Economic growth and development - Economic Flashcards
Introduction:
The economic growth of the Gilded Age was, in its own terms, spectacular enough, pushing the United States to the forefront of the world’s economies. In 1865 few Americans could have imagined the speed and scale of the economic developments that were to transform the United States
The economic legacy of the Civil War was very different for the various regions. For the North, the demands of the war had stimulated business and industry, bringing rapid economic modernisation. For the previously undeveloped West, the end of the war opened the way for rapid economic exploitation and for the settlement of new land, assisted by the Homestead Act of 1862. For the South, however, the war represented loss and destruction. The most important economic impact of the war was that the abolition of slavery destroyed the economic foundations of the South: how would it be possible to rebuild its shattered economy now that ‘King Cotton’ had been undermined by the end of the slave economy?
Developments in agriculture:
In the years after the Civil War, agriculture was an important, still-growing part of the American economy. Well over half the population lived in rural areas, and the number of people living on farms rose from about 10 million in 1865 to 25 million by 1890. As industrialisation developed, the population grew, and the railroads expanded, more and more land was brought under cultivation; the number of farms more than doubled. This process was actively encouraged by the federal government - the Homestead Act of 1862 made hundreds of thousands of acres available as free land to settlers. The railroad companies bought up large tracts of land and made big profits out of selling the land to settlers
In 1865 most farms were small, household farms but there was a steady increase in large-scale commercial agriculture and the development of new markets. This was assisted by technological advances, such as refrigeration, and the development of new machinery, such as reapers, threshers and wire binders. The Department of Agriculture carried out research and encouraged the spread of agricultural colleges. But farmers had little control over prices and they depended more and more on finance from banks, railroad companies and local merchants, both for investment and for getting their produce to distant markets. They were very vulnerable to the fluctuations of the market, as was shown by the period of depression that followed the financial Panic of 1873
financial Panic:
The wave of panic selling of stocks and shares leading to a collapse of business confidence; famous ‘panics’ occurred in 1873, 1893, 1907 and 1929
The Panic of 1873:
The rapid economic expansion of the United States outstripped the system of banking and finance. Both agriculture and industry depended on investment and loans in order to expand and innovate; but banks were mostly small, did not have enough money in reserve, and frequently went broke. There was little or no regulation and a lot of wild financial speculation. It was this kind of speculation, especially on railroads, that led to a nationwide financial crash - the Panic of 1873. Stock market prices collapsed (which affected Europe as well as the United States), many banks failed, and economic enterprises were badly hit, leading to years of economic depression. The 1873 Panic was part of a cycle of such financial disasters approximately every twenty years: the Panic of 1893, the Panic of 1907, and the Wall Street Crash of 1929
The Northeast:
In the North and East, agriculture benefited from the expanding markets in the growing towns and cities. By the 1880s, for example, cities like Chicago and Pittsburgh were the hubs of a wide distribution network, shipping meat products, cereals and canned foods to the urban Northeast, and timber for construction on the treeless Great Plains. Wisconsin was a centre of large-scale dairy production. Railroads were an essential part of this process, although the railroad companies had monopoly power and set freight rates as high as they pleased. Agriculture in the Northeast was, as everywhere, dependent on market forces it could not control. This vulnerability was even greater for farmers in the South and the West
The South:
The economy of the South was trapped by its history. Slavery was ended but ‘King Cotton’ still ruled. The political battles over Reconstruction failed to break down the traditional structures of the Southern economy and the dominance of the old ruling elite. Small farmers, both whites and African-Americans, were in a difficult situation, often unable to buy or to keep their own land and falling back into being tenant farmers. They struggled to gain access to loans, or to get their produce to market directly, without being controlled and exploited by larger businesses
There was economic development in the ‘New South’. There was railroad expansion, and cotton, tobacco and sugar remained major commodities for export. Trade and shipping expanded in ports like Mobile in Alabama, Charleston in South Carolina and New Orleans in Louisiana. But Southern agriculture, like the economy generally, lagged behind the rest of the country. Few immigrants were tempted to settle in the South; in 1879, thousands of black farmers moved away to Kansas in search of greater opportunities
The West (1865-1880) :
The opening of the ‘Wild West’ happened with dizzying speed. The Homestead Act of 1862 accelerated the movement of settlers into the West. The first transcontinental railroad, the Union Pacific, was completed in 1869. The conquest and colonisation of Native American lands was virtually complete by 1877. The vast open lands of the West were carved up by railroads, ranches, farms and mining towns. The development of the West continued to be driven above all by land-hungry settlers seeking homesteads. Vast tracts of land were brought under cultivation in the states west of the Mississippi, such as Nebraska and Missouri
The West (1970-1890) :
As late as 1889, there was a massive response to the granting of free land in Oklahoma Territory. Thousands of settlers joined the race to acquire farms in the Oklahoma Land Rush. The railroads played a key role in this wave of settlement: they transported the homesteaders westward, lent them money to acquire land, and then took cash crops such as wheat in return
One key factor for the rapid settlement of the West was sheer numbers. In 1860 the US Census showed 760,000 residents in the Western states of the Great Plains, the Mountain West and the Pacific West. By 1890 the total was more than 6 million. The total Native American population in 1860 was estimated at about 500,000; this figure had almost halved by 1890
