The Colonial Economy

0:00What I want to do today is do a little backing and filling, a little bit of review and then filling in some of the material that I had to finish up with last week and get us up and running as far as the colonial economy itself. Now what we've done so far is taking this in steps. First looking at exploration, the actual discovery of the new world. And what I laid out for you was that the discovery process was really engineered through mercantilist type policies.

0:45And this was a very powerful discovery tool, although as we saw, it has a lot of weaknesses as well. Then we looked at the Arctic exploration for a more in-depth look at the difference between public exploration and private exploration, finding that really, unambiguously, the private method of exploring was much more successful, cost-effective and less risky. And so you want to know the details about that particular issue in class. The next step was colonization, the actual moving of people to the new world and putting an economy in place.

1:34And what we saw is that life was already pretty good in Europe. I mean, it certainly had its drawbacks. Lots of problems in Europe, but relative to every other place in the world, and relative to just about any other time, going back in time, Europe at this time was pretty good. Whereas the New World, life was very, very difficult. And the first couple attempts at colonization were disasters. Jamestown was a death trap, basically, and it was a socialist technique where everybody worked for the whole and was given equal shares of production and it just didn't work.

2:23The same thing with the Plymouth Colony. It was organized on a socialist or public type setting, and it too was very difficult and ineffective, and both colonies probably would have been completely wiped out, hadn't they switched over to a private property system where individuals produced for themselves, basically. We saw that life expectancy in the New World during this time was much lower than in Europe. The samples that we looked at, the average life expectancy in the colonies was 21 years, whereas in Europe it was about 29.

3:10So why would anybody come to the New World? In the New World, well, the advantages were that land was inexpensive and people liked to own their own property. There was plenty of work available. In Europe there would be periods of famine and unemployment. But in the New World, you could always find a job. Someone was always willing to hire you. Wages were pretty good. And then, of course, most people wanted to work for themselves. We also saw that in samples that historians have taken that the quantity of food that people were able to consume in the New World was relatively high.

3:55Once they got through these initial mercantilist experiments and socialist experiments and reorganized society on a private property basis, the production of food was actually quite high. But still, it wasn't really a great bet to come to the new world. And so, what we ended up finding, again, looking at the population and who actually came over was that one large group were the indentured servants who turned out to be fatherless and friendless, familyless in many, many cases. And the other major group that came over, that we can identify, are people who came over for religious reasons, who came over because of religious intolerance in the old world.

4:58and that's not probably too surprising if you remember European history at this time Europe had just gone through the Reformation Europe had been dominated by the Catholic Church the Reformation, Martin Luther put into place producticism and various of its various forms. In one way in which producticism became so effective is that a national leader would adopt it as a state religion. And so everybody had to be that particular religion and the Catholic countries did similar things. France expelled the Huguenots. Okay, so there was a lot of intolerance with respect to religion in many European countries. And so that was a big source of new immigrants as well. Let's step back and look at this indenture process though. Sort of a market process of getting people from the old world to the new world because many of these people had a low opportunity cost. They didn't have money.

6:29They wanted the opportunity to work. They wanted the opportunity to get their own land, but they didn't have a way of paying their way over to the new world. So in England is where the process basically begins for the American colonies and there would be actually specialist Specialist in Setting Up Inventure Contracts and actually that's where the word comes from where the contract would be written out on a piece of paper and the terms of who the contract was about where they were from, how long the contract would be good for for things of that nature would be specified on the top half of the contract and also on the bottom half of the contract and then this contract, so you've got two copies of the contract on one piece of paper and then it was cut in two, it was signed by both parties and then cut in two.

7:44And these indentures, or indentations, were a way in which, of course, the person being indentured would get the top half, and the person buying the indenture would get the bottom half, and they would always know that they had the right contracts because they could match up the tear marks in the middle. it's kind of an odd way of doing things so you have in in England you have specialists or agents who would go around finding these people and setting up the contracts and then you would have the ship captains who would actually be The ship captain buys the contract, takes the person on the ship and brings the person to America and then sells the contract to a local landowner, a local farmer who is the owner of the contract.

9:12The length of the contract could be three, four, five, six, seven, maybe eight years. So in return for the passage over, you agree to work for someone at the other end, who you don't know, you've never met, for a period between three and eight years. and that depended upon your sex your age and whatever abilities or talents you might have so that a man with work experience might only have to agree to work for four years a woman might have to agree to work for five years children in 7 or 8 years. Depends on what your expected productivity was in the new world, how fast you could pay off that contract would determine its length. The buyer of the contract agreed to provide you with food, clothing and shelter. So you've got a buyer on this end who has to provide food, clothing and shelter, medical care, such as it was. And of course they didn't They didn't have any problem doing that. They wanted you to be properly fed so you could work hard.

