The initial vestiges of industrialization appeared in the United States in 1790, when Samuel Slater opened a British-style textile factory in Rhode Island. While most historical accounts place the start of the full-scale American Industrial Revolution at either 1820 or 1870, factory labor and entrepreneurial innovation, such as the Slater Mill, were the driving forces of industrialization.

Industrialization was made possible by increases in productivity, capital investment and reinvestment, business expansion, and the rise of corporations. Economic historian Robert Higgs, in The Transformation of the American Economy, wrote that economic growth was preceded by investment in material capital and by Chief Justice John Marshall's influence in securing private property and contract rights between 1801 and 1835.

Agriculture to Industry

Industrialization is defined by the movement from primarily agrarian labor toward urbanized, mass-producing industrial labor. This transformation corresponds with rising marginal productivity and rising real wages, albeit not consistently or equally.

According to the 1790 U.S. Census, more than 90% of all American laborers worked in farming. The productivity—and corresponding real wages—of farm labor was very low. Factory jobs tended to offer wage rates that were several times higher than farm rates. Workers eagerly moved from low-paying, hard labor in the sun to relatively high-paying, hard labor in industrial factories.

By 1890, the number of non-farm workers had overtaken the number of farmers in the U.S. This trend continued into the 20th century. Farmers made up just 2.6% of the U.S. labor force in 1990.

Corporations and Capital

The U.S. industrial revolution primarily began through textile mills in New England. The three early mills were the Beverly Cotton Manufactory (1787), the Slater Mill (1790), and the Waltham Mill (1813).

In 1813, the Boston Manufacturing Company became the first integrated U.S. corporate textile factory. For the first time, investors could contribute to the development of new buildings, new machines, and new profits in manufacturing.

Corporations became the dominant manufacturing business model by the mid-1840s. Wages rose as labor became more productive. For example, young unmarried women in New England were earning factory wages three times the rate of domestic maids. Higher productivity translated to higher standards of living, a greater demand for other goods, and increased capital investment.

Improved technology increased farm output as well, dropping farm product prices and allowing workers to move into other industries. Railroads, steamships, and the telegraph increased communication and transportation speeds as well. 

The Embargo Act of 1807 and the War of 1812

During the Napoleonic Wars in Europe, Britain and France were at war with each other and the United States was neutral. France, and then soon Britain, declared that any neutral countries were prohibited from trading with them. On top of this, French warships started seizing U.S. warships, and Britain soon followed. Britain also demanded that all ships check at British ports before trading with any other country. British ships also started boarding American ships and drafting soldiers into their navy.

The United States had enough and passed the Embargo Act of 1807, preventing any trade with foreign nations, in the hopes to economically hurt France and Britain. This backfired as France and Britain's economy did not suffer but the U.S. economy did. However, it turned the U.S. economy inward, causing the nation to create and rely on its own goods, spurring the industrial revolution of the nation.

The War of 1812 with Britain resulted in an entire blockade of the U.S. eastern coastline, which brought all trade to a halt. Again, Americans were forced to turn inward. And after the war the country learned a lesson to reduce its reliance on foreign goods and begin manufacturing heavily itself, seeking economic independence. It was also a catalyst to the industrial revolution in the country.

John Marshall and Property Rights

In market economies, private producers want to be able to keep the fruits of their labor. Moreover, retained profits can be reinvested into a company for expansion, research, and development.

Several landmark Supreme Court cases in the early 19th century protected private property from government seizure. Chief Justice John Marshall issued opinions in Fletcher v. Peck (1810) and Trustees of Dartmouth College v. Woodward (1819) that established limits on government seizures and contractual arrangements. 

Savings and Loans

Workers and businesses alike exhibited very high savings rates after 1870. Real interest rates declined, propelling a huge rise in loans. Farmers also saw rising land values and could mortgage their land to invest in capital goods. Prices dropped, and real wages rose very quickly between 1880 and 1894, further improving the standard of living.