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Introduction: A Brief History of U.S. Economic Growth
From its humble beginnings in Jamestown, the U.S. economy has achieved remarkable growth.
Today, the U.S. economy is the largest national economy in the world and produces the highest
standard of living of any of the thirty-five largest national economies in the world. (See the table
on page Intro-5.) This chapter provides a brief historical account of the remarkable growth of the
U.S. economy.
From Jamestown to the Present
The Jamestown colony was established in 1607. The Jamestown colony was the first permanent
English settlement in what would become the United States of America. The Jamestown colonists
were drawn to the New World largely by economic motivation. They and their financial backers
hoped to strike it rich by discovering gold, silver, or copper. The 105 original Jamestown colonists
included a number of goldsmiths and jewelers, but no farmers.
The original colonists in Jamestown did not strike it rich. Instead, they confronted the basic
economic problem of scarcity. They had only limited resources to try to satisfy their unlimited
wants. (The basic economic problem of scarcity will be discussed in more detail beginning in
Chapter 1.)
Initially, the colonists struggled to produce enough output even to sustain life. Of the 105 original
colonists, only 38 were still alive when a second group of colonists arrived in January of 1608.
There were 214 colonists in Jamestown in the fall of 1609. By June of 1610, only 60 colonists
were still alive. The Jamestown colony was on the verge of failure.
But in June of 1610, ships under the leadership of Lord De La Warr arrived at Jamestown
bringing more colonists and supplies. In 1612, the Jamestown colony began producing tobacco
for export, earning very high returns. Nonetheless, the Jamestown colony continued to struggle
for a number of years, with the majority of its colonists either dying or returning to England.
Example 1: Of the approximately 14,000 colonists who arrived in Jamestown between 1607 and
1624, only 1,132 were living there in 1624.
Economic conditions in Colonial America eventually improved. More people arrived and more
colonies were established. As the population grew, the labor force became more specialized,
increasing labor productivity. Physical capital was built up through savings and investment.
Human capital was developed through education and training and through work experience. The
colonists enjoyed a good deal of economic freedom, even though they were under British rule.
The economy and the population grew rapidly during the colonial era.
By 1790, the colonial period was over and there were nearly 4 million Americans. They had
fought and won a war of national independence. They had established a Constitution that
balanced a strong central government with individual freedom. And they had achieved a standard
of living higher than most people in the world at the time. Still, their standard of living was
extremely low by modern standards.
Example 2: George Washington died in 1799, probably from an upper respiratory infection. He
was under the care of three physicians and received the accepted medical treatment of the time.
Unfortunately, the accepted medical treatment of the time included bloodletting. Washington was
bled a significant amount (by some accounts, over five pints), which may have contributed to his
demise.
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Economic growth continued after 1790. Between 1790 and 1860, per capita output increased by
fifty percent. Per capita output (or per capita GDP) is a basic measure of standard of living. Per
capita output is computed by dividing a nation’s total output by its population.
Intro - 1
A Brief History of U.S. Economic Growth