The Economic Change in America
The United States of America is a country that has gone through many changes in it’s economical system even though we are still considered one of the youngest countries in the world. The United States is also considered one of the wealthiest countries in the world as well. This country however did not start out this way there were hard times. Hard times that helped shape this nation and it’s people. Yet along with the hard times there were good times as well. Yet through these times our economic system has changed, to evolve with the country. The events that changed our economic system was the South’s dependence on cotton, the Civil War and reformation, and then The Great Depression.
With the end of the War of 1812, few people in the United States envisioned a civil war in the future. With a developing Western section of the country, the future looked bright for a stable growing economy based on extraction of resources (agriculture, timber, and various resources in the ground). With the shipping resources of New England and financial centers in the North, agriculture and extraction of resources seemed to be the foundation to base the country’s economy. Within a short period of time, the North was beginning to industrialize, while the Southern states stayed Agrarian. The South did not industrialize, because cotton provided an economic system for the whole country that was as rewarding to the Southern farmers as to the Northern industrialists. Cotton had a huge impact not only in the United States, but the rest of the world as well.
Factors that contributed to the economic system that this attitude was a part of were: the sale of government land in the South, foreign and domestic demand for cotton, and the contrast between free and slave labor. These were some of the factors that made cotton king. Cotton was king, with the expansion into the west and the huge labor source that was available at that time. Slave labor was such a big factor that Mississippi did not outlaw slavery until two years ago. Also with the transportation evolution during this era, the demand for cotton grew even more, since the textiles were being exported just as fast. From all of this one must realize the importance that cotton had in the world.
After the War of 1812, the U.S. government sold large amounts of land in the Southern territories of Alabama and Mississippi. Sales of government land in the two territories went from 27,000 acres in 1815 to almost 3 million acres in 1819.Many of the purchasers of the land were farmers from South Carolina and Georgia. These farmers looked forward to planting on previously uncultivated land. The land could take heavy cultivation before the output suffered. As an example, three acres of land could be bought for the same cost of the lime used to restore productivity on one acre of land in South Carolina.The crop the farmers planted on this land was cotton. The reason they planted cotton was that the price of cotton per pound surged from 14 cents before the War of 1812 to 21 cents in 1815 and to 29.5 cents in 1816.The high price was due to a heavy demand for raw cotton in Great Britain. In the 1830’s and 1840’s, over 80 percent of all cotton produced was exported. Of this, around 85 percent of all exported cotton went to Great Britain.Once the new lands had been prepared for and planted with cotton, the supply of raw cotton increased to help bring the price of cotton down to 12 cents a pound by 1824. This added to the demand for cotton which was already high. The South in the most part rejoiced from this economic high and with this came political power to keep their labor force.
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Even though the price of cotton was high in the early years, the cotton grower had challenges to making money. Between goods bought from the outside for the farmer’s family and slave labor, the farmer managed a subsistence living. The steamboat provided a way for the farmer to make a living. Prior to the steamboat, goods purchased had to come over the Appalachians at a large premium. The steamboat helped solve this problem by reducing the freight rates going to and from New Orleans.The money saved on goods provided a margin that could be used for investment. The investment made by the farmers was in more and more productive land.The productivity of the land in pounds per acre in 1850 as follows: Tennessee, 300; South Carolina, 320; Georgia, 500; Alabama, 525; Mississippi, 650; Texas, 750. From the income received by the cotton South residents reached levels greater than the average person in the North.
As can be seen, the free population in the West South Central states had a per-capita income far above the other regions in the country. This contrasts with the older regions of the South that had incomes below the nation’s average. But looking at only free population, the Cotton South per-capita income was much greater than the Northeast. The surplus income mostly came from the slave labor used in the cotton economy. The slave population in the south during this time also grew at an extremely rapid rate. This only added to the high production in the South.
The slowness to industrialize on the part of the South was a reaction to the profitability of cotton. If cotton had not gotten a hold on the South as it’s economic base in the early years, industry may have had a better chance of growing. But the land sales and presence of the steamboat allowed the cotton grower the chance to make money. By using slave labor to grow and harvest the cotton, the slave owners attained a standard of living much greater than the average American. Many of the few Southern industrialists that built factories used slaves in the factories but found that it was not as profitable as what they thought. With the demand of English and American textile makers, cotton became the engine that drove the American economy forward every respect from the steamboat company that transported the cotton to the companies that sold the final product.
In the first section of this paper we discussed the mire importance that cotton played in the economy of the South and how cotton was king. In this section things will be a bit different due to the fact that the South is involved with a war and the North has set up a blockade. Than we will see how the economy has changed after the war with the demise of the huge plantation system to the sharecropping system of small farms. After the war even the laws of the South changed, with the involvement of the Jim Crow laws. All of these things combine to change the face of the South as an economic system and in general. The Civil war, and then the Reconstruction made a new South that was never to be the same.
