Dr. Sparks is Associate Professor of Business Administration and History and Director of the Institute on Public Policy and Private Enterprise st Grove City College in Pennsylvania.
Despite the repetition of phrases like “the American economic miracle” and “American prosperity,” there are still very few Americans, college-age or otherwise, who can give a satisfactory answer to the question asked me some years ago by a Korean friend: “How is it that 4 million people, located between the Atlantic coastline and the Mississippi River, starting with very little in 1789, ended up with more than enough for 76 million people by 1900?" What happened in the United States during the period from 1800 to 1900 which made it the most prosperous of nations? One can begin to answer that question in what appears to be an unlikely way—by talking about a working girl, Lucy Larcom and a teamster-clerk, George Scranton. Lucy Larcom and George Scranton—The Savers Lucy Larcom was born in Beverly, Massachusetts in 1824, the ninth child in a poor, but religious family.[1] Her father died when she was eleven. Her mother moved the family to Lowell where the girls worked in the textile mill there. Her name is not one emblazoned on the pages of American history, but in her life and habits can be found the origins of American economic well- being. She earned, what most earned at the factory, perhaps $3.00 a week. But, she and her mother and sisters saved. It was not easy. The process of saving—postponing present consumption, refusing to spend all of one’s earnings for current needs—is painful in the first stage of economic growth. Especially when total income is low—$3.00 per week the temptation is to consume all and save nothing. But Lucy Larcom and her family refused to devote all current income to current needs. Her family’s acts of abstinence brought into existence a store of money capital in the form of savings. It is known, for example, that workers’ savings at that one Lowell, Massachusetts plant totaled about $100,000 at one point in time for which there are records.[2] Lucy Larcom’s savings and those of tens of thousands of others like her, created a fund of capital which was the prerequisite for economic betterment. Individual savers accounted for over half of the nation’s total savings pool. They saved, and by so doing, began to create a legacy of prosperity. Not only individual income-earners saved, but businessmen saved. George Scranton was a Pennsylvania teamster and clerk.[3] For years during the 1830s he saved his money. His saving habit placed limits on his present consumption, but he soon invested his money in capital goods. First he bought an iron-making furnace. After a few years of iron-making, he purchased coal lands in Pennsylvania, where eventually a city would grow up bearing his name. He plowed back business income into further capital goods, that is, into machinery, equipment and tools. His business was a source of further savings. Those savings increased the size of the American capital pool. Opportunities for Investors Money capital came from another source. To be sure, workers and businessmen saved. But, in the 1830s, as had happened earlier in England, the great aristocratic merchant trading families, the Cabots, Darbys, and Beekmans, moved their money capital out of trade and into manufacturing. Instead of being just importers or exporters of already produced goods, they invested in the production of goods themselves. American wage earners, businessmen and traders contributed to the capital pool. In addition, foreign savings found their way into our economy. Foreign investors with money capital were eager to find opportunities here. Often they bought government bonds that were issued by the state or federal government; but foreign capital was ventured in private projects also, especially in the American West. There, during the latter part of the nineteenth century (1880-1900) British investment reached noteworthy levels. The Laramie Weekly Sentinel of June 9, 1883 acknowledged: “English capital has done much toward developing the Western country, and there is much to commend in the enterprise which brings millions of dollars to put into the land, ditches, and cattle along the foothills.” By 1883 twenty-one major British cattle companies owned western lands. One of them, the Prairie Cat-tie Company, ranged 100,000 cattle over 1,000,000 acres, constituting a capital investment of two and a half million dollars. Likewise, Scottish investment in cattle in 1884 has been estimated to have been twenty-five million dollars.[4] Saving became a national past-time. So much saving occurred during this period that the number of banks increased greatly. Banks are, after all, “brokers,” persons who bring buyers and sellers together. Banks bring buyers and sellers of savings together. They bring the Lucy Larcoms, the sellers of savings, together with the buyers of savings. For example, banks grew from 28 in 1800 to over 800 by 1850. Savings brokers placed portions of this fund of capital into the hands of those who purchased capital goods. American savings overflowed national boundaries. By the 1870s private American capital was traveling abroad to China where it financed the construction of the Hankow-Canton Railway. Millions more went to Germany and Sweden for investment there. Twenty-five million was sunk into Russia to aid the construction of railroads in that country.[5] It is no accident that economic historians say that the period between 1850 and 1900 was a period of probably the highest savings rate in American history. It was the “Age of Saving,” the “Era of Thrift.” Capital Goods Savings lying idle bring no benefits. But American money capital was converted into capital goods. Why are more capital goods beneficial? Adam Smith in his Wealth of Nations tells how he came across a primitive pin-making workshop employing ten men. He found the workers using limited, crude capital goods—tools—to heat, shape, point and pack the pins. With even those crude tools, observed Smith, ten men could make 48,000 pins a day. Imagine the surprise of Adam Smith if he could have been transported 100 years ahead to an American plant in 1850. There, ten employees, each with four capital machines, could produce a total of 6,000,000 pins a day![6] Why use capital goods in production? Because they increase what a worker can produce! We commonly call this an “increase in productivity.” It comes about because the laborer is given better tools with which to do the job. It is the difference between the amount of dirt one can move with an ordinary shovel on the one hand, and the amount of dirt one can move with a bulldozer on the other. All sorts of capital goods industries expanded during this period. The increase in the use of tools can be seen by one example from the lumber industry. There, the demand for the basic tool of lumbering—the ax—was so great that over 40,000 axes were required each month to cut the timber that helped to build homes, factories, churches and schools across the land.