From guitar-maker.com:

   
A Brief History of the Steel-String Guitar

The steel-string guitar story begins in 1796 with the birth in Mark Neukirchen, Germany, of Christian Fredrich Martin. Fifteen years later he was apprenticed to Johann Stauffer, a Viennese maker of guitars and other instruments. He worked there for fourteen years, returning to Mark Neukirchen in 1825 - to find himself in the middle of a long and bitter dispute between the Violinmakers' Guild and the unregulated cabinetmakers, over who should have the right to make guitars. The final ruling, when it came in 1832, was in favour of the cabinetmakers. Martin, however, had his sights set on greener pastures, and the following year, he left with his young family for America.

Arriving in New York, Martin opened a music shop, selling everything from violin strings to instruments, including guitars which he made in a back room. But life in New York was a struggle, and in 1839 Martin sold his shop and bought some land at Nazareth, Pennsylvania, where there was a substantial community of German immigrants. Here, Martin concentrated on making guitars, gradually abandoning the Stauffer characteristics of his instruments as he responded to the demands of the rapidly-developing American market.

It was at this time that the distinguishing feature of American guitars was developed. Just at the same time that Torres was revolutionising the sound of the Spanish guitar with his development of fan-strutting, German immigrants to America started making guitars with an X-brace under the soundboard. Whether or not Martin developed this himself is not known, but he certainly made it his own, and by the 1850's most of his guitars were built this way. The advantage of this arrangement was probably mainly commercial at this stage, as the X-brace used less wood than Torres' fan-struts. The main virtue of the X-brace lay unsuspected by makers and players alike for the next fifty years.

One of the big disadvantages of the early guitar was its lack of volume. Torres made great improvements with the wider bodies and fan-strutting of his guitars, but American guitarists wanted an instrument which could hold its own against much louder banjoes and fiddles. They got what they wanted around 1900, when steel strings came out. But steel strings exert more than double the tension on a guitar soundboard than gut strings do. A slight strengthening of the X-brace was all that was needed to cope with the extra tension, and by the 1920's it had become an industry standard for the steel-string guitar.