The Colonial Economy

In 1600, there were few Europeans in territory that became the United States. That situation changed dramatically over the course of the 17th and 18th centuries. By 1775, when the Revolutionary War began, there were approximately two million people inhabiting territory controlled by the English in eastern North America; the Spanish had expanded their holdings in the Southwest and Florida; French migrants (whose numbers had grown to perhaps 60,000) remained in their old territory as well as the Mississippi Valley; and the number of Indigenous peoples had decreased to perhaps one-tenth of what it had been in 1492, though most of the continent remained Indian Country. A man or a woman traveling along the East Coast in 1775 would have encountered the descendants of migrants from the Netherlands, Sweden, Finland, the German-speaking regions of central Europe, Africa, Ireland, and Scotland, all of them inhabiting territory in the British Empire. According to many scholars, the economy that this diverse population created was among the most productive in Western history.

The first American colony was a business venture bankrolled by a group of investors in London. In 1606, the Virginia Company of London, a joint stock company, gathered financial investment from a group of people and channeled it into settling what we now know as Jamestown, Virginia. This settlement established patterns for trade and commerce that set the stage for more settler colonists. The early years of the settlement were rough — many early settlers starved to death. However, those that survived and eventually prospered because of two key factors: a rise in global demand for tobacco and the enslavement of African people. The first American tobacco plantations were founded in the 1610s, and though it’s first workforce were indentured laborers from Europe, enslaved African people were the dominant form of labor in tobacco fields by the late 1600s, and in the sugar and cotton plantations that would soon be established across the American South. These plantation commodities were the main sources of revenue in the early capitalist period, which laid foundations for modern American capitalism, and the founding of the nation in 1776.

By the late 17th century, the English had expanded their settlements along the Atlantic coast. Victory over the Dutch in the 1660s allowed the English to take control of the colony of New Netherland, which they renamed New York. In 1681, King Charles II granted an enormous tract of land to William Penn, who created the colony of Pennsylvania. The English also created colonies in North and South Carolina, in East and West Jersey (later combined into New Jersey), and across New England (New Hampshire, Connecticut, and Rhode Island). Plymouth, initially independent, was absorbed by Massachusetts in 1691. The creation of the colony of Georgia in 1732 represented the final territorial expansion of the English during the colonial period.

Throughout the colonial period, the economy of North America remained rural. As late as 1790, the time of the first census of the United States, over 90% of the population inhabited farms or small rural communities. Yet even with the urban share of the population relatively slight, the cities that did exist became crucial for organizing economic activity. Merchants who clustered in Boston, Philadelphia, and New York City, along with others in the coastal ports of New England and Charleston, South Carolina, played a dominant role in determining the imports that other colonists would find in their local stores. They also created the financial infrastructure to support commerce across English America.

Free colonists, even in rural areas, benefited from the increase in long-distance commerce across the Atlantic basin. Though economic opportunities for this population contracted at times, stability was common (though with some exceptions, such as Bacon’s Rebellion in Virginia in 1676) and most individuals remained connected to markets that brought consumer wares across the interior regions of British colonies. The earliest colonial houses tended to be small and of simple architectural design. By the early decades of the 18th century, wealthier colonists, especially urban merchants and rural plantation owners, expanded their properties. Economic stratification, present even from the start, became more pronounced over time among the free population. Relatively few lived as well as the wealthiest planters of Barbados or Jamaica. But along the lower reaches of rivers feeding into the Chesapeake, and in Boston, Newport, and Philadelphia, the rich inhabited better housing, and they filled their rooms with imported finery. Much of what they purchased had been produced from American materials, including fine mahogany furniture made from West Indian and Central American forests. Wealthy women could purchase elaborate dresses made from imported silk, serve their guests from fine china on tables with English silverware and Chinese porcelain, and have their portraits painted by artists trained in England or on the continent. Some Americans, conscious about their image, projected an image of rustic simplicity, evident in the popularity in the late 18th century of images of Benjamin Franklin wearing a raccoon skin cap. But the richest among them might own a beautiful silver pot created by Paul Revere or a stunning painting by John Singleton Copley. To be sure, the wealthiest people in Britain lived more extravagantly. There was no American equivalent of Blenheim Palace, for example. But Mount Vernon and Monticello, each funded by profits of enslaved laborers, were hardly the rude log cabin of American myth.

Viewed from a distance of over 200 years, the economy of the English colonies appears a great success, at least for the free population. The English never suffered the kind of defeat that the Spanish experienced in New Mexico during the Pueblo Revolt of 1680. This Indigenous uprising forced Spanish colonists back into Mexico, at least for a time. The English colonies also had a reputation for being an excellent place to find work, a “best poor man’s country,” a term promoters used for Pennsylvania in the 18th century, an idea that helped that colony become a magnet for migrants during the early-modern period. Hence, Europeans flocked to the Anglo-American colonies and avoided New France; even poverty-struck French men and women refused to go to their nation’s American settlements, leaving them mainly in the hands of soldiers and missionaries. Though English expansion had a catastrophic impact on the Native peoples of eastern North America, Natives remained as trading partners and often neighbors of European colonists. By the mid-18th century, if not earlier, Indigenous people had experienced a commercial revolution: many had become eager consumers of European goods such as manufactured clothing, guns and powder, metal tools, and alcohol, a commerce that began in earnest after 1650 and had unfortunate consequences for many Indigenous groups. To the north, the Hudson Bay Company, which started its operations in 1671 despite the mutiny that had led to Henry Hudson’s own death in 1611 near the shores of the bay that now bears his name, had operations that stretched far into the Canadian west and generated considerable profits for its investors.

