Everyone knows about the thirteen colonies that started the United States, and everyone realizes that we have come a long way since then. But what many people may not know is that our economy has taken leaps and bounds since the 1700s the size of star systems and galaxies. The United States’ economic progress is one of the most astonishing phenomena in economic history, but it wasn’t a coincidence. The reason we got this far is because of the occurrence of specific, fundamental changes that completely revolutionized the way we run the country’s economy between the 1700s and today.
At the onset of the 1700s, the (soon to be) thirteen colonies were finally beginning to settle in and develop a sense of unity and economy. Everything was in its beginning stages, however, and still at a very small scale, especially compared to today’s giant. The Gross Domestic Product of all the colonies combined at that time was around $500 million, and the per capita GDP was only about $500. This is because most of the population were not only farmers, making little money off the inefficient production of crops, but they were mostly self-sustaining, contributing little to the overall economy, and not often involved in the exchange of money for goods. Most of the colonies produced raw materials like fish, wood, meat, grains, &c., but every colony was very inefficient at producing these, since they were trying to fulfill their own needs by themselves rather than making what they make best, and trading. In addition, the governing body was very weakly involved in economic affairs of the colonies, not using its sovereignty to create a better productive and allocative efficiency, which would have benefited them immensely. For example, The Economies in the 1720’s states that New Hampshire “would produce hemp and flax if proper encouragement were given for it, and the people had good seed for the first sowing.” This is clearly a job for the government, but since it pledged not to be economically involved, it failed to provide the aid to get the colony started on this production. This is indeed quite a problem for the colonies, as most of the aforementioned report lists many products made by each colony, and immediately after lists many other products that the colony would be more suitable and effective making. Though they bring in a £200,000 surplus, the colonies could definitely use some organizational improvement to boost the economy, and that is exactly what they will get before the century is done.
One of the biggest influences between 1700 and 1800 that changed the economic organization of New England was the ratification of the United States Constitution, and the unification of the thirteen States. This created a centralized government among the States (rather than overseas) which could make decisions and enact changes a lot more efficiently than the British throne could. That, in addition to a steady increase of population due to a constantly expanding rate of immigration from Europe gave the U.S.’s GDP a nice 800% boost up to $4 billion. In addition, it is clear that this expansion is not solely the result of a greater population, because the per capita GDP also rose by 160% to $800 per person, meaning that individuals were overall better off in 1800 than in 1700. This can only mean that the “encouragement” mentioned in The Economies in the 1720’s that the colonies needed to produce the right materials to be more efficient was adequately provided to make the nation indeed more efficient. Upon further examination, we see that in the 1700s, “No mines are yet discovered [in Virginia], except iron, which are very common, but not wrought, for want of a sufficient stock, and persons of skill to engage in such an undertaking,” but in The Economies of the British North American Colonies in 1763 we see that Virginia is making £35,000 in iron bars and pigs. This is a clear sign of higher entity involvement, to organize and provide the sufficient stock and persons of skill to successfully start producing this export. Though the economy of the United States did expand between 1700 and 1800, it was still at a crawl compared to the revolution it would experience in the next century.
Comparing the U.S. economy in 1900 to that of 1800 is like comparing the wallet of a farmer to the wallet of an entire company. The Gross Domestic Product of the nation expanded seventy-three-fold during the 1700s bringing it up to $292 billion, and the per capita GDP went up five times to $3900 per person. This is an economic revolution of unprecedented magnitude, and it was due to several coinciding factors that created a very curious effect. The promise of free land in the United States created a competition for the best workers, which in turn made the States have the highest wages in the world. This, coupled with the freedoms of religion, politics, and especially economics, attracted an immense wave of immigrants that brought the population of the U.S. up fifteen times to 75 million people in 1900. The presence of this vast amount of producers and consumers, aided by stunning technological breakthroughs, such as railroads and steamships created the largest scale production processes in the world. When we take into account that the U.S. had created a corporate form of organization for its multitude of firms, and that they benefited from a massive import of capital from Europe, we see how the per unit cost also becomes extremely low—the lowest in the world. And finally, the presence of such a low cost drives the market size even larger. Suddenly, the improvements in the economy become linked in a circle, called the Virtuous Circle. Once the economy started doing rounds about this circle, it became completely transformed. No longer was the population so greatly concentrated on self sufficient farmers. National transportation networks and factory and assembly-line production methods made the products of these methods the dominant figure in the economy. Ultimately, the United States progressed from an agricultural nation to an industrial nation by 1900, but far more successfully than its European counterparts, as it now held a larger relative share of world wealth than any other country (38%).
