t men like Henry Ford decided to make managerial changes that industrialization was able to be truly prosperous. Henry Ford had a huge influence on the way businesses were run; he cared about his employees more than he cared about turning a profit. He was once quoted saying: “the highest use of capital is not to make more money, but to make money do to more for the betterment of life.” It was his belief that improving morale would ultimately lead to improving productivity. This set the standard for future entrepreneurs and industrialists and changed the way business as a whole was done.

Part Two – Evidence of the American Industrial Expansion’s influence on today The industrial expansion of the late nineteenth century not only impacted America, but the whole world. Every country has been able to benefit from the technological and social advances made in the United States. Over the past century and a half, people have been using the ideas that originated during this time period to create new and better things. For example, it’s now common, even essential, for a successful manufacturing business to use mass production and economies of scales. Also, the use of electricity is now so widespread today that most of buildings and appliances wouldn’t be able to run without it. Proof of these things can be seen worldwide. Mass-production, as in the use of assembly lines and interchangeable parts, has played a big part in American history. From automobiles to computers to clothing, assembly lines are used to make just about everything. A lot of firms that sell their goods in the US have their manufacturing plants overseas in China and other countries - Nike, Dell, and Toyota all have plants internationally. The mass-production process has evolved so much since Henry Ford’s time that it’s no longer considered true mass-production. Goods can now be customized based on customers’ specific orders. For example, anyone can go to Dell’s website and order a new laptop, indicating exactly how much memory they want, the size of the screen, etc. Economies of scale, regardless of whether it uses true mass-production or not, has been a great thing for America.

Goods are now made more efficiently and have continued to get cheaper over time.

Electricity is another invention that changed the course of the world. Its uses originated in the nineteenth century with communication, namely the telegraph, soon followed by lighting and electric motors. It has evolved a lot since then, with uses including high-voltage transmission through the modern power grid. The consumption of electricity has sky rocketed since its invention, especially over the last few years. It’s used as a source of power around the world; according to the World Factbook, China is today’s number one consumer of electricity, followed by the US, the European Union and Japan. Recently entrepreneurs have been trying to find new uses for electricity; for example, Chevy is one of the many automobile manufacturers working on an electric car. The Chevy Volt offers an efficient, environmentally friendly alternative to cars that run off of gasoline. Without electricity’s many uses, America’s economy would not be in the place that it is today. Mass production and electricity both helped the American economy thrive. Their contributions to the industrial revolution of the nineteenth century were monumental. Without these and other innovations that came about during this time period, the United States would not be as successful as it is today. The technology and managerial techniques that were developed over a century and a half ago are still prevalent in businesses today. The whole world has since benefited from the great things that American minds created. References:

Kelly, Martin. “Overview of the Industrial Revolution” http://americanhistory.about.com/od/industrialrev/a/indrevoverview.htm Lewis, Scott. “Mass Production Today.” http://science.jrank.org/pages/4165/Mass-Production-Mass-production-today.html “History of Electric Use” http://www.bydesign.com/fossilfuels/links/html/electricity/electric_history.html