American business: economy.

The American Economy: A Historical Encyclopedia provides detailed information about the formation and development of economic policy throughout American history and describes its continued importance. Historically, economic issues have played a prominent role in U.S. policymaking. Economic policy has influenced social, cultural, political, and economic events from colonial times to the present.

Economic Policy

Economic policy has shifted many times over the course of American history. During colonial times, the British colonies operated under a mercantilist system in which all trade benefited the mother country. After the American Revolution, the fledgling United States attempted to operate under the Articles of Confederation, but the economic restrictions it placed on the national government caused that system to fail. Delegates meeting at the Constitutional Convention agreed that the federal government must have the power to tax. A decision to tax only imports, not exports or direct income, proved to be decisive in the development of domestic industry. Congress passed revenue tariffs (taxes on imports) during the early years of the Republic; after the War of 1812, a shift to protective tariffs occurred. These tariffs continued to increase reaching their apex during the Civil War under the Morrill Tariff. After the Civil War, tariff rates remained high, ensuring the rise of big business that did not have to compete against foreign manufacturers. The extreme wealth accumulated by captains of industry such as Andrew Carnegie and John D. Rockefeller stood in sharp contrast to the poverty of many Americans, especially new immigrants who crowded into tenements in major cities in the North and East. Public awareness of this economic inequity resulted in a movement to replace the tariff as the primary source of tax revenue with a direct personal income tax. However, Congress lacked constitutional authority to institute such a tax unless the states passed a constitutional amendment to allow direct taxation. Republicans finally agreed to lower the tariff rates if the amendment passed, thinking that the states would fail to pass it. The plan failed, and ratification in 1913 of the Sixteenth Amendment opened the door for direct taxation—a shift that has influenced capital accumulation, investment, and personal savings ever since. After reducing the tariff rates and increasing personal income tax rates, Congress once again increased import duties because of World War I. After that conflict, European countries that had been carved out of the old empires raised their tariff rates to protect their own industries. Consequently, trade slowed at the same time that the U.S. stock market collapsed under the burden of overvaluation of company worth and market overstimulation due to purchases on margin. Within nine months of the crash,Congress passed the Hawley- Smoot Tariff, which raised tariff rates to a record high.Meanwhile, the Federal Reserve Board increased interest rates, contracting the money supply. The net effect was a prolonged depression that finally ended when the United States entered World War II. The Great Depression and World War II mark a shift in U.S. economic policy. President Franklin D. Roosevelt followed the economic philosophy of John Maynard Keynes, who advocated deficit spending during periods of financial difficulty. Deficit spending would allow the federal government to initiate programs that politicians had traditionally shunned. For the first time, the federal government assumed the role of employer to thousands of the country’s unemployed workers. Programs like the Civilian Conservation Corps and Works Progress Administration created jobs. Social Security was established to promote early retirement and so open up jobs to younger workers. In addition, the federal government funded projects such as the Rural Electrification Administration and the Tennessee Valley Authority to improve the lives of Americans in rural or poverty-stricken areas.

Welfare

From the 1930s to the present, the federal government has increasingly used economic policy to deal with social and cultural issues. In the immediate post–World War II period, Americans experienced an unprecedented period of prosperity because of the accumulation of personal savings and the expansion of industry during the war. But by the 1960s, it was apparent that although most Americans’ standard of living had increased, African Americans and other groups had fallen deeper into poverty. President Lyndon B. Johnson attempted to correct the problem by using tax revenues to fund a new welfare state—the Great Society, which had programs ranging from Head Start to Medicaid that supported health, education, and community development. The Great Society redistributed the wealth but also created a group of people who became dependent on the federal government. After several decades, states including Wisconsin began to experiment with ways to eliminate this dependency on welfare. As of 2003, the number of people on the welfare rolls has dropped because similar efforts have also been undertaken at the federal level. This change in economic policy led to a drop in the number of births to unwed mothers and the number of abortions.

Education

The field of education has traditionally been the bailiwick of local and state governments rather than the federal government. By the second half of the twentieth century, however, the federal government had become a major participant in the education arena. After World War II, Congress passed the Servicemen’s Readjustment Act (also known as the G.I. Bill), which gave returning veterans the opportunity to attend college at the government’s expense and even to receive a small living allowance to help support themselves and their families during the process. As a result, during the 1950s and 1960s the number of professionals such as engineers, accountants, business executives, lawyers, and doctors increased dramatically. During the 1960s, Congress approved financial aid programs that gave all Americans, including those from poor families, the opportunity to attend college. By 2000, more Americans had attended college than ever before.

Settlement Patterns

Through various acts and economic policies, Congress has influenced settlement patterns. After the American Revolution, when the nation operated under the Articles of Confederation, the government began to encourage the settlement of the old northwest territory, which at the time encompassed the Ohio Valley region. Thomas Jefferson proposed surveying the land into townships and selling property to Americans in 160-acre parcels. Initially only wealthy investors could afford to purchase the land, and they then subdivided the properties into smaller farms and sold them.No credit terms existed between the government and the purchaser. The land sold very slowly, but gradually the population of the region increased. After the purchase of the Louisiana Territory from France in 1803, Congress attempted to pass legislation to allow homesteaders to claim 160 acres of federal land in the newly acquired territory. The debate over the expansion of slavery prevented the passage of such legislation. Finally, during the Civil War, the Northern Republicans in Congress passed the Homestead Act of 1862, which encouraged western migration. During the 1870s Congress passed two additional acts— the Timber and Stone Culture Act and the Timber Culture Act—that helped more Americans claim land in the western part of the country. By the 1900s the federal government had initiated a series of dam projects to help supply both farms and cities with additional water so these communities could grow. Cities like Las Vegas, Nevada, could have not expanded without the water provided by the Hoover Dam. The government continues to influence settlement patterns by awarding contracts to employers like Lockheed-Martin and other defense contractors who can entice workers into an area like the Southwest by offering them jobs. Although the government encouraged settlement of some areas, it restricted the use of other land. Beginning in the 1880s, presidents began setting aside public lands as national parks. Theodore Roosevelt set aside more land than all of his predecessors combined.

Science and Technology

Government spending during wartime has led to many breakthroughs in the fields of science and technology. In the post–Civil War period, medical professionals explored the cause of diseases and infections. By the 1900s army surgeons had discovered the cause of malaria and the public learned about germ theory.Wars also resulted in the development of penicillin and other antibiotic drugs. During World War I, Americans improved the airplane, and after World War II an entire aviation industry developed. During the cold war, the federal government funded the missile and space programs, which yielded such inventions as the computer chip and eventually the Internet.

Conclusion

All social, cultural, and political policies must be funded. The economic policies of the federal government affect all aspects of life in the United States. In the future, the nation will have to choose which economic policy to implement in connection with such issues as population growth and the increasing number of elderly citizens, which will place tremendous strain on the health care system. These economic decisions will affect the younger generation, which will have to pay the taxes to support these programs, and will determine the future history of this nation.