Over the course of the 18th century, the US economy experienced a period of prosperity and economic development — so much so that the standard of living in American colonies was greater than that in England. This period of plenty was paid for in large part by displacement and enslavement. Cotton, which was cultivated by enslaved people in land that belonged to the Cherokee, Creek, Choctaw, Chicasaw and Seminole nations² provided over half of US export earnings. Enslaved people also provided the free labor that produced other major consumer goods that formed the basis of world trade across British colonies during the 18th and early 19th centuries — tobacco, sugar, indigo and rice. The high profitability of cotton, made possible by the plantation economy, was one of the drivers of the industrial revolution, a major economic shift that was taking place in England and would spread across the globe in the following century.

The American colonies developed diverse economic activities, from agriculture and fishing to trade and shipbuilding. These industries shaped regional economies, with New England focusing on maritime pursuits, the Middle Colonies on diverse farming, and the South on cash crop plantations.

Labor systems, including indentured servitude and slavery, played a crucial role in colonial economic growth. Geography, natural resources, and British policies also influenced development, while population growth and technological advancements further fueled economic expansion in the colonies.

Colonial Economic Activities and Structures

Economic activities in American colonies

Colonial America’s Pre-Industrial Age of Wood and Water

More than 200 years ago, Moravian settlers created a community with an integrated industrial area along the Monocacy Creek in Bethlehem, Pennsylvania. Greatly admired throughout the colonies, the industrial site bustled with activity. Today, Bethlehem’s Colonial Industrial Quarter, which covers 10 acres, is the largest and most diverse pre-industrial revolution technology site under restoration in the Commonwealth—if not the nation.

To understand the impact of pre-industrial revolution technology, we must first come to an understanding of what technology is. Simply defined, technology is “a system based on the application of knowledge, manifested in physical objects and organizational forms, for the attainment of specific goals” (R. Volti). Thus, technology can consist not only of tools such as hammers and saws, but also the knowledge of how to make and use those tools and the broader system of which they are a part. For example, a grist mill involves a power source, transmission gearing, stone grinding wheels, barrels, a building to house it all, and, of course, some sort of distribution system for the final product, or the goal, which is flour. Ultimately, technology is a human endeavor and cannot exist outside its human context. Technology is thus embedded in society— it is shaped and influenced by human values, aspirations, and goals as filtered through political, social, and economic institutions. In turn, technology impacts those very same goals and values and the society that holds them.

For many people, the word technology conjures up images of large-scale industrialization. The Lowell textile mills in the early 19th century, the steel mills of Pittsburgh and Bethlehem, or today’s Silicon Valley come easily to mind. But of course industrialization did not spring out of nowhere. It was, and is, a process, one that is hard to date, extending over a long period of time, involving a steady accumulation of knowledge and technical innovation. To understand that process and to understand how we got to where we are today, we need to understand that which came before— the pre-industrial age. In doing so we can better understand the importance of early Bethlehem and its own industry and how it fits into the history of how we do things.

It would be erroneous to think that there was no technology in the pre-industrial revolution age. Ships brought colonists and supplies to the new world. Shipbuilders had the technical knowledge to build and sail these vessels and they had navigational aids such as the compass and charts to help them find their way. The colonists brought with them hand tools, plows, domesticated animals, clothing, and firearms— items which comprised a technical system.

Most, if not all, of these tools and products were “handmade” in contrast to being produced by extensive machines. In this context, however, “handmade” did not always imply that the items were more “natural” or “better” than objects produced in a factory with the help of machines. All products require some sort of “natural” resource and utilize human skill. It is also important to remember that there were a lot of inferior artisans producing sub-standard goods, which is one reason why industrialization was so widely and readily accepted.

The colonial economy was based on the four F’s–furs, fish, farms, and forests. In all of these areas technology played an important role. However, only a relatively small percentage of the colonists engaged in crafts and trades or artisanal work–perhaps 10 to 18% depending on the time period and the location. By far the largest percentage of Americans were involved in agriculture.

Another way to characterize the colonial economy and its technology is to call it an age of wood and water. In general the colonists substituted that which was plentiful for that which was scarce. Thus, wood and water were used lavishly while the soil was often exploited. Labor was scarce and thus expensive. In many ways the colonial period was an environment of abundance and the use and misuse of this abundance would shape long-term values.

WOOD

Wood was an important product. First, there were many chemicals in wood which could be used successfully. The tannin in tree bark was used for the tanning process. Potash, heated ashes left from burning trees cleared off the land, was potassium nitrate used in the making of soap and glass. If potash was heated further the resultant pearl ash, almost pure potassium, could be obtained and used in the dying and shrinking of cloth.

Second, wood produced pitch, tar and resin for use as naval stores. Trees were felled to be used in ship building–the largest trees were used for masts, while the smaller ones were used for spars.

Third, wood in the forms of boards, clapboards, shingles and barrel staves was used to support everyday life. Houses, containers like piggins and barrels, dishes, spoons, bowls, furniture, and coffins were made of wood. Wood was so important that it became an important colonial export especially to the Caribbean.

Fourth, wood was the major form of fuel as a heat source. The average colonial family used 30-40 cords per year, the equivalent of one acre of woods, to heat their homes and to cook their meals.

Finally, wood was the material most available and most easily shaped. Thus it could be used to make a wide variety of manufactured goods and even small machines such as lathes and printing presses were almost entirely constructed out of wood.

