The rhythms of the American economy between 1761 and 1812 were largely dictated by war and revolution. During the French and Indian War (1754-63) prices remained high as long as the British campaigned in North America. Dangers lurked on the high seas as French privateers (see also privateering) and warships threatened Anglo-American trade, but profits could also be made if the French cruisers could be avoided. After the conquest of Canada and the end of the war, two economic problems loomed, and both played a role in the resistance movement (1764-75) to imperial regulation. First, and more shortterm, there was a postwar recession. Without armies and navies eating up excess production, prices collapsed and jobs became scarce. Unemployment in the port towns led to general discontent and provided the manpower for the mobs that opposed the Stamp Act (1765) and Townsh-end Duties (1767). The second problem was more long term. Colonial America produced raw materials such as lumber and naval stores and staple crops such as tobacco, rice, and indigo, and imported finished and manufactured products. The result was a trade deficit that drained the colonies of specie and increased the overall level of debt. The specie shortage made exchange of money for goods more difficult. Efforts to remedy this difficulty were stifled by the Currency Act (1764), which prohibited the colonies from printing more money. The debt was a product of colonial affluence. The more the top echelon in colonial society was worth, the more it borrowed to purchase luxuries from merchant connections in Great Britain. By the mid-1760s, the debt had climbed to ?5 million per year. Colonial Americans resented imperial taxation in part because they saw their trade deficit and their debt as a form of taxation already.
Trade and the economy did not rebound in the 1760s, especially with colonists proclaiming nonimportation as a part of the resistance movement, and the Revolutionary War (1775-83) only made matters worse. While the situation improved in the early 1770s, the flare-up of the conflict after the Boston Tea Party (December 16, 1773) and the outbreak of war hurt the economy further. The cost of the war to the economy was staggering. Per capita net worth actually went down between 1774 and 1805. The decline may have been even more dramatic during the war and its immediate aftermath. Trade all but disappeared. Millions of dollars worth of property was destroyed as both sides pillaged each other. Almost every city had been occupied by the British with devastating results. Many towns and villages had been attacked by one side or another, and all along the frontier from Maine to Georgia there had been raids and counterraids between Native Americans and European Americans and Whigs and Tories. Thousands of slaves had run away from their masters, and millions of acres of Loyalist property had been seized to help pay for the war. Armies devouring food may have driven up prices, but it was difficult to take advantage of the situation, since many people now struggled simply to buy enough to eat. Depreciation of the Continental currency did not help. Almost from the printing of the first bills in 1776 the value of the currency began to slide. In 1778 the currency depreciated to about 5:1; by 1780 Continentals had gone to 100:1 against specie; and by 1781 the currency was not worth the paper it was printed on. Compounding these financial woes were ballooning national and state debts from IOUs and money borrowed to help pay for the war. It is almost impossible to follow this maze of debt, but the final bill for the war was approximately $165 million in real money—a phenomenal sum for the period.
The immediate postwar period did not bring much relief. The United States was no longer bound by British imperial restrictions, but in a world of mercantilist monarchies, it was difficult to find trading partners. Many revolutionaries had hoped that France would replace Great Britain as an outlet for North American products and as a source of manufactured goods. But the French economy had its own problems and complex regulations and restrictions. British merchants, in the meantime, were all too eager to flood the North American market with goods and quickly reestablished the old mercantile networks. While allowing trade across the Atlantic Ocean with Great Britain, the British closed their West Indies colonies to trade with the United States. These export and import problems compounded a postwar recession where even local markets collapsed. Some people became desperate. Throughout the 1780s there were periodic riots and court closings in the countryside in New England, Maryland, Virginia, and elsewhere, as debt-ridden farmers sought relief from lawsuits and tax collection. These rural uprisings reached a crescendo when many people in western Massachusetts, unable to pay their taxes or their debts, interrupted legal proceedings and participated in Shays’s Rebellion (1786-87). By the time of the Constitutional Convention met in the summer of 1787, the economy was beginning to recover. The new United States Constitution may not have made an immediate difference, but it did provide a framework for national economic policy. Secretary of Treasury Alexander Hamilton sought to strengthen the federal government and promote economic development in the early 1790s with his plan for taxes, assumption of state debts, full funding of the national debt, creation of the Bank of the United States, and effort to encourage manufacturing.
However rough the economic ride appeared, there was also a pervasive economic optimism that had begun to emerge in the 1780s and blossomed during the 1790s that released an incredible entrepreneurial spirit. Faith in the future can be seen in the great wave of land speculation in western lands. A man such as William Cooper could wrangle legal claim to vast tracts of land in northern New York State, use creative financing to entice settlers to sign contracts to purchase farms, and establish himself as the wealthy local patriarch. Often, such enterprise was built on a fragile foundation, but few people doubted that fortunes could be won by buying and selling land. The greatest of all these speculators was Robert Morris who, before his financial bubble burst in 1797, had created a spiral of debt and obligations covering millions of acres and left him owing his creditors almost $3 million. This positive vision of the future also spurred inventiveness and a willingness to find new ways to make money. Eli Whitney traveled to Georgia in 1792 as a tutor and became an inventor instead. In 1793 he developed a successful cotton gin. Unfortunately for Whitney, the machine was easy to copy, and he never capitalized on it to make much money. Instead, this Connecticut Yankee experimented with manufacturing rifles with interchangeable parts, and after he demonstrated to President Thomas Jefferson the utility of this mode of production in 1801, he was on his way to making his fortune. Immigrant Samuel Slater memorized the workings of textile machinery in England, came to the United States, and with the backing of merchants Moses Brown and William Almy built a textile mill in Pawtucket, Rhode Island, in 1793. If Morris’s and Cooper’s house of cards collapsed, men like Whitney and Slater pointed the way for future economic development in the United States.
Beyond individual efforts, there also developed some important institutions that would have a dramatic impact on the economy. During the opening years of the early republic, investors increasingly turned to acts of incorporation to pool resources as a means to finance a variety of enterprises. One form of corporation was in banking. Besides Hamilton’s Bank of the United States individual states had chartered four other banks by 1791. Twenty years later more than 100 other banks would be incorporated, creating millions of dollars in capital to be invested in the economy.
Although all of this entrepreneurial activity was important, during the 1790s what really turned the economy around was the war that broke out between France and Great Britain in 1793. Suddenly markets that had been closed were opened. Not only could farmers sell their own products but also merchants could make great profits in the reexport trade. This economy, however, remained vulnerable. War threatened several times, and seizures of merchant ships occurred intermittently. These difficulties culminated in Thomas Jefferson’s attempt to use trade as a policy of diplomacy. The EMBARGO OF 1807 began a tail-spin in the economy that hardly stopped until the end of the War of 1812 (1812-15). There was an upside to this economic decline. With imports stopped, industrial production increased as more entrepreneurs built mills like Slater’s. The economic ride remained something of a roller coaster throughout the early republic.
See also FOREIGN AFFAIRS.
Further reading: Paul A. Gilje, The Making of the American Repuhlic, 1763-1815 (Englewood Cliffs, N. J.: Prentice Hall, 2006); Alice Hanson Jones, Wealth of a Nation to Be: The American Colonies on the Eve of the Revolution (New York: Columbia University Press, 1980); John J. McCusker and Russell R. Menard, The Economy of British America, 1607-1789 (Chapel Hill: University North Carolina Press, 1985); Douglass C. North, The Economic Growth of the United States, 1790-1860 (Englewood Cliffs, N. J.: Prentice Hall, 1961).
World History