During this time period the South was involved with what some may consider hell, and a winless war. This war was terrible due to the fact that they were outnumbered more than three to one. However this is not the way the South saw it, they felt that God, and the Southern cause could defeat any enemy and they almost did. Simply because of the Southern generals like Stonewall Jackson, and Robert E. Lee. Whose tactics are still studied today in almost all-military institutions. Yet even with such superior leaders the South had many problems, problems that added up to destroy the South as they knew it.
The South also had almost no significant transportation system other than the Mississippi River and after that was taken the South was then divided it. This also hindered their trade of cotton, which was their primary source of money at the time. Then with the Naval Blockade becoming effective there was even less trade going on at this time. Another major factor in this as well was the condition and the lack of railroad at this time. Compared to the North the South’s Rail system was extremely outmatched. And after the North would tare it up the South would be for the most part unable to lay any back down for the lack of steel. And just the amount compared to the North far out ways the South. This was a huge factor in the war, because the South took longer to transport men and goods slower than the North. All of this led to almost no trade of cotton, which was their primary source of income. Interesting enough however, is the fact that the South wanted to hinder trade with England in the hope that they would enter the war. This however did not occur and the South had its problems mount.
As these matters were not hard enough for the South, one must look again at the Southern population which had no significant population. Walton and Rockoff state that “1.1 million military-aged slaves in the South could not be used for fighting on the front, and probably fewer than 30 percent of eligible whites in the Border States sided with the Southern causeBy the end of the war, blacks in the Union army alone out numbered the Confederate forces”. (Walton and Rockoff, 304) Many of the battles that were won by the South did not deal with just brute force much of it can be attributed to the generals who did the best thing they could do with their numbers. And for the fact that the Northern generals like Little Mac were extremely wary to fight because they had no idea of numbers or even better position of their opposing forces. Yet they out numbered them normally three or more to one. This led to an even more devastating effect on the south since all of there men were gone who ran the farms and take care of menial duties since the majority of the whites in the South did not run a plantation or have huge numbers of slave if any. The South could not produce or sell any agricultural products. Or even worse many of the men died during this time from the age of 16 28 who were getting ready or already running farms and families. That may be the most disturbing part of the war was that it ruined their whole family structure and economic system.
The government’s attempts to reconstruct the South’s political, social, and
economic systems were ineffective. Economically blacks were cheated by the
white Southerners. Share cropping and local stores cheated the blacks into a
never ending cycle of debt. Socially the blacks were segregated by unfair laws.
Politically, elections were rigged so that the people were not allowed to vote
for those parties that supported reconstruction. It was also very rare for a
black Southerner to be elected to an important political position.
The economic situation for freedmen was very dire. After the civil war the
blacks had nothing. Their owners had supplied them with everything they had
needed to survive before. Now during reconstruction they had no money,
therefore many couldn’t even leave the plantation where they had worked
before the Civil War. The southern plantation owners took advantage of the
poor slaves situation. They hired the freedmen as sharecroppers.
Sharecropping is a situation that was designed to benefit both the plantation
owners and the poor blacks but ended in the plantation owners taking
advantage of the freedman. The plantation owners would give 40 acres of
land to one black family in return for half of the crops they grew that season.
This in itself was not a bad deal. Unfortunately, the plantation owners then
tried to take advantage of the fact that the plantations were far from the
towns by setting up stores on the plantations. The plantation owners would
charge overly inflated prices at these stores but the sharecroppers had nowhere
else to go. They were too far from the towns to use the stores there. So,
because of the convenience of these stores, the sharecroppers would go there
to buy the goods they needed to support their farm and their family. The
extremely high prices of these stores soon caused the sharecroppers to go into
debt. This debt forced them to stay at the plantation to try to work off their
debt but, because of the inaccessibility of cheaply priced goods the
sharecroppers could never pay off their debts causing their children and their
children’s children to continue to work there.
Blacks in the South were cheated socially by laws called the Jim Crow laws, which made segregation of the blacks legal. These laws were fought by some
blacks. For example, in the Plessy vs. Ferguson case where Hommer Plessy
fought in the supreme court to end segregation, but to the dismay of many
civil rights leaders, the supreme court ruled that segregation was legal as long
as the facilities for both blacks and whites were equal. Unfortunately this was
not always true. Many times the facilities provided for blacks were totally
inferior to those provided for whites. Therefore it was hard for blacks to
receive an equal opportunity for education. The Klu Klux Klan was a secret
society in the south whose major goal was to keep the freedmen totally
powerless through tactics of fear. The KKK would attack black families and
burn their farms.
