The U.S. had a volatile, yet greatly expanding economy in the 19th century due to industrialization, immigration, territorial expansion, new technological innovations and other trends. A laissez-faire approach by government and poorly regulated banking led to volatility. In 1800, the economy was small and largely agricultural based, but by the end of the 19th century, the U.S. had one of the largest industrial economies in the world.
Land and Resources
The U.S. possesses vast natural resources, and as the country expanded its territory during the 19th century, these resources played a major role in economic growth. New lands opened up new opportunities for business as settlement created new farms, towns and cities. Territorial expansion spurred immigration and provided prime agricultural land for raising surplus food, enormous forests for lumber and fuel, coal reserves for fuel and mineral reserves for smelting iron and other metals.
Government and Economy
The debate between Thomas Jefferson and Alexander Hamilton in the 1790s shaped how the federal government was going to intervene in the economy in the 19th century. Hamilton believed that the government should strongly involve itself in banking and economic affairs, but Jefferson advocated a lesser role in which the market should be free of governmental intrusion. Jefferson opposed the idea of a national bank, and the country was deeply divided over the idea of a central bank. Some felt a national bank was needed to help regulate the economy and mitigate the effects of depressions. Others, particularly influenced by Jefferson and Jackson, saw a national bank as an unnecessary intrusion of the government, and the U.S. lacked a national bank for much of the 19th century. Banking was controlled by the states and the value of paper currency and banknotes varied greatly and were subject to corruption and speculation. It was not until the creation of the Federal Reserve in 1913 that the country possessed a permanent central bank.
Jefferson, at the turn of the 19th century, envisioned America as an agrarian country, but instead, it became increasingly industrialized throughout the 1800s. The second half of the 19th century witnessed railroads crisscrossing the country, the development of steam engines, power-driven production equipment, and a cheap labor force infused with newly arrived immigrants. Factories began to dominate urban areas, and people flocked to the cities seeking work in new industries. Innovations in interchangeable parts, mass production and assembly lines revolutionized American industry.
Booms and Busts
Economies are subject to boom and bust periods, and the U.S. economy was particularly vulnerable to the business cycle in the 19th century. The relative lack of governmental influence and poorly regulated banking led to deep depressions and volatility. A monetary scheme dependent upon gold and silver to back its value caused currency to be restrictive and less able to cope with economic downturns. The economy could not be infused with money during depressions because it was tied to the gold standard. The gold standard ended in 1933 during the Great Depression of the 20th century. Economic crises occurred about every 20 years, and in particular there were severe depressions in the 1840s and 1870s .