Economic Changes and Developments
There are similarities between the USA economy in the Gilded Age and in the Progressive Era.
The economy grew rapidly, yet there were always serious downturns in the form of recessions and panics.
However, a difference between the two eras is a different attitude towards government intervention in the economy.
In the Progressive era it was generally believed that government intervention of business would promote market competition and free enterprise.
Why did the USA become the world’s leading economy?
By 1920 the USA was the world’s leading economy.
This was influenced by industrialisation and modernisation as well as discoveries of vast quantities of natural resources. This was also called the Second American Industrial Revolution.
The Second American Industrial Revolution was characterised by advances in various industries: electric power, engineering, oil, chemicals, pharmaceuticals and modern communication systems.
Reasons for the economic growth:
Efficiency: the USA had higher innovation because of innovation and effective management options
Labour supply: the influx of immigrants reached its peak and meant that there was an evergrowing influx of workers.
Immigrants mainly did more unskilled labour which meant they were treated worse generally and paid less.
Growth in demand: there was a rising demand for manufactured goods internationally
Access to natural resources: the USA had access to more natural resources than its competitors
Development of a global economy: the USA was next to countries which became important trading partners like Canada and countries in Latin America
The importance of agriculture
The period from 1900 onwards is described as the golden age of American agriculture.
The production and export of wheat, corn and various other grains far exceeded the US biggest rivals Britain and Germany.
The importance of agriculture to regional economies can be seen in the South and the West.
There were also periods of difficulty.
Farmers were increasingly vulnerable to swings in fortune.
Farmers became part of a wider commercial network which meant farmers were tied to the fortunes of railroads and banks.
This meant prosperity was reliant on market forces beyond their control.
Agriculture in the South
Big agriculture (that means tobacco, sugar and cotton) was dominant in the South.
This made it more difficult for small farmers to compete.
Black farmers faced economic discrimination through sharecropping which trapped them in a cycle of poverty.
Small white farmers often struggled to invest in new equipment or technique.
Agriculture in the West
By 1890 thousands of new farm settlements had been established in the Trans-Missisippi West, on the Great Plains in states such as Missouri, Nebraska, Oklahoma and Colorado.
There were two major issues in the West.
Credit loans: At the beginning, farmers could easily obtain loans from banks to purchase land at the beginning of the land rush. The problems came when small farmers were in debt because they were unable to pay their loans back.
Climate: The land rush began when rainfall was unusually high.
American agriculture’s Golden Age
There are several reasons why the period between 1900 and 1920 is considered the golden age of agriculture:
The expansion of the domestic economy increased consumption and boosted demand
The new international markets further increased demand as well as contributing to increased exports of agricultural products.
Modernisation and mechanisation led to more efficient farming methods as well as increased productivity.
Various examples of federal government support for agriculture to improve irrigation, support farmers in arid areas, or regulate food quality.
Higher prices led to more economic prosperity in farming and meant that farmers could invest more too boost their productivity
The First World War gave a significant boost to the economy as European competitors could not meet previous demand due to the war.
The Panic of 1893
A weakening of the country’s gold supply caused by the failure of monetary policy resulted in ‘Industrial Black Friday’ on May 5th 1893, in which railroad and industrial stocks plummeted and several major companies collapsed
This sparked a panic in which 24 businesses a day failed in the month of May.
The four-year depression that followed saw over 15000 companies and 6000 banks close throughout the country.
This was the most severe depression that the country had faced up to this point. At it’s height 19% of the population was unemployed
There was an enormous social impact in that people migrated to the West in search of new opportunities.
This led to a boom in towns like Denver, San Francisco and Seattle.
The Panic of 1907
In the midst of economic prosperity, two investors, Augustus Heinze and Charles Morse, made a speculative investment in United Copper and lost.
This caused a run on the New York banks, which had been financing these investments, which had an impact on smaller regional banks.
This meant there was no federal bank to fall back on for wealthy businessman. Notably, JP Morgan bailed out the banks with his own money.
This was followed by the establishment of the Federal Reserve System.
In addition to these panics, there were other signs the economy wasn’t going good for anyone.
The divide between the rich and the poor was continuing to grow.
Trade unions were established to organise strike action against to employers in response to low wages and poor working conditions.
There were instances of industrial unrest, deepening the chasm between workers and employers.
The impact of economic development
One of the biggest consequences of economic growth in the United States was urbanisation and population growth.
This happened across the country, but there were regional differences in the nature and extent of urbanisation.
In the North-East, the population growth as well as the growth of major cities like New York was rapid and sustained, aided by the influx of immigrants settling in this area.
In the South, cities like New Orleans expanded further. Areas like New Orleans and Houston grew largely due to the region’s oil industry.
However, urbanisation in the South was much slower since plantation products such as sugar, tobacco and cotton still dominated the Southern economy.
The West followed a more stop-start pattern to growth and urbanisation. Port cities like Seattle and San Francisco grew, but the scale was not comparable to the North-East.
Impact of the First World War on the American economy
News of the outbreak of the war caused shockwaves for the American businesses. They were scared of the impact that crashing European markets could have on the USA.
However, America was in the middle of an economic recession which meant there was potential for the War improve American economic fortunes.