The blacks were deprived politically, too. Which led to an economic stagnation in their society, also with the KKK that would scare them into staying at their same position in life and not advancing economically nor politically as well. Members of the KKK would rig the elections so that the people would be afraid to vote for the Republican party who supported radical reconstruction. Election of black officials in local, state and federal government was very uncommon in the South although some blacks from the North were elected as representatives of the people and fought for equality. Eventually politics led to the downfall of reconstruction. During the election of 1876 a corrupt deal was reached when Rutherford B. Hayes, the Republican candidate, was elected in exchange for the end of reconstruction.
The black freedmen of the south were in no better condition after reconstruction than they were while slavery was a common practice. Even though they had the rights to be treated equally they were cheated, swindled and abused by whites until they were in nearly the same position they were in before reconstruction. In conclusion, the government’s attempts to reconstruct the South’s social, political and economical systems was ineffective.
In the first two sections of this paper we discussed the South’s dependence on cotton the we discussed the Civil War and how it effected the South and the North economically. Now we are going to skip a head a little bit past the first W.W.I, since the next major change in the economy was the collapse of the stock market. This section will discuss the general state in which the entire country was in economically, and what our government did to end it and what exactly brought us out of the depression.
The Great Depression was one of the largest calamities to ever lay it’s unmerciful claws on the U.S. The Depression was so devastating that the economy needed years to recover . Millions of Americans were left homeless, jobless, and foodless. There was little to no hope in the country and many felt that the Depression was going to last forever. In fact the whole world was in a Depression. One must understand this economic crash and then how our society over came the Depression. To understand the cause one must look at the backlog of inventory, and the banking crisis and then to see how the economy overcame this by looking at Franklin Delano Roosevelt, and World War II.
The Roaring Twenties were an era dominated by Republican presidents: Warren Harding (1920-1923), Calvin Coolidge (1923-1929) and Herbert Hoover (1929-1933). Under their conservative economic philosophy of laissez-faire (“leave it alone”), markets were allowed to operate without government interference. Taxes and regulation were slashed dramatically, monopolies were allowed to form, and inequality of wealth and income reached record levels. The country was on the conservative’s preferred gold standard, and the Federal Reserve was not allowed to significantly change the money supply.
For most of the Roaring Twenties, the economy grew as long as it’s capital facilities grew. By the time the stock market crashed, there was so much plant space producing so many goods that the backlog of inventory was three times greater than normal. Half of America was living at or below the minimum subsistence level and could not afford to buy these products. Factory workers were paid so little that they often could not afford the goods they were producing. According to Say’s Law, “supply creates its own demand.” A glut of goods on the market is supposed to be impossible, because the public’s demand is infinite; therefore, there can only be shortages of supply. It is a fact of economics that all recessions are preceded by a glut of goods on the market, and this was especially true before the stock market crash of ’29. Supply was everywhere; demand nowhere. Simply because a growing number of poor people chose to hoard their money rather than spend it. This is a rational anti-poverty strategy for individuals, but it has unintended and damaging consequences for the group. The Law that Roosevelt would use would be the Keynesian economics which suggests an increase of spending, to put money in the lower end of the population. This is shown in this statement ” Orthodox Keynesians would add that the administration should have deliberately raised spending for whatever purpose and cut taxes to generate “multiplier effects”. (Walton Rockoff 531) The division of wealth was to great for the economy to bare, and it was bound to crash. The fact that the rest of the world was hurting did not help the problem.
The fact that the Great Depression began in 1929, then, on the Republicans’ watch, is a great embarrassment to conservative economists. Many try to blame the worsening of the Depression on Hoover, for supposedly betraying the laissez-faire ideology. Hoover’s government action occurred during his last year in office, long after the worst of the Depression had hit. In fact, he was voted out of office for doing “too little too late.” The only notable exception to his earlier idleness was the Smoot-Hawley tariff of 1930. Which was a tariff that was especially hard on agricultural products. Many economists of the day did not believe in this tariff due to the fact that they feared that the countries importing their products would also raise there tariffs on the U.S. as retaliation. In all actuality it really had little effect on the countries foreign affairs
But much more importantly, the economy was clearly turning downward even before Hoover took office in 1929. Entire sectors of the economy were depressed throughout the decade, like agriculture, energy and mining. Even the two industries with the most spectacular growth –construction and automobile manufacturing — were contracting in the year before the stock market crash of 1929. Which shows the economy was already suffering from a recession.
