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Monday, January 29, 2018

Early American Economic History


Colonial America was dominated by mercantilism. England, France, Spain, and the Dutch Republic wanted to protect their investments in colonial ventures by limiting trade between each other’s colonies.  Spain wanted to get gold and silver to promote old style mercantilism. The Dutch and the British wanted to use private business to benefit themselves. The British used the Navigation Acts to handle British American colonies. These acts from 1651 and 1673 wanted foreign ships to be banned from trade between ports within the British Empire. It wanted manufactured goods to go through England before going to the colonies. It also allowed ship masts, rice, indigo, and tobacco to be exported to Great Britain. They were enforced. By the late 1700’s, England was in the early stage of the Industrial Revolution, so many finished goods were exported to the colonies. Colonists paid minimal taxes. The colonies had much economic freedom. Virginia had charter companies or groups of stockholders (like merchants and landowners) gaining money to advance the British Empire. The private sector financed the companies; the king provided each project with a charter or grant (given certain rights). The colonies showed profits and many English investors gave charters to the settlers. Later, the colonists formed their own businesses. The British used the tax of the Molasses Act of 1733 to fund exports to England. There were new taxes like the  Sugar Act of 1764, the Stamp Act of 1765 and taxes on tea and other colonial imports. The American Revolution existed not necessarily about taxes (as taxes were low back then). It was about the constitutional authority of Parliament verses the colonial assemblies to vote taxes. So, many colonists wanted no taxation without representation. The Americans in the thirteen colonies wanted their rights (as Englishmen as they see it) as a means for them to select their own representative to govern and tax them.

The British refused to do this. Then, the Americans attempted resistance via boycotts of British manufactured items. The British responded with a rejection of American rights and formed the Intolerable Acts of 1774. Soon afterwards, the Americans launched the American Revolution. The American Revolution was an all-out war against the British and the result was the independence to form the United States of America. The British wanted to end the American economy by using a blockade of all ports. The American economy was resilient and survived. The reason was that America was 90% farming and 10% in the cities. The American Revolutionary War lasted from 1775-1783. Many people promoted unalienable rights of life, liberty, and the pursuit of happiness, but they hypocritically owned slaves. Individual liberty, entrepreneurship, and promoting values of liberalism and republicanisms existed as a framework. Philosophers during that time emphasized natural rights, equality under the law for all citizens, the general welfare, and civic duty. Britain’s war against the Americans, French, and the Spanish cost about £100 million. The Treasury borrowed 40% of the money it needed and raised the rest through an efficient system of taxation. Heavy spending brought France to the verge of bankruptcy and revolution. Congress and the American states had trouble financing the war. In 1775, there was at most 12 million dollars in gold in the colonies. This was not enough gold to cover the existing transactions or the war. The British imposed a blockade on every American port. This cut off almost all imports and exports. That is why the early Americans relied on volunteer support from militiamen and donations from supportive citizens. The colonists wanted to pay money by delaying payments to soldiers and suppliers in a depreciated currency. They promised it to make good after the war. In 1783, many soldiers and officers were given land grants.

This was done to cover the wages that they had earned, but had not been paid during the war. There was no strong leader in financial matters until 1781 when Robert Morris was the Superintendent of Finance of the United States. Morris used a French loan in 1782 to set up the private Bank of North America to finance the war. Seeking greater efficiency, Morris reduced the civil list, saved money by using competitive bidding for contracts, tightened accounting procedures, and demanded the federal government's full share of money and supplies from the states. Congress used four ways to fund the war. It cost 66 million dollars in specie (gold and silver). Congress made two issues of paper money, in 1775-1780, and in 1780-81. The first issue amounted to 242 million dollars. This paper money would supposedly be redeemed for state taxes. Yet, the holders paid them off in 1791. It was done at a rate of one cent on the dollar. In 1780, there was a second issue of new currency. It became worthless. That was redeemed by the new federal government in 1791 at 100 cents on the dollar. Many states like Virginia and Carolinas issued over 200 million dollars of their own currency. The paper money became a hidden tax on people. That was the only form of taxation during that time. Inflation grew and few people had fixed incomes. 90 percent of the people were farmers and weren’t directly affected by inflation. Debtors benefited by paying off their debts with depreciated paper. The soldiers of the Continental Army had lower wages. Their families had hardships too.

By 1776, the Congress raised money by loans from the wealthy. They promised to redeem the bonds after the war. The bonds were redeemed in 1791 at face value. Yet, it raised little money since Americans had little specie. Many rich merchants supported the Crown. France secretly supplied Americans money, gunpowder, and munitions in order to fight England as early as 1776. France officially came into the war by 1778. The subsidies from France continued. The French government, bankers in Paris, and bankers in Amsterdam loaned large sums of money to the Revolutionary War on the American side. These loans were repaid in full by the 1790’s. In 1777, Congress asked the states to provide money. Many states had no taxation system. Little states could help out. Congress in 1780 was making requisitions for specific supplies of corn, beef, pork, and other necessities. It was an inefficient system that kept the army barely alive. The cities played a major role in causing the American Revolution. Yet, these cities were hit hard by the war. Many lost their oceanic ports, because of the blockade by the British Navy. The British once occupied the cities, especially New York City from 1776 to 1783. They or the Redcoats occupied other cities for shorter periods of time. During the occupations, the cities were cut off from their hinterland trade and from overland communities. The British left in 1783. Many of them took a large number of wealthy merchants who resumed their business activities elsewhere in the British Empire.