10:44They wanted to make sure you were not ill so you could work. So, I mean, they were fairly well taken care of, and of course there were also instances of abuse of these indentured workers as well. Indenture is kind of like slavery. It involves a lot of hard work. The indentured worker could actually be bought and sold, so someone might buy the indentured worker and then turn around and resell the person two or three years later. And the person would continue to work for the next party for however long the contract specified.

11:31Indentured workers, however, did have legal rights and they could own personal property. Indentures were also like an apprenticeship. An apprenticeship is something that was very common in Europe and that tradition continued in America Where families would give up their young children or young teenagers really into apprenticeship and someone would agree to teach that child a trade like blacksmithing, hat making, wool clothing making, some trade that after seven years they could enter and start producing for themselves So, these indentured workers learned trades, they learned skills, and then after the period of the indenture was up, they would be set free, they would be given a new set of clothes, and a supplement wage, and the supplement wage was set free.

12:43set of clothes, and a supplement wage. And the supplement wage was typically not given in cash. And on Friday when we start looking at money in the colonies, we're going to see that money was relatively scarce in the colonies and that people often paid for things with Commodities. So if you were an indentured worker in the West Indies helping to make or produce sugar, you'd be given a couple barrels of sugar when you were set free. If you were an indentured worker on a farm in New York or Virginia, you might be given a couple barrels of flour.

13:35So enough food and sustenance or something you could trade to keep you going for a period of several months. And then as I mentioned, the indentured worker would then take their freedom, get a job, earn money, buy some land, and even buy some indentured workers themselves. And through this means, a lot of indentured workers who were penniless in the old world, very often fatherless or familyless would become landowners. Indentures are even in the U.S. Constitution. Does anybody remember where in the Constitution indentured workers are referred to?

14:28Well, it's close by to where slavery is referred to. When the Constitution talks about the allocation of representatives in Congress and the payment of taxes to the Federal Government, it says that those should be apportioned to the states by adding the number of free people to, quote, those bound to service for a term of years. goes bound to service for a term of years and then it follows up by saying that they should exclude Indians from this count but add in three-fifths of all other persons and the three-fifths of all other persons refers to slavery and the slave compromise in the Constitution. Now, of course, to us, this process of indenture sounds pretty miserable in a day and time where a college student can afford an airplane ticket to Europe. It doesn't seem right that you'd have to give up seven years of your life of hard labor just to get across the ocean.

15:58but that's the type of life that life was about in this period of time. The indentured process was eventually forbidden in the United States so that The people had to pay up front their passage to America. And this had some unfortunate consequences. Because people were continuing to emigrate to the United States in the 19th century.

16:45We're talking more here about the 18th and 17th century. But after indentures were forbidden, people had to pay up front. For example, when the Irish immigrated to America en masse around the time of the Irish potato famine, the ships that sailed from Ireland to the United States were called coffin ships. Because these people could not afford luxury accommodations, they were very often stacked into these ships. They were already poor, they were already malnourished because of the famine.

17:31Many of them had diseases. So that most of the people who took those ships over died in transit. They actually, more than half of them died. And so they were tossed overboard. And the stories about this indicate that depending upon where the ships were, that they would be followed by schools of sharks because there were so many people being thrown overboard who had died in transit. Now it doesn't seem right, does it, that paying customers would be actually worse off than indentured servants, does it?

18:24You'd think that indentured servants would be treated poorly whereas paying customers would get some decent treatment. So what's wrong with the incentives? Almost none of the indentured servants died on the trip over, whereas half of these Irish customers, During a period when, you know, we're talking about at least a hundred years later, ships were bigger and faster and we had more technology and that kind of thing. Yes? Yes. Well, if they paid up front, then there was no incentive for them to get any more money after that, whereas if they had known it was capital goods, they would have signed them, effectively, as a capitalization of their labor, they would have been paid afterwards by then.

19:22Yeah, that's right. I mean, with the Irish peasants paid up front, the captains of the ship couldn't get any money out of them. After that, there was no reward at the end for the captain, whereas with the indentured servants, the captains had to pay up front. They had to pay up front, and they only got paid when they reached the colonies. And they only got not paid good money if they reached the colonies with live workers, number one. They had to be alive and they had to be in pretty good shape too. Because if you brought somebody out into the marketplace in Richmond, Virginia and they were skinny and sick and coughing, you wouldn't get a good price for that indentured worker. Whereas if you brought somebody who If you look healthy, relatively happy, well-fed, you get a higher price.