Because of America’s extensive reliance on wood, it is not surprising that one of the first commercial buildings to be set up in a new town was a sawmill–often before the erection of a grist mill. Colonial Bethlehem had both a sawmill and a grist mill very early in its history. The establishment of sawmills revealed some differences between the colonies and England. England had turned quite early (by the 17th century) to coal because of wood shortages. In the colonies, wood was plentiful and almost “free for the asking.” At the same time, labor in America was expensive because it was scarce. Thus, water powered sawmills appeared quite early in America as a technical solution to an ecological and human power problem. Many of these early sawmills were built and operated by men who were not English, due to a lack of familiarity and skill level that the English colonists had with this technology. The first colonial sawmill was erected by the Dutch in New Amsterdam in the 1620s. The first English sawmill was built in Maine in 1623 or 1624 and the first sawmill was erected in Pennsylvania in 1662. By 1700 there were about 70 water powered sawmills in New England and 100 years later there were 250.

The first patent in America for a mechanical invention was issued in 1646 for improvements in a sawmill. This suggests that people were constantly working on improvements even if they were not making radical changes. The typical saw was an up and down sash saw. The problem with it was that it had a very thick blade, 3/8″ to 1/2″ thick. This blade chewed up a lot of wood into sawdust. But it was fast and saved labor which was more important than trying to save wood. A sawmill with one man, perhaps assisted by a boy, could produce 1,000 ft. of pine boards in one day. It was five times more efficient than two hand sawyers who could produce a dozen boards per day on the average.

Eventually circular and band saws with much thinner blades replaced sash saws but only when the metallurgical knowledge to improve the technology of blades could occur and the price of labor rose high enough to make it economical. The circular saw first appeared in America in 1814 but it only used small blades for the next 30 years because of the limits of metallurgy. The band saw was patented in 1869.

WATER POWER

The colonial period was not only an age of wood but also of water. Water was the major means of transportation but it was also an important source of power. One of the indications of the process of industrialization is the replacement of animate (human and animal) power with inanimate power sources. Water power was the first common form, usually used to turn a mechanical wheel of one variety or another. Water powered mills ultimately paved the way for demonstrating the benefits of machinery and mechanical power. Wind-powered mills were also employed in some areas, usually to grind grain. The two most common and important mills were sawmills as mentioned and gristmills. Other mills included fulling mills for pounding and shrinking cloth, paper mills, oil mills, tanning mills, and carding mills. The number of water powered mills actually increased until just before the Civil War and many were still in use in the early 1900s. This use illustrates a point that there can be several different types of technology in place at one time and all of them can be economically viable at the same time. Just because something new came on the technological scene did not mean that it was immediately and widely adopted.

The development of mills was the first step in freeing agricultural people from the drudgery of rural life. Colonial farmers often traveled up to 50 miles to get grain ground into flour. The long trip to the mill was offset by the fact that it saved them the labor of grinding by hand.

Mills were so important that communities often offered inducements such as free mill sites and adjoining land, limited monopoly rights, tax exemptions, exemptions from military duty, and even outright money gifts. Mills helped to attract settlers to a town and increased land value. Mills were often built before schools and churches. Colonial settlers sometimes perceived the lack of a mill as “a serious evil” that was “inconsistent with civilized life.”

The use of water-powered technology in colonial America was derived directly from the Old World. Waterwheels, while often thought of as the key element, were only one part of a whole system that was needed. Generally, a good mill site needed to have a dam and millpond to impound water for dry periods and to regulate flow; a millrace to carry water to the wheel itself; a sluice with a gate called a penstock to put the water onto the wheel; and a tailrace to carry off the spent water.

There are four major types of prime movers or waterwheels. The tub wheel was the most primitive. It is like a turbine with a vertical shaft set horizontally in a stream. The tub wheel was usually small, simple, and relatively inexpensive. It was used in rural locations primarily for grinding grain because grindstones could easily be attached to the shaft. The three other types of wheels were vertical wheels and were undershot, breast, or overshot, depending on the height of the water used to power them.

In the undershot wheel the force of the water hit the paddles directly, with most of the wheel out of the water. Power depended largely on the flow of the water, which could be quite fast, but the wheel did not require a high head, or height of water. This was the type of wheel used in Bethlehem’s waterworks and oil mill. It produced about 3-4 horsepower and utilized 15-30% of the water’s energy.

An overshot wheel required the most head or height of water, perhaps more than 10′. It was the most efficient kind of wheel utilizing 50-70% of the water’s energy. This wheel produced only slightly more horsepower than the undershot wheel, generally in the 4-5 horsepower range but not greater than 10. The weight of the falling water, as well as the velocity with which it struck the paddles or buckets as it flowed over the top of the wheel, determined the amount of power the wheel could produce.

The breast wheel was a wheel that was half submerged. The water hit the paddles in the middle utilizing a curved wooden wall around that portion of the wheel to keep the water on the paddles. Breast wheels could be very efficient but they were also most difficult to build and hence not widely used in the colonial period. There is some evidence that the 1743 and 1752 grist mills in Bethlehem used breast wheels. In general, however, breast wheels became much more common after the emergence of factories.

Colonial mills were usually built by millwrights, or sometimes clever carpenters, with the help of blacksmiths to construct the few metal parts such as bands on the wheel shafts and the gudgeons on the shaft ends. Most of the mill parts were wooden, however, including the gearing although sometimes leather belting was used to transfer power to the application. Millwrights had to decide what type of wheel was best suited to a given location, what size it should be, how to design the paddles or buckets, where and how to build the dam and raceways, what gearing was necessary to power the mill itself. Then the millwright oversaw the construction. Thus millwrights might well combine the skills of carpenter, joiner, mason, stonecutter, blacksmith, wheelwright, and surveyor.

