Economic Origins of the United States

America’s economy is older and more complex than most people realize. We can trace the origins of America’s economy to Native American and colonial times.

Understanding how America’s economy began and evolved can show us where that economy is going. Learning the origins of America’s economy can help us better understand historical events such as the American Revolution.

Thus, we will now take a brief look at the American economy in the centuries before the Revolution. Interestingly, there were several pre-revolutionary economies that gave rise to the United States. We’ll examine each of those economies below.

The Native American Economy

The Native American economy comprised a series of extensive trading networks that covered North America.

For example, the pueblos at Chaco Canyon traded turquoise with peoples in Nevada, and Southern California. Archaeologists think Chaco Canyon was the center of a massive trading network that ran throughout the Southwest and into northern Mexico. It is possible that they traded Chaco Canyon turquoise as a far away as Mexico.

Logically, other Pre-Colombian Native American cities such as Cahokia were centers of other trading networks. Notably, Cahokia is near St. Louis, Missouri, which became an important trade center in the 19th Century.

The Native American economy had severe limits. The First Nations had no beasts of burden, so there was no way to move large cargoes overland. Instead, everything had to be carried on a person’s back, which limited trade to small items such as furs and turquoise.

However, logic suggests Native American trade networks covered North American before Columbus. Additionally, there is evidence the First Nations were trading with Vikings from Greenland or Iceland. In 1956, amateur archaeologists found a Norse penny minted between 1065 and 1093 at a Native American site in Maine.

The Native American Economy was extensive, and it survived until the 19th Century. Moreover, Europeans were well aware of the Native Economy by the 16th Century and sought to participate in it.

The Spanish American Economy

During the colonization of America, the Spanish came to plunder and pray for the victims, the French and Dutch came to trade, and the British came to settle. Hence, all four powers created enormously different economies.

The Spanish Empire in North America was a looting machine designed to extract the mineral wealth of the New World and ship it back to Spain. The Conquistadors’ interest in North America north of Mexico dissipated as they realized there were no large cities to plunder or gold to mine in the region.

However, there was a slow Spanish spread into regions such as New Mexico, Texas, and California. Unlike the British and French who built new societies in the New World, the Spaniards replicated the feudal order they left behind.

The Spanish built Roman Catholic Missions that functioned as administrative centers and tried to convert the Natives into peons or feudal serfs. The new economy was to be one of small villages, barefoot priests, and hard working peons. There were also a few soldiers who would become the new land’s nobility.

Predictably, most Native Americans resisted the Spanish program. The history of Spanish New Mexico is one of the constant Pueblo revolts and Native American Wars.

The Spanish tried no serious program of economic development in the lands that became the United States until they took control of Louisiana after the Seven Years War. Instead, Spanish economic activity North of the Rio Grande comprised subsistence agriculture to feed the garrisons and missions and a few mines.

Ironically, the Spanish created a massive security threat that destroyed whatever economic potential New Mexico had. By introducing horses to the Great Plains, the Spanish made some First Nations into serious military powers.

Nations such as the Comanche became fearsome mounted warriors and expert cavalrymen. Their war parties could easily overwhelm the small Spanish forces and plunder New Mexico’s settlements at will.

Spanish authorities in Mexico City were unwilling or unable to dispatch the enormous forces of infantry needed to counter the Comanche. Thus, by the late 18th Century, Spanish New Mexico and Texas were practically vassal states of a loose Comanche Empire.

In the final analysis, the Spanish economic impact in North America was small. Although the Spanish had the military power to conquer North America, there was no incentive to use it.

Instead, the Spanish contribution to North America was to introduce the pathogens, mostly Smallpox, to North America that killed enormous numbers of Native Americans and destroyed the First Nations’ civilizations. That depopulation paved the way for other powers to conquer the continent.

The French Economy in America

During the 17th and 18th centuries, France had the largest empire in North America.

New France, however, was a trading network rather than a colony. The primary objective of New France was to connect to the Native American Economy.

Instead of colonizing North America the French built trading posts to buy furs from the First Nations. Hence, most of New France’s subjects did not realize New France existed, or that they were subjects of the King of France.

