Economic History of the US
The Colonial Era, 1607-1776
Lecture #3
Peter Allen
Econ120
1
Formative Years of Colonial
Economies…
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Agriculture, dominant activity
Land, resources plentiful
Labor, capital scarce
Immigrants attracted by land ownership
Stronger labor shortage in the South
Southern colonies’
 incentives to import slaves
 Economies of scale & comparative advantage
 …under English colonial incentives
2
Southern Agriculture
had large “Economies of Scale”
…macroeconomics concept
…long-run average total cost falls as
the quantity of output increases
Highly successful
Generate great wealth
Required little capital
Model conformed with Parliament’s
plan for colonial economy
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4
5
Early Manufacturing
 Just 10% in colonial times
 Extractive industries
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Lumber, fishing, hunting, fur-trading
Early problems with excessive depletion…
…beaver, “tragedy of the commons”
 Early manufacturing

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Households
Cloth, clothing, shoemaking, utensils, furniture, trapping
Concentrated in North
Milling (grain, lumber, paper, forging…) water-powered
Shipbuilding
 New England
 Exported to England for cash
 Comparative advantage (v. England, Holland), proximity of raw
materials
6
England’s Policy: “Mercantilism”
 1500-1800, name for economic goal of England
 Wealth and power of imperial governments by
accumulating specie
 Money based on gold/silver
 Trade surplus, taxes = more gold =
 Gold must always flow from colonies → to England
 Purpose of colonies was to increase physical amount
of resources under English gov. control
 Division of world into colonial blocks
 Colonies subordinate economic interests
 Parliament regulated colonies’ trade inside and
outside the “British world”…
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8
Navigation Acts, 1651, 1660, 1663
 Regulation, physical control of colonies’ foreign
trade
1.
2.
3.
Colonies’ trade must be carried on English vessels
Colonies’ trade with “foreigners” must take place at English ports
Southern colony exports to be sold only to England
1.
Sugar, tobacco, cotton, indigo, rice
 Parliament wanted colonies to buy British
manufactured products
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…and not to manufacture themselves
More money/gold for them
It was happy with southern colonies, not so much with northern
 Colonists accepted mercantilism…
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Exploitation, but…
Parliament paid for defense, i.e. wars
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Figure 4.1 Distribution of
Colonial Trade
10
Supply and Demand Effects of
the Navigation Acts
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Colonial trade
10 largest exports, 17681772
(average, p.a.)
1. Tobacco
₤766K
2. Bread & Flour
410
3. Rice
312
4. Fish
154
5. Wheat
115
6. Indigo
113
7. Corn
83
8. Pine boards
70
9. Staves & Headings
65
10. Horses
60
 South dominated…
 55%
 …dominated items on
British list of colonial
exports
 Colonial imports came
overwhelmingly from
England…
 …and were mostly
manufactured products
12
Colonial, bop
(1768-72, average p.a. in thousands of ₤)
Merchandise Trade
New England
Middle Colonies
South
Total
UK
-609
-786
-73
-1468
Europe
+48
+153
+138
+339
Indies
-36
-10
+35
-11
Services Trade
Shipping
Payments for Human Beings
Indentured Servants
Slaves
Taxes and duties
Military and civil expenditure
Balance of Payments = Specie Flow or Borrowing
Africa
+19
+1
0
+20
Total
-577
-643
+69
-1120
+960
-80
-200
-40
+450
-30
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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
14
Economic growth was slow
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Hard to tell, approx. 0.3-5% p.a., 1650-1776
South: highest economic growth and wealth
Expansion of southern “model”
Scarcity of capital impeded technology upgrade…
…but hampered North more than South colonies
Economic theory: growth comes from…
“Ability to produce” = productivity
Productivity growth slow, esp. in Middle and
North
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Case of Tobacco
 Introduced to England from NA
 Developed by native Americans
 Productivity doubled, 1630-70…
 …causing price of final product to
fall
 Seen with other crops grown in the
south
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Figure 5.1 Chesapeake Farm
Tobacco Prices, 1618–1710
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Ag. in Middle and North Colonies
didn’t grow as fast
 Efficiency gains seen with Grain and Livestock in the
Middle Colonies, but on a smaller scale
 Model, family farms with smaller workforce
 Indentured workers
 No real economies of scale…
 Productivity gains depended on
 Improvement in farming practices, or…
 …importing technology; tools, implements
 Constrained by lack of capital
 More pressure to improve productivity than in
South
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Lower cost of Transportation
 Source of colony-wide productivity
 Early colonial era, extremely high cost
 Cut in half… equal to productivity growth
of ≈0.8-0.9% per year
 Lower cost to distribute final products
1.
2.
3.
4.
5.
Larger ships, lower cargo tons per crew
Lower insurance rates
More efficient ports
Better roads
Late colonial period, British Navy controls
piracy
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Living standard and equity
Historians agree that by independence…
1. Free colonials had a relatively high standard of
living
2. Income was evenly distributed at first, but
became skewed by independence
Regional per capita, 1774 (free only):
New England
Middle colonies
South
Whole
income
₤ 9.5
11.0
15.4
12.1
wealth
₤ 38.0
44.1
61.6
48.4
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Table 5.3 Private Nonhuman
Physical Wealth, 1774 (in ₤)
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Table 5.4 Estimates of
Regional incomes, 1774 (in ₤)
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Table 5.5 Physical Wealth, 1774: Estate
Sizes and Composition for Free Wealth
Holders (in ₤)
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