Unit 2

Work your way through the activities on this page. For an overview of these assignments and the deadline, see the Assignments page.

Prelude: Settlement and Colonies

We’re going to start our studies of the economic evolution of the American nation a couple hundred years before the nation even exists.  Although this is traditionally where studies of American history start – after the so-called discovery by Columbus. Well we shouldn’t really call it a discovery by Columbus. He didn’t really land on the North American continent, and besides Vikings, who did land on the continent, were here long, long before. And most important, native Americans lived here and developed a significant civilization for a millennium or more before Columbus.

Reading: Jim’s Thoughts

But nonetheless we begin in the couple hundred years before the U.S. is formed in the Revolutionary war.  We will focus on the British colonies on the Eastern seaboard. Out west, the Spanish had some settlements in California and Texas, but they will enter our tale later.

We begin our study of U.S. economic history before the United States was actually formed. Popular myth of course claims the birth of the U.S. to be in 1776 (July 4, to be precise) when the Declaration of Independence from Great Britain was signed. (technically it took several weeks to get the document signed by all, but we’ll go along with July 4). But in practical terms, a sheet of paper doesn’t establish a new nation. The Revolutionary War had to be fought and won first. Eventually, the war was won and a peace treaty signed in 1783 that freed the 13 colonies to form whatever government they saw fit. So the topic of this unit of the course is the economic history of the settlements and colonies prior to the War. In other words it’s the period up to approximately 1780.

But where should we start? The continent was, of course, occupied and lived in by Native peoples before the Western Europeans arrived. Native peoples made important contributions to the eventual development of the American economy. In particular, native peoples contributed important agricultural technologies and knowledge. Native Americans also contributed to the structure and design of government with many of the Colonial founding fathers being greatly impressed with various aspects of the Iroqois Confederation.

But the economy of the native peoples was displaced and eventually destroyed by the Western European enterprise. Contrary to the myths often taught in grade-school, Native Americans proved more than capable of repelling the incoming European settlers – at least throughout the 1500’s.  But as the 1600’s dawned, disease destroyed the Native American population and economy.  As one example, smallpox, a previously non existent disease in North America was introduced by European settlers and explorers. In the New England area alone, it is estimated that in 1616 and 1617 a wave of smallpox killed 80% of the several millions of Native Americans living in the area.  Often, the smallpox epidemic came so swiftly that entire Native American villages were left abandoned, complete with plowed fields, crops in storage, and buildings. Indeed, the Pilgrims appeared to choose Plymouth Landing, the famous Plymouth Rock in what is now Massachusetts, precisely because they were ousted by hostility from their first landing spot on Cape Cod.  From a surviving local Native American they heard there was an intact village across the bay, Plymouth, that was basically “ready-for-occupancy”.  The Native Americans there had fallen to smallpox and left their homes, crop stores, prepared fields, and even planted crops behind.

So we will begin our story with the arrival of the first European settlers. That means we start our story at approximately 1600. Actually 1607 to be precise. So we will study the period 1607 to 1780 here. That’s a lot of time. In fact, it’s almost as much time, 173 years, as the 220 some years we will study in the remainder of the course.

The American Colonies: Late-comers in Search of Profits

With his famous voyage of 1492, Christopher Columbus not only re-discovered the Americas, he put them and long-distance sea trade in the forefront of European thinking for good. His voyages triggered a flurry of European voyages of “discovery” and attempts to establish new trade routes and trading partners. In the century immediately following, large numbers of colonies and trading routes were established between Europe, Asia, the Americas, and coastal Africa. But these colonies and trade patterns did not include most of North America. Instead, a lively plantation-based and slave-based economy began to grow in the Caribbean and South America. The major nations involved were Spain, Portugal, France, and Holland. Great Britain was a late comer.

The trade largely involved growing sugar or mining gold/silver and then shipping it to Europe. Europe supplied guns and manufactured goods such as cloth and household goods. Eventually, native peoples died in the islands because of lack of immune resistance to European disease. To keep the plantations going (sugar and rum was hugely profitable!), the Europeans began to trade guns to African coastal tribes in return for African slaves. The slaves were put to work on the sugar plantations.