Moreover, the French government itself administered the trading network. To support the trade network, the French sent over hundreds of settlers who formed the population of the small cities of Quebec and Montreal. Interestingly, the French government encouraged marriages between Frenchmen and Native women to develop close ties.

Controlling the St. Lawrence gave the French direct access to the Great Lakes and to North America’s three most important river valleys; the Ohio, the Mississippi, and the Missouri. The purpose of that control was to dominate the fur trade.

Thus we can think of New France as a fur trading machine. Its operation was simple. The French government shipped trade goods; such as food, muskets, knives, cookware, cognac, and clothes, to New France. Once there Frenchmen traded the goods to the First Nations for furs.

Then the government shipped the furs back to Europe where it could sell them for cash. Unlike the Dutch outpost in New York, New France was a government monopoly. To preserve that monopoly, the government kept all non-French and non-Native American traders out of New France..

The fur trade was the reason French explorers were walking to the Rockies and rafting down the Mississippi while the English colonists were only a few miles inland. The fur trade was also the reason there were no large French cities or universities in 18th Century North America.

The Dutch Economy in America

Economically, Dutch America or New Holland was a failure. To explain the Dutch built two trading outposts Fort Nassau (modern Albany) and New Amsterdam (New York City) in the Hudson River Valley.

The Dutch effort to tap the fur trade failed because the Hudson River Valley is a dead end. Until the building of the Erie Canal in the early 19th Century, there was no direct water connection between the Hudson and the Great Lakes.

However, the Dutch built a large thriving settlement around modern New York City. Ironically, the Caribbean and New England trades became more important to New Amsterdam than the fur trade.

Interestingly, New York did not become the center of the fur trade until the rise of John Jacob Astor’s Great American Fur Company in the 19th Century. Astor took over the fur trade after the United States gained most of North America through the Louisiana Purchase.

New Holland enjoyed several advantages that sustained drove its growth for centuries. First, New York is the natural landing point for ships sailing from Europe to North America. New York was the logical entrepot to the continent as Lord Howe’s invasion during the American Revolution demonstrates.

Second, New Amsterdam and New York had a direct connection to the Dutch financial markets; the world’s most advanced until the 19th Century. Hence, the New York merchants could tap larger streams of capital than competitors in Boston and Philadelphia.

Third, New Amsterdam had a direct connection to Holland’s markets. That meant they could trade with Central Europe. Thus New York merchants had access to a wide variety of German and other products competitors had to buy through English middlemen.

Fourth, the area around New Amsterdam was full of rich farmland. That meant the Dutch could grow enormous amounts of crops for export, including grain, apples, and corn.

One enormous market for those crops was the Caribbean, where tens of thousands of slaves needed to eat. Every cargo of American grain that arrived in the Caribbean allowed planters to convert more land to sugar production, which meant they could make more money. Sugar was a cash crop.

Fifth, New Amsterdam attracted many skilled and entrepreneurial immigrants. Early New York’s residents included America’s first Jewish community and many artisans and technicians from Germany. Those immigrants built banks and began creating industries.

The Dutch Economy was the first capitalist economy in America. It formed the basis of American capitalism. Notably, New York City (Dutch New Amsterdam) is still America’s financial capital.

The Plantation Economy (the Old South)

They base a plantation economy upon industrial agriculture. Plantations are factory farms that produce one cash crop for export.

A plantation economy requires four things. Those things are large amounts of unpaid labor (slaves), enormous amounts of empty land, cheap transportation, and a high-value cash crop. The English colonies in Virginia and the South had three of the four.

The Southern Colonists had the slaves, the land, and cheap sea travel to Europe. However, they lacked a stable cash crop. The story of the Colonial South is one of plantation owners’ search for a stable cash crop.

During the colonial era, Southern planters experimented with tobacco, grain, corn, hemp, rice, cotton, and sugar with varying degrees of success. Notably, George Washington grew both hemp and grain at Mount Vernon. It was not until the Industrial Revolution’s insatiable demand for cotton in the early 19th Century that the South had a stable cash crop.

Consequently, the Colonial South became a poor land with no cities, few artisans, and few towns. They imported most of the goods and most of the people were too poor to buy those goods. There were no artisans or markets because slaves do not shop. As a result, most of the South’s whites were subsistence farmers eking out a living on marginal land.

