Industrial revolution

The birth of the United States and the publication of Smith's book came at a time when yet another kind of revolution was taking place, the Industrial Revolution. In England, especially, machinery run by water power and later by steam power was used to manufacture cloth. This changed the ways that people worked. Instead of weaving cloth at home, people worked in factories where the machinery made much more cloth in a short time.

Americans lost no time in industrializing their new nation and in building trade with other countries.

In the 1790s, an Englishman named Samuel Slater came to America to build a cotton cloth factory. He built the machinery from memory, because it was a crime to carry factory plans out of England. The success of Slater's factory started a process of change that turned the northeastern region of the United States into an important manufacturing center. The making of textiles also meant increased demand for cotton, grown in the southern region of the United States. As a result, the nation became a major cotton producer.

Just as Slater's new factory system was being introduced, an American named Eli Whitney made cotton production more efficient by inventing a machine—the cotton gin—that rapidly removed the seeds from the bolls of cotton. Removing the seeds by hand was a difficult task; Whitney's machine made the job almost easy.

Whitney also began manufacturing rifles in a new way. Guns had always been made by gunmakers working in their homes or small shops. Because the guns were handmade individually, a part from one gun would not necessarily fit another gun. Whitney began making guns with machinery, so that all the parts were the same in each gun. This method of manufacturing goods in a factory, with interchangeable parts, helped to advance American industry.

The inventiveness of people like Slater and Whitney set the United States on a course of great economic activity. Its merchants and shipowners were conducting trade with people around the world. Its farmers were producing more food for a growing population. More people were working in factories, and an increasing number of stores and shops opened in the cities.

This economic activity increased as a result of new inventions. Some of the inventions were original American ideas; others were adapted from inventions created elsewhere. The 19th century saw the introduction of new farm machinery, sewing machines, the telegraph, railroads, food- processing plants, the telephone, the perfection of the electric light bulb, the phonograph, the camera, moving pictures and many other devices. The 20th century brought still more, among them the airplane, the use of aluminum, mass production of automobiles, radio, television, various electric household products and computers.

FREE ENTERPRISE

Most Americans think that the rise of their nation as a leading producer of manufactured goods, food and services could not have occurred under any economic system except capitalism. They believe that the economic freedom of capitalism—which many prefer to call free enterprise—is what made the United States a major economic power. Though they are not blind to the problems of capitalism, they would argue that the American economic system has created—or has the potential to create—a better life for nearly everyone in the country.

The story of American economic growth is a story of people inventing new devices and processes starting new businesses and launching new ventures. For each of these endeavors, money was needed. That money is known as capital.

Samuel Slater could not have opened that very important original textile factory unless people had been prepared to provide money to buy the land and build the factory. Slater and those capitalists would not have acted if they had not thought they would profit from their investments. Because they wanted a profit for themselves and a chance to establish even more factories later, they started a whole new American industry. This industry helped cotton growers by increasing the market for cotton. It also put more American ships to work in international trade.

The story of major companies in the United States is not much different from that of Samuel Slater's mill. Individuals started enterprises with money borrowed from others. They shared the profit gained with those investors. When they wanted to expand their businesses, they again borrowed money.

Very early, people in the United States saw that they could make money by lending it to those who wanted to start or to expand a business. That led to the creation of an important part of the current economic scene: the selling of stock, or shares, in a business. This practice started in Europe centuries before the American Revolution, but the stock trading practice was greatly increased in the vigorous free-market climate of the young United States.

In order to invest, individuals do not have to have a great deal of money: They can buy just a small portion of a business—called a share. The business of buying and selling shares in enterprises has become so big that offices have had to be set up where the selling of shares, or stock, can take place. These places, located in many cities in the United States and around the world, are called stock exchanges. The best-known is perhaps the New York Stock Exchange, located in the Wall Street area of New York City, the nation's largest city and a major business center.

Except for weekends and holidays, the stock exchanges are busy every day as people buy and sell stock. In general, individual stocks are rather low-priced, and many working Americans buy them in order to make a profit.

When people buy stock, they become part owner of the company. If the company makes a profit, they receive a share of It. Likewise, if the company loses money, the stockholders will not make a profit or the value of their shares will drop. If that happens, they lose money. For that reason, buying stock is a risk. Knowing about business is important if one wishes to make a profit in the stock market.

Not all businesses sell stock. Smaller ones usually do not. Their profits are shared by those who put their money into the business when it was started. A person who wants to start a small business—a shop, for example—may still need to borrow money. The money can come from friends or relatives or it can be borrowed from a bank—if the bank is willing to take a risk on that business.

Adam Smith would easily recognize these elements of American business, but other aspects he would not. Many problems accompanied the development of modern American industrial capitalism during the past century. Immigration and the rapid growth of American cities resulted in a large urban population seeking to earn a living. Factory owners often exploited this situation by offering low wages for long working hours, by providing unsafe and unhealthy working conditions and by hiring the children of poor families. There was discrimination in hiring: Black Americans and members of some immigrant groups were refused work or were forced to work under even more unfavorable conditions than the average worker. Entrepreneurs also took full advantage of the lack of government oversight, under the doctrine of laissez-faire, to enrich themselves by forming monopolies, eliminating competition, setting high prices for goods and producing poor quality merchandise.

REFORM

Today, the American economic system is far different from that of the 19th century. Earlier government leaders refused to do anything to control business. Except for granting financial support to companies building the railroad system in the late 19th century, the government took little role in business affairs. American citizens, however, demanded action. Workers banded together to organize unions to protect themselves. Working together, they could possibly force a company to change unfair policies. Many other Americans wrote and spoke out about unjust practices. This nationwide movement for reform, which gained strength near the end of the 19th century, was known as the Progressive Movement.

Gradually, the government began to take action. In 1890, Congress passed the Sherman Anti-Trust Act, a law aimed at breaking up monopolies. It was a weak law, which later had to be strengthened by others, but it was a beginning. In 1906, laws were passed to make sure that food and drugs were correctly labeled and that meat was inspected before being sold. In 1913, the government established a new federal banking system, called the Federal Reserve System, to regulate the nation's money supply and to place some controls on banking activities.

The biggest changes came in the 1930s with the "New Deal" programs of President Franklin D. Roosevelt. During that decade the nation endured the worst business crisis and the highest rate of unemployment in its history. To ease the hardship caused by the Depression, President Roosevelt and the Congress passed many new laws regulating sales of stock, recognizing the right of workers to form unions, and setting rules for wages and hours for various workers. Stricter controls were put on the manufacturing and sale of food, drugs and cosmetics.

These laws and regulations, and many other social initiatives approved since the 1930s, have changed American capitalism from a "freely running horse to one that is bridled and saddled," as one writer described it. There is nothing a person can buy in the United States today which is not affected by government regulations of some kind. Food manufacturers must tell what exactly is in a can, box or jar. Non-packaged food is almost all inspected by government officials at some point. No drug can be sold until it is thoroughly tested and then approved by a federal agency. Many types of businesses must pass health and safety inspections by government workers, and automobiles must be built according to certain safety standards. Prices for goods must be clearly marked, and advertising must be honest. These are just a few of the many ways in which the government now protects the health, safety and money of the consumers. Laws also prohibit discrimination in hiring, forbid the hiring of young children, set standards for working conditions, and protect the rights of independent labor unions to organize, bargain and strike peacefully.

People in business believe that there is too much government regulation. They say that some of the rules they must follow are unnecessary and costly. Filling out forms to satisfy government rules costs money, and adds to the prices they must charge. On the other hand, other Americans believe that, without some regulations, at least some businesses would cheat or harm workers and consumers in order to increase business profits.