The new nation of America grew. The U.S. Constitution was adopted in 1787. The nation was unified with a common market and no internal tariffs or taxes on interstate commerce. The problem was that many black people were slaves back then and Native Americans were oppressed (which on how America’s wealth was built upon. America’s wealth was built on the backs of black people and the indigenous peoples of the Americas). Alexander Hamilton was a financial innovator in America. He was the first Secretary of Treasury during the Presidential administration of George Washington. Hamilton wanted an increase role of the federal government to invest in roads, bridges, canals, etc. He promoted the implied powers which mean powers not overtly mentioned in the Constitution, but still legally applied to everyday life. For example, a specific road is not mentioned in the Constitution, but Hamilton wanted the government to fund the building of that road via Congress if desired. Jefferson was the opposite in wanting a weaker national government. Hamilton made a strong national credit. He took over the state debts, bundled them with the old national debt into new securities and sold it to the wealthy. This had an interesting keeping the new government solvent. He used tariffs on imported goods and a tax on whiskey to fund the debt. Hamilton wanted economic growth via diversified shipping, manufacturing, and banking. History has proven Hamilton correct, because a strong economy must have manufacturing, technology, shipping, and other resources. He supported the First Bank of the United States in 1791 and its charter lasted until 1811.

After the Revolutionary War, older cities restored their economic basis. New cities like Salem, Massachusetts (which traded with China), New London, Connecticut, and Baltimore, Maryland grew. Local banks flourished in cities. Peace came. Then, Britain and France fought each other again in 1793. America was neutral in doing business to both sides. France hated this and the Quasi War from 1798 to 1799 disrupted trade. Outraged at British impositions on American merchant ships, and sailors, the Jefferson and Madison administrations engaged in economic warfare with Britain from 1807-1812, and then full-scale warfare from 1812 to 1815. By this time, the Federalists wanted to fund a strong national government and the Republicans didn’t. The National Bank charter ended in 1811, but problems existed. State banks couldn’t operate across state lines.  On the positive side, over 120 new state banks were created all over the country and they issued notes that financed much of the war effort, along with loans raised by Washington. The economy grew from 1812 to 1815 despite loss of business among East Coast shipping interests. Canals, flour mills, and textile manufacturing increased in America. The cotton gin made cotton production quickly and it increased slavery in the South as cotton was a major crop in the South. It was innovated by Eli Whitney. It removed the seeds faster. Cotton was shipped to New England, Britain, and France.

There was the American System promoted by Alexander Hamilton and others. He believed in the creation of a government-sponsored bank and increased tariffs to encourage industrial development. He died by Aaron Burr in a duel. The American System was promoted by Henry Clay and the Whig Party. Exploration, canals, and telegraphs expanded the American economy. Thomas Jefferson and James Madison didn’t want a strong central government. Jefferson wanted small farmers to dominate the economic system of America in a decentralized fashion. Madison allowed the Second Bank of the United States in 1816. The Louisiana Territory purchase in 1803 (being worth $15 million) doubled the size of America. Yet, it continued the Manifest Density of many who viewed the Native Americans as less than human (which is wrong).  The role of the Federal Government in regulating interstate commerce was firmly established by the landmark Supreme Court ruling in Gibbons v Ogden, which decided against allowing states to grant exclusive rights to steamboat companies operating between states. Andrew Jackson like Jefferson believed in a small federal government. He opposed the Second Bank of the United States. Jackson (who is Trump's hero) accused the bank of benefiting the rich, but Jackson was a person who oppressed Native Americans and was a hardened racist. He ended the Second Bank’s renewal of its charter. He even opposed paper money and wanted the government to be paid in gold and silver coins. This cause panic and the Panic of 1837 stopped business growth for three years. Economic expansion existed along with the growth of the population of America by the 19th century. During the early 1800’s, new cities grew like Pittsburgh, Marietta, Cincinnati, Louisville, Lexington, Nashville, etc. Early 19th century economy in America was mostly agricultural. By the mid-19th century, there was a transition to industrialization, especially in the Northeast. The Southern economy was based on plantation, agriculture, tobacco, cotton, sugar (which was produced by slave labor). The abolitionist activists and black heroes fought to end slavery. The increase of railroad system in America (in places like Atlanta, Billings, Chicago, and Dallas).

The Panic of 1857 existed too. The American Civil War ended much of the economy of the South. The Civil War existed, because of slavery, disputes among the North and the South, economic issues, etc. The Civil War ultimately devastated the South. Ironically, the U.S. Civil War increased the industrialization of the North. The Northern victory make America more industrialized. Industrialists came to dominate many areas of American life. Taxes and government bonds funded the Union during the Civil War. The U.S. Treasury Secretary Salmon P. Chase used ingenuity in financing the war (a valued added tax imposed on manufactured items) without crippling the economy of the Union.   Chase made it easy to become a national bank; it involved buying and holding federal bonds and financiers rushed to open these banks. Chase numbered them, so that the first one in each city was the "First National Bank.” Fourth the government printed "greenbacks"—paper money—which were controversial because they caused inflation.  The tariff act of 1862 served not only to raise revenue, but also to encourage the establishment of factories free from British competition by taxing British imports. Furthermore, it promoted American factory workers over low paid European workers. This reality attracted tens of thousands of those Europeans to immigrate to America for high wage factory and craftsman jobs. Many Homestead Acts were used for people to buy lands for cheap in return to do housing, farming, and planting trees. Many grants during the 1850’s benefited colleges and universities. The North’s national banks executed currency for industrial expansion. Thaddeus Stevens and other Republicans wanted tariffs, bond, income and excise taxes, national banks, and suppression of money issued by state banks, greenback currency, and western railroad land grants. The Civil War experienced new organizational methods, engineering skills, and increased businesses. The Civil War used slavery to end, which was great as slavery is evil. Black people and other people sacrificed their lives, so the Union would achieve victory. We honor the sacrifice of the Union heroes.


By Timothy


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