The U.S. economy is fueled by abundant natural resources, a well-developed infrastructure, and high productivity. It has the second-highest-total-estimated value of natural resources, valued at $45 trillion in 2016. Americans have the highest average household and employee income among OECD nations, and in 2010 had the fourth-highest median household income, down from second-highest in 2007. It has been the world's largest national economy (not including colonial empires) since at least the 1890s. The U.S. is the world's third-largest producer of oil and natural gas. In 2016, it was the largest trading nation in the world as well as the world's second-largest manufacturer, representing a fifth of the global manufacturing output. The U.S. also has not only the largest economy, but also the largest industrial sector, at 2005 prices according to the UNCTAD. The U.S. not only has the largest internal market for goods, but also dominates the trade in services. U.S. total trade amounted to $4.92 trillion in 2016. Of the world's 500 largest companies, 134 are headquartered in the US.

The United States has one of the world's largest and most influential financial markets. The New York Stock Exchange is by far the world's largest stock exchange by market capitalization. Foreign investments made in the U.S. total almost $2.4 trillion, while American investments in foreign countries total over $3.3 trillion. The economy of the U.S. leads in international ranking on venture capital and Global Research and Development funding. Consumer spending comprises 71% of the U.S. economy in 2013. The United States has the largest consumer market in the world, with a household final consumption expenditure five times larger than that of Japan. The labor market has attracted immigrants from all over the world and its net migration rate is among the highest in the world. The U.S. is one of the top-performing economies in studies such as the Ease of Doing Business Index, the Global Competitiveness Report, and others.

The U.S. economy went through an economic downturn following the financial crisis of 2007–2008, with output as late as 2013 still below potential according to the Congressional Budget Office. The economy, however, began to recover in the second half of 2009, and as of October 2017, unemployment had declined from a high of 10% to 4.1%.

Economic history of the United States

The economic history of the United States is about characteristics of and important developments in the U.S. economy from colonial times to the present. The emphasis is on economic performance and how it was affected by new technologies, especially those that improved productivity, which is the main cause of economic growth. Also covered are the change of size in economic sectors and the effects of legislation and government policy. Specialized business history is covered in American business history.

The economic history of the United States began with American settlements in the 17th and 18th centuries. The American colonies went from marginally successful colonial economies to a small, independent farming economy, which in 1776 became the United States of America.

In 180 years, the U.S. grew to a huge, integrated, industrialized economy that made up around one fifth of the world economy. As a result, the U.S. GDP per capita converged on and eventually surpassed that of the UK, as well as other nations that it previously trailed economically. The economy maintained high wages, attracting immigrants by the millions from all over the world.

At the beginning of the 20^th century new innovations and improvements in existing innovations opened the door for improvements in the standard of living among American consumers. Many firms grew large by taking advantage of economies of scale and better communication to run nationwide operations.

The industry revolution

During the late 18th an early 19th centuries when the UK and parts of Western Europe began to industrialise, the US was primarily an agricultural and natural resource producing and processing economy. The building of roads and canals, the introduction of steamboats and the building of railroads were important for handling agricultural and natural resource products in the large and sparsely populated country of the period.

Important American technological contributions during the period of the Industrial Revolution were the cotton gin and the development of a system for making interchangeable parts, the latter aided by the development of the milling machine in the US. The development of machine tools and the system of interchangeable parts were the basis for the rise of the US as the world's leading industrial nation in the late 19th century.

Oliver Evans invented an automated flour mill in the mid-1780s that used control mechanisms and conveyors so that no labour was needed from the time grain was loaded into the elevator buckets until flour was discharged into a wagon. This is considered to be the first modern materials handling system an important advance in the progress toward mass production.

The United States originally used horse-powered machinery for small scale applications such as grain milling, but eventually switched to water power after textile factories began being built in the 1790s. As a result, industrialisation was concentrated in New England and the Northeastern United States, which has fast-moving rivers. The newer water-powered production lines proved more economical than horse-drawn production. In the late 19th century steam-powered manufacturing overtook water-powered manufacturing, allowing the industry to spread to the Midwest.

Thomas Somers and the Cabot Brothers founded the Beverly Cotton Manufactory in 1787, the first cotton mill in America, the largest cotton mill of its era, and a significant milestone in the research and development of cotton mills in the future. This mill was designed to use horse power, but the operators quickly learned that the horse-drawn platform was economically unstable, and had economic losses for years. Despite the losses, the Manufactory served as a playground of innovation, both in turning a large amount of cotton, but also developing the water-powered milling structure used in Slater's Mill.

A major U.S. contribution to industrialization was the development of techniques to make interchangeable parts from metal. Precision metal machining techniques were developed by the U.S. Department of War to make interchangeable parts for small firearms. The development work took place at the Federal Arsenals at Springfield Armory and Harpers Ferry Armory. Techniques for precision machining using machine tools included using fixtures to hold the parts in proper position, jigs to guide the cutting tools and precision blocks and gauges to measure the accuracy.

Steel is often cited as the first of several new areas for industrial mass-production, which are said to characterise a "Second Industrial Revolution", beginning around 1850. This Second Industrial Revolution gradually grew to include chemicals, mainly the chemical industries, petroleum (refining and distribution), and, in the 20th century, the automotive industry, and was marked by a transition of technological leadership from Britain to the United States and Germany.

The increasing availability of economical petroleum products also reduced the importance of coal and further widened the potential for industrialisation.

