Economic History of the US The Colonial Era, 1607-1776 Lecture #3 Peter Allen Econ120 1
Formative Years of Colonial Economies Agriculture, dominant activity Land, resources plentiful Labor, capital scarce Immigrants attracted by land ownership Stronger labor shortage in the South Southern colonies incentives to import slaves Economies of scale & comparative advantage under English colonial incentives 2
Southern Agriculture had large Economies of Scale macroeconomics concept long-run average total cost falls as the quantity of output increases Highly successful Generate great wealth Required little capital Model conformed with Parliament s plan for colonial economy 3
4
5
Early Manufacturing Just 10% in colonial times Extractive industries Lumber, fishing, hunting, fur-trading Early problems with excessive depletion beaver, tragedy of the commons Early manufacturing Households Cloth, clothing, shoemaking, utensils, furniture, trapping Concentrated in North Milling (grain, lumber, paper, forging ) water-powered Shipbuilding New England Exported to England for cash Comparative advantage (v. England, Holland), proximity of raw materials 6
England s Policy: Mercantilism 1500-1800, name for economic goal of England Wealth and power of imperial governments by accumulating specie Money based on gold/silver Trade surplus, taxes = more gold = Gold must always flow from colonies to England Purpose of colonies was to increase physical amount of resources under English gov. control Division of world into colonial blocks Colonies subordinate economic interests Parliament regulated colonies trade inside and outside the British world 7
8
Navigation Acts, 1651, 1660, 1663 Regulation, physical control of colonies foreign trade 1. Colonies trade must be carried on English vessels 2. Colonies trade with foreigners must take place at English ports 3. Southern colony exports to be sold only to England 1. Sugar, tobacco, cotton, indigo, rice Parliament wanted colonies to buy British manufactured products and not to manufacture themselves More money/gold for them It was happy with southern colonies, not so much with northern Colonists accepted mercantilism Exploitation, but Parliament paid for defense, i.e. wars 9
Figure 4.1 Distribution of Colonial Trade 10
Supply and Demand Effects of the Navigation Acts 11
Colonial trade 10 largest exports, 1768-1772 (average, p.a.) 1. Tobacco 766K 2. Bread & Flour 410 3. Rice 312 4. Fish 154 5. Wheat 115 6. Indigo 113 7. Corn 83 8. Pine boards 70 9. Staves & Headings 65 10. Horses 60 South dominated 55% dominated items on British list of colonial exports Colonial imports came overwhelmingly from England and were mostly manufactured products 12
Colonial, bop (1768-72, average p.a. in thousands of ) Merchandise Trade UK Europe Indies Africa Total New England -609 +48-36 +19-577 Middle Colonies -786 +153-10 +1-643 South -73 +138 +35 0 +69 Total -1468 +339-11 +20-1120 Services Trade Shipping +960 Payments for Human Beings Indentured Servants -80 Slaves -200 Taxes and duties -40 Military and civil expenditure +450 Balance of Payments = Specie Flow or Borrowing -30 13
Mercantilism: Gold flows only to London Economic subordination Parliament did not allow colonies to bop surplus Kept colonies from solving capital shortage Specie money, Money supply can increase if gold comes in Severely limited 1. economic growth 2. Economic development 14
Economic growth was slow Hard to tell, approx. 0.3-5% p.a., 1650-1776 South: highest economic growth and wealth Expansion of southern model Scarcity of capital impeded technology upgrade but hampered North more than South colonies Economic theory: growth comes from Ability to produce = productivity Productivity growth slow, esp. in Middle and North 15
Case of Tobacco Introduced to England from NA Developed by native Americans Productivity doubled, 1630-70 causing price of final product to fall Seen with other crops grown in the south 16
Figure 5.1 Chesapeake Farm Tobacco Prices, 1618 1710 17
Ag. in Middle and North Colonies didn t grow as fast Efficiency gains seen with Grain and Livestock in the Middle Colonies, but on a smaller scale Model, family farms with smaller workforce Indentured workers No real economies of scale Productivity gains depended on Improvement in farming practices, or importing technology; tools, implements Constrained by lack of capital More pressure to improve productivity than in South 18
Lower cost of Transportation Source of colony-wide productivity Early colonial era, extremely high cost Cut in half equal to productivity growth of 0.8-0.9% per year Lower cost to distribute final products 1. Larger ships, lower cargo tons per crew 2. Lower insurance rates 3. More efficient ports 4. Better roads 5. Late colonial period, British Navy controls piracy 19
Living standard and equity Historians agree that by independence 1. Free colonials had a relatively high standard of living 2. Income was evenly distributed at first, but became skewed by independence Regional per capita, 1774 (free only): income wealth New England 9.5 38.0 Middle colonies 11.0 44.1 South 15.4 61.6 Whole 12.1 48.4 20
Table 5.3 Private Nonhuman Physical Wealth, 1774 (in ) 21
Table 5.4 Estimates of Regional incomes, 1774 (in ) 22
Table 5.5 Physical Wealth, 1774: Estate Sizes and Composition for Free Wealth Holders (in ) 23