[7] Throughout the United States these machine-equipped workers were producing more than anyone had ever imagined could be provided. But producing more of what? Some commentators have said that capitalism during this period produced only huge factories and large fortunes. How. ever, the tremendous growth of the nineteenth century occurred because producers were motivated, energized and activated by the demands of millions of consumers. The Age of Capital Goods was and is at the same time the Age of Consumer Goods. Production, then, was directed at consumption. A House Tour If one were to walk through a typical frame house in a larger mid-western city around 1880, the benefits that were being brought to consumers by capitalism would become apparent. The attractive factory-made furniture of maple and oak that would be there could be bought by a middle income family for the first time in American history because the use of capital goods—the mechanical power circular saw, and the turning lathe—made inexpensive furniture available for many. More capital meant larger numbers of consumer goods. The wallpaper in the parlor would not be something imported or hand-drawn, but the pattern would appear even and distinct. Three decades ago the walls would have been bare. But in 1880 householders could choose from many patterns economically priced because the use of the cylinder press, a capital good, had greatly lowered the cost of wallpaper beginning nearly twenty years previously. The carpet under foot would have been purchased for about 59¢ a yard. Textile machinery placed floor coverings within the reach of many.[8] Even the newspaper on the hall table could properly be regarded as a product of capitalism. General circulation papers began to appear about 1840 and by 1900 they had total subscribers in the millions. What had made such papers popular? For the first time many ordinary workers had the leisure time to read. And they had time for entertainment. Home amateur musicianship sprang up in the late 1800s and blossomed in the early 20th century. Sears Catalogue featured what it called the “Beckwith Family Favorite,” a piano for the parlor costing $89. Once again, capital goods lowered the cost of musical instruments and families had increased leisure in which to enjoy new entertainments. Other forms of entertainment illustrate the amounts of free time that began to be available to the American worker. Organized baseball took hold in the 1850s and Rugby football began to have followers after the Civil War. Hearst’ s New York Journal was the first newspaper to have a “sports section” and that occurred in 1895. Moreover, a new American institution began to be embraced by workers—clerks and mill hands alike—the summer vacation.[9] Not only did the living rooms and parlors give evidence of American economic progress, but, in fact, the birth of a new room was made possible by capita] intensive production—the bathroom. It is fair to say that before the 1840s the “bathroom,” as a separate room, did not exist. The kitchen was the most frequent site of infrequently taken baths. The first stationary tub with plumbing appeared in the early 1840s. However, by the Civil War, Albany, New York, a town of 62,000, had only nineteen such tubs.[10] By 1880, however, the stationary wooden tub with copper or zinc lining was commonly found in homes. Over the last decades of the nineteenth century and on into the early twentieth century, the outdoor privy came “inside,” thanks to great advances in the production of sewer pipes and systems. Mass-manufactured tubs, toilets and sinks came to be housed together in an entirely new place, the bathroom. Capital production would later make Americans into “two bathroom” citizens. In the wardrobe could be found yet further evidence of the significant changes produced by nineteenth century capital accumulation. Textile manufacturing, as it had done in England, provided lower cost clothing to all Americans. By the end of the nineteenth century “dress ceased to be a very good indicator of differences in scales of living.”[11] Textile plants made clothes of the wealthy and the modest income recipients almost indistinguishable. Few could discern the difference between ready-made pants of the factory worker and tailor-made slacks of the professional. The capital equipment that made goods production cheaper and prices lower also raised workers’ wages! From 1860 to 1890 the real wages of workers increased by about 50 per cent, perhaps more. Workers were simply able to produce more and therefore warrant their higher pay. Why, then, do we have so much? Because those who went before us saved and invested in capital goods, which were used to produce consumer goods. It is not too much to say that such a century of saving, investment and production should be regarded as a kind of bequest from those of another era to the present generations. It is a devise from one generation to all who follow—a legacy of prosperity. [] 1. Oscar Handlin, The History of the United States, Vol. I (New York, Holt, Rinehart and Winston, 1967) p. 470.
2. Herman E. Krooss, American Economic Development, (Englewood Cliffs, New Jersey: Prentice-Hall, Inc., 1966) p. 398.
3. Handlin, p. 476.
4. Roger V. Clements, “British Investment and American Legislative Restrictions in the Trans- Mississippi West, 1880-1900′, The Mississippi Valley Historical Review, XLII (September, 1955) pp. 207-228 in Thomas C. Cochran and Thomas B. Brewer, eds. Views of American Economic Growth: The Industrial Era, (New York: McGraw-Hill Company, 1966) pp. 163-164.
5. Krooss, p. 214.
6. Interpelated from data provided in Gilbert C. Fite and Jim E. Reese, An Economic History of the United States (Boston: Houghton Mifflin Company, 1965), p. 211.
7. John Chamberlain, The Enterprising Americans (New York: Harper & Row, Publishers, Inc.) p. 90.
8. Krooss, p. 40.
9. Samuel Eliot Morison, The Oxford History of the American People (New York: Oxford University Press, 1965) pp. 784-785.
John A. Sparks
John Sparks is chairman of the department of business administration, economics, and international management at Grove City College in Pennsylvania.