A new revolution began with electricity and electrification in the electrical industries. The introduction of hydroelectric power generation in the Alps enabled the rapid industrialisation of coal-deprived northern Italy, beginning in the 1890s.

By the 1890s, industrialisation in these areas had created the first giant industrial corporations with burgeoning global interests, as companies like U.S. Steel, General Electric, Standard Oil and Bayer AG joined the railroad and ship companies on the world's stock markets.

Composition of economic sectors

The United States is the world's second-largest manufacturer, with a 2013 industrial output of US$2.4 trillion. Its manufacturing output is greater than of Germany, France, India, and Brazil combined. Its main industries include petroleum, steel, automobiles, construction machinery, aerospace, agricultural machinery, telecommunications, chemicals, electronics, food processing, consumer goods, lumber, and mining. The U.S. economy has the world's largest industrial sector at 2005 prices.

The U.S. leads the world in airplane manufacturing, which represents a large portion of U.S. industrial output. American companies such as Boeing, Cessna (see: Textron), Lockheed Martin (see: Skunk Works), and General Dynamics produce a majority of the world's civilian and military aircraft in factories across the United States.

Although agriculture comprises less than two percent of the economy, the United States is a net exporter of food. With vast tracts of temperate arable land, technologically advanced agribusiness, and agricultural subsidies, the United States controls almost half of world grain exports Products include wheat, corn, other grains, fruits, vegetables, cotton; beef, pork, poultry, dairy products, forest products, and fish.

International trade

The United States is the world's second-largest trading nation. There is a large amount of U.S. dollars in circulation all around the planet; about 60% of funds used in international trade are U.S. dollars. The dollar is also used as the standard unit of currency in international markets for commodities such as gold and petroleum.

Currency and central bank

The United States dollar is the unit of currency of the United States. The U.S. dollar is the currency most used in international transactions. Several countries use it as their official currency, and in many others it is the de facto currency.

The federal government attempts to use both monetary policy (control of the money supply through mechanisms such as changes in interest rates) and fiscal policy (taxes and spending) to maintain low inflation, high economic growth, and low unemployment. A private central bank, known as the Federal Reserve, was formed in 1913 to supposedly provide a stable currency and monetary policy. The U.S. dollar has been regarded as one of the more stable currencies in the world and many nations back their own currency with U.S. dollar reserves.

The U.S. dollar has maintained its position as the world's primary reserve currency, although it is gradually being challenged in that role. Almost two thirds of currency reserves held around the world are held in U.S. dollars, compared to around 25% for the next most popular currency, the euro. Rising U.S. national debt and quantitative easing has caused some to predict that the U.S. dollar will lose its status as the world's reserve currency; however, these predictions have not come to fruition.

It has been the world’s largest national economy since at least the 1890s, compared with the European Union which has a larger collective economy, but is not a single nation. The economy of the United States is a mixed economy and has maintained a stable overall GDP growth rate, a moderate unemployment rate, and high levels of research and capital investment. In 2011, it was estimated that US GDP is the 6th highest in the world, thus making U.S. one of the world’s wealthiest nations. The U.S. is the largest trading nation in the world. Its three largest trading partners as of 2010 are Canada, China and Mexico. Most of the economy is classified as services. The U.S. economy also maintains a very high level of output, making the U.S. one of the world’s wealthiest nations.

As of 2012, the country remains the world’s largest manufacturer, representing a fifth of the global manufacturing output. Of the world’s 500 largest companies, 133 are headquartered in the United States. This is twice the total of any other country. The labor market in the United States has attracted immigrants from all over the world and its net migration rate is among the highest in the world. It is the largest importer of goods and third largest exporter, though exports per capita are relatively low. In 2010, oil was the largest import commodity, while transportation equipment was the country’s largest export. China is the largest foreign holder of U.S. public debt. About 60% of the global currency reserves have been invested in the United States dollar, while 24% have been invested in the euro. The country is one of the world’s largest and most influential financial markets.

The United States has a capitalist mixed economy, which is fueled by abundant natural resources, a well-developed infrastructure, and high productivity. It lays emphasis on private ownership and private businesses to produce most goods and services. Two thirds of the output goes to individuals, while one third is bought by government and business.

What is 'Free Enterprise'?

Free enterprise, or the free market, refers to all voluntary business activities in a given economic area. Alternatively, free enterprise could refer to an ideological or legal system whereby commercial activities are primarily regulated through private measures rather than through political means.

BREAKING DOWN 'Free Enterprise'

In principle and in practice, free markets are defined by private property rights, voluntary contracts and competitive bidding for goods and services in the marketplace. This framework is in contrast to public ownership of property, coercive activity and fixed or controlled distribution of goods and services.

In western countries, free enterprise is associated with laissez-faire capitalism and philosophical libertarianism. However, free enterprise is distinct from capitalism. Capitalism refers to a method by which scarce resources are produced and distributed. Free enterprise refers to a set of legal rules regarding commercial interaction.
Free Enterprise as Economics

In the absence of central planning, a free enterprise legal system tends to produce capitalism although it is possible that voluntary socialism or even agrarianism could result. In capitalist economic systems, consumers and producers individually determine which goods and services to produce and which to purchase. Contracts are voluntarily entered into and may even be enforced privately; for example, by civil courts. Market prices are determined by competitive bidding.

Another definition of free enterprise economics was offered by the Nobel-winning economist Friedrich Hayek, who described such systems as "spontaneous order." Hayek's point was that free enterprise is not unplanned or unregulated; rather, the planning and regulation arise from the coordination of decentralized knowledge among innumerable specialists, not bureaucrats.