15 September 2009

The Evolution of the U.S. Economy

The economy has expanded and changed, guided by some unchanging principles

 

Harper’s Weekly published scenes of U.S. farm life in the 1860s, when America was poised to become a world manufacturing power.

Harper’s Weekly published scenes of U.S. farm life in the 1860s, when America was poised to become a world manufacturing power.

This article is excerpted from the book Outline of the U.S. Economy, published by the Bureau of International Information Programs. View the entire book (PDF, 3.26 MB).

Those who labor in the earth are the chosen people of God, if ever he had a chosen people.
Thomas Jefferson
1787

By the time that General George Washington took office as the first U.S. president in 1789, the young nation’s economy was already a composite of many diverse occupations and defined regional differences.

Agriculture was dominant. Nine of 10 Americans worked on farms, most of them growing the food their families relied on. Only one person in 20 lived in an “urban” location, which then meant merely 2,500 inhabitants or more. The country’s largest city, New York, had a population of just 22,000 people, while London’s population exceeded one million. But the handful of larger cities had a merchant class of tradesmen, shopkeepers, importers, shippers, manufacturers, and bankers whose interests could conflict with those of the farmers.

Thomas Jefferson, a Virginia planter and principal author of America’s Declaration of Independence, spoke for an influential group of the country’s Founding Fathers, including many from the South. They believed the country should be primarily an agrarian society, with farming at its core and with government playing a minimal role. Jefferson mistrusted urban classes, seeing the great cities of Europe as breeders of political corruption. “Those who labor in the earth are the chosen people of God, if ever he had a chosen people,” Jefferson once declared.

Opposing Jefferson and other supporters of a farm-based republic was a second powerful political movement, the Federalists, often favored by northern commercial interests. Among its leaders was Alexander Hamilton, one of Washington’s principal military aides in the American Revolutionary War (1775-1783), in which the American colonies had won recognition of their sovereignty from Britain. Hamilton, a New Yorker who was the nation’s first secretary of the Treasury, believed that the young, vulnerable American republic required strong central leadership and federal policies that would support the spread of manufacturing.

In 1801, Jefferson became the third U.S. president and headed the Democratic-Republican political party, later to be called the Democratic Party. In 1828, war hero Andrew Jackson from Tennessee won election as the candidate of Jefferson’s wing, becoming the first U.S. president from a frontier region. His combative advocacy for “ordinary” Americans became a main theme of the Democrats. He declared in 1832 that when Congress acts to “make the rich richer and the potent more powerful, the humble members of society—the farmers, mechanics, and laborers” who lack wealth and influence—have the right to protest such treatment.

Hamilton argued that America’s unbounded economic opportunities could not be achieved without a system that created capital and rewarded investment. Hamilton’s Federalists evolved into the Whig Party and then the Republican Party. This major branch of American politics generally favored policies to spur the growth of U.S. industry: internal infrastructure improvements, protective tariffs on the import of goods, centralized banking, and a strong currency.