20:24And so the incentives for the indentured servant system serve to keep those indentured servants in pretty good shape. Now, I'm going to go back a little bit here to British mercantilism and what we're going to find here are the seeds of the American Revolution. So it's not just blah, blah, blah, there's a reason for doing this in terms of seeing why America had a revolution in the first place.

21:15Britain owned the American colonies, they controlled them, and one of the things they did was restrict manufacturing in the colonies. So they put restrictions on the colonies in terms of what the colonialists could do. And one of the things they didn't want the colonies doing was being involved in manufacturing and competing with British manufacturers. Some things were okay. For example, it was okay in the colonies to produce iron and to sell it to England.

22:06It was not okay to produce iron and make iron goods to be sold in England. It was okay to be involved in extractive industries like mining and sell those raw materials to England, but they didn't want competition at the manufacturing level. Indeed, they wanted to sell their manufactured goods to the colonists. So this mercantilism thing is, of course, it's about trade, it's about gaining advantage for the home country over other countries and over your colonies, to benefit from those colonies.

23:00So, it was illegal to produce things like cannons and ship anchors and things of that nature. Industries like hat making in the colonies was restricted. In 1700, England passed the Cotton Act, which allowed the colonies to continue to export cotton, but not to export cotton textiles.

23:36One industry that the colonists adopted and excelled at was shipbuilding. America became one of the largest ship producers in the world. And they were producing ships for themselves, as well as for the United Kingdom, or Britain. Now as I said, labor was expensive in the colonies, but they had a lot of advantages as well, and the biggest advantage is they had a lot of trees, they had a lot of lumber, A lot of old, large trees very close to waterways or means of transportation. In Europe, people had been living in the cities for hundreds of years, and they had been cutting down the trees around those urban centers for fuel for a very long time. So in order to get really good wood for shipbuilding, they would have to transport the lumber long distances, or or even from other countries.

24:50So that was a very expensive process in Europe. But in the colonies, there was a lot of lumber there just sitting, waiting to be taken. Colonies also produced naval stores, tar, pitch, turpentine, things of that nature. Ludwig also produced hemp, better known as marijuana, as far as we know most of it was America was grown, however, to produce rope and, in terms of ships, to produce rope, rigging, and sails, as well as other things like paper and textiles.

25:51So, America was big into shipbuilding, and this was okay because the British wanted an advantage in ships. They wanted large navies to protect their colonies, and of course, Britain ruled the seas during this time, and they wanted large merchant marines. they wanted a large number of ships in order to transport goods to and from the home country but basically the colonies were left with besides a small extracted mineral sector and small manufacturing and shipbuilding the types of goods that americans were restricted to were basically agricultural Gold Products, which were designed for export to the old world.

26:53Fish was actually one of the bigger industries. Americans were using those ships that they were building to go out and fish. And of course, we're not talking bass fishing here. They would fish for things like cod up and off the coast of New England and also whaling was of course a big industry. There were a lot more whales back then and whale products were much more important. Whale oil was the major source of oil for burning candles and and Providing Light. So that was a major industry in the northern colonies. So in the northern colonies like New England, Massachusetts, Connecticut, things of that nature, fish was the major product.

27:58In the middle states, states like from New York down to like Delaware, grains were the main emphasis in the economy and the major export. Banking was the second largest export back to Britain. In the upper south, states like Virginia and Maryland, tobacco was the major product, the was a major export good.

28:57And tobacco was also the number one export of the colonies back to Britain. As you get down to the lower south,

29:16and of course wasn't even in the picture, there was no Alabama at this time. So we're talking about states like North Carolina, South Carolina and Georgia. Florida was actually in the hands of the Spanish. In the lower south, produce the naval stores, particularly in North Carolina, and also rice, and Indigo. So British mercantilism really restricted the U.S., or excuse me, the American colonies in terms of what they could do. Now their natural comparative advantage was certainly are only going to be in these areas anyways.

30:30Again, we had plenty of land, not a lot of labor, so agricultural type pursuits were a natural comparative advantage for the U.S. Particularly when talking about things like tobacco and especially later on, cotton. That's not surprising, but British mercantilism and its restrictions really focused the attention of the colonies onto those limited areas of production for its economy.

31:16When I was originally taught American history, I'm not sure if it's still done the same way, But newer research has changed this story somewhat. The story of the triangular trading pattern during the colonial era.

32:17And this triangular trade theory gives you the impression that ships went around the Atlantic in a sort of a triangular like pattern. Where you have New England up here, the West Indies down here in the Caribbean, Jamaica, island colonies like that. Then you have England over here in Europe and Africa down here.

33:08It's not even really a triangle, but the story went something like this, slaves would be shipped from Africa to the West Indies to work in the sugar cane fields.

