Economic History of the US
The Colonial Era, 1607-1776
Lecture #4
Peter Allen
Econ 120
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Mercantilism: Gold flows only to London
 Economic subordination
 Parliament did not allow
colonies to bop surplus
 Kept colonies from
solving capital shortage
 Specie money, Money
supply can increase if
gold comes in
 Severely limited…
1. economic growth
2. Economic development
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Monetary system limited Colonial
Economies
 Persistent shortage
 All currency based on
specie
 … limited ability to earn
net. cash from trade
under mercantilism…
 Parliament
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forbade export of English
coin
Refused a royal mint in
colonies.
 No mines
 No banks
 ₤, but…
 Liquidity, unit of
account, store of
value
 Early types of money
used:
 Barter
 wampum
 “Inspection notes”
on tobacco
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Tobacco Inspection Note
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Colonial Money
 Specie that did appear came from trade
with other European colonies in Americas
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…especially Spain
8 Reales Silver Coin, called a “Dollar” or “piece of 8”
1 dollar, units of 8 Reales or “bits,” 1 bit = 12 ½¢
Equivalent to ₤0.225 (4s2d)
Minted usu. in Mexico City or Lima, Peru
 Colonies experimented with paper currency
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Most colonial govs. issued “Bills of credit”
Only paper currency in the world at the time…
Widely used, backed by gold or silver
English merchants accepted, but complained
Parliament, Currency Acts of 1751 & 1764 limits on
colonies ability to issue fiat currency
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New Jersey Bill of Credit
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Virginia Bill of Credit
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Modern Economic Theory…
 Supply of money need to grow for
economy to grow…
 Quantity Theory, MV = PY
 Specie systems…
 …means bop surplus, i.e. gold “in”
 Economic growth requires…
 Money set aside, i.e. “capital”
 To build new businesses
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“New Order,” 1763
 British wins French and Indian War,
1754-63
 Parliament adopts new NA policy
 Tightened Mercantilism rules…
1. Increase colonies’ rate of Tax, including
payment for defense
2. Blocked western settlement
3. Clamp down on colonial manufacturing
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Financial Crisis of the Seven Years War
Seven Years War
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“New Order,” 1763
 English residents had one of highest rates of tax
in the world
 NA colonists one of lowest, 20-25% of avg. Brit.
 Parliament said:
 “fair to ask colonists to help pay for garrisons on the
frontier” (cost ≈ ₤350K annually)
 Sugar Act, 1764
designed to cover 10% of cost
 Stamp Act, 1765
of frontier garrison
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Proclamation of 1763
 Parliament flips on westward
settlement by colonies
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Prevent trouble with locals
Sell land for cash
 Crown takes control of
western land..
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Royal Proclamation of 1793
Reserve for Indians and for landsales to wealthy English settlers
Quebec Act, 1774
 “Containment” of original
colonies on the seaboard
 Withdrawal of cheap,
unsettled western land
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Map 6.1 Colonial Land Claims
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Map 6.2 Reassignment of
Claims
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First Crisis, 1763-66
 Franklin made 2
arguments
1. Parliament levying an
internal-type, rather
than external-type, of
tax
2. Taxes levied without
colonists having a vote
in Parliament
 Colonists’ boycott of
English/West Indian
exports was successful
 …Parliament repealed the
Stamp Act in 1766
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Second Crisis, 1766-70
 Economic sanctions of colonies worked to
pressure British exporters, but…
 Political pressure did not…
 Parliament re-asserted its “supremacy”
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Declaratory Act, 1766
Quartering Act, 1765
Townshend Duties, 1767 (tea, glass, paper, pigment for paint)
(form of tax switched from tax to tariff, or “external-type”)
 Colonists again boycott British exports
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1769, colony imports dropped by approx. 2/3
English exporters lost money, pressured Parliament
Townshend Duties repealed, 1770 (ex. Tea)
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Third, Final, Crisis, 1773-76
 Tea Act, 1773: English East India Company allowed to
ship tea straight to NA, eliminating colonial importers
 Boston Tea Party,
 Intolerable Acts, 1774
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Closed Boston Port
Accused British officials to be tried elsewhere
Charter of Mass. Revised to extend power of local British governor
Troops to be quartered in Boston
 First Continental Congress, 1774
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Demand, Parliament repeal all post-1763 laws
Too late
Quarrel over economic relations, taxes and trade became moral and political
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“New Order,” 1763
1. French and Indian War, 1756-63
2. English gov. preoccupied internally
 English revolution 1625-51
 Deposition of last Catholic King, victory of
Parliament, 1690
3. Prior to 1763…
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English gov. lax on colonial affairs
Colonies governed themselves, esp. in economic matters
Encouraged westward expansion of colonies
Parliament allowed colonies to “free ride” on defense
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