America's Economic Power, Part I
Brian Trumbore
President/Editor, StocksandNews.com

Time to take a look at a highly-regarded book by noted market / business historian John Steele Gordon, that being his recently published tome "An Empire of Wealth: The Epic History of American Economic Power."

Believe it or not, with my various writing responsibilities I have zero time to just sit down and read a book, but I've been meaning to devour this one and so we're going to read it together over the coming weeks.

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The United States comprises 6% of the world's land mass and about 6% of its people, yet it's responsible for 30% of world GDP. But America's economic engine is not only the largest, it is also the most dynamic and innovative; perhaps best illustrated by the fact 42% of all Nobel Prize recipients are from the U.S.

Also, 60% of the students studying foreign languages in the world today are studying English. I see this first hand in my world travels, and as I remarked in my "Week in Review" column during a recent trip to Paraguay and Chile, you can definitely tie economic success to an ability among the business class to speak our language. I understand how this may seem more than a bit chauvinistic, but I've seen too many examples to feel otherwise.

John Steele Gordon observes:

"The ultimate power of the United States, then, lies not in its military - potent as that military is, to be sure - but in its wealth, the wide distribution of that wealth among its population, its capacity to create still more wealth, and its seemingly bottomless imagination in developing new ways to use that wealth productively."

So we start at the beginning, the history of our nation and the beginnings of commerce, but first this gem from Gordon:

"?there can be no doubt that if the United States is famous for its get-up-and-go, that is because Americans are descended from those who got up and came."

Gordon writes that the two most significant technological developments in human history that signaled the end of the European medieval world were the printing press and the full- rigged ship. "The printing press greatly reduced the cost of books, and thus of knowledge."

In the mid-fifteenth century there were all of 50,000 books in Europe, most controlled by the Church which oversaw the universities. 50 years later there were 10 million volumes and these were owned not just by scholars, but the aristocracy and merchant classes, too.

As for the full-rigged ship, it opened the world to true discovery and long ocean passages. Ships with three and four masts also enabled Europeans to circumvent the Turks who controlled the eastern Roman Empire. By the end of the 15th century, the Portuguese were rounding the Cape of Good Hope and by 1510 they had reached the Spice Islands that yielded big profits for some in Europe.

Following the success of explorers such as Columbus (even if inadvertent), expeditions were funded by all the major maritime powers, with the Spanish the first to strike gold in present-day Mexico and Peru.

But it wasn't until around 1600 that the east coast of what we now call the United States was truly settled; earlier expeditions, including by Sir Walter Raleigh in the 1580s, having been a failure.

Then came Jamestown, which as Gordon points out was not founded by the English state but rather a profit-seeking corporation.

The printing press and full-rigged ships get their rightful share of publicity, "but intellectual inventions are often just as important. And two intellectual inventions of the Renaissance, double-entry bookkeeping and the corporation, proved vital to the development of European civilization in the New World and particularly in what is now the United States."

[Ferdinand and Isabella had an accountant tag along with Columbus, by the way, to keep tabs on their investment.]

Because of double-entry accounting, it became possible for people to invest in far-flung adventures. In the case of England, The Virginia Company, established by some London merchants, was chartered by King James I in 1606. As background, Gordon writes:

"The English economy had been going through wrenching change for most of the sixteenth century. The population had grown rapidly, from about three million in 1500 to four million a century later and five million by 1650. But employment did not keep pace. The cloth industry, the mainstay of English manufacturing since Flemish weavers had settled there in the mid-fourteenth century, had been losing ground to its continental competition."

[See any parallels to today?]

At the same time, the feudal system of landholding was undergoing vast change and by 1630 half the English peasantry was on the streets looking for employment. Just as in today's China, I muse, the peasants headed for the major towns and seaports. The population of London saw its numbers rise from 120,000 in 1550 to 350,000 one hundred years later, many of whom were living in dire poverty.

From such ranks came the first settlers, along with a few more well-educated sorts, and in December 1606, the Susan Constant, the Godspeed, and the Discovery, left England for the New World, arriving in the Chesapeake Bay on April 26, 1607, with 105 on board (39 others having died en route).

But the site eventually chosen for the first real settlement in America, on the banks of the James River, could not have been worse. For starters, it was teeming with mosquitoes and malaria was spread through the colonists. The water supply was also poor, dirty, and often filled with salt when the river was running low. And then you had the garbage and sewage the settlers poured in the water which often didn't pass on out to sea, thus leading to other diseases such as typhoid and dysentery.

"The result was a slaughter. Of the 105 original colonists, only 38 remained alive nine months later."

Well, remember this whole mess was the result of a business venture more than anything else and as Gordon writes, there was a steep learning curve, the same as in any new enterprise. "The commercially savvy and often very wealthy London merchants who dominated the Virginia Company simply had no idea what it took to establish a successful colony on the edge of the American wilderness, three thousand miles and three months from home."

Jamestown hung on as others came to replenish the numbers lost. In December 1609, the settlement totaled 220. But by spring they were back down to 60 and ready to abandon the experiment. "One desperate colonist had killed and eaten his wife (and was burned at the stake for his crime)."

As the remainder left in June 1610 to head back to England, they met three ships carrying 300 new recruits at the mouth of the James River, so, back to Jamestown they all went.

Of course this latest group was really under pressure to find an export "that would pay the bills and generate a profit to the stockholders." At first they tried exporting wood and sand, both used in the production of glass, but that didn't pan out economically. Other items met with similar failure.

By 1616, the Virginia Company had transported more than 1,700 people to Virginia and invested 50,000 pounds, a huge sum for those days, yet Jamestown was doomed, any way you look at it.

Then came the answer in the form of a common plant to the Americas, Nicotiana tabacum. Tobacco had been farmed for thousands of years in what is now Peru and Ecuador and by the time of Columbus, smoking tobacco had become a habit in much of the Western Hemisphere.

The local Indians in eastern Virginia grew tobacco but the colonists preferred that which was produced by the Spanish in the West Indies. Then in 1612, John Rolfe brought some seeds from there and planted them. The climate around Jamestown was perfect, hot and humid, and Rolfe "learned the exacting art of growing and curing tobacco." He also married the Indian princess Pocahontas.

But the first commercial crop wasn't ready until 1616 and it was then that Rolfe returned to England, Pocahantas in tow (she immediately died there). The tobacco was a hit and when Rolfe returned to Virginia in 1617, according to Gordon the people celebrated the first American Thanksgiving "because that year's tobacco crop was safely in and promised commercial salvation for the colony."

[Actually, I always thought it was December 1621 and Plymouth, Massachusetts.]

In 1618, 20,000 pounds of tobacco were grown in Virginia and shipped to England, and despite many ongoing hardships, including a large-scale Indian attack, by 1627, 500,000 pounds was exported. By 1638, Virginia's production for use overseas was 3 million pounds and this source of tobacco was outstripping all others, including the West Indies.

And with that we wrap up our first tale.

Source: "An Empire of Wealth: The Epic History of American Economic Power," John Steele Gordon

Brian Trumbore