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Hard Realities for a New
Nation
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Why would the colonists revolt against England?
1) Why were the Articles of Confederation inadequate?
2) What are the important economic sections of the Constitution?
3) How did the Constitution set the framework for growth and development?
4) How did independence change the nature and type of trade?
5) How important was the role of neutrality during the period 1793 and 1815?
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Revolutionary War: began 4/19/1775; lasted more than 6 years
Effects
Effects:
1) Both imports and exports fell dramatically
2) Import substitution
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Articles of Confederation:
Unifying rules; no real substance or power to federal government
By 1780, all 13 colonies had their own constitutions
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product or service or otherwise on a password-protected website for classroom use.
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Articles of Confederation:
Weak federal government had limited ability to negotiate
Power to tax left to states
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Consequences of tax issues:
Free riding among states
Printed money to finance war
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Let’s review some details
Article I Section 8
Article I Section 10
Bill of Rights Amendment IV
Constitutional Amendment XVI
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New England
Primary effect:
Shipbuilding markets declined dramatically Secondary effects:
Fishing, lumber, naval, and support industries were depressed
Overall:
Economic conditions worse than any other region
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1786‐ Virginia called for the Annapolis Convention (nothing really happened there)
1787‐ delegates instructed to amend Articles in Philadelphia (ignored instructions and wrote hl d l h
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constitution)
12/7/1787‐ Delaware ratified
6/21/1788‐ New Hampshire cast ninth vote
3/4/1789‐ Constitution became effective
1791‐ Bill of Rights passed
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General economic effects from independence:
1) US ships excluded from direct trade with British West Indies
2) Spain withdrew privilege of direct trade with Cuba, Puerto Rico, and Hispaniola
3) Increased trade with French West Indies
4) No more protection under British flag‐ shipping became more risky
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product or service or otherwise on a password-protected website for classroom use.
Middle Colonies
Primary effects:
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y
Shipbuilding markets declined dramatically
Trade in food such as wheat and flour decreased
Secondary effects:
Lumber and support industries were depressed
Farming not as profitable
Overall:
Region recovered a little more quickly when food restrictions were lifted
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South
Primary effects:
Rice and tobacco exports fell (some nations d b
f ll (
prohibited American products)
Secondary effects:
Not many other products to turn to (importance of cotton didn’t happen until 1793)
Relative prices:
Since the relative price of exports rose, the relative price of imports fell
Terms of trade improved but leveled off around 1790
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Terms of trade changed, wealth was redistributed, some regions were harmed more than others, some regions recovered more quickly than others
There were clearly “winners” and “losers”
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product or service or otherwise on a password-protected website for classroom use.
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Putting things in perspective:
Export sector was never bigger than 10% of national income
From 1784 to 1789, the volume of US trade with Britain was almost as much as the volume between 1770 and 1775
1781‐83 were the bad years
By early 1790s, export trade estimated to be 30% higher than Colonial period
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product or service or otherwise on a password-protected website for classroom use.
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Putting things in perspective:
See Goldin & Lewis (1980) “The Role of Exports in American Economics Growth during the Napoleonic Wars, 1793‐1807”
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Growth may be overstated, some years still in dispute
One estimate is that income would have been 3% lower without the Napoleonic Wars
Re‐exports may have inflated export data
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product or service or otherwise on a password-protected website for classroom use.
Summary:
Economic conditions were depressed immediately following independence but didn’t last for an extended time
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New England and Middle states recovered more quickly
New markets were opened
Trade increase did not keep pace with population increase so per capita exports fell by about one‐
third
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product or service or otherwise on a password-protected website for classroom use.
Why did trade with England rebound so quickly?
If exports were limited, where else could those products go?
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1793‐1815 period
Can be described as boom or bust
Booms during wartime between other nations
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Busts during peacetime between others and wartimes for us
See Adams (1980) “American Neutrality and Prosperity, 1793‐1808: A Reconsideration”
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Two major capital improvements:
US, 1793:
Eli’s Cotton Gin
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England, 1785:
Mechanical loom
1810:
Cotton becomes America’s leading export
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product or service or otherwise on a password-protected website for classroom use.
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