Economics through History

The United States was dealing with economic problems caused by the American Revolutionary War when George Washington was inaugurated as the first president in 1789. A series of import taxes passed by Congress that year provided a steady stream of revenue and protected domestic goods from foreign competition.

Secretary of the Treasury Alexander Hamilton wanted to use federal government power to expand a trade and manufacturing economy. Politicians like Thomas Jefferson and James Madison thought that a manufacturing economy would lead to corruption. Jefferson believed that decentralized agriculture, headed by land-owning farmers, was the best economic model.

Hamilton was in favor of creating a National Bank. He thought the economy should be protected by high tariffs and helped with infrastructure improvements. In his Report on Manufactures, Hamilton stated that the United States could only be independent when it was self-sufficient in all required economic products.

The War of 1812 encouraged the growth of domestic manufacturing. Factories were needed to replace foreign goods that were unavailable. By that time, the country’s market economy, based on both farming and commerce, had been growing for 25 years. But following the war, there were more than 20 recessions and a few periods of economic growth in the remaining years of the nineteenth century.

The industrial transformation of the American workforce occurred in the age of mass immigration. A flood of European immigrants came to America from 1880 to 1920 when immigration laws were lenient. Only certain classes of people, such as beggars and anarchists, were barred from entering the United States. Immigrants were the mainstay of the industrial workforce.

In the twentieth century, innovations improved the standard of living for American consumers and increased business opportunities for firms. Many firms grew by taking advantage of economies of scale, or lowered costs of manufactured goods per unit, and better communication and transportation to run nationwide operations.

Kentucky Senator Henry Clay’s American System was implemented in the early nineteenth century. This economic policy was built on doctrine advocated by Alexander Hamilton. Ideas found in this policy are still used today. The American System had the following three goals:

• Target government investments toward improvements in infrastructure.
• Protect industry through selective high tariffs and through subsidies.
• Maintain a national bank.