Another key factor was steel: the steel ploughs that broke through the hard crust of the prairie grasslands to get to the rich soil underneath; the miles and miles of steel barbed wire that fenced off the open spaces; the steel rails of the network of railroads spreading across the West; and the steel barrels of the repeating rifles that buffalo hunters used to wipe out, within just a few short years, the countless millions of North American bison that had been the basis of Native American life
Farmers in the West faced many difficulties in the 1870s and 1880s. The climate was harsh and prone to natural disasters such as drought and grasshopper infestation. Many farms were on marginal, unproductive land. Prices fluctuated, sometimes wildly upwards, as in the sudden boom on wheat prices in the mid-1870s; sometimes wildly downwards, as in the years of drought from 1887
Overall, agricultural prices fell through most of this period. Farmers increasingly relied on loans that they found hard to obtain and also hard to repay. Levels of investment were low and methods of farming on small farms were often inefficient. White tenant farmers in the South were particularly vulnerable to indebtedness
Oklahoma Land Rush:
Congress granted 2 million acres of formerly Indian lands as free land for homesteads. The race into the new territory began on 22 April 1889. 6,000 new land claims were registered in two months
The Years of Drought:
The early rush to establish farms west of the Mississippi in the 1870s and 1880s coincided with an extended period of above-average annual rainfall. This gave a misleading impression of the prospects for farming productively, especially on higher ground away from the river valleys. In 1887 the rains failed, beginning several years of drought conditions. This was seen at the time as a temporary disaster; in fact it was just climatic conditions returning to normal. Many farmers became bankrupt and moved back east
Urbanisation, industrialisation and the rise of corporations:
In 1865 large areas of the United States were rural and sparsely populated. Industrial development still lagged behind European economies like Britain or Germany. But modern industrial capitalism had already transformed much of the North and East before 1861, and this process was accelerated by the demands of the North’s war economy during the four years of the Civil War. In the years after the war, favourable economic conditions enabled rapid expansion of trade and industry
The Gilded Age was the age of industrial capitalism, the age of big business. In all the industries driving economic growth - railroads; copper and coal mining; meat-packing and canned foods; and, perhaps above all, steel and oil - size mattered. Small companies expanded into bigger ones, then merged with or bought out other companies to form agglomerated corporations that raised the huge investment finance necessary to control ever-larger markets
Urbanisation:
In 1865 the United States was still a largely rural society (the first national census showing more than half the population living in urban areas was not until 1921). But industrialisation, mass immigration, and improvements in transportation accelerated the process of urbanisation. Most of the larger towns and cities were located in the region east of the Mississippi River and north of the Ohio River. Existing big cities grew bigger, while new big cities experienced explosive population growth. Urbanisation created new markets, new business opportunities, and a vast, mobile work force
Industrialisation and the rise of corporations:
There was a boom in extractive industries: coal, iron, copper, and oil. From 1859, oil wells were developed in western Pennsylvania, spreading into other parts of the Appalachian Basin (including West Virginia and the western parts of New York State). By 1874, smaller oil companies were merging into larger ones, especially Standard Oil. New techniques in the manufacturing of steel, such as rolling mills, were developed by the Bethlehem Iron and Steel Company from 1860. Production of steel was greatly increased by the demands of the Civil War and by the expansion of railroads. Industrial expansion was also pushed forward by important technological innovations by inventors such as Thomas Edison
Technologies improved in refrigeration from 1867, including refrigerated ships and railway cars, assisted rapid commercial expansion for ice-making, breweries, and meat-packing. The expansion of railroads boosted economic development. By the late 1870s, many of the giant business empires of the future, such as John D. Rockefeller’s Standard Oil, Andrew Carnegie’s US Steel, and H.J. Heinz’s canned foods empire in Pittsburgh, were already taking shape
The rapid expansion of the economy was slowed by the Panic of 1873, leading to 5 years of recession, and many firms went bankrupt. In the long run, however, the depression of the 1870s had the effect of weeding out less efficient businesses; it opened opportunities for enterprising businessmen to buy up failed companies and consolidate them. (The expansion of smaller railroads in Minnesota into a huge railroad empire across the Northwest by James J. Hill was an example of this.) By 1877, despite the slowdown after the 1873 Panic, the American economy was poised for further expansion
Railroads:
The powerhouse of American economic growth after the Civil War was the railroads. In 1865 there were 35,000 miles of track in the United States, almost all in the North and East. By 1893 there were almost 200,000 miles of track, stretching all over the continent. American industry was bound together by vital trunk lines like the New York Central, linking the East Coast to the Great Lakes and Chicago, and the Pennsylvania Railroad. Railroads were the spearhead of expansion into the West: the first transcontinental railroad, the Union Pacific, was completed in 1869, while the Northern Pacific was completed in 1883
American invention: Thomas Edison
The inventions of Thomas Edison included the quadruplex printing telegraph (sending four messages by wire at the same time) in 1874; the carbon resistance telephone transmitter in 1876; the phonograph (gramophone) in 1877; the incandescent lamp in 1879; the vacuum tube in 1883; the motion film camera in 1888; and the electro-magnetic process for separating iron ore, which began in 1889. Mark Twain regarded the flood of patents taken out by Edison and other inventors as the key indicator of economic progress
