Economic History of the US
Revolution to Civil War, 1776-1860
Lecture #1
Peter Allen
Econ 120
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Revolutionary War, 1775-83
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Independence, July 1776
2/3 of population neutral or loyalist
France alliance decisive
Mercantilist framework out…
 Trade with England…
 …replaced by trade with non-British areas, esp.
France, Spain, Holland
 Colonial powers motivated by making trouble for
England
 …but below pre-war level
 British naval blockade leaked
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Wartime Import Substitution
 Suddenly, no manufactured products
 France, Spain, Holland not as “industrialized” as
England
 Manufactured product prices rose sharply in US
 North and Middle states→ manufacturing to replace
English imports
 Tricky business, though…
 Peace Treaty of 1783…
 Trade reopened partially
 brought prices back down
 …and new manufacturers couldn’t compete
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Articles of Confederation, 1781-89
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How to organize the new government? (no idea!)
False start, replaced in 1789
…was unworkable financially
“Confederation”…like the EU
Main problem, central government finance…
 Congress had power to make war, but…
 …only “sovereign” states had the power to levy tax
 …states didn’t pay…incentive to free-ride on revenues
“voluntarily” supplied by others
 No mechanism to regulate trade and financial affairs
between states
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Articles of Confederation
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Financial crisis
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Congress had no direct source of revenue,
States were “free riders”
War financed by
issue of paper currency by Congress
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$400 million “Continentals” (half by states)
Denominated in “spanish milled dollars”
“Fiat” currency, no backing by specie
Repudiated, but funded later under new Constitution at 1%
Hyper inflation
Legacy of distrust of gov. monetary management and paper currency
- “not worth a continental”
2. …and a small amount of US Gov. debt, $40 million
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“Continental Dollars”
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 US territory ceded
by Britain at War’s
end
 Yorktown, 1781
 British surrender
 Treaty of Paris,
1783
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Economy at War’s End, 1783
 Victory, but…
 Inflation, currency repudiation
 Need to replace Articles of
Confederation
 Altered pattern of trade
 US trade and place in the world?
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“Powers” slow to take new US
Gov. Seriously
 Powers were slow to allow commercial recognition
 World still dominated by mercantilism…
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What is place in commerce for an independent Republic outside
colonial blocks?
 Treaty of Paris, US agreed…
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Pay prewar debts to Eng. merchants
Restore confiscated Tory property
 Eng. considered US products “foreign” …prohibited or
imposed high tariffs
 Thought US wouldn’t survive
 Flooded US with manufactured products
 US trade vessels no longer protected by British navy
 New markets for US exports?
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Other Mercantilists…
 Post-war, lost anti-British motive
 Spain
 Now neighbors
 Wouldn’t open the Mississippi to US vessels
 Rescinded trade w/Cuba, Puerto Rico, Hispaniola
(Haiti, DR)
 France
 Accepted US exports, but imposed taxes
 Couldn’t supply manufactures
 US gov. under Articles was too passive…“central
gov.” needed more clout, ability to conduct an
active foreign policy
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Alexander Hamilton, 1755-1804
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British West Indies
Humble origins
Business, Finance
Federalist
US Mint
First Bank of the US,
1791-1811
Fed. gov assumption of
all fed/state debt
Never President
Most influential of the
founders?
First Secretary of
Treasury
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Destination of Exports (₤ thousand.)
G. Britain
N. Europe
S. Europe
British W. Indies
French W. Indies
Africa
Canadian Colonies
Other
Total (%)
(₤ thousand)
(per capita)
1768-72
58%
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1
0
0
100%
2,802
1.31
1790-92
31%
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14
10
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1
2
2
100%
3,953
0.99
Largest exports now bread, foodstuffs, salted meat, flour, corn,
wheat
Plantation crops tobacco, indigo, rice Brit now producing in the
Indies)
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Table 7.2 Average Annual Exports from the 13
Colonies, 1768–1772, and the United States,
1791–1792 (in Thousands of ₤, 1768–72 Prices)
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New Constitution, 1789
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Drafted 1787, ratified 1788-89
Economic powers of the new Fed. gov….“supreme”
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Power to tax
Power to pay off all debt, incl. states’
Coin money (states prohibited to) backed by gold/silver
Regulate trade among the states (“interstate commerce”)
Modern economics: trade integration, “common market”
PO, Roads, weights & measures, bankruptcy laws
English Common Law
Private Property, Limited gov., federalism
Slavery permitted to continue, slave trade to stop in 1808
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Napoleonic Wars, 1793-1815
 Opportunity for the new US economy to accumulate
savings
 French Revolution, 1789
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European monarchies v. French Republic
Execution of King Louis XVI, Jan. 1793
 4 US Admins. Washington, Adams, Jefferson, Madison
tried to stay neutral
 England and France totally consumed
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No private shipping
Relaxation of mercantilist policies
Combatants needed supplies
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Figure 7.3: Values of Exports and
Re-exports from the US, 1790–1815
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Figure 7.1: Credits in the US
Balance of Payments, 1790–1815
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Export-driven economic boom
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1793-1803: income per capita grew by 1% per annum…
First large bop surpluses in North American states
Specie flowing in, allowing money supply to grow
Virtuous circle…
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Exports→bop surplus→specie/money
in→savings→lending for investment→new industries
Need for banks
First demonstration of potential for economy
No more “missing link:” land, labor and now capital
Capital flowing to manufacturing and commerce
First self-made Americans, Astor, Gracie, Derby, Girard
…not sustainable
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War of 1812
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US finally gets pulled in
England/France attacked US ships for trading/helping the other
side…
…US having more difficulty staying neutral…
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Jefferson Adm. (#3, 1801-09) tried appeasement…
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…didn’t want US to trade with France
…didn’t want US to trade with England!
…“impressed” US sailors into the Royal Navy
Embargo Act, 1807 prohibited all trading with foreign ports
Non-Importation Act, 1809 narrowed to just British/French ports
Bop surplus, economic boom ends, South hurt most
Fought in Canada, northern US (NY and DC), Baltimore
British blockade of Atlantic coast stopped trade
Neither side surrendered, Treaty of Ghent, January 1815
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