Economy of the Colonial America

Economy of Colonial America

Brief chronology of the initial economic developments of the colonies

Jamestown, Virginia colony was first to show signs of economic growth

Massachusetts Bay colonists buy corn from Indians

Literature generalizations and postulations on economy of colonies

Puritanism may have helped shape the capitalistic society to evolve

The strength of the British Navy altered colonial approach to economic growth

Colonial farmers' efforts were more towards self-sufficiency than wealth

Rate of Economic Growth in colonies

Colonial economy may have multiplied 25 times over a 120-year period of time

Average per capita annual income in 1650 was $572; in 1720 it was $826

Legislation was enacted requiring colonists to manufacture and use resources

In Virginia in 1661 a law passed ordering counties to establish tanneries

"bounties" were given to counties and cities to encourage production

E. Indentured Servitude was a big part of the colonial economy

1) An estimated 75% of all white European immigrants were indentured

2) Indentured Servitude opened the door to slavery in the colonies

3) Contracts for those indentured were bought, sold, and bartered as part of economy

F. Slave population grew dramatically between 1700 and 1770, and then it shrank

1) the need for domestic production of cotton kept slave trade strong in South

G. Taxation took many forms, but it was resisted

1) early colonists could pay taxes with cattle, beaver skins, and other commodities

2) Maritime taxes on vessels were avoided through fraud

3) The Sugar Act provided stimulus for the rebellion against the British

H. Coins and currency in general were hard to find, and caused confusion

1) John Hancock's uncle's situation is helpful in understanding currency chaos

Introduction to Term Paper - The Economy of Colonial America

Any thorough study of the economy of colonial America will necessarily take into account a vast amount of subjects and issues; this paper does not set out to cover all those topics, but it does attempt to examine many key economic aspects of that period.

Short Chronology of early / initial colonial economic development

In May, 1607, colonists land at Jamestown, Virginia, but starvation and disease reduce the original 105 settlers to only 32, according to The Almanac of American History (Schlesinger, 1983) (30). However, in 1608, new provisions arrive and a self-supporting project of raising corn is instituted - likely the first economic development in the colonies. Those same early Jamestown settlers brought skills at glassmaking with them and produce crafts, including beads, which are used in trade with Native Americans.

Also in 1608, the London Company sends glass experts to Jamestown to build glass furnaces for future production (32). Jamestown's Captain John Smith learns how to cultivate corn from the Indians; he plants 40 acres of corn, which helps avoid continuing starvation problems, and leads to an industry of agriculture.

Virginia isn't the only colony getting assistance from the Indians (Bidwell, 1925): in 1630, Massachusetts Bay colonists purchased "100 bushels [of corn] from Indians on Cape Cod and in 1634 they bought 500 bushels from the Narragansets (41). At Hartford on the Connecticut River in 1637 the supply of corn in the hands of the natives was considered so important that the trade was forbidden to individuals in the colony.")

In 1609, the English Crown (32) grants "joint stock company" status to the Virginia Company (formerly the London Company), offering much-needed capital.

The Literature on America's Colonial Economy

To gain an intelligent historical perspective on the myriad aspects of the economic development of America, zeroing in on the very important colonial period, it is extremely helpful if one first reads available scholarly literature - and authoritative texts - covering that period. With that in mind, a key question that needs addressing in these matters is, how viable was the American economy just prior to the War of Independence? There are conflicting answers to this question: Richard Buel's research indicates that the Colonial economy was weak and largely dependent upon the British (Chu, 2000), while Margaret Ellen Newell's view is that the Colonial economy of New England was "sufficiently strong to place it on a collision course with that of Britain" (Chu, 2000).

Chu's piece in The Journal of Interdisciplinary History (Summer, 2000) points out that, according to Newell's somewhat surprising research, Puritanism helped shape a culture that encouraged "material profit" through "specific incentives." Puritanism, which most casual readers of history identify with spiritual values, succeeded in this effort by establishing a "regulatory impulse" which in turn "produced a moral framework that gave rise to a dramatic commercial change."

These commercial changes, according to Chu's take on Newell, "redirected" the colonists' focus to the positive side of local economic expansion. And in time, as the British manipulated colonial currency - to adjust "the chronic imbalance of payments" - those acts spawned protests and boycotts by the colonists. These protestations, along with the adaptation of Puritan culture "to a pattern of consumption and economic development" which appeared less desirous of "luxurious lifestyles and moral corruption," Chu continues, led to the development of a political economy. In short, Newell writes that capitalism emerged in the colonies as an outgrowth of individualism, which was pushed forward by Puritanism, domestic manufacturing and the concurrent boycotting of British goods.

Buel's approach to explaining the emergence of a capitalistic system in the colonies is to link, according to Chu, the "culture of grain production, British naval activity," and the young nation's balance of trade with the enormous task of creating a national economy. The strength of the British navy put the colonial economy "in irons," to quote Buel's use of a naval phrase.