A few wealthy planters lived like kings on cheap British credit, while the bulk of the population had no money. Payment of the debt and avoiding British creditors became the primary activity of such planters.

A modern economy did not develop in the South until after the Civil War. Instead, most goods were imports. Most credit came from foreign bankers, and the export of cash crops and the selling of slaves were the only economic activities.

The New England Economy

Two realities: the poverty of the land and the wealth of the sea shaped colonial New England’s economy.

Outside of Connecticut, most of the land in New England was rocky and forested. Farmers could grow just enough food to feed their families and a few townspeople.

However, the sea around New England was rich in fish and whales. Consequently, the maritime New Englanders went to sea. They fished, built ships, whaled, and traded.

New England developed industry early. New Englanders began building large complex machines; ships, in the 17th Century. Shipbuilding required supporting industries including timber, rope making, and smiths.

Moreover, New England was a poor country with little mineral or agricultural wealth. If New Englanders wanted cash, they had to trade for it. Since the First Nations had no cash, the New Englanders had to sail to the Caribbean or Europe in search of cash.

The fishing and carrying trades developed early in New England. By the 18th Century the infamous Triangle Trade developed. In the Triangle Trade, New England ships hauled rum to Africa where they traded it for slaves.

They hauled the slaves to the Caribbean and traded them for sugar. Then took the sugar back to England to make rum. Other products the New Englanders exported included furs, fish, and grain from New York and the Middle Atlantic.

Interestingly, the Pilgrims and the Puritans who followed them brought the equivalent of entire English towns to North America’s coast. Unlike the Gentlemen Adventurers who starved in Virginia, the Puritans brought everybody they needed to recreate a British town in New England.

The Puritan communities included farmers, soldiers, clergy, scholars, sailors, merchants, artisans, laborers, teachers, administrators, and most importantly, women. Many Puritan colonists landed with their families.

Thus, the Puritans created a functional economy in less than a generation. That economy provided the support system for the maritime economy that was flourishing by the 1670s. The Puritans, like their Dutch neighbors, successfully transported an advanced European economy to North America’s coasts.

The Middle Atlantic Economy

The English conquest of New Holland in 1665 allowed for the creation of two large and prosperous colonies in the Middle Atlantic region New Jersey and Pennsylvania.

Both colonies grew fast because they were free of Native American conflict and religiously tolerant. More importantly, both colonies could tap the Atlantic trading network built by the New Amsterdam Dutch and the New Englanders from the beginning.

Hence, New Jersey and Pennsylvania farmers could export grain to the Caribbean soon after they landed. Thus, a functioning economy developed fast in the new colonies.

Notably, Philadelphia grew into a major city in just a few decades. One reason for the growth was the religious tolerance built into the system by Pennsylvania’s founder William Penn.

The tolerance attracted two highly entrepreneurial groups to Pennsylvania; English Quakers and German religious dissenters. The Germans were capable farmers and artisans, while the Quakers were often expert merchants.

The Colonial Economy

There was no unified American economy in colonial times. There was no trade between the French and Spanish or French and English colonies.

Similarly, trade between the English colonies was small. Geography, politics, and economics limited inter-colony trade.

The East Coast’s rivers run East to West and usually inside the borders of one colony. So there was no inland water transport between the colonies.

Additionally, the colonies lacked the money, population, and political organization to build the transportation infrastructure needed to connect the colonies: roads and canals.

Consequently, it was cheaper, faster, and easier for the New England fisherman, the New York merchant, the Pennsylvania farmer, and the Virginia planter to ship their products to London, Glasgow, or Amsterdam, than another colony. Another attraction was that English, Dutch, and Scottish buyers were more likely to pay cash than other colonists.

Government policies blocked trade with the French and Spanish. Meanwhile, the colonists had few goods the Native Americans wanted.

Another geographic problem was that the Appalachian Mountains created a formidable geographic barrier the colonists had difficulty crossing. Meanwhile, the one serious gap in that barrier; the French and the powerful Iroquois Confederacy, a Native American federation, controlled the flat plains of Upstate New York.

Thus, a unified American economy did not develop until after the Revolution. Ironically, the roots of the Revolution were economic.