15 September 2009

A Modern Economy Emerges

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).

Electric power surged throughout the U.S. economy in the first decades of the 20th century, steadily replacing steam and water power in industrial plants. It lit offices and households, illuminated department stores and movie theaters. It reshaped cities, lifting elevators in new skyscrapers and powering street cars and subways that enabled people to work farther from home. By 1939, electricity provided 85 percent of the primary power for U.S. manufacturing. The ability to transfer power easily over thin electric wires spurred totally new manufacturing processes favoring automation, the use of specialized parts, and the rise of skilled labor.

But the Great Depression of the 1930s brought economic expansion to a devastating halt. Its causes were complex. After a decade of increasingly reckless stock speculation, the stock market crash of 1929 wiped out millions of investors and crippled confidence among business executives and consumers.

The United States and other economic powers waged a destructive battle over trade, raising tariff barriers against each other’s imports and pushing their currency values down in an unsuccessful effort to make their exports more competitive. Prices collapsed, impoverishing businesses and families. Drought and poor planting practices led to dust storms in the U.S. farming heartland and drove thousands of farmers from their homes. The nation’s worst banking crisis shut down 40 percent of the banks doing business at the Depression’s beginning. The national unemployment rate exceeded 20 percent.

Some desperate and disillusioned Americans looked to communism and socialism as better alternatives, others eyed the fascist alternative pioneered in Italy by Benito Mussolini, and many feared the United States was approaching a breaking point politically.