Millers, the men who ran the mills, were also multi-talented. They often owned the mill site as well as the mill. They had to have a good knowledge of the trade itself and be able to maintain the equipment once it was constructed and put in place. Millers’ fees were not small. Usually they asked one quarter of the lumber sawn or grain ground. Apparently there were few disputes about such fees, suggesting the important role that these mills played in everyday life. Thus, despite the noise, the waster, and the pollution created by colonial mills, both millers and millwrights were valued citizens. The US Census for 1840 lists 23,700 gristmills; 31,650 sawmills; 2,600 fulling mills; and 8,200 tanneries. This amounted to more than 6,000 mills or one mill for every 245 people at a time when the absolute use of water power peaked in the United States.

IRON PRODUCTION

Despite America’s basic reliance on wood, the colonists still needed some metals, especially iron for items such as cookware, firearms and swords, horse shoes, and the edges on tools. Iron was hard to manufacture and expensive to produce in the 17th century but by the mid-18th century iron was the third leading colonial export behind wheat and timber.

In the early years of the colonial period, iron was produced in bloomery forges–a hearth in which raw iron ore was combined with charcoal and heated. The oxygen in the iron combined with the carbon in the charcoal–giving off carbon dioxide and thereby reducing the iron oxide. These forges never got hot enough to really melt the iron, which ended up as a black pasty substance called a “bloom,” hence the name of the forge. The black color also gives us the name of “black”smith. The bloom was full of impurities which had to be pounded out by a blacksmith on an anvil.

To produce larger quantities of better quality iron, larger blast furnaces were developed in America as they had been in England. Perhaps 25′ tall, the blast furnace was loaded at the top with a measured charge of iron ore–often broken up by water-powered hammers–and charcoal and limestone used as a flux to help separate the impurities in the iron ore. The blast furnace was operated at a higher temperature, accelerated by air blasted by water-powered bellows, into tubes at the base of the furnace, which melted the ore. The slag–limestone flux and impurities–was lighter and floated to the surface where they could be drawn off. Then the heavier iron could be drawn off through the removal of a plug in the hearth at the base of the furnace. The molten iron often was allowed to run out into a series of shallow troughs, or molds on the floor. These molds resembled a litter of pigs nursing from the sow, hence the name “pig iron.” The pig iron was also known as “cast iron” because it could be cast or poured directly into molds to produce kettles or stove plates, for example. The problem with cast iron was that it was fairly brittle with about 4% carbon content absorbed from the charcoal fuel. Therefore it would only be used where there was little stress, such as in stove plates which were produced in the Hopewell Furnace, PA area. Much of Bethlehem’s iron supply came from the Durham Furnace in Bucks County.

A stronger material was wrought iron. Pig iron was reheated in separate forges and then pounded or hammered to drive off the remaining carbon particles and impurities and to create and align a tough fibrous structure containing essentially no carbon. The resulting “bar iron” was then sold directly to blacksmiths for turning into specific products such as iron plates, nails, and locks.

To produce steel in the small quantities used for blades in cutting implements such as saws and razors, wrought iron was reheated to a molten state in clay pots with measured amounts of charcoal to reintroduce just the right amount of carbon content–perhaps up to 1%. The blade of the implement was then dredged in this molten liquid so that a fine layer of steel covered the wrought iron. This process was very difficult and expensive to produce.

Part of the problem in making iron was that no one really understood the chemical processes involved and the work was mostly trial and error. In addition iron making was different from many other crafts and trades practiced in colonial America. It required large capital investments in land and equipment and few artisans could ever expect to own their own facility. It had to be located fairly near to the sources of raw materials–iron ore, forests for the charcoal, and limestone, although the latter was needed in smaller quantities and was fairly widespread in terms of availability. Transportation for the finished goods was often an issue as well.

Iron ore deposits were located in a variety of places but Pennsylvania, southern New Jersey, and part of New England had good supplies in rural areas close to the needed forest lands. It took about 4.5 cords of wood to produce a ton of iron ore. One acre of trees produced 30-40 cords of wood, or 6.5-8.5 tons of iron per acre. A typical iron furnace might utilize 5-6,000 cords of wood or 125-200 acres of woodland per year to produce 1-2,000 tons of iron per year (the equivalent of what a modern furnace produces in a few hours). Iron making required only one bushel of limestone for every 10-20 bushels of ore depending on the purity of the ore, so that was not as big a problem. Because of the land required, most iron producing facilities were located in rural areas and had to be largely self-sufficient, producing their own food and providing housing for ironworkers and their families. They were isolated, the work was hard, and although wages were not that bad, labor was scarce and turnover was high. Many iron plantations were located on navigable rivers which facilitated the transport of the pigs, bar iron, and finished products. In fact, proximity to transportation was often the difference between a charcoal furnace being able to continue producing iron after coke furnaces became widely used.

By the time of the American Revolution, there were as many furnaces and forges in America as there were in England and Wales producing almost as much pig iron, although less finished goods. By 1775, America was producing about 1/7 of the world’s total iron, In the 1770s Pennsylvania alone had some 20 blast furnaces.

PRE-INDUSTRIAL BUILDING TECHNIQUES

Wood was also important in providing housing in colonial America. Although in some places in the early years the log cabin, a Scandinavian import, was used, stone and brick over a timber frame, were the most common materials used to build dwellings and public buildings. The timber frame included the use of heavy solid beams called girts connected with mortise (the hole) and tenon (the protrusion) joints held together with wooden pegs. This construction method was used in part because of the relative lack of and high cost of nails. In fact unused buildings were sometimes burned down to get at the nails if they had been used. The heavy walls were usually laid out and put together on the ground and then raised with a team of laborers, usually neighbors, who would help each other to build houses and barns.