Adding to the problems of an unbalanced wealth and the over production of goods one then must look at the banks. The first banking panic occurred in late 1930; the second in the spring of 1931, and the third in March 1933. When it was over, 10,000 banks had gone out of business, with well over $2 billion in deposits lost. Banking panics occur when the public fears that monetary institutions are on the verge of collapse. The securities market falls so fast that investors scramble to convert their holdings into cash, thus creating a public run on banks. But banks, whose loans are based on fractional reserves, cannot afford to give everyone their money all at once, and therefore go bankrupt. A chain reaction follows as deposit owners who have lost their money can no longer afford to pay off other debts and costs of business, driving others to scramble for cash as well. Roosevelt would go on to create the Federal Deposit Insurance Commission to protect the American economy from bank runs in the future. Although the 1987 crash on Wall Street was the largest in American history, these safeguards worked admirably to prevent a bank panic from depressing the economy.
When one discuses the Great Depression, one must mention Franklin Delano Roosevelt since had an more of an impact on the people, then the economy. He had an effect on the people of the times by giving them hope and at this time in our history as Americans, hope was a lot. He also eased their pain by trying to solve the economic problems of the time.
Franklin Delano Roosevelt was the 32nd President of the US.He was born in Hyde Park, N.Y. Admitted to the New York bar in 1907, he served as a progressive state senator and assistant navy secretary. After a crippling attack of polio in 1921, he resumed his political career, becoming governor of New York. With the country in a deep depression, he easily defeated Herbert Hoover in the Presidential election of 1932. Roosevelt came to office in the hope that he would have a solution to the economic calamity of the nation. His answer was the ‘New Deal’, a recovery program to provide immediate relief and reforms. While the nation’s economy did not fully revive until wartime, his actions earned Roosevelt the gratitude of working people that outweighed the hatred of conservatives. Reelected by a landslide in 1936, he won unprecedented third and fourth terms in 1940 and 1944. And is regarded as one of the best presidents of all time.
After Roosevelt became president in his first term he and the “Brain Trust” came up with an idea, an idea called “The New Deal”a far reaching program, for the “forgotten man”. Which took action to bring immediate relief as well as reforms for business as well as agriculture. The new administration’s first objective was to alleviate the suffering of the unemployed. Within the first hundred days after the inauguration dozens of agencies were set up to dispense emergency and short term governmental aid and to provide temporary jobs, construction projects, and youth work in national forests. Some of the projects were The Federal Emergency Relief Agency, that was directed by Harry Hopkins that pumped a half a billion into bankrupt states and other areas. The most effective of all was the Tennessee River Authority which was done to provide essential flood control, hydroelectric power, and economic reconstruction for a seven state area. Many of these planes were thought to undermine Americans as workers, one should not take that into full consideration since people must survive and would do anything to survive.
Roosevelt and the Brain trust also took another step to provide wider safeguards. The Social Security Act provided for nation wide systems for the elderly and unemployment. Maximum hours and a minimum wages were also set in certain industries in 1938. Some New Deal laws were declared unconstitutional by the U.S. Supreme Court, but by 1937 Roosevelt made enough new appointments to achieve a court majority favoring most of his measures. Despite resistance from the business community most of the New Deal reforms became a part of the U.S.A. For the last 60 years the social safety of the New Deal has cushioned the severity of the cyclical business downturns and prevented so far a repetition of a full scale depression. These Acts that were passed were needed and are still extremely relevant in today’s society.
Although, at first, Roosevelt kept the U.S.A. out of the second World War, he supported Great Britain through the ‘lend-lease’ act with much needed war material. After the Japanese attack on Pearl Harbor he allied the U.S.A. with Great Britain and the USSR to defeat Germany and Japan in World War II. Now with the U.S. involved with the largest war of all times, and Roosevelt leading our country through an extremely tough time died less than four weeks before the German surrender. Soon after that the Manhattan project took full form with the dropping of “little boy” and “fat man”, then with the surrender of Japan and the end of the war. This war just through it’s brief summary was what in all actuality is what ended The Great Depression in it’s entirety. With the majority of factories being converted into a war machine. The war also gave out as many jobs that were wanted and then some extra, even women were working on the factory lines as well. The machines that were being produced was not only for the American troops, but also for sale to the other countries involved with the allied forces. This all added to a giant boom in our economy, that would last for decades.
One thing that happened from The Great Depression was that our country now knows how to avert a banking panic. It also taught us about the value of a middle class which aids in the distribution of wealth. The distribution of wealth is probably the most important factor so that our economy is not unbalanced and there are people out there to buy the products that our economy produces. However though the most important thing in my opinion is how our country was able to deal with the Depression. The strategy that the President and high ranking officials had taken to create immediate action which would end the Depression and then by how far our country has come together. An example of this is monopoly which was created during this time and in all actuality gave hope to the people who played during this hard time. And as I had mentioned earlier, hope was and is a great thing during hard times.
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Levine, Bruce and others. Who Built America?: Working People and the Nation’s Economy, Politics Culture, and Society (New York: Pantheon Books, 1989).
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Walton, Gary M. and Ross M. Robertson, History of the American Economy, 5th ed. (New York: Harcourt Brace Jovanovich, 1983.