Why the United States Economy Developed - Essay Example

Douglass North broadened the induced responses to include the development of institutions, social overhead capital, and even induced innovations. The models fitted well into the turnaround framework while the attention [paid to the link between market forces and institutional development made a richer discussion. The emphasis on foreign and external demand sources to trigger growth has much more appeal than those explanations that are based upon supply forces and that seem to lack a starting mechanism. Regional specialization and possibilities for inter-regional trade in the antebellum United States have intrigued economists and historians alike. The works of Douglass C.  North have stimulated a lot of research on the location and the growth of industries and populations. The issue of the economics of slavery complemented the study of regional development. Discussion revolves around Southern development, both in the agricultural and manufacturing sector, with particular attention being paid to the question of which the south was successful or could have been successful in feeding itself as well as producing staples for export. The evidence collected by various researchers indicated that the south was largely independent of the western food supplies (Herbst Lawarence 1975, 264-270).

The basic model used by North bares resemblance to that by Innis as the “staple basis” and can be traced back to Adam Smith as a “vent for surplus” model. Colonial markets were too small to generate growth and only the availability of a product demanded by the rest of the world could draw people out of a “subsistence” sector. This “export base” led to demand elsewhere in the economy, providing a necessary condition for growth and having different effects on the pattern of development depending on the nature of the production conditions of the export sector. The availability of a wider market provided increased division of labor and regional specialization.

North’s Cotton thesis on the large foreign demand for cotton in the years 1815 to 1843, lead the source to specialize in export production, to require foodstuff from the developing northwest, and to import the manufactured goods northeast.

Keynesian economists promote a mixed economy where both the state and the private sector have important roles. In Keynes's theory, macroeconomic trends can overwhelm the behavior of individuals. Instead of the economic process being based on continuous improvement of potential output as most classical economists believed, Keynes asserted the importance of aggregate demand for goods as the driving factor of the economy. General determinants of the size of the multiplier include a marginal propensity to consume and a marginal propensity to invest.

            Peter Passell and Jeremy Atack (1994), discuss the economic history and industrial transformation. Many social scientists such as Oliver Williamson and Alfred Chandler have attempted to explain why firms increased in size and industries have become highly concentrated. A misconception has consequently been advanced; that the interpreters of industrial concentration share certain basic benefits about the underlying causes of the process. Common to neoclassical economists and economic historians is the assumption that mass production is organized efficiency. Unless there are exogenous shocks like government interference, market decisions regarding production and distribution are Pareto optimal. If the market senses that resources can be produced more efficiently, the economy can thus evolve naturally.