Once the walls were erected some material was needed to fill in between the posts. Sometimes this filler was brick or more likely a lathing of woven branches covered over with plaster known as “wattle and daub.” This “stucco” did not provide enough protection for people or for the lathing itself especially in the cold of New England winters. Therefore the colonists developed clapboards (overlapping wood siding) and shingles using wood that was relatively abundant and cheap. Producing clapboards and shingles was at first done by hand but was eventually mechanized.

Other housing adaptations included large fireplaces, low ceilings, and few windows–all done for warmth especially in New England and because glass was also expensive. It was not until the latter part of the 18th century that Franklin’s cast iron stove was widely adopted–a tremendous heating efficiency improvement. Remember also that the Moravians in Bethlehem were using tile stoves from their middle-European roots to heat their choir houses and work spaces. All used wood for the fuel, a fairly abundant and inexpensive item throughout much of the colonial era.

Where did developments in building techniques lead? Inventions that facilitated the exploitation of abundant lumber supplies were likely to be profitable. Thus in the late pre-industrial period, the 1790s, there were 23 patents issued for nail-making machinery, for if the cost of nails could be reduced, so could the cost of building. Jacob Perkins developed a waterpowered machine in 1795 that could produce 200,000 nails per day, which helped reduce the cost of nails by almost 90% by 1840. This reduced the cost of using wood for building and paved the way for the “balloon frame” housing of the 1830s, the type of wood frame building used today. In balloon frame building, the whole frame, not just a few posts and beams, carries the weight. The advantage is lighter-weight: 2″ x 4″s can be substituted for the massive beams. This lighter frame is nailed together, reducing the time-consuming skill of mortising and tenoning, and therefore reducing the number of people necessary to handle the building process overall. The balloon frame is then covered by clapboards. An American innovation, the balloon frame was cost-effective, using less labor and less skill, and still took advantage of available wood; it thus became a logical extension of timber framing.

RELATIONSHIP OF COLONIAL AMERICAN WORKERS TO TECHNOLOGY

What was the colonial worker’s relationship to the technology just reviewed? While the typical colonist was still a fanner or farm worker, that did not mean that he or she did not deal with technology. It only meant that the individual was not an artisan or a craftsperson. Farmers tried to be reasonably self-sufficient, but usually out of necessity and not out of some great vision or ideology. They sold one cash crop to exchange or buy items that they could not produce themselves like guns and gunpowder, sugar, salt, glass, ironware, and books. They also tended to be the proverbial “jacks of all trades and masters of none,” especially if they lived away from the sea coast or rivers for transportation or from more heavily populated urban areas. If some farmers were particularly good at a task like shoemaking or coopering, for example, they might use these skills to augment their livelihood, especially if they lived near a village or an urban market.

It must be remembered that only 15-18% of the colonists were artisans or craftsmen. Generally they centered their activity around towns and cities because that is where the concentration of people provided them with a ready market for their specialized trades. In 1690, the total population of the 5 largest colonial cities was only 19,000–Boston, New York, Philadelphia, Charleston, and Baltimore. By 1776 this figure had risen to 108,000.

Even in the cities, most craft operations were carried out in small shops, often family-owned and located in the family home. Skills were passed along via the apprenticeship system in which young boys exchanged their labor for a period of 4-7 years in return for learning a trade and support for daily living. They then became journeymen and could work for other masters as they saw fit, earning a wage in return. Eventually, after they had acquired enough capital, they could set up their own operation somewhere.

There was usually a shortage of skilled labor in early America, however. This was due in large part to the abundance of cheap land. It was often easier and more profitable for a young man to go into agriculture than to learn a trade, especially in areas where the markets were small and unstable. Importing master craftsmen from Europe was difficult because most were already well established and reasonably well paid and, therefore, had no real financial need to emigrate and start over. Even if such craftsmen did move, they often found the availability of cheap land extremely attractive, or if they settled in less urban areas, they found it a necessity, especially in the early years, to turn to agriculture to survive and to support themselves. What was true for the master craftsman was even more applicable for journeymen or even indentured servants who often ran away soon after they arrived, lured by the attraction of cheap land. The shortage of skilled labor also meant that crafts in general were slow to develop and the colonies generally imported about half of the manufactured goods they needed. This shortage also accounts for the frequent community advertisements soliciting and offering inducements to artisans whose specific skills were needed.

In general, colonial craftsmen made the whole product from beginning to end, although in some crafts like shoemaking and textile production, there may have been some division of tasks in the early stages of production, especially in the slightly larger shops. Craftsmen were also responsible for selling the items themselves so they usually only produced work that was contracted for. Only later did some artisans begin to venture to produce items on speculation for a yet unfound market. This activity most likely occurred during a slack time to keep the apprentices busy.

The general scope of colonial production was very human in scale. The schedule often varied with the season, the number of orders, and the ability to obtain raw materials–it was definitely not clock or machine based. The scale of production was also generally small. It is also important to remember that not all craft work was necessarily good. A lot of artisans made inferior items. One reason we may think of handcrafted products as being of higher quality than machine-made products is that primarily the better pieces have lasted through the years and been handed down through generations of people.

Because of the small number of artisans and the limited specialization, the pace of technological change was very slow. Colonial Americans transferred and adopted the European techniques with which they were familiar and generally tended to make few changes. There are a number of reasons for this. First, English mercantile theory viewed the colonies as sources of raw materials to be used by craftsmen in England. They, in turn, would provide finished goods for markets in the colonies. Thus, English legislation passed to regulate the economy of the colonies did not encourage manufacturing there and often prohibited it because it would have prompted unwelcome competition. For example, the colonies were prohibited from producing finished iron products but colonial furnaces were allowed to produce bar and pig iron. Textile production was also especially hampered in the colonies.

