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Back to Subjects - American History

American Economy

American Economy The American economy is a vibrant, free-market system that is constantly developing out of the choices and decisions made by millions of citizens who play multiple, often overlapping roles as consumers, producers, investors and voters. The changes in the organization and performances of the manufacturing industry over the last century have helped shape the American economy. The Automotive industry perhaps made the biggest changes to their manufacturing processes. I will be reviewing the role of the industrialist Henry Ford and his innovative methods that changed the organization and performance of the American manufacturing industry forever. He produced an affordable car, paid high wages and helped create a middle class, which in turn fueled the America Industrial revolution into overdrive mode. I will also review the impact of these performance and organizational changes on the service sector and the agricultural industry. But first we look at the automotive industry. The requirements for mass production of a particular commodity must include the existence of mass consumption of the commodity, sufficient to justify large investment. Most early automobile companies were small shops, hundreds of which each produced a few handmade cars, predominately sold to the rich. In America almost all of the producers were assemblers who put together components and parts that were manufactured by separate firms. The assembly technique also lent itself to an advantageous method of financing. It was possible to begin building motor vehicles with minimal investment of capital by buying parts on credit and selling the finished cars for cash; the cash sale from manufacturer to dealer has been integral in the marketing of motor vehicles in the United States ever since. The outstanding contribution of the automotive industry to technological advance was the introduction of full-scale mass production, a process combining precision, consistency, interchangeability, organization, and continuity. America, with its large population, high standard of living, and long distances, was the natural birthplace of the technique, which had been partly explored by agricultural methods, in the 19th century. The U.S. role was emphasized in the popular description of standardization and interchangeability as "the American system of manufacture." The fundamental techniques were known, but they had not previously been applied to the manufacture of a device as complex as a motor vehicle. Henry Ford invented neither the automobile nor the assembly line, but developed each to dominate a new era in organization and production of motor cars. By improving the assembly line so that the 'Model T' could be produced more cheaply, Ford placed the power of the automobile within reach of the average citizen. He transformed the automobile itself from a luxury item for the rich to a necessity for all. When the design of the Model T proved successful, Ford turned to the problem of producing the car in large volumes and at a low unit cost. The solution was found in the moving assembly line. After more experimentation, in 1913 the Ford Motor Company displayed to the world the complete assembly-line mass production of motor vehicles. The technique consisted of two basic elements: a conveyor system and the limitation of each worker to a single repetitive task. Despite its deceptive simplicity, the technique required elaborate planning and synchronization. The first Ford assembly line permitted only very minor variations in the basic model, a limitation that was compensated for by the low cost. The price of the Model T touring car dropped from $950 in 1908 to $360 in 1916, and yet the profit per car remained the same, at about $100 per car. The 1920's saw Ford's new plant at River Rouge opened. It was nearly self-sufficient, with all the components needed to manufacture the car, controlled and owned by Ford. General Motors at this time began to gain in the market, they offered cars and prices to suit all tastes, whereas Ford continued to only produce the Model T in black!. The economic slump of the 1920's had a massive impact on the manufacturing industry. The Great Depression of 1929 until 1939 saw an economic slump in America. It was the longest and most severe depression to be experienced by America. The collapse of the stock market prices put a tremendous strain on the banks and financial services. The failure of so many banks, combined with a general and nationwide loss of confidence in the economy, led to much-reduced levels of spending and consequently the demand of production of automobiles. The result was drastically falling output and drastically rising unemployment. The slump in the American economy quickly turned into a worldwide economic slump owing to the relationship between American and Europe. After WW I America had emerged from the war as the major creditor and financier. Once the American economy slumped, the flow of investment credit to Europe dried up and this lead to a collapse in the European economy. All nations sought to protect their domestic production by imposing tariffs, raising existing ones and setting quotas on foreign imports, this reduced the amount of international trade. The agricultural sector faced it's own problems during this time. During the economic slump, agricultural prices dropped and farmers found themselves having to pay more for the goods than they could sell them for. However, the output of agricultural products did not decline as other industries did, this lead to stockpiles of foods and goods and added further pressure on the economy. The economy and agricultural industry needed a new direction to pull itself out of recession, and the new president Franklin D. Roosevelt promised a New Deal for the country. His New Deal was an amalgam of "alphabet" agencies (AAA, The Agricultural Adjustment Act 1933, CCC, Commodity Credit Corporation) that were established to help the agricultural businesses. By the mid-19th century, as the Industrial Revolution began to take hold in America, the relationship between agriculture and industry had become more pronounced. The advance of industry, primarily in the field of transportation, had a huge effect on the ability of the farmer to move goods to market. Ironically, much of the industrialization came from the rural areas themselves, in the form of displaced farmers who flocked to the cities to work in the factories and mills. Probably more than any of Roosevelt's social programs, it was the Second World War that ultimately wrenched America free from the Depression. If World War II hadn't turned the Ford's company manufacturing ability to the business of making bombers and jeeps, it is possible that Ford would have gone out of business. World War II brought an increased demand for American agricultural products. New technologies adopted in the post-war period-reduced production costs and further escalated farm output. Tractors and farm machinery became more powerful and efficient. The revolution in agriculture, paralleling that in manufacturing, involved a shift from hand labor to machine farming, and from subsistence to commercial agriculture. In conclusion, the performances and organizations of the manufacturing and other industries are reflected in the American economy, when times are good, production increases, there is fuller employment and new technology leads the way forward. But during times of hardship, economy downturns or even long-term recession, a basic instinct of survival takes over. As a rule, consumers look for the best values for what they spend, while producers seek the best price and profit for what they have to sell. Government, at the federal, state and local levels, seeks to promote the public safety, assure reasonable competition. The U.S. economy has changed in other ways as well. The population and the labor force have moved dramatically from farms to cities, from fields to factories and, above all, to service industries. In today's economy, the providers of personal and public services far outnumber producers of agricultural and manufacture goods. The consumer will exert a measure of influence over the market economy. Naturally, most consumers look for good values when they buy, as well as product reliability and safety. If one automobile manufacturer, domestic or foreign, produces a better car at a lower price, the market will begin to shift as that car attracts more sales than its competitors. In theory, this phenomenon rewards efficient producers who maintain high quality at low prices, and drives out those who cannot compete. Bibliography:

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