Further, because wheat has a longer shelf life than corn or rye, Chu goes on, paraphrasing Buel, the military preferred wheat, which stimulated a dramatic increase of its production - which in turn "encouraged the development of larger, more centralized flour mills." And as colonial shipbuilders produced vessels that were smaller and quicker (to avoid and evade the British blockade), yet carried smaller cargos, that dynamic raised the price of wheat at a time when colonists needed revenue to buy imports.

While Buel and Newell disagree on key events which led to the development of an independent and capitalistic economy in the new nation, "both authors" (Chu, 2000) observe that the drive for independence from England "rearranged legal and commercial relationships." Moreover, the separation from England "compelled the reconsideration of economic relationship."

Newell argues that the Revolution "was not so much an intellectual breakthrough" as it was "a refinement and extension of earlier ideas about material prosperity, diversification, manufactures, government oversight and commercial access."

Notwithstanding Buel's "culture of wheat" concept, and the presumption of many scholars that America's capitalistic economy sprang from agricultural productivity of early New England, an article in The Wilson Quarterly (Wood, 1999) asserts that a new genre of scholarship is pushing forward the idea that "colonial farmers, particularly New England Farmers, did not possess a capitalistic mentality after all." Indeed, Wood points out - while relating view of "social" or "moral economy" historians - that "capitalistic practices and values were not central" to the lives of North American colonists prior to 1750.

Most of the output from farmers, Wood continues, was "not for sale in the market," but rather, was for "family or local consumption." Family farmers were out to satisfy their children's needs, and they looked to obtain more land "not to increase their personal wealth" but to provide estates for their "lineal families." In this regard, farmers were "enmeshed in local webs of moral and social relationships" which by their nature, "inhibited capitalistic behavior," according to Wood's research piece.

To meet their needs, farmers produced their own goods, and traded goods and services within their community structures. The debits and credits which were part of the swapping of goods and services were handled in "book accounts" - which were networks based "largely on mutual trust." This trust, according to Wood, led New England farmers into a moral and communal culture, rather than a capitalistic one.

What was the rate of economic growth in the colonies?

In reviewing the actual growth of colonial economies it is useful to turn to a book which is rich in charts, facts, time-frame comparisons and data - a book such as The Economy of British America, 1607 -1789 (McCusker, et al., 1991). This text presents several strategies with which to observe economic growth during this period. If, on one hand, one assumes "that the colonists produced goods and services at the same level per person in 1770 as they had in 1650" (53), and hence increased output (gross national product) at the same rate as the population increased, then the colonial economy "multiplied about twenty-five times" over that 120-year window of time. That breaks down into an annual growth rate of 2.7% for "British America" and 3.2% for "British North America" (read that, the northern colonies).

Another formula for determining economic growth (59) is to use a "more conservative 0.3% per capita yearly growth rate." Using this formula, and plugging the math into 1980 dollars, per capita income for "free" colonists in 1650 was $572; for 1720 it was $826; and for 1774 it rose to $1,043, according to McCusker's research. There was a dramatic disparity between wealth in the "Upper and Lower South" and the New England and Middle Colonies (Table 3.3, 61). To wit, the "Net Worth per Free White Person" (NWPFWP) in New England (using Pounds Sterling) in 1774 was 33.00; in the Middle Colonies in the same year it was 51.00; but in the Upper and Lower South, it was 132.00 Pounds Sterling. One reason New England lagged behind in NWPFWP (92) was that those settlers "...lacked a major staple commodity to export" to the cities, and "yet they needed to import countless things from abroad."

In summary of this portion of the paper, McCusker points to two distinct "growth spurts" (60) during the colonial period. The first "and more rapid" economic spurt occurred in each "colonial region during the time of settlement as new inhabitants established working farms." The second spurt came about during the 1740s "and lasted to the Revolution." The push behind the second spurt (60) is attributed to "...a burgeoning metropolitan demand for American products...and a widening domestic market."

Legislation promoting manufacturing; natural resources available to colonies

Economic growth may have been a logical transition after the initial wintry survival techniques were learned, and settlers learned to harvest food for sustenance, but colonial governments were not shy about pushing manufacturing. For example, in 1661, a law was passed in Virginia (Clark, 1916) "...ordering each county to establish one or more public tanneries and to provide tanners, curriers, and shoemakers" (32). When any county failed to comply, that county was obliged to pay a fine of "5,000 pounds of tobacco." Meanwhile, in 1666, another law was enacted in Virginia requiring counties to (within two years of the decree) set up a "county loom with a weaver" (32). It is interesting to examine the preamble - the rationalization - to that legislation: "The present obstruction of trade and the nakedness of the country do sufficiently evidence the necessity of providing a supply of all our wants by improving all means of raising and promoting manufactures among ourselves."

