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An insightful analysis of rostow's theory of five stages of economic growth, with a focus on the american economy. Each stage, from the traditional society to the age of high mass-consumption, and discusses how the united states transitioned through these stages. The document also touches upon key historical events, such as the revolutionary war and the panic of 1837, and their impact on economic growth.
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David Gomes Dr. Maran ECO 1326 May 9, 2006 According to Rostow, there are five stages to economic growth. These stages are the traditional society, the preconditions for take-off, and the take-off itself, the drive to maturity, and finally the age of high mass-consumption. Atack and Passell’s A New Economic View of American History , reiterates Rostow’s theory in explaining the growth of the American economy from a post-colonial standpoint to the superpower it is considered today. The first stage of economic growth is the traditional society. The traditional society is one whose structure is developed within limited production functions, based on pre-Newtonian science and technology. In this first stage, population and level of life fluctuated due to varying different reasons, including political and social turbulence, the upkeep of roads, and the efficiency of central rule. This society productivity was limited mainly to agriculture. The second stage is the pre-conditions for take-off. It takes time to transform traditional society in ways to be able to exploit the new innovations in science and technology. As technologies were introduced and improved, the society moved towards the pre-conditions to a take-off. However, the transitional stage was also affected by political structure, building a centralized national state. According to Atack and Passell, after the Revolutionary war, the government grew. Under the development of Alexander Hamilton, a system of banking and bimetallic money arose as the economy was growing due to higher output from new innovations in technology and an increased labor force.
Eventually a system of free banking was established where it was free for anyone to start a bank were they to have the collateral. The take-off period is the period where all obstacles and resistance to steady growth are finally overcome. The economy begins to expand and dominate the society and growth becomes its normal condition. The country begins to inhabit an institutional structure. According to Rostow, the take-off period in the United States began in approximately 1843. The last pitfall that needed to be hurdled was the Panic of 1837, where there was a depression and a huge increase in unemployment. This was brought about by President Jackson’s Specie Circular where the government withdrew all funds from the Second Bank of the United States. The Bank had been producing too much paper money that it could not back up by gold or silver. Many banks went out of commission at this time and the panic did not officially end until 1843, when the take-off began. After President Jefferson introduced the Embargo Act, the poor methods of transportation needed to be addressed and improvements needed to be made. The introduction of canals dramatically reduced transportation costs and led to a shift from agriculture to commerce. Trading goods, namely cotton, became more profitable, and it led to specialization in certain goods. The next innovation to transportation was the steamboat which allowed upstream water travel with greater ease. Railroads eventually displaced the canals because they were faster, more flexible, and able to deliver more cargo. The introduction of the railroad also led to faster travel of information. The fourth stage, the drive to maturity, is where the make-up of the economy begins to change. It moves from being dominated primarily by agricultural means to a