It is important to reemphasize here that mercantilist measures were implemented by the Crown to regulate trade and generate favorable trade balances for England. In addition, because European manufactured goods were in great demand in the New World, colonists faced chronic deficits, especially in their trade with England. Trade deficits in the colonies resulted in a continual drain of specie from colonial shores and encouraged the use of paper money substitutes. Table 4.3 shows the size and trend of these trade deficits with England over much of the eighteenth century. As highlighted in Table 4.4, most of these deficits were incurred by New England and the Middle colonies, but even the southern colonies frequently faced deficits in their commodity trade with England.
How did the colonists pay for their trade deficits? Benjamin Franklin’s reply to a Parliamentary committee in 1760 explaining Pennsylvania’s payment of its trade deficit with England was as follows:
The balance is paid by our produce carried to the West Indies, and sold in our own islands, or to the French, Spaniards, Danes, and Dutch; by the same carried to other colonies in North America, as to New England, Nova Scotia, Newfoundland, Carolina and Georgia; by the same carried to different parts of Europe, as Spain, Portugal and Italy: In all which places we receive either money, bills of exchange, or commodities that suit for remittance to Britain; which, together with all the profits of the industry of our merchants and mariners arising in those circuitous voyages and the freights made by their ships, center finally in Britain to discharge the balance and pay for British manufactures continually used in the province or sold to foreigners by our traders. (Faulkner I960, 81)
As emphasized by the esteemed Franklin, colonial trade deficits to Britain could be paid by surpluses earned in trades to other overseas areas as well as by earnings from shipping and other mercantile services.
Other sources of foreign exchange, such as payments by the British forces stationed in the colonies, also affected the inflow of sterling. To determine the relative importance of these and other sources of exchange earnings (and losses), we need to assess the various components of the colonies’ overall balance of payments. (See Economic Insight 4.1 on page 72.)
A BALANCE OF PAYMENTS FOR THE 13 COLONIES
A balance of payments study clarifies many critical issues. It can determine how the deficits to England were paid and show the size of net specie drains from the colonies or indicate the magnitude of growing indebtedness of colonists to British creditors. It can show the inflows of capital into the colonies and suggest the magnitude of possible British subsidization of colonial economic development. A balance of payments is an accounting framework in which debits and credits always balance. In short, one way or another, things get paid for, with goods, money, or IOUs (debt). This is true for people and true for nations (and colonies) as well.
Surviving information on the myriad of exchanges for the years from 1768 to 1772 gives us a reasonably clear picture of the colonies’ balance of payments in the late colonial period. A breakdown of the colonies’ commodity trade balances with the major overseas areas during this period is provided in Table 4.4. These data confirm the findings presented earlier in Table 4.3, indicating that sizable deficits were incurred in the English trade, especially by New England and the Middle colonies. Somewhat surprisingly, even the colonies’ commodity trade to the West Indies was unfavorable (except for the trade of the Lower South). However, trades to southern Europe generated significant surpluses (augmented slightly by the African trades), which were sufficient to raise the southern colonial regions to a surplus position in their overall commodity exchanges.
Notes: (1) A plus sign denotes a surplus (exports exceed imports); a minus sign, a deficit (imports exceed exports). (2) Values are expressed in prices in the mainland colonies; thus, import values include the costs of transportation, commissions, and other handling costs. Export values are also expressed in colonial prices and, therefore, do not include these distribution costs.
Source: Shepherd and Walton 1972, 115.
Although commodity exchanges made up the lion’s share of total colonial exchanges, the colonies did have other sources of foreign exchange earnings (and losses) as well. Table 4.5 begins with colonial commodity exchanges indicating the ?1,120 aggregate deficit in that category.
The most important source of foreign exchange earnings to offset that average deficit was the sale of colonial shipping services. Shipping earnings totaled approximately ?600,000 per year in the late colonial period. In addition, colonial merchants earned more than ?200,000 annually through insurance charges and commissions. Together, these “invisible” earnings offset more than 60 percent of the overall colonial commodity trade deficit. Almost 80 percent of these invisible earnings reverted to residents of New England and the Middle colonies. Thus, the mercantile activities of New Englanders and Middle colonists, especially in the West Indian trade, enabled the colonies to import large quantities of manufactured goods from Great Britain. When all 13 colonies are considered together, invisible earnings exceeded earnings from tobacco exports—the single most important colonial staple export.
Notes: Gwyn's estimates of total expenditures for military and civil purposes for 1768-1772 are ?365, but Thomas's study suggests higher arms payments by nearly ?100,000 yearly for the same period. Neither accounts for savings by men stationed in the colonies who returned some of their earnings home; thus, the ?440-460 range; ?460 assumes no savings sent home.
ECONOMIC INSIGHT 4.1
Sources: Data compiled from Walton and Shepherd 1979, Table 9, 101; Gwyn 1984, 74-87, fn. 7; and Thomas 1988, 510-516.
Another aspect of seafaring, the sale of ships, also became a persistent credit item in the colonies’ balance of payments. As Jacob Price (1976) has shown, colonial ship sales averaged at least ?140,000 annually from 1763 to 1775, primarily to England. Again, the lion’s share of these earnings went to New England shipbuilders, but the Middle colonies also received a portion of the profits from ship sales. Taken together, ship sales and “invisible” earnings reduced the colonies’ negative balance of payments to only ?160,000.
In contrast to these earning sources, funds for the trade of human beings were continually lost to foreign markets. An average of approximately ?80,000 sterling was spent annually for the 5,000 to 10,000 indentured servants who arrived each year during the late colonial period. Most of these servants were sent to Pennsylvania and the Chesapeake Bay area. A more sizable amount was the nearly ?200,000 spent each year to purchase approximately 5,000 slaves. More than 90 percent of these slaves were sent to the southern colonies, especially to the Lower South in the later colonial period.
Finally, expenditures made by the British government in the colonies on defense, civil administration, and justice notably offset the remaining deficits in the colonists’ current account of trade. Table 4.5 does not indicate the total amount of these costs to Great Britain. Instead, it shows how much British currency was used to purchase goods and services in the colonies and how much was paid to men stationed there. The net inflow for these expenditures averaged between ?440,000 and ?460,000 from 1768 to 1772, reducing the net deficit in the colonial balance of payments for these years to ?40,000 per year at most, and probably less.
World History