The North American coast, despite it’s numerous natural seaports, did not seem immediately hospitable or profitable and therefore wasn’t settled. Well organized and equipped Native American population made it less hospitable. A couple of attempts were made in the 1500’s, but not until 1607 when a newly formed private corporation in Britain was authorized by the King to establish a colony at Jamestown (now part of Virginia) for purposes of creating a profitable trade with Britain. For over a decade it struggled mightily. It lost huge sums of money. Most of the newcomers died. It was initially less of a settlement than an all-male mining or military expedition. That all began to change around 1620 when tobacco was introduced as crop to be grown and sold in Britain. Rules were also changed to allow the men to own land privately instead of the corporation owning all land. A representative assembly was elected to establish rules and laws. And women were introduced. It was now a profitable settlement. It began to grow, and in the process it also attracted others hoping to duplicate the success.

Eventually there would be numerous small settlements all along the Atlantic coast. They were organized into 13 colonies (more if we count the colonies that became Canada). The despite their proximity to each other, the colonies were largely independent of each other. They did not trade with each other. Instead each traded with Great Britain, the “mother country”.

Although some groups of colonists were motivated by political or religious differences with the authorities in Great Britain, the vast majority came to America in search of profit. For some, Great Britain had become too crowded and promised only a life of begging in London. America promised a decent life. For others with greater ambitions, America promised great profits from trade. In short, life in the American colonies began as a search for profit and trade more than anything else. Eventually the search for profit and trade would also make it necessary for the colonies to seek independence from Great Britain.

Changes During This Period

One of the easiest (and most common) errors made when studying history, and economic history in particular, is to mentally project our current experiences and understandings back onto people who lived in the past. In other words it’s very easy to assume that much of the rhythm of life in the past was essentially similarly to our own. It’s easy to see technological differences between then and now while missing some of the essential differences. For example, if we compare life today to life in early American settlements and colonies it’s easy to see some of the technological differences that made life then difficult: no electricity, no lights, no central heating in homes, no automobiles, etc. But it’s also easy to miss some other aspects. For example, 200-300 years ago, there were very few markets and stores. The vast majority of the meals people ate were prepared in their household with food grown or raised by their own households. The same was true for clothing. Most people’s clothes were actually home-made, literally. Most households made their own candles to see at night. Dishes, furniture, hand tools, toy dolls, and other possessions were often considered family heirlooms to be passed from generation to generation because they were so hard to make or difficult to trade for. Obviously making most of your own goods requires a lot of work. But it’s working for your own household – you didn’t get paid (in money). In many ways, the story of American economic history is not only a story of new technologies improving life, but also the story of how we all changed from making our own goods with our own labor to buying our goods with money we got from selling our labor. This transition, the change from making-your-own-goods to buying-goods-with-money, is called the transition from “household production” to “market production”. It is one of the major trends happening during this pre-Revolutionary period.

Evolution of Market Production

During the 16th, 17th, and 18th centuries, Europe, and western Europe in particular, underwent tremendous change in the nature of production. In the middle ages, most Europeans lived and worked under the “Manor system”. Essentially large estates owned by some nobility included large numbers of peasants called serfs. The serfs were as much a part of the estate as the land was. Serfs were not “paid” with money. Instead, serfs were obligated to give much (most) of what they produced to the others on the estate. In return, serfs received whatever they needed to live from others on the same estate. Money wasn’t really needed and prices were largely irrelevant. Together, they constituted a giant household under the direction of the Lord. Each manor or estate produced virtually all the goods and services needed to support everybody. Trade did exist, but it was very small in volume relative to the goods produced on the estate for the estate’s own consumption. Gradually, during this period however, trade began to expand. Markets grew. Increasingly goods were produced for sale at the markets where they were as often bartered for other goods as sold for money. As the economic systems of Europe increasingly shifted away from Manor-based, household production people increasingly moved into cities and began to sell their labor for money.