Second, the density of artisans in the colonies was too low to encourage technological change. When large numbers of artisans work together, they have the ability to share information and develop new techniques and solutions to common problems in their work. This interaction helps improve technology, tools, and production processes.

Finally, different crafts interact with each other. The weaver needed a loom builder and the printer needed a joiner to make him a press, for example. In the absence of these mutually reinforcing trades, craftsmen had little ability or desire to improve, nor was there very much competition which also leads to technical improvement.

Nonetheless, colonial artisans did accomplish a great deal, laying the foundations technically and economically for the industrial revolution which would follow. Some even produced fine examples of silverware, furniture, and clocks. These technical skills, whether they were from millwrights, ironmasters, or carpenters would be necessary for the new nation to have as it expanded across the continent and began to compete on its own terms with the nations of Europe in the 19th century.

New England

The New England region’s economy grew steadily over the entire colonial era, despite the lack of a staple crop that could be exported. All the provinces and many towns as well, tried to foster economic growth by subsidizing projects that improved the infrastructure, such as roads, bridges, inns and ferries. They gave bounties and subsidies or monopolies to sawmills, grist mills, iron mills, pulling mills (which treated cloth), salt works and glassworks. Most importantly, colonial legislatures set up a legal system that was conducive to business enterprise by resolving disputes, enforcing contracts, and protecting property rights. Hard work and entrepreneurship characterized the region, as the Puritans and Yankees endorsed the “Protestant Ethic“, which enjoined men to work hard as part of their divine calling.

The benefits of growth were widely distributed in New England, reaching from merchants to farmers to hired laborers. The rapidly growing population led to shortages of good farm land on which young families could establish themselves; one result was to delay marriage, and another was to move to new lands farther west. In the towns and cities, there was strong entrepreneurship, and a steady increase in the specialization of labor. Wages for men went up steadily before 1775; new occupations were opening for women, including weaving, teaching, and tailoring. The region bordered New France, and in the numerous wars the British poured money in to purchase supplies, build roads and pay colonial soldiers. The coastal ports began to specialize in fishing, international trade and shipbuilding—and after 1780 in whaling. Combined with growing urban markets for farm products, these factors allowed the economy to flourish despite the lack of technological innovation.

The Connecticut economy began with subsistence farming in the 17th century, and developed with greater diversity and an increased focus on production for distant markets, especially the British colonies in the Caribbean. The American Revolution cut off imports from Britain, and stimulated a manufacturing sector that made heavy use of the entrepreneurship and mechanical skills of the people. In the second half of the 18th century, difficulties arose from the shortage of good farmland, periodic money problems, and downward price pressures in the export market. The colonial government from time to time attempted to promote various commodities such as hemp, potash, and lumber as export items to bolster its economy and improve its balance of trade with Great Britain.

Urban centers

Historian Carl Bridenbaugh examined in depth five key cities: Boston (population 16,000 in 1760), Newport Rhode Island (population 7500), New York City (population 18,000), Philadelphia (population 23,000), and Charles Town (Charlestown, South Carolina), (population 8000). He argues they grew from small villages to take major leadership roles in promoting trade, land speculation, immigration, and prosperity, and in disseminating the ideas of the Enlightenment, and new methods in medicine and technology. Furthermore, they sponsored a consumer taste for English amenities, developed a distinctly American educational system, and began systems for care of people in need.

On the eve of the Revolution, 95 percent of the American population lived outside the cities—much to the frustration of the British, who captured the cities with their Royal Navy, but lacked the manpower to occupy and subdue the countryside. In explaining the importance of the cities in shaping the American Revolution, Benjamin Carp compares the important role of waterfront workers, taverns, churches, kinship networks, and local politics. Historian Gary B. Nash emphasizes the role of the working class, and their distrust of their social superiors in northern ports. He argues that working class artisans and skilled craftsmen made up a radical element in Philadelphia that took control of the city starting about 1770 and promoted a radical Democratic form of government during the revolution. They held power for a while, and used their control of the local militia to disseminate their ideology to the working class, and to stay in power until the businessmen staged a conservative counterrevolution.

Political environment

The colonial economies of the world operated under the economic philosophy of mercantilism, a policy by which countries attempted to run a trade surplus, with their own colonies or other countries, to accumulate gold reserves. Colonies were used as suppliers of raw materials and as markets for manufactured goods while being prohibited from engaging in most types of manufacturing. The colonial powers of England, France, Spain and the Dutch Republic tried to protect their investments in colonial ventures by limiting trade between each other’s colonies.

The Spanish Empire clung to old style mercantilism, primarily concerned with enriching the Spanish government by accumulating gold and silver, mainly from mines in their colonies. The Dutch and particularly the British approach was more conducive to private business.

The Navigation Acts, passed by the British Parliament between 1651 and 1673, affected the British American colonies. Important features of the Navigation Acts included:

• Foreign vessels were excluded from carrying trade between ports within the British Empire
• Manufactured goods from Europe to the colonies had to pass through England
• Enumerated items, which included furs, ship masts, rice, indigo and tobacco, were only allowed to be exported to Great Britain.

Although the Navigation Acts were enforced, they had a negligible effect on commerce and profitability of trade. In 1770 illegal exports and smuggling to the West Indies and Europe were about equal to exports to Britain.

