In 1881, Dakota Territory had never sold a bushel of wheat to anybody outside of Dakota. Six years later, it sold 62 million bushels.
I recently read Garet Garrett’s The American Story, which came out in 1955. It is a well-written history of America, unusual because of its emphasis on the powerful economics that drove the country to great heights. Garrett tells the Dakota story in this book, which is a useful reminder about how economies grow and prosper.
What happened in Dakota was that farmers invested in machinery. The riding plow, the reaper and the combine harvester made the farms far more productive than they had been. Suddenly, the labors of one man could produce 5,000 bushels of wheat. A single miller could turn that wheat into 1,000 pounds of flour.
But that was not all. New railroads connected the farmer to the mill and the mill with markets and ports in the East. The energies released were enormous. Garrett writes:
‘So the labor of four men – one a farmer in Dakota, one a miller in Minneapolis and two on the railroad – plus a very low rate for ocean carriage – could put into Europe enough flour to feed 1,000 people for a year.’
Let’s look at another example: steel. In 1870, there was nothing anyone would call a steel industry in the U.S. Americans bought their steel from Europe. Yet 30 years later, Americans would produce more steel than Germany, France and England put together.
Again, the investment in machines and rail and roads unleashed a torrent of once frozen economic potential.
Those forces worked wonders as a free people tinkered, invented and created. ‘In sheds and attics and little machine shops everywhere,’ Garrett writes, ‘with sticks and strings and glue and bits of metal, eccentric minds were making models of things that might work, either to save labor or to save time – two thoughts with the same meaning.’
Steam drills. Sewing machines. Electric lamps. Rotary printing presses. Cranes and elevators. Steam engines. Steel ships. Air brakes. Plumbing. Refrigeration. All of these things came in the years that followed.
Millionaires sprouted up like mushrooms. ‘Most of these new millionaires had come from the ground – from the mines and steel mills and oil wells and packing houses – and smelled of their work,’ Garrett writes.
Wall Street financed great undertakings that would be beyond the power of five or six rich men. Huge sums of capital went toward growing the new industries. Many of the larger enterprises now had public stockholders.
The first billion-dollar company in America was United States Steel, stitched together by J.P. Morgan. It owned not only steel plants, but coal mines, limestone quarries, ships, railroads and whatever else touched on steel.
Wall Street sold it to the public for $40 per share. Then it fell to $9. But a few years later, Wall Street was buying it back from the public at $100 per share. And soon it topped $200. It was a heady, risky time. If you bought five stocks, odds were that two might go to zero. But the three, held long enough, produced fortunes.
This is the work of a free people. Testing things. Trying them out. Succeeding and failing. It is a rough laboratory from which winners and losers emerge through trial and error. It is what builds great wealth, great economies and great countries.
It is the American story of two centuries past.
While there are no virgin places for a new American story to take root, no empty continents where a people might go to try to build something from scratch, there are new versions of the American story unfolding in places likely to produce astounding wealth in similar ways.
In places like Mongolia or Myanmar, for example, you find today’s Dakota Territory. Not that Mongolians are as free as those American pioneers, but there is so much frozen potential to unlock by applying technology and know-how and capital to their situations.
It’s these mind-bending changes – and the lure of profiting by them – that attract me to explore the world beyond the developed West.
for The Daily Reckoning Australia
From the Archives…
Shale the Conquering Hero!
25-01-13 – Dan Denning
The Nobel Prize for Quack Economists Like Stiglitz
24-01-13 – Bill Bonner
The Real Story Behind Germany’s Gold Recall
23-01-13 – Byron King
At the Mercy of Financial Repressionists
22-01-13 – Dan Denning
Walter Russell Hall: From Rebellion to Bullion
21-01-13 – Kris Sayce