The establishment of overseas colonies and long-distance trading partners that rapidly evolved after Columbus’s 1492 voyage contributed and accelerated this shift in Europe away from household production to market-based production. Ironically, as Europe was increasingly becoming less manor-dependent and more market-organized, the colonies it established were much like the manor-system with one twist. The basic organization of economic life in the American colonies was based on household-production-plus-export.

Plantation- and Farm-based Export Economies

The southern colonies, Maryland, Virginia, North Carolina, South Carolina, and Georgia, were largely plantation-based economies. Not all households were plantations, and not all plantations were large, but the essential structure or system was the same. Plantations grew much of their own food and made many of their own manufactures (clothing, tools, etc), but most labor was concentrated on producing some particular “cash crop”. “Cash crops” are grown for sale to get money. So southern plantations were largely household production oriented but with the added twist of producing and selling a crop. Before the revolution, the undisputed dominant cash crop from Southern colonies was tobacco. In South Carolina, though, rice was the dominant crop with indigo also being a significant cash crop. These cash crops were not destined for local markets though. Instead, the tobacco, rice, and indigo was headed for Great Britain. In return, the southern colonies obtained British manufactured goods, slaves, and sugar/molasses. The plantation owners, and early on, the corporations that founded the colonies, accumulated significant profits from this trade.

The middle atlantic colonies and the New England colonies likewise were focused heavily around household production. A key difference though is that the households were largely small family farms clustered near each other. This gave soon gave rise to villages and eventually small cities. The costs of production for agriculture in these colonies was similar to Britain and thus there was little opportunity for profitable exports directly to Britain. The exception to this rule was tall lumber to be used in ships and fish, both coming from the New England colonies. Yet, since these colonies lacked any sophisticated ability to manufacture goods, or even to fabricate iron, they had to import such goods from Britain. Having little to offer the British to pay for their imports, some in these colonies became involved in a sophisticated 3-way and 4-way trades that involved the Caribbean islands, Africa, and Europe. The New England colonies became significant traders of fish.

These patterns of trade would eventually have an impact on the future development of the U.S. economy and even how the colonies viewed the revolution.

British Governance, Economic Issues, and the Revolution

In the popular recollection of the American Revolution, the colonists revolted against high “taxes without representation”. In fact, it was a bit more complicated. It wasn’t taxes the way we think of income taxes or sales taxes. The taxes were largely import and export taxes (tariffs) and trading permits (stamps). The issues were closely tied to British rules on trading. As the 18th century evolved, the British government increasingly moved to control trade and economic relations with the colonies. It was prohibited to trade most goods with other nations. That is, goods could not be directly imported into the colonies from other nations. Nor could goods be directly exported from the colonies to other European nations. Further, all goods into and out of the colonies was supposed to be shipped on British ships, not foreign ships. The idea was that goods such as tobacco being exported from Virginia should only be shipped to Britain and sold to British merchants. Upon landing at British ports, the tobacco was taxed (import tariff). The British merchant would then sell the tobacco to some other European country and collect much of the profit from the overall transaction. The same was true for imports. Dutch cloth would go to Britain first, pay the tariff, and be sold to a British merchant. Then it would be shipped to the American colonies (often without even unloading in Britain!) where it was sold for a high profit.

The Role of Money (and Lack Thereof)

Obviously this system worked to the profit of Britain and her merchants, but was expensive to American colonists. The resentment that built up is understandable. But it was compounded by other restrictions. In this era, money was largely in coin, although paper based money was rapidly coming into use in Europe. Banking was just emerging as an industry and looked nothing like what we think of as banks today. Money was also not as well understood as today. Nations, particularly Britain, considered money to be both very valuable and in short supply. With economies growing rapidly and shifting towards market activities in Europe, a much larger supply of money was needed than existed just to facilitate all of the trading that was happening.

