Independence, Economic Impact of (Issue)

views updated

INDEPENDENCE, ECONOMIC IMPACT OF (Issue)

Although the Treaty of Paris (1783) ended the American Revolution (1775–1783) and formally granted the newly formed state political independence from Great Britain, answers to the economic questions raised by its new-found freedom were not as easy to find. The former colonies had been an integral part of the British Empire and its vast transatlantic economy for nearly 200 years. Before any decisions could be made concerning the economic direction that the United States would take, serious political questions had to be settled first. But even after the Constitution of the United States was adopted in 1789, after the Articles of Confederation proved insufficient, economic problems still loomed large in the minds of many Americans. In the end, Americans were posed with two rather idealistic options. Would the United States seek self-sufficiency in an agrarian economy with small, independent self-sufficient farms, as Thomas Jefferson (1743–1826) advocated. Or would it seek a continuation of the international specialization and exchange it had grown accustomed to during the colonial era, as Alexander Hamilton (1755–1804) proposed? Before they could choose either one of these however, Americans had to deal more directly with the problems caused by the Revolution and its newly found political independence.

For many Americans, independence didn't provide all the solutions it appeared to have promised. For some, it only made things worse. The British Navigation Acts, although no longer restricting trade outside the Empire, were now applied to Americans who wished to trade in the Empire. Moreover, the mercantilist regulations of other European countries were often times more stringent than British laws had been. War-born industries found it impossible to match British efficiency. Cheap British manufactured goods began reappearing on the American market and the protection that American industries had enjoyed due to trade disruptions during the war, disappeared. Trade came to a standstill, domestic prices fell (farm produce brought the lowest prices) and unemployment among common laborers rose sharply.

Specie (coined money) balances that had accumulated in the last years of the war flowed out, back to England as payment for imports. During the war, Congress and the several states had issued almost $437 million in paper currency. Because of the magnitude of these issues as well as counterfeit currency, state monies had depreciated in varying degrees. Money issued by Congress (Continental currency) had become almost completely worthless and soon found it way into the hands of speculators. As money lost is value, business again, as it had during the colonial years, became dependent upon English, Spanish, French, and Portuguese coin. Currency became as scarce as it had ever been under British rule and the cry for paper money mounted, especially from the debtor class of farmers and common laborers. In many cases, the legal collection of farmer/laborer debts could only be settled by imprisonment or by stripping the debtors of real estate, cattle, or furniture.

Under the Articles of Confederation, which had been adopted in 1777 during the war, Congress had little authority and was unable to exert any effective control over the economic activity of the individual states, either in their relations with foreign countries or with each other. It could not levy taxes, issue money, or enforce a uniform tariff on imports and exports and could only ask the states for funds with which to carry out its duties. Under the Articles, some states could receive a higher percentage of foreign trade that would more than compensate for any loss either in manufacturing or employment.

But things weren't all bad under the Articles of Confederation. The break-up of some of the large estates previously owned by Tories (Loyalists) did allow states to provide some minor improvements in access to land and to flexibility of its use (although some tracts passed intact into the hands of wealthy patriots). Quitrent payments to colonial proprietors were abolished and laws restricting entail (which allowed heirs only the use but not the right to sell estates) and primogeniture (a policy which granted the eldest son exclusive rights to inheritance) were established. The Land Ordinances of 1784 and 1785 and the Northwest Ordinance of 1787 provided a highly favorable climate for westward movement and unwittingly eased transition to government under the soon-to-be ratified Constitution. By dictating the terms by which land could be sold and administered politically, the Ordinances settled many potentially serious problems. Land could be sold only after accurate surveys had been done and townships systems had assured secure land titles. In addition, because the thirteen states ceded their claims to western lands to the central government, new states could enter the Union on equal political footing, not as colonies.

Even so, with the central government facing no more urgent problems than those stemming from its financial difficulties, what little progress the Articles did achieve proved insufficient to reestablish public confidence and order. Shays's Rebellion in 1786 convinced many Americans that a stronger federal government was necessary.

But when the framers of the Constitution assembled in the spring of 1787, their emotions were still mixed. While they were compelled by the sobering experiences of what independence had brought so far, they were also moved by the revolutionary zeal of more liberty and less government. In the end, the Constitution they produced reflected these tensions. It gave the federal government the powers to tax, borrow, and coin money, regulate foreign and interstate commerce, establish a postal service, and issue patents and copyrights, but it imposed constraints on the government's ability to regulate trade. The federal government could not impose duties on exports, could not discriminate against the ports of any state in its commercial regulations, could not restrict a carrier's freedom to enter or leave a state without stopping in another, and finally, could not extend any trade barriers between the states themselves.

In his Report on Public Credit (January 1790), Alexander Hamilton, Secretary of the Treasury under President George Washington (1789–1797), recommended that the federal government assume full responsibility not only for the outstanding debts incurred by Congress during the war but also for the debts accumulated by the states since 1775. By doing so, he wanted to ensure that the holders of public securities, most of whom were wealthy merchants and speculators, would have a significant financial stake in the survival of the national government. The new Congress accepted Hamilton's proposal and assumed the debts of the central government under the Articles of Confederation as well as the debts of the thirteen states.

To further promote economic development, Hamilton also presented to Congress a report on manufacturing. The report recommended that the government embark on a protective tariff policy that would tax imports in order to nurture infant industries, foster new ones, and stimulate domestic production. As a strong advocate of mercantilism, Hamilton was dissatisfied with the narrow economic base of merchants and farmers. He believed that manufacturing had to be developed, with the aid of the federal government, as soon as possible. Finally, Hamilton proposed that the creation of a national bank would provide the federal government with funds necessary to discipline irresponsible state banks, some of whom he believed could debauch the monetary system by issuing paper money.

The response to Hamilton's proposals was quick and immediate, mostly among farmers. They resented monetary curbs and saw a national bank as a successor to the Bank of England, which they felt, was too inclined to make monied men rich and landed men poor. They found their most ardent spokesman in Thomas Jefferson. Jefferson envisioned a rural democracy with an agrarian economy and believed that the United States should remain a nation of farmers. He argued diligently against the shackles of tyranny, which for him came in the form of a powerful central government. He spoke out against the "evils" of an urban economy and sought to uphold liberty at all costs. Hamilton, on the other hand, sought order and regulation and fought against political anarchy. He wanted to diversify economic life by encouraging shipping, manufacturing, and increased economic activity through the legislative powers of a strong federal government. While Americans remained skeptical about the extremes of both of these views, by the end of the nineteenth century, Hamilton's vision had been decided through the fires of political maturity, civil war, victory abroad, national aggrandizement, economic prosperity, and western expansion.

See also: American Revolution, Alexander Hamilton, Thomas Jefferson, Mercantilism, Navigation Acts, Navigation Acts (Economic Burden on the American Colonies), Report on Manufactures, Specie