1754-1783: Business and the Economy: Overview

Mercantilism and Empire. On the eve of the American Revolution, London was the metropolitan center of an empire that included Ireland, India, Ceylon (present-day Sri Lanka), the African Gold Coast (present-day Ghana), Newfoundland, Hudson Bay, Nova Scotia, Quebec, the thirteen American mainland colonies, east and west Florida, several Caribbean islands, and Belize in Central America. These colonies were important economically to Britain as sources of raw materials, food-stuffs, and semifinished goods. By the mid 1770s Britain imported more than £5 million worth of goods annually from its North American and West Indian colonies, which in turn served as markets for the processed and manufactured products that Britain exported. This arrangement—whereby colonies furnished resources to and markets for an imperial power—was part of a system known as mercantilism. People in the eighteenth century assumed that the world had a limited supply of wealth. The goal of nations, therefore, was to garner as much of this wealth as possible. They did this by selling their goods to other countries in exchange for gold and silver and then hoarding these precious metals. The imperial governments jealously protected their markets from foreign competitors and regulated the economic activities of their colonies. The most successful—Britain, France, Spain, and the Netherlands—reaped huge amounts of wealth and prestige. By the late eighteenth century mercantilism was being challenged within Britain itself. Scottish economist Adam Smith called such policies the “impertinent badges of slavery” and argued that free trade, rather than protected markets, would result in more wealth. Smith published his most important work, The Wealth of Nations, in 1776, the same year that the American revolutionary leaders signed the Declaration of Independence. Yet Smith was in the minority. Most people, including the colonists, continued to accept the necessity of regulated markets. Even Smith admitted that the colonies benefited from importing most of their manufactured goods from Britain. Because the colonies had relatively fewer workers, wages there were much higher. Manufactured goods would have cost more if they were made in the colonies rather than imported from the mother country.

Commercial Regulations. Beginning in 1660 Parliament passed a series of navigation acts to regulate the flow of goods from the British colonies. These regulations originally covered only a few products, most of them from the West Indies. But by the early eighteenth century the list of regulated (or enumerated) items included some goods produced by the American mainland colonies, including tar, pitch, turpentine, resin, hemp (all important to the British navy), tobacco, indigo, beaver skins, furs, and copper ore. By then Britain’s imperial system had become a complicated series of commercial regulations. These specified the destination to which certain goods could be shipped, imposed tariffs in order to promote specific industries, and prohibited the colonists from engaging in industries that competed with ones that the British authorities were trying to protect. The Southern colonies were the most affected by the constraints because they produced a high portion of the important enumerated items, including rice, tobacco, and indigo. All tobacco and rice shipments were required to go to Britain, where English and Scottish merchants reexported up to 85 percent of the crops to buyers in Europe. If Southern planters had been allowed to send their crops directly to other European ports, their revenues from foreign trade would have been substantially higher. However, not all of the regulations hurt the colonists; even Southern planters benefited from them. Tobacco growers reaped huge rewards when British authorities gave them a monopoly of the market in Great Britain. Southerners who grew indigo, a plant used by the British textile industry to make dyes, also profited from the sixpence-per-pound bounty placed on this plant. (Bounties were financial rewards, that encouraged people to produce items that the British deemed important.) The imperial authorities prevented French, Dutch, and Spanish shippers from competing with the colonists. Thanks in part to this protection, shipbuilding became a tremendously profitable industry, especially in New England. So on balance, the commercial system that tied Great Britain to its American colonies worked well for both sides. The various regulations could be annoying, and the colonists protested against them from time to time. Yet overall the regulations affected only about 15 percent of all colonial goods and cost the colonists less than 3 percent of their total yearly income and sometimes the colonists simply ignored the regulations, or they negotiated with the customs officials to reduce the duties by a substantial amount. It was widely known, for example, that American merchants were smuggling large amounts of molasses from the West Indies. Molasses was used widely in the colonies for cooking and for brewing home-made beer. The Sugar Act of 1764, the first of the imperial decrees that attempted to reform the system, was designed in part to stop the colonists from avoiding customs duties.