Britain adopted policies intended to keep as much physical money at home in Britain as possible. As a consequence, the colonies lacked sufficient money to facilitate ordinary transactions. The colonies took to using monies of different nations, the British pound, the French livre, the Dutch guilder, and the Spanish dollar in particular. But, if was not enough to meet demand. The colonies were endlessly trying to establish various currencies and monies of their own. This became particularly difficult during the revolution itself.

The Big Issues During This Era

  • Ownership of Land and Wealth – As the land was being settled (and taken from native people), it became an issue who would own it. Eventually ownership of land became the primary form of wealth. It was also highly concentrated in relatively few hands. Institutions and law to govern the ownership of land, the rights land owners vs. the rights of others, and measurement of land were significant institutional issues. An eventual legacy of this problem would be extreme differences between rich and poor and a high concentration of wealth.
  • Shortage of People and Labor – Labor was in particular short supply, particularly in the plantation economies. Early on the major source of labor was to attract new, poor workers from Britain and other European nations through indentures. An indenture was a legally enforceable contract. A firm would offer passage to an American colony and a place to live/work there to a poor European. In return, the indentured person had to work with no/little pay for many years. Eventually they got their freedom (many of them), but by then they had no capital or savings of their own. Initially Britain was the source of indentured servants. In the mid-1700’s though, Ireland and Germany were also significant sources of immigrants. But indenture still didn’t fill the need for new, cheap labor. Thus it was eventually supplemented in this period by allowing slavery and the importation of Africans as slaves. The nation would pay dearly for centuries after for this legacy of slavery.
  • Shortage of Money – The colonial economies suffered because of a lack of sufficient money to facilitate market trade. This is one reason so much trade was conducted as barter, such as the famed “triangular trade”. The lack of stable, widely accepted currency or coin inhibited the development of markets. Banks were largely unknown and insignificant.
  • Taxes and Economic Regulations from Britain – The taxes and extensive trade regulations of the mother country, Britain, limited the ability of the colonies to grow economically. Profits from American exports were siphoned off to British merchants. Prices for imports were too high.
  • Growth Industries – The big economic drivers, the “growth industries” of this era were primarily exports: tobacco, rice, indigo, lumber, and fish. Oh, there was one other very profitable industry: piracy. Pirates were common during this era. But they are slightly different from our Disney-inspired image of “Pirates of the Caribbean” (although they were likely just as dirty and unwashed!). Pirates were, in fact, early free traders. They were traders who violated the British regulations by trading directly with other nations. Several of the signers of the Declaration of Independence were actually wealthy men who gained much of their wealth from financing pirates.

These issues would not be settled by the revolution. But the revolution would create a new, single government with power to address many of these issues. Some of these issues are still challenges today. Today, we live with the remnants of racism and North-South antagonism that resulted from slavery which was itself an attempt to address the labor shortage. While today we do have a plentiful money supply, we still struggle with how to regulate a sound banking industry so it will create the right amount of money and credit. We likewise face serious issues of distribution of wealth and income. Although trade concerns are now separate from tax concerns, achieving the right level of taxation and the proper trade regulations are still points of political disagreement. So, what came before really has set the stage for the drama of the evolution of the American economy.

Reading #2: Selected excerpts from Sage American History:
Sage American History Readings – Unit 2

weinbergbook005Reading #3: Weinberg book, A Short History of American Capitalism


miller-sextonbook005Reading #4: Miller and Sexton Issues In American Economic History

  • Chapters 3, 4, 5 (pgs 25-44, 51-88).


Discussion in Commons

Please make at least 3 posts or status updates to the commons while reading the assigned readings.  You may make more, and indeed, I encourage it.  They may be short, but please make at least one of them longer and more thoughtful.

Please post what you’re thinking and learning as you read the material.  This could include:

  • new things, facts, or ideas you weren’t aware of
  • things you find interesting as you compare the different versions of this period of history between the 4 sets of readings
  • observations or reactions you have as you read the material
  • thoughts about how these historical events or issues affect us today

Graded Quiz

Please go to the Quizzes tab in the LCC Desire2Learn course site and take the Unit 2 quiz.  You may take this quiz twice. The best score will count.

You’re done with Unit 2!