Governments gave "bounties" to counties and communities, to encourage an increase in production. An example (33) in Maryland is the law of 1671, "which granted a bounty of a pound of tobacco for every pound of hemp raised in the province"; and also, a bounty of "2 pounds of tobacco" was given in return for "every pound of flax." This law was designed to promote self-sufficiency, as there were "great quantities of linen cloth and other wares wrought by manual occupation which are brought from foreign places" (33).

As to the natural resources available to New England colonists, Clark writes (73) that timber was so plentiful in some districts that lumbering preceded agriculture. Maine and New Hampshire, in particular, produced white oak containers for "rum and molasses," and for "fish, salt meats, four and biscuit." The pitch, tar and turpentine were useful in trades, while the "abundance of wood fuel gave America facilities for making iron, glass, brick and pottery." The very first commercial enterprises in Georgia were sawmills, Clark explains (73). And white pine was the "most valuable timber" in the colonies, supplying "masts and spars for the royal navy."

Indentured Servitude as part of the colonial economy

On the subject of morality, which was alluded to earlier in the paper, one enormous part of the economy of the American colonies in the 17th Century did not reach for the moral high ground, and that was the practice of indentured servitude. According to a book called White servitude in Colonial America (Galenson, 1981), within ten years of the first settlement at Jamestown, Virginia, the indenture system was well in place. One estimate used by Galenson asserts that "...between half and two-thirds of all white immigrants" (3) to the American colonies were indentured; another estimate was that 75% (4) of white immigrants were indentured servants. In Maryland, indentured servants made up 80% of the "bound labor" in the second half of the 1670s - and servants outnumbered black slaves "by a ratio of four to one." Indeed, Galenson writes that "white servitude was the historic base upon which Negro slavery was constructed."

Basically, an indentured servant came from Europe, and to pay for his or her passage across the Atlantic, the servant signed a contract promising to work for a designated master during an agreed-upon period of time. The contract could be sold to another master, but the servant was not a "slave" - because it was only the servant's work skills that were "owned" by the master, not the person per se.

Galenson (24) presents research which indicates that during the 17th Century, women made up 23.3% of indentured servants, and that number declined to 9.8% in the 18th Century. And some of those women (particularly in the 1600s) had their indentured contracts "purchased upon arrival by men for the purpose of marriage." On page 25, Galenson records the quote of an author from 1666: "The Women that go over into this Province as Servants...are no sooner on shoar, but they are courted into a Copulative Matrimony." Another quote from the Galenson book (25) illustrates the fate of female servants: "if they come of honest stock and have good repute, they may pick and chuse their Husbands out of the better sort of people."

What were the occupations that indentured servants were assigned to? In the city of Bristol, between 1654 and 1160, "...30% of the men bound were identified as farmers and 9% as laborers" (34). And, 1% of the males were identified as "gentlemen" - suggesting that they were used in a more formal or upscale fashion, perhaps as butlers or even suitors for well-to-do unmarried women. Meantime, 19% of indentured males during that period worked at a range of skilled crafts and trades, mostly in "clothing and textile" work, followed by "metal and construction crafts" and food and drink jobs. The remaining 41% had "no identifying occupational" term given to them.

It's important also to realize that indentured servitude, as part of the colonial economy (97), was a credit system. About 2,871 "different recruiters [of servants] are listed in the servant registrations made in Bristol during 1654-86," Galenson writes. And servants were traded - exchanged - for sugar, tobacco, rice, and other products. "The colonial planter's demand for indentured servants was based on his calculation of the discounted value of their net future earnings, after deducting the expected costs of the servant to him" (98).

Did the servant always have to go along with deals made involving him or her? No; in fact, Galenson's research indicates that (99) "...many potential servants were sufficiently well informed about currently available offers that they refused to accept inferior bargains." And what if servants attempted to run away from their masters? According to Galenson (101), all colonies "enacted legislation intended to discourage" servants from escaping; while some colonies punished runaways with corporal penalties, other colonies actually instituted capital punishment. However, since a standard provision of the indentured contract was a kind of pension - paid upon completion of the contract - most servants did not attempt to escape.

Slavery in the colonial period

According to the book Many Thousands Gone: The First Two Centuries of Slavery in North America (Berlin, 1998), the first Atlantic creoles were sold as slaves to John Rolfe at Jamestown in 1619, after they got off a Dutch man-o'-war. During the first decades of 17th Century slavery in the Chesapeake settlements, discipline was handed out "through the courts" (32), and "slaves enjoyed the benefits extended to white servants..."