Profitable Colonial Markets. By the 1770s the American mainland colonies had become important markets for British products. The statistics tell the story. In 1701 the American colonies (including the West Indies) absorbed only 10 percent of England’s exports. By 1774 these colonies were buying more than 40 percent of all British-made goods, mostly textiles and metal hardware. America bought one-third of all West Indian refined sugar; one-half of all English exports of earthen-ware, ironware, copperware, glassware, and silk, cotton, and linen textiles; and between two-thirds and three-quarters of all British-exported iron nails, beaver hats, cordage, and Spanish woolen goods. American markets kept many Britons employed as farmers, artisans, merchants, sailors, dockworkers, shippers, carters, and warehouse men. The British pumped millions of pounds of capital into the colonies, particularly those south of Pennsylvania. Much of this investment was in the form of credit granted to colonial merchants and planters who bought British goods and sold them to colonial customers.

American Prosperity. American markets were so profitable because the standard of living in the colonies was high. Compared to most people in Europe, the colonists were able to meet their basic needs fairly easily, so they could afford to buy goods that were considered luxuries. In 1700 colonial output had been only about 4 percent as large as England’s; by the 1760s the colonies’ £35 million annual output was 40 percent as large as the mother country’s. The population of the mainland colonies was one-third that of Britain and growing at a higher rate. Although the colonial population multiplied tenfold during the eighteenth century, average living standards remained high. During this period only two other countries, Britain and Holland, were able to maintain their living standards despite a rising population. The rate of population growth in the American colonies was much higher than in these two countries, so relatively speaking the American achievement was the most impressive of all. American prosperity was the result of several factors, including abundant land and resources, the resourcefulness of the people themselves, and the absence of widespread crop failures of the sort that sometimes devastated Europe. As the population increased, the colonists moved westward. Thanks to the fertility and availability of new land, they were able to export surplus foodstuffs such as wheat and rice to Europe. Observing these developments, optimistic thinkers such as Benjamin Franklin believed that in time the colonies would outstrip Britain in population. In fact Franklin’s own city of Philadelphia, with about thirty thousand inhabitants in the 1770s, was already among the largest in the British Empire. The great British statesman Edmund Burke also recognized the colonies’ growing economic strength. In a speech to Parliament in March 1775, Burke stated that all of England’s increase “of seventeen hundred years” would be achieved “by America in the course of a single life!” He added that at “the beginning of the century some of these Colonies imported corn from the Mother Country,” but for “some time past, the Old World has been fed from the New.”

Wealth and Income. The typical laborer in Philadelphia had an annual income of about sixty pounds, only if he could find year-round work. This was just enough to keep a family of four decently housed, fed, clothed, warm in the winter, and able to meet their tax obligations of two to three pounds a year. Any disruption to the laborer’s source of income could result in deprivation and hardship for his family. But even so, wages were relatively high in the colonies. Because labor was nearly always scarce, average wages were from 30 to 100 percent higher than those paid for similar work in Britain. The average annual income per free person was the equivalent of about $845 in 1980 prices, and tax burdens were much lower than those in England or in the late-twentieth-century United States. Per-capita wealth was also high: about £252 ($16,000 in 1980 dollars) for every free wealth holder in the colonies. (The figure is much lower if the calculation includes all colonists, not just the wealthy.) These figures may not sound like much, but they were higher than the per-capita income and wealth of China, India, and most of Africa during the late twentieth century. Colonial wealth was not evenly distributed, however. The top 20 percent of wealth holders held 68 percent of the colonies’ total assets, and men owned about 90 percent. The few women who owned property nearly always inherited it from husbands or male family members, and few of these women owned land. Because there was such a high overseas demand for their staple crops, the Southern colonies possessed the largest share of per-capita wealth and income even when we exclude the wealth held in slaves and their contribution to income. The Middle colonies had the next highest share and New England the lowest. A high proportion of individuals who may be termed the “superrich”—those who made up the top 1 percent of wealth holders—lived in the South, and nearly all of them were planters. The average value of these individuals’ estates was £2,646, or more than twice the value of the largest estates in the Northern colonies. (To put this in perspective remember that the per-capita wealth for all free wealth holders was only about £252.) South Carolina’s peculiar demographic and economic characteristics made it the richest of all, at least from the point of view of its white inhabitants. Whites made up only 30 percent of the population, so when the colony’s total wealth is devided by the small number of whites, the resulting figures are enormous. Not surprisingly, white South Carolinians had the highest standard of living among all the colonists.

