Capital Investment

Sources

Personal Finances. Money was necessary for colonial development, and few of the migrants had enough of it to build a new country. They could, however, provide labor if someone else would contribute the funds. Capital, or the personal wealth used for business purposes and not for household consumption, was plentiful in the European cities the immigrants had left. Some immigrants were wealthy and had enough capital to finance their own endeavors. Other investors remained in England and provided the capital the settlers needed to develop the abundant natural resources of the American colonies. Eventually the economic success of settlers allowed them to establish local credit markets so that they could borrow money from neighbors. In the seventeenth century more capital was needed for agricultural development than for industry. The smaller farms of the northern colonies demanded far less investment capital than did the southern plantation economy. The rice market in particular was booming, and planters required extensive

capital to purchase land and more slaves to plant and harvest the profitable staple crop. Capital tended to flow from the city and mercantile fortunes toward the country and plantation development. As regions stabilized, interest rates declined slowly, but they remained higher than in Europe. For example, the legal interest rate in South Carolina was 10 percent until 1748 when it was lowered to 8 percent.

Bonds and Mortgages. The two primary instruments of capital formation in British North America were bonds and mortgages. Bonds were formal, legally recorded loan agreements between lender and borrower which involved a general obligation with no required collateral. The person taking out the loan was obliged to continue payment for the full term of the bond, commonly six months or one year. A mortgage was also a formal, legally recorded agreement, but it required collateral worth twice the value of the mortgage. Slaves and personal

goods were the most common forms of guarantee put up for such loans. The mortgage also had a limited term. Often lenders let the loan stay out past the termination date and continued to collect interest payments rather than the balance because it was a good long-term investment. Typically, the bonds and mortgages stipulated that the penalty for nonpayment of interest or principal was twice the value of the original loan.

CURRENCY

Currency in the British colonies took on various forms. Wampum, or woven belts of sea shells, were first available for trade between immigrants and Indians. When possible, colonists used the British sterling pound and shilling for European trade. This money was rare among colonists because they sent the money they had to England to pay for purchases of manufactured goods. Innovative colonists relied on other means to engage in trade. In the Chesapeake tobacco was the primary means of exchange. That meant that people could pay their taxes, duties, and court fees in tobacco. They even paid the salaries of their clergymen in tobacco. Some planters exchanged their tobacco at official storehouses, where they received receipts that they could use as money. Other colonists purchased items on credit with the promise that they would pay their debts with the commodities they harvested in their own region. Some colonies issued paper money that was based in some way on the British pound, but the rate of exchange varied from one colony to another. For example, seven South Carolina pounds were worth one British sterling pound. Crossing colonial borders meant using different forms of exchange. Land banks lent paper currency to farmers who were willing to mortgage their land.

Source: John J. McCusker and Russell R. Menard, The Economy of British America, 1607–1789 (Chapel Hill: University of North Carolina Press, 1985).

Gender. English common law restricted the control and ownership of property by women. Only unmarried and widowed women could own property because once a woman married, everything she owned belonged to her husband. In spite of these restrictions women were involved in the capital market. Certainly more men with more money dominated the market, but widows lent money, lived off the interest, and participated in the growth of a new capital market between 1700 and 1750. Whereas some of these widows were extremely wealthy, other women with only meager holdings also invested, at times in nothing more substantial than a single bond extended to a neighbor. The majority of those women were not from prominent planter or merchant families with significant wealth. Most of these women had middling or meager estates. But even with only a small amount of capital, widows could invest money that would earn interest. For women who had only limited opportunities for earning money, the bond/mortgage market provided a good source of income.

Sources

Peter A. Coclanis, The Shadow of a Dream: Economic Life and Death in the South Carolina Low Country, 1670–1920 (New York: Oxford University Press, 1989);

Ralph Davies, The Rise of the Atlantic Economies (Ithaca, N.Y.: Cornell University Press, 1973);

Jack P. Greene and J. R. Pole, Colonial British America: Essays in the New History of the Early Modern Era (Baltimore: Johns Hopkins University Press, 1984);

Alice Hanson Jones, Wealth of a Nation to Be: The American Colonies on the Eve of the Revolution (New York: Columbia University Press, 1980);

John J. McCusker and Russell R. Menard, The Economy of British America, 1607–1789 (Chapel Hill: University of North Carolina Press, 1985).