The domestic economy of the British American colonies enjoyed a great deal of freedom, although some of their freedom was due to lack of enforcement of British regulations on commerce and industry. Adam Smith used the colonies as an example of the benefits of free enterprise. Colonists paid minimal taxes.

Some colonies, such as Virginia, were founded principally as business ventures. England’s success at establishing settlements on the North American coastline was due in large part to its use of charter companies. Charter companies were groups of stockholders (usually merchants and wealthy landowners) who sought personal economic gain and, perhaps, wanted also to advance England’s national goals. While the private sector financed the companies, the king also provided each project with a charter or grant conferring economic rights as well as political and judicial authority. The colonies did not show profits, however, and the disappointed English investors often turned over their colonial charters to the settlers. The political implications, although not realized at the time, were enormous. The colonists were left to build their own governments and their own economy.

The colonial governments had few expenses and taxes were minimal. Although the colonies provided an export market for finished goods made in Britain or sourced by British merchants and shipped from Britain, the British incurred the expenses of providing protection against piracy by the British Navy and other military expenses. In the 1760s the London government raised small sums by new taxes on the colonies. This occasioned an enormous uproar, from which historians date the origins of the American Revolution. The issue was not the amount of the taxes—they were quite small—but rather the constitutional authority of Parliament versus the colonial assemblies to vote taxes. New taxes included the Sugar Act of 1764, the Stamp Act of 1765 and taxes on tea and other colonial imports. Historians have debated about the cost imposed by the Navigation Acts, which were less visible and rarely complained about. However, by 1995, the consensus view among economic historians and economists was that the “costs imposed on [American] colonists by the trade restrictions of the Navigation Acts were small.”

Revolutionary era cartoon showing US sawing off the horn of a cow (symbolizing a break from British commerce) with a distressed Englishman watching as other European powers wait to collect milk. The cartoon represents the commercial status of the US during the Revolution.

American Revolution

Americans in the Thirteen Colonies demanded their rights as Englishmen, as they saw it, to select their own representatives to govern and tax themselves – which Britain refused. The Americans attempted resistance through boycotts of British manufactured items, but the British responded with a rejection of American rights and the Intolerable Acts of 1774. In turn, the Americans launched the American Revolution, resulting in an all-out war against the British and independence for the new United States of America. The British tried to weaken the American economy with a blockade of all ports by the Prohibitory Act 1776, but with 90% of the people in farming, and only 10% in cities, the American economy proved resilient and able to support a sustained war, which lasted from 1775 to 1783.

Congress and the American states had difficulty financing the war.^[ In 1775 there was at most 12 million dollars in gold in the colonies, not nearly enough to cover existing transactions, let alone on a major war. The British government made the situation much worse by imposing a tight blockade on every American port, which cut off almost all imports and exports. One partial solution was to rely on volunteer support from militiamen, and donations from patriotic citizens. Another was to delay actual payments, pay soldiers and suppliers in depreciated currency, and promise it would be made good after the war. Indeed, in 1783 the soldiers and officers were given land grants to cover the wages they had earned but had not been paid during the war. Not until 1781, when Robert Morris was named Superintendent of Finance of the United States, did the national government have a strong leader in financial matters. 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.

A one-dollar note issued by the Second Continental Congress in 1775

The Second Continental Congress used four main methods to cover the cost of the war, which cost about 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, but the holders were eventually paid off in 1791 at the rate of one cent on the dollar. By 1780, the paper money was “not worth a Continental”, as people said, and a second issue of new currency was attempted. The second issue quickly became nearly worthless—but it was redeemed by the new federal government in 1791 at 100 cents on the dollar. At the same time the states, especially Virginia and the Carolinas, issued over 200 million dollars of their own currency. In effect, the paper money was a hidden tax on the people, and indeed was the only method of taxation that was possible at the time. The skyrocketing inflation was a hardship on the few people who had fixed incomes—but 90 percent of the people were farmers, and were not directly affected by that inflation. Debtors benefited by paying off their debts with depreciated paper. The greatest burden was borne by the soldiers of the Continental Army, whose wages—usually in arrears—declined in value every month, weakening their morale and adding to the hardships suffered by their families.

Starting in 1776, the Congress sought to raise money by loans from wealthy individuals, promising to redeem the bonds after the war. The bonds were in fact redeemed in 1791 at face value, but the scheme raised little money because Americans had little specie, and many of the rich merchants were supporters of the Crown. Starting in 1776, the French secretly supplied the Americans with money, gunpowder and munitions in order to weaken its arch enemy, Great Britain. When the Kingdom of France officially entered the war in 1778, the subsidies continued, and the French government, as well as bankers in Paris and Amsterdam loaned large sums to the American war effort. These loans were repaid in full in the 1790s.

Beginning in 1777, Congress repeatedly asked the states to provide money. But the states had no system of taxation either, and were little help. By 1780 Congress was making requisitions for specific supplies of corn, beef, pork and other necessities—an inefficient system that kept the army barely alive.

The cities played a major role in fomenting the American Revolution, but they were hard hit during the war itself, 1775–83. They lost their main role as oceanic ports, because of the blockade by the Royal Navy. Furthermore, the British occupied the cities, especially New York 1776–83, and the others for briefer periods. During the occupations they were cut off from their hinterland trade and from overland communication. When the British finally departed in 1783, they took out large numbers of wealthy merchants who resumed their business activities elsewhere in the British Empire.