Consumer Goods. By the late colonial period British Americans spent as much as one-fourth of their total income on imported products, mostly consumer goods. These included cloth, ceramics (dishes), cutlery, notions (buttons and other trimmings), spices, wine, tea, and coffee. Because Great Britain forbade the colonists from engaging in most manufacturing activities, America provided an important market for goods manufactured in the mother country. Great Britain’s pioneering role in the Industrial Revolution was due in part to these healthy colonial markets. By the 1770s the northern English industrial towns of Manchester, Sheffield, Leeds, and Birmingham sent nearly one-half of their products to the American colonies. Newspapers in Philadelphia and other towns regularly advertised for sale thousands of different items, especially textiles and ceramic products. Costly imported silks and velvets filled the stores in the American port cities. Inexpensive goods such as cotton cloth became available in more sizes, colors, and patterns. These items reached even the farmers in rural and frontier areas supplied by colonial merchants and peddlers. Rural customers spent a large part of their income on consumer goods, especially cloth. It was not unusual for a farm family living outside of Philadelphia to spend twelve pounds per year on goods imported from Europe. This represented a substantial portion of the typical family’s yearly cash income, which was anywhere from eight pounds to forty pounds a year. Poorer people also desired items such as store-bought dishes, cutlery, and linens. By the mid eighteenth century these people were even drinking tea and doing it out of more-elaborate tea services. Previously the practice of drinking tea was confined to wealthier households. Some writers became concerned by this demand for what they considered luxuries. Newspaper articles and sermons warned against the effects that so many luxury goods would have on society. But they could not stop the flood of goods. Between 1720 and 1770 the amount of imports per person in the colonies rose by about 50 percent. Imported goods were so much a part of daily life that they became the focus of the colonists’ early acts of resistance. Beginning in 1764 many colonists participated in nonimportation and nonconsumption agreements in order to pressure Britain to give in to their demands. Many patriotic colonists began to wear homespun instead of the fancier cloth made in British factories. In 1773 a group of colonists dumped tea into Boston harbor to protest the tax on this popular beverage.

Economic Diversity. Part of the colonial economy’s strength lay in its diversity. Each region specialized in particular products and services for export abroad and to the other colonies. Within each region the local economies were further diversified. Instead of just farming, the colonists were able to engage in different kinds of work. They could do this because the population increased so rapidly, creating larger markets for more and different kinds of goods and services. The economy was broadly divided into three regions: New England, the Middle colonies, and the Southern colonies. New England—Massachusetts, New Hampshire, Connecticut, and Rhode Island— produced lumber, ships, fish, furs, rum, whale products, and potash, a forest product used in making soap and candles. New England also excelled in services such as shipping. The region bought many British goods, but in 1769 only about one-third of its overall foreign trade was with Britain itself. The rest was conducted directly with the West Indies, southern Europe, and to a much lesser extent Africa. The Middle colonies of New York, New Jersey, Pennsylvania, and Delaware produced grains such as wheat, rye, oats, and barley. These colonies exported large quantities of flour and bread mostly to the West Indies and southern Europe. By 1770 the Middle colonies handled nearly one-quarter of the colonies’ foreign trade. Its foremost city, Philadelphia, became the colonies’ largest and among the most populous city in the entire British Empire. From the British point of view the Southern colonies of Maryland, Virginia, North and South Carolina, and Georgia best fulfilled the mercantilist ideal. They provided British industry with raw materials and imported the manufactured goods that Britain produced. And, unlike the other two regions, the Southern colonies traded mostly with Britain itself. Virginia and Maryland produced the tobacco that British merchants sold to European customers. South Carolina exported large amounts of rice and indigo, nearly all of it through Charleston. That city became the most important commercial center in the South. But, unlike the merchants in Northern ports, Charleston’s had limited clout. British representatives of firms based in London and Liverpool handled nearly all of South Carolina’s trade in rice and indigo.

