Market in Early Republic James Henretta is a history professor for the University of Maryland. In his article about the market in the early republic, Henretta (1998) outlines the structure of the market during that time period. He opens by pointing out that at the time there were two competing views of what the market should look like. One view, that of Hamilton and the Federalist party, was to "use the power of the state to assist monied men ... to pursue a capitalist path of domestic commercial development" (p.290). Such an approach would focus on building a strong banking industry to support the capitalists. The other approach, as advocated by Jefferson, Madison and the Democratic-Republican party, preferred a model that supported farmers, artisans and other small businesses. Incentives would be offered for these to produce for export markets, a "subsistence-plus" model that allowed people the means to survive while having opportunities to earn extra and grow their businesses from the ground up (p.290).

Each approach would differ in terms of how the market would be structured, and how the legal environment would support market activities. The author notes that the development of the market during the early republic was characterized by frequent conflict of these two ideals. The government owned most of the land, and was therefore heavily involved in land markets, making the issue of economic structure an inherently political one. The author supposes that political involvement in land distribution promoted the subsistence-plus market system, which in turn delayed the arrival of a price-based exchange system. Many Americans lived subsistence lifestyles, which in turn left only limited time and energy for other pursuits,...

The demise of the rural barter system and emergence of a cash economy took a long time, and many companies had to be creative with respect to finding cash, as capital markets were usually underdeveloped in rural areas in particular.
Another supporting point in Henretta's thesis is the idea that the money used for domestic commerce, which was fixed in amount, controlled by the state, inhibited the move to a cash economy. The first reason is that the government could print money without any reasonable basis -- thus, it could become inflationary. Henretta is perhaps using today's understanding of economics in his argument here. He juxtaposes this form of money with the use of gold -- a common argument today among certain circles -- to argue that such money was inflationary, but he is also imposing today's understanding of fiat currencies on what was not even a serious attempt at a fiat currency. The token money used for exchange in the early republic was correctly interpreted as risky by the capitalists of the time, not so much because it was fiat, but because there were no meaningful control mechanisms in place to prevent inflation. There was no central bank, and the government could without any effort at all disrupt the market for the token money, in ways that are impossible to do today. There were good reasons not to trust the value of token money.

A weak spot in the article is the author's inability to recognize inconsistencies in his own arguments. On page 293, he makes the point that government intervention in the form of the Relief Act was bad fiscal policy and brought about a…