However, entering the 1700s, slave owners began to presume that "they were absolute sovereigns" over their slaves and they didn't hesitate to "spur productivity" (33) by "laying on the lash." Meantime, to get an idea of how fast the slave population grew in the northern colonies (New Hampshire, Massachusetts, Connecticut, Rhode Island, New York, New Jersey and Pennsylvania), author Berlin offers a chart (369) with specific data. In 1680, there were 1,895 slaves in the above-mentioned states: in 1700, 5,206; in 1720, 14,081; in 1750, 30,172; in 1770, 47,735; in 1790, 40,420; and by 1810 the number had decreased to 27,081.

In order to understand the positive economic impact that slaves had, particularly in the south where cotton was a key agricultural product, it is germane to point out how important cotton was during that period. In fact, New England in 1678 (Clark, 1916) imported 54,409 pounds of cotton (83), and by 1768, the colonies "imported 452,463 pounds of cotton, of which they shipped 64,822 pounds to Great Britain," which left the colonies with 387,641 pounds of foreign cotton for their own use. During the Revolution (Clark, 85) "the southern colonies turned promptly to [cotton's] cultivation in anticipation of a scarcity of English manufactures to ensue."

Meanwhile, as the institution of slavery began to diminish, by the year 1810 there were 50,000 "free blacks" in the north (Berlin, 228), although New York's slave population had grown "by almost one-quarter and the number of slave owners by one-third during the last decade of the 1700s" (236).

Taxation in the colonies

Meanwhile, there may have been trust and morality - vis-a-vis the Puritan ethic mentioned earlier - during the early history of New England colonial economy, but there was also taxation. Indeed, a research piece in the Policy Review journal (Rabushka, 2002) addresses the issue of taxation as a fundamental element of the emerging colonial economy. Early settlers "sought to minimize, avoid, and evade" even modest taxes "to the maximum extent possible," Rabushka asserts, adding that the skepticism colonists felt toward taxation went far deeper than the Stamp Acts and the Boston Tea Party ("no taxation without representation").

By the middle of the 17th Century, about three-quarters of colonial citizens were farmers, and a normal farm was 100 or more acres. The other one-quarter of colonists were laborers, unskilled and skilled artisans, and seamen. And when it came to citizens paying taxes, and officials collecting taxes, there was confusion because of the fact that the colonies did not have available supplies of silver or gold to mint coins with. The coins the colonists did have were obtained from the Spaniards and French, in trade. About half of the coins used by the colonies - according to Rabushka - were Spanish coins minted in Mexico.

And so, given the disorder over coins, such things as crops (mostly rice, tobacco, corn and cereals), cattle, beaver skins and "wampum" were considered "lawful commodities" for use in paying taxes. In one town, Hingham, milk pails were considered an acceptable for paying taxes. And in order to reduce the pain of paying taxes, some colonists "shipped their worst products" to the tax collectors, rather than give up their more valuable products.

By the late 17th Century, though, paper money appeared, as the American colonists issued the first paper money of any government in the Western world (Rabushka, 2002). In fact, the Massachusetts Bay Colony issued paper money in 1690 - called "bills of public credit" and "bills of credit" - and by 1712, seven more colonies had followed suit.

What kind of government taxation program was put into effect in New England's colonies? In Massachusetts' General Court, a direct tax was put into place in 1638 in two forms: a "wealth tax" and a "poll" or "head" tax. The wealth tax, according to Rabushka, amounted to a property tax - which was determined based on an audit of "raw" and "improved" lands. As to the property, or wealth tax, it remained below 1% during this early period in colonial history. A poll or "head" tax (of 1 shilling) was levied on every male who was 16 years of age or older - 16 the year in which he was obliged to register for military service - beginning in 1646.

Typically, taxes were collected to "meet annual government requirements," and no more than that. Some industries, like fisheries, were exempted from taxation in Massachusetts - in this case, for seven years, to give that individual business owner plenty of time to establish success. In New Netherlands, there was a direct tax on land which amounted to one-tenth of the annual harvest following an initial ten-year exemption. That was called the "tithe tax." In New York, liquors were taxed at a rate of 10%, after the English took over New York in 1664. But in protest of customs duties that were seen as excessive, several colonists "seized" the tax collector, tried him as a criminal in local courts, and shipped him back to England as a prisoner.

Taxation of Maritime business

The British cargo vessels which carried goods to the American colonies in the 18th Century - and the colonial vessels which carried exports to England - were, by British law, supposed to be "identical," thereby making it easy to assess taxes based on tonnage, according to Essays in the Economic History of the Atlantic World (McCusker, 1997) (48). There were a myriad of taxes (47) assessed on shipping interests - such as "lighthouse fees, harbor dues, wharfage tolls" - and these were based, traditionally, on tonnage of the cargo. However, just as in the 21st Century taxpayers "fudge" and "cheat" a little bit on reported income, in terms of reporting accurate tonnage on a vessel, there was plenty of fudging as well - McCusker reports.