3. The Economics of War

The 1848 discovery of gold in California not only drew hundreds of thousands of people out West; it also shifted the balance of economic attention of the United States. By the beginning of the Civil War in 1861, gold not only backed American currency. Before long, however, both the North and the South resorted to paper currency.

4. Reconstruction through the Roaring Twenties (1865 – 1929)

By the Civil War, already a third of the national economy was powered by manufacturing, most of which was in the North. Following the war, the American economy was driven by innovation and invention that spurred tremendous growth of the industrial infrastructure. In short, rapid development—and much of it a result of advances in mass production. Individual business enterprise became the backbone of the United States economy. It was a “Gilded Age” in America, built by entrepreneurs in manufacturing and commerce, which outpaced the economic contribution of agriculture by the beginning of the 20^th century.

In the economic history of the United States, the early twentieth century remains critical for major advancements in technology. The steam- and water-powered economy received a jolt by the spread of modern electricity, and the advent of the automobile. Entering late into World War I, the United States was primed to shift its industry and vast amounts of raw materials to wartime.

At the time, America was sticking to a gold standard to back its currency, so avoiding simply printing additional money was meant to help preserve the standard, while preventing inflation. The war altered the American economy in many ways. The Federal Reserve assumed a more dominant role as New York became the financial center of the world. The federal government, in short, showed it could be a dominant force in the American economy.

5. Great Depression through World War II (1929 – 1945)

The two most influential economic events of the twentieth century in America are the Great Depression and World War II. While the precise causes of the Great Depression are both numerous and challenging to pinpoint, the economic effects were disastrous. At its peak, unemployment was nearly 25 percent of the workforce as hundreds of banks failed (about 40 percent) and hundreds of millions of deposits were lost. In summary, after “increasingly stock speculation, the stock market crash of 1929 wiped out millions of investors and crippled confidence among business executives and consumers”.

Under the watch of President Franklin Delano Roosevelt, America launched a vast economic stimulus program called the “New Deal.” The program was designed to rebuild the confidence lost during the Depression and put people back to work through government-sponsored works projects. The New Deal vastly expanded the role of the federal government in the American economy.

A close relationship between the private sector of the economy and the American government was developed as a result of the Great Depression. That relationship would continue into World War II, when the nation’s industrial sector was mobilized and coordinated by the government to contribute products directly to the war effort. The gross national product (GNP) of the United States increased over 50 percent between 1941 and 1945 and unemployment hit its lowest point ever at 1.2 percent. America, meanwhile, was becoming increasingly urban as populations shifted to cities and agriculture became more mechanized and absorbed by big business as a result of wartime technology.