The United States declared its independence in the same year, 1776, that Scottish economist Adam Smith wrote The Health of Nations, a book that has had an enormous influence on American economic development. Like many other thinkers, Smith believed that in a capitalist system people are naturally selfish and are moved to engage in manufacturing and trade in order to gain wealth and power. Smith's originality was to argue that such activity is beneficial because it leads to increased production and sharpens competition. As a result, goods circulate more widely and at lower prices, jobs are created, and wealth is spread. Though people may act from the narrow desire to enrich themselves, Smith argued, "an invisible hand' guides them to enrich and improve all of society. He explains the metaphor of the invisible hand in this manner.
"Every individual is continually exerting himself to find the most advantageous employment for whatever capital he can command. It is his own advantage, not that of society, which he has in mind... but he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention, for the pursuit of his own advantage necessarily leads him to prefer that employment which is most advantageous to society." In contemporary economic terminology, we call this process supply and demand.
Most Americans believe that the rise of their nation as a great economic power could not have occurred under any system except capitalism, also known as free enterprise, after a corollary to Smith's thinking: that government should interfere in commerce as little as possible.
.America's economy from its inception until the close to the beginning of the 20lh century was dependent on agriculture. The census of 1890 was the first in which the output of America's factories exceeded the output of its farms. Afterwards U.S. industry went through a period of rapid expansion. By 1913, more than one-third of the world's industrial production came from the United States.
In that same year, automaker Henry Ford introduced the moving assembly line, a method in which conveyor belts brought car parts to workers. By improving efficiency, this innovation made possible large savings in labor costs. It also inspired industrial managers to study factory operations in order to design even more efficient and less costly ways of organizing tasks.
Lower costs made possible both higher wages for workers and lower prices for consumers. More and more Americans became able to afford products made in their own country. During the first half of the 20th century, mass production of consumer goods such as cars, refrigerators, and kitchen stoves helped to revolutionize the American way of life.
It was America s good fortune to be spared the devastation suffered by other nations during the 20th century's two world wars. By the end of World War II in 1945, the United States had the greatest productive capacity of any country in the world, and the words "Made in the U.S.A." were a seal of high quality. Recently, though, the American economy has evolved into one that has been referred to as a "postindustrial economy."
The 20th century has seen the rise and decline of several industries in the United States. The auto industry, long the mainstay of the American economy, has struggled to meet the challenge of foreign competition.
The garment industry has declined in the face of competition from the countries where labor is cheaper. But other manufacture industries have appeared and flourished, including airplanes and microchips and space satellites, microwave ovens and high-speed computers.
Many of the currently rising industries tend to be highly automated and thus need fewer workers than traditional industries. As high-tech industries have grown and older industries have declined, the proportion of American workers employed in manufacturing has dropped. Service industries now dominate the economy, leading some observers to call America a "postindustrial” society. Selling a service rather than making a product, these industries include entertainment and recreation, hotels and restaurants, communications and education, office administration, and banking and finance.
Although there have been times in its history when the United States pursued an isolationist foreign policy, in business affairs it has generally been strongly internationalist. The presence of American business has drawn a mixed response in the rest of the world. People in some countries resent the Americanization of their cultures; others accuse American firms of pressuring foreign governments to serve U.S. political and economic interests rather than local interests. On the other hand, many foreigners welcome American products and investment as a means of raising their own standards of living.