33:38Sugar would be transported from the West Indies up to New England, where the colonists, as I said originally, the first ones to come over, were most disappointed about the absence of beer in their diet. They became experts in the production of rum. Much of it was consumed in New England, in in the colonies, but a lot of it was exported back to England, and it's kind of odd that Massachusetts would be like the premier rum making area in the world. The British actually In the old days, they used the rum as a substitute in their soldiers' rations and in their sailors' rations, and it was the case for a very long time that every English soldier and every English sailor was entitled to their alcohol ration, which I think was something like the equivalent of about 8 ounces of rum per day.

35:23And so when the colonies started producing this rum, they stopped buying French brandy from the French to provide those rations and substituted rum. And that was a tradition that had long existed for the British military to keep them fighting, I guess, and it was only abandoned, I think, in 1970.

35:53So, it's kind of like a triangle. Of course, notice that, notably that Africa is really not getting much out of this. That's not totally true. There is a flow of goods, including rum, from the UK to Africa. The Royal Africa Company was one of these mercantilist companies that the British had set up to establish, not really establish colonies, but to establish markets for slaves and slave ships in Africa.

37:06And so the Royal African Company, which had ships, warships, soldiers and agents, were We're overseeing the process of the buying and selling of slaves here between the slave hunters and the slave ships. And of course, the slave ships had to pay for the slaves and the slave hunters received money for the slaves and they use that money generally to buy british goods so the goods would come down here and be sold and the royal african company had a monopoly on the selling of those goods But it sort of gives you the impression that a ship would start here in New England, go here to the UK, then come down to Africa, then over to the West Indies and then up to New England and sort of repeat that process. And that really wasn't the case.

38:22It was usually that a shipping company would work between New England and the UK, or between New England and the West Indies, or on a specialized route. Now, one of the aspects of British mercantilism is that they also restricted trade with the colonies. The Navigation Acts are something that's going to be important over time, especially as we come up to the Revolution. The first Navigation Act is passed in 1651, but another one was passed in 1660 and another one in 1663, and they periodically revised the Navigation Act over time, right up to the American Revolution.

39:23So, it's a hodgepodge of restrictions and duties and who can do what, where, when and how. Each of the navigation acts is different, but the salient features of the navigation acts are pretty straightforward. First of all, the colonies are only allowed to trade Trade with English ships. So the colonies are only allowed to trade with English ships. So the French, the Portuguese, the British and Spanish couldn't just come to the American colonies and trade with the colonists. They had been doing that and they actually continued to do that a little bit until the British were sort of up and running with enforcing this provision this did not really piss off the colonists too much because their ships were considered English ships so that didn't place any restrictions on the colonists themselves with respect to shipping they could engage in shipping but as merchants selling their goods you could only sell them onto an English registered ship So foreign ships are excluded. And over time they set up enforcement mechanisms, they set

40:50up observers, officers and courts to prevent foreign ships from entering the major harbors

41:01of the American colonies. And third, commodity restrictions. So the British had direct intervention

41:13The colonialist policies or mercantilist policies which said the colonists couldn't manufacture various things so they ended up producing commodities, agricultural commodities and then it placed restrictions on the colonists of what they could sell to what other countries and basically all of the good stuff had to be traded or exported to England so you had to go around an English ship and with all of the good stuff you had to go and bring it back to England so the sugar and the tobacco and the cotton and the spices that were brought up from the West Indies could only be traded or exported back to England and of course this restriction why would they put that restriction on in place makes it cheaper They're cheaper for the English. They get the cheapest cotton, tobacco, sugar, so forth, from the colonies.

42:20And then the English, if the French wanted some of this stuff, then they would have to buy it from the English. So the French would experience a markup in the price. So these navigation acts are designed basically to enrich the home country at the expense of other countries as well as the colonists themselves. So Americans at this time, 90% at least, were engaged in farming. Today, less than 5% of our population is engaged in farming. At the time, only 5% of the population of the colonies was urban, because most people were out on the farm producing these commodities.

43:18On the eve of the revolution, Philadelphia, Pennsylvania, was the largest city in America. It was not as large as Auburn, Alabama is today, but, again, you've got to put things in perspective, like life expectancy. Back then 21, today 78. Philadelphia was the second largest city. London was the only other city that was noticeably larger. Philadelphia was in the lead at this time because it was in the center of the colonies.

44:06It was a trade center for the colonies. It was a very free and tolerant colony. There was not a lot of religious restrictions and things of that nature. New York had 25,000 residents, Boston had 16,000, Charleston, South Carolina had 12,000, and Newport, Rhode Island had 11,000. Okay, I don't have enough time to get into an explanation of this triangular trade issue at this point, so I'm going to pick it up and start talking about money in the colonies on Friday.