Trade and Society. The colonists exported only 9 to 12 percent of what they produced. They themselves consumed the rest, or about 90 percent of the total. However, overseas trade had social and political consequences for the colonies far in excess of what these numbers indicate. Although typical colonial farmers and artisans may not have felt the effects of foreign trade too greatly, their societies were decidedly shaped by it. For example, the huge overseas demand for rice, indigo, and tobacco spurred the spread of slavery from the West Indies into the Southern colonies. Had it not been for the immense profitability of these exportable staple crops and the South’s heavy dependence on slave labor in order to produce them, the region would probably not have developed its peculiar economy and culture. Foreign trade also brought about the existence of particular economic elites. Because the social structure of the American colonies was looser than Great Britain’s, foreign trade became an important avenue to power in colonial life. The urban merchants and Southern planters who were the most dependent on foreign trade for their livelihoods—men such as Boston merchant John Hancock and South Carolina planter Henry Laurens—were among the colonies’ richest individuals. They also made up a disproportionately large part of the colonies’ politicians. In the mid eighteenth century fully one-half the members of the Massachusetts lower assembly were merchants. Yet the merchants did not form a stable “class.” Because fortunes in the colonies could be made and lost quickly, the men in power changed too. Political leadership, like business fortunes, was much more fluid than was the case in Britain and Europe.

New Commercial Regulations. The new regulations imposed by the British authorities beginning in 1763 had significant economic consequences for some segments of the colonial population. The Proclamation of 1763, the first of the new imperial regulations, prohibited people from purchasing Indian lands west of the Appalachians. The act angered frontier farmers, colonies with claims on western lands, and speculators such as George Washington. The Sugar Act of 1764, with its new regulations, customs duties, and tightened enforcement, made overseas trading more complicated and imperiled the colonies’ trade with the West Indies. The Currency Act of 1764 declared colonial paper money illegal for paying public and private debts, a move that threatened to disrupt the colonial economy. In 1767-1768 the British created a board of customs and three new vice-admiralty courts in Boston, Philadelphia, and Charleston. These new bodies had the job of tightening up the customs service and increasing revenues for the British Treasury, objectives that they pursued with more zeal than Americans were used to. As Parliament passed these and various other new regulations—among them the Stamp Act (1765), the Townshend duties (1767), and the Tea Act (1773)—the colonists wondered where the British authorities would draw the line. Would Parliament eventually destroy the trading patterns that had evolved over the course of nearly a century and had brought the colonists so much prosperity? The colonials were further disturbed by the behavior of some British merchants who successfully petitioned Parliament to keep colonial merchants out of certain areas of the imperial trade. These perceived abuses and the fears of a British conspiracy to reduce them to “slavery” persuaded many colonists that they would be better off outside of the British Empire.

Conclusion. The American Revolution dismantled the imperial structures that had existed for more than a century and a half. After the Declaration of Independence most American merchants no longer considered themselves a part of Britain’s hugely successful commercial empire. They paid a price for their resistance to British authority. Many merchants lost the highly profitable trade with Britain. But others benefited by gaining the freedom to trade with other countries, a privilege that had largely been denied to them during the colonial era. In the long run these new benefits were of great importance to the prosperity of the new American republic. But in the short run the price of independence—including a long and disruptive war—was steep. To achieve independence Americans fought an eight-year war with the world’s richest nation. Why did Americans engage in revolution? And once they did, why did they continue fighting a costly war that disrupted the lives of so many for so long? The answers to these questions are not simple. A combination of reasons, many discussed in other chapters of this volume, contributed to the American determination to break free from the British imperial structure. It is clear, however, that economic factors played a decisive role. The colonists’ relatively high standard of living and their bright economic prospects contributed to their self-confidence and convinced many that their future lay outside of the British Empire. Economic consideration played into the British calculations as well. Observing and perhaps envying the colonists’ high standards of living, British administrators concluded that the colonists could afford to pay a larger share of the overall costs of administering and protecting them.