7 - The United States: Financial Innovation and Adaptation

Summary

THEORETICAL CONSIDERATIONS

The United States in all likelihood was the most rapidly expanding economy in the world from the seventeenth through the nineteenth centuries. A high rate of growth of total product characterized both the colonial period before independence and the United States after 1776. All indications are that the rate of growth of total product for the two and a half centuries from 1650 to 1900 was a sustained 3.3 to 4 percent per year for most subperiods of, say, 20 to 30 years. The nature of the expansion, however, changed some time between 1776 and 1840. Before 1776, and probably for some time thereafter, the high rate of growth was mainly the result of a population that grew at about 3 percent per year along with a small increase, possibly 0.3–0.5 percent per year, in product per person. After 1840, population growth was slower – more like 2 percent per year – and product per person grew at 1.5–1.6 percent per year. The change between 1776 and 1840 marked the emergence of modern economic growth. Economic historians still debate its nature, timing, and causes.

The unusual character of American long-term economic expansion lies less in the modern growth since at least 1840 than in the high rates of the two centuries that came before the modern era.