Economic History of the US
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1 Economic History of the US The Colonial Era, Lecture #2 Peter Allen Econ 120
2 The Colonial Era, Founding Economic Structure/Activities Trade Sources of Econ. Development Economic sources of Rebellion Chapters 2-6
3 European Voyages Commercialization of European economies, 1400s Rule of law and investment Population growth Technology in transportation/weapons Capacity for long-distance sailing, late 1400s Portugal was first: 1415 captures Cuenta (North Africa) then Spain, then Holland, France, England
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5 Key Voyages, Americas Colombus (Spain), 1492 Amerigo Vespucci (Spain), Vasco Nuňez de Balboa (Spain), Ferdinand Magellan (Spain), Hernando Cortez (Spain), 1521
6 1650 v. 1750
7 Initial Voyages, Why? To make money 1. Trade Get to Asia Asian goods, esp. spices African goods, e.g. sugar Circumvent Turk-Venetian lock on Eastern Mediterranean 2. Exploitation of local resources Colonization v. conquest Competition of World Powers
8 Colonization: Spain v. England Spain 1. Extract resources esp. silver 2. Conquest to spread Christianity Occupying rulers Didn t establish permanent colonies Outposts populated by soldiers First European colony, Balboa: Santa Maria de la Antigua del Darien, 1511 Hernán Cortéz, Mexico 1521
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10 1521, Conquest of the Aztec Empire
11 Colonization: Spain v. England England had a different way to make money from its NA colonies Parliament and investors established permanent colonies a. Purpose of colonies market for English manufactured goods, and source of raw material, inc. farm products b. No other option few riches in North America Domestication, cash crops business model British had to stay in large numbers
12 First British Colonies Latecomers, compared to Spain, Portugal Sir Walter Raleigh, Virginia and North Carolina, 1580s, Lost Colony 1607, monarchy granted two charters (right to settle, self-govern) London Company, south part of English territory Plymouth Company, north 1607, London (later Virginia) Company settlement in Jamestown, Virginia Plymouth Company settlement in Sagadohoc, Maine, New England (1620), Boston (1630)
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14 Lessons of Early Industrial Organization British colonies started out as economic collectives a. Virginia Company, directed from London b. planters share; profit sharing c. Expenses covered by colony d. Few free-market incentives Tensions arose between a. Those who wanted to improve lands and production, and b. Free-riders c. Pressures for reform, privatization
15 Jamestown Privatization, (1607+7) private landholding first allowed (3 acres) 1619: Headright system 50 acres granted to settler who paid their voyage Voyage cost 9-10 per person = 1.5x average worker s yearly income 1623 ( ) all land privately-owned 1625 Crown Colony status All colonies had problems with free-riders and converted to private holding of land 1650: privately-owned family farms predominant
16 Factor Endowment of British Colonies 1. Land Extremely plentiful Supply vastly higher than demand Low price (relative to Europe) 2. Labor Severe labor shortage Demand vastly higher than supply (D>S) High price, i.e. wage (compared to Europe) 3. Capital Anything that cost money was scarce No private investment ( I )
17 Carrot and stick Immigrants drawn to the colonies by: 1. Cheap land Even though most did not have means to buy initially Most paid for transport with Indenture Contract Zero hope of acquiring land in England 2. High wages Most jobs were in agriculture Competitive market, treatment mostly fair for Europeans access to cheap land (contrast with Europe)
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19 Dominance of Agriculture 90%+ of population worked in Agriculture Regional specialization emerged immediately Southern colonies Maryland, Virginia, Carolinas, Georgia (n=5) Model of large plantations dominated for 250 years Big business, lucrative Slavery Middle Pennsylvania, New York, New Jersey (n=3) Commercial along coast, Grain (wheat, oats, barley) Smaller scale, family farms Indentured workers, slaveholding rare Northern/New England Rhode Island, Mass., Vermont, NH, Maine (n=5) Subsistence at first Not viable commercially People moved into commerce, extraction, homecraft industries
20 Southern Colonies were Dominant Economically Agriculture was a lucrative business from the start Climate, soil conditions suited to cash crops, rice, tobacco, indigo, cotton (later) Slavery Monopolistic competition Business model large-scale farm production Economies of scale requires low marginal cost Slavery = Zero marginal cost of labor Comparative advantage Sold products to England that the English wanted, for profit, i.e. gold Fit Parliament s economic model
21 Slavery became an important economic institution in southern colonies Governments of Southern colonies encouraged big landholdings 1. Tried to attract wealthy immigrants: Headright system 2. Encouraged slave holding Headright to 50 acres of land for purchase of a slave Slave cost 10-15X annual per capita income Primogeniture kept wealth concentrated Slaveholding spread rapidly bet & 1700 Generated rapid growth of wealth but no economic development i.e., greater distribution of income higher Y per capita
22 Average Total Cost in the Short and Long Run Average Total Cost ATC in short run with small factory ATC in short run with medium factory ATC in short run with large factory ATC in long run $12,000 10,000 Economies of scale Constant returns to scale Diseconomies of scale 0 1,000 1,200 Tons of Rice
23 Slavery Moral v. economic imperatives African slaves were not British subjects, no legal rights unlike indentured servants Colonies made their own laws governing slaves
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25 Settlement Approach Helped Britain extend control of North America England and France were chief competitors in North America France Quebec 1608 expanded east and southward, didn t colonize Louisiana England steady and persistent growth of settlements Enabled British to prevail in frequent wars over colonies French and Indian War ( ) 2 million British subjects in NA v. 60K French
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