Though the change of the economy between 1800 and 1900 seems tremendous, the next century brought about a transformation that was truly unbelievable. Between 1900 and 2000, the economy absolutely skyrocketed, bringing the GDP up 3,424% to ten trillion dollars, and the per capita GDP increased nine fold, up to $35,000 per person. There are many reasons for the occurrence of this, such as a continued increase of population and amount and intensity of land usage, and massive increases in government intervention and presence in the US economy. But probably the greatest force behind the economy’s transformation is the complete integration of oil into everything used by consumers in the United States. Oil was the driving force behind many revolutionary innovations in technology like cars, electricity, highways, and so on, which in turn helped to make everything unbelievably cheap and convenient and easy to make, expanding industry after industry ever more and constantly racking up the standard of living to new heights. All these advances thrust the United States out of the industrial age and into a level of post-industry. Except of course for the basic needs that are still depended on by the country, like farmers, electricity, and the like, the United States has outsourced a large portion of its manual labor to other countries, and instead taken on the role of an intellectual pedestal from which products are imagined and planned, and then made by other nations for us. As a result, we have become dependent on imported goods to satisfy our needs, because domestic production of these things (like toys or clothing) has virtually stopped.
It is difficult to foresee what the economy will be like in the future, but we can make some preliminary hypotheses in several different ways. The first is to look at the long run trends and expand them to our desired year of 2100. This would result in a GDP of somewhere around $250 trillion by 2100, and a per capita GDP of around $100,000. However, this is assuming that the US will follow the same development pattern as it has been for the previous three centuries. This is fundamentally flawed, because the only pattern that the United States has been following during this time is the miraculous invention of some new technology that revolutionizes the principal methods that we use to run our lives. And unless this standard is lived up to in the next 100 years, and on top of that, the previous inventions and resources persist, the economy may follow the aforementioned prediction. But it is common knowledge that there are many obstacles, the greatest of which is the end of oil, which undermines the persistence of (the most valuable) resources that allow us to run the economy so efficiently. In fact, current research is uncovering that the economic growth rate of the U.S. is slowing down at a very quick rate. Therefore, the nation seems to have two possible economic outcomes. The first is another genius invention or two that will allow us to stop relying on oil so much, but continue to use the products we use today at the same rate. This will ideally allow the economy to continue propelling itself upward as it has been doing in the past 2 centuries. The second is a slow decline of the economy and a long tumble of the United States from the throne of the world, because of the inability of the States to sustain themselves solely by borrowing (or stealing) other nations’ capital.
In conclusion, the history of the US economy is very impressive and worthy of honor. The country went from a loosely connected conglomerate of poor farmers to an economic giant dwarfing its neighbours in the world in the span of a few centuries. It went from being a purely agricultural society, to an efficient and effective industrial power with advanced assembly-lines and mass-production techniques, to a post-industrial society that tells the rest of the world how to make life better for its own residents, all through a few similar forces acting upon the economy, like ever-increasing population size, land use efficiency, and government intervention on the economy, and new and revolutionary inventions that provided us with new projects upon which to elaborate and keep up the upward momentum of the economy. The most important question to ask, then, is whether this trend will continue on into the future, or if the nation has finally reached a maximum and will now start declining out of prominence.