Confederation: 1781–1789

A brief economic recession followed the war, but prosperity returned by 1786.^[ About 60,000 to 80,000 American Loyalists left the U.S. for elsewhere in the British Empire, especially Canada. They took their slaves but left lands and properties behind. Some returned in the mid-1780s, especially to more welcoming states like New York and South Carolina. Economically mid-Atlantic states recovered particularly quickly and began manufacturing and processing goods, while New England and the South experienced more uneven recoveries. Trade with Britain resumed, and the volume of British imports after the war matched the volume from before the war, but exports fell precipitously.

John Adams, serving as the minister to Britain, called for a retaliatory tariff in order to force the British to negotiate a commercial treaty, particularly regarding access to Caribbean markets. However, Congress lacked the power to regulate foreign commerce or compel the states to follow a unified trade policy, and Britain proved unwilling to negotiate. While trade with the British did not fully recover, the U.S. expanded trade with France, the Netherlands, Portugal, and other European countries. Despite these good economic conditions, many traders complained of the high duties imposed by each state, which served to restrain interstate trade. Many creditors also suffered from the failure of domestic governments to repay debts incurred during the war. Though the 1780s saw moderate economic growth, many experienced economic anxiety, and Congress received much of the blame for failing to foster a stronger economy. On the positive side, the states gave Congress control of the western lands and an effective system for population expansion was developed. The Northwest Ordinance of 1787 abolished slavery in the area north of the Ohio River and promised statehood when a territory reached a threshold population, as Ohio did in 1803.

New nation

The Constitution of the United States, adopted in 1787, established that the entire nation was a unified, or common market, with no internal tariffs or taxes on interstate commerce. The extent of federal power was much debated, with Alexander Hamilton taking a very broad view as the first Secretary of the Treasury during the presidential administration of George Washington. Hamilton successfully argued for the concept of “implied powers“, whereby the federal government was authorized by the Constitution to create anything necessary to support its contents, even if it not specifically noted in it (build lighthouses, etc.). He succeeded in building strong national credit based on taking over the state debts and bundling them with the old national debt into new securities sold to the wealthy. They in turn now had an interest in keeping the new government solvent. Hamilton funded the debt with tariffs on imported goods and a highly controversial tax on whiskey. Hamilton believed the United States should pursue economic growth through diversified shipping, manufacturing, and banking, as outlined in his Report on Manufactures. He sought and achieved Congressional authority to create the First Bank of the United States in 1791; the charter lasted until 1811.

After the war, the older cities finally restored their economic basis; newer growing cities included Salem, Massachusetts (which opened a new trade with China), New London, Connecticut, and Baltimore, Maryland. Secretary Hamilton set up a national bank in 1791. New local banks began to flourish in all the cities. Merchant entrepreneurship flourished and was a powerful engine of prosperity in the cities.

World peace lasted only a decade, for in 1793 two decades of war between Britain and France and their allies broke out. As the leading neutral trading partner the United States did business with both sides. France resented it, and the Quasi-War of 1798–99 disrupted trade. Outraged at British impositions on American merchant ships, and sailors, the Jefferson and Madison administrations engaged in economic warfare with Britain 1807–1812, and then full-scale warfare 1812 to 1815. The war cut off imports and encouraged the rise of American manufacturing.

Industry and commerce

Transportation

There were very few roads outside of cities and no canals in the new nation. In 1792 it was reported that the cost of transport of many crops to seaport was from one-fifth to one half their cost. The cheapest form of transportation was by water, along the seacoast or on lakes and rivers. In 1816 it was reported that “A ton of goods could be brought 3000 miles from Europe for about $9, but for that same sum it could be moved only 30 miles in this country”.

Automatic flour mill

In the mid-1780s Oliver Evans invented a fully automatic mill that could process grain with practically no human labor or operator attention. This was a revolutionary development in two ways: 1) it used bucket elevators and conveyor belts, which would eventually revolutionize materials handling, and 2) it used governors, a forerunner of modern automation, for control.

Cotton gin

Cotton was at first a small-scale crop in the South. Cotton farming boomed following the improvement of the cotton gin by Eli Whitney. It was 50 times more productive at removing the seeds than with a roller. Soon, large cotton plantations, based on slave labor, expanded in the richest lands from the Carolinas westward to Texas. The raw cotton was shipped to textile mills in Britain, France and New England.

Mechanized textile manufacturing

In the final decade of the 18th century, England was beginning to enter the rapid growth period of the Industrial Revolution, but the rest of the world was completely devoid of any type of large scale mechanized industry. Britain prohibited the export of textile machinery and designs and did not allow mechanics with such skills to emigrate. Samuel Slater, who worked as mechanic at a cotton spinning operation in England, memorized the design of the machinery. He was able to disguise himself as a laborer and emigrated to the U.S., where he heard there was a demand for his knowledge.

In 1789 Slater began working as a consultant to Almy & Brown in Rhode Island who were trying to spin cotton on equipment they had recently purchased. Slater determined that the machinery was not capable of producing good quality yarn and persuaded the owners to have him design new machinery. In 1793 Slater and Brown opened a factory in Pawtucket, Rhode Island, which was the first successful water powered roller spinning cotton factory in the U.S… David Wilkinson went on to invent a metalworking lathe which won him a Congressional prize.

Finance, money and banking

The U.S. Constitution (Article 1, Section 8, Clause 5) gave the government the power to coin money to establish a mint. The dollar was established as the monetary unit of the U.S. by the Coinage Act of 1792, which also defined its value in terms of gold and silver.

The First Bank of the United States was chartered in 1791. It was designed by Alexander Hamilton and faced strenuous opposition from agrarians led by Thomas Jefferson, who deeply distrusted banks and urban institutions. They closed the Bank in 1811, just when the War of 1812 made it more important than ever for Treasury needs.