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

Continuing with our look at the origins of America's Economic Power, as told by historian John Steele Gordon in his book "An Empire of Wealth," the new nation is growing.

By 1700 Pennsylvania's population was more than 18,000 and by 1776 Philadelphia was second only to London among cities in the British Empire with a population of about 40,000 (including nearby towns).

Wheat was a big product by the early 1700s and was grown in Pennsylvania, New York and New England, but the market internally was limited so the surplus was turned into flour and sold to British and French West Indies in exchange for sugar and molasses.

As for Britain itself, by 1700 it had overtaken the Netherlands as Europe's greatest trading nation and trade with Asia and America now accounted for 40% of the British merchant marine traffic.

America was becoming increasingly productive during the Colonial era, but the economy still wasn't a complete one since it relied on Britain for goods and services Americans couldn't yet provide for themselves; like banking. Britain prohibited the establishment of banks in the colonies and wouldn't export British coinage as it sought to preserve its own money supply.

So America had no money. Sure, like every other place it started out with a barter economy and progressed to wampum, Indian beads, until someone figured out how to make more beads more efficiently, flooded the market, and presto!...the value of wampum plummeted.

It turns out that Massachusetts was the first to start minting its own coins despite the prohibition against it?the pine tree shilling. Then in 1690, the colony issued 'bills of credit' - promises to pay in the future - and these came in 5, 10, and 20 shilling denominations. It was legal tender and circulated as money, the first paper money in the Western World.

Pennsylvania was the second to issue a form of paper money in 1723 and a young lad by the name of Benjamin Franklin ended up with the contract to print Pennsylvania's bills of credit. Franklin, boy genius, was already devising ways to foil counterfeiters, with some of his methods still in use today.

But the bottom line with both Massachusetts' and Pennsylvania's attempts at paper money, they weren't backed by anything, and thus doomed to fail.

Nonetheless, the economy was continuing to diversify and in 1774 Philadelphia had 300 carriage makers as well as craftsmen turning out superb works of furniture, while artists like John Trumbull were doing a brisk business in portraits.

From 1750 to 1770 the population of the 13 colonies rose from 1,176,000 to 2,131,000; thanks both to immigration and very large families (with a majority of children now living to maturity).

John Steele Gordon makes an interesting point regarding the demographics of the time that I frankly had never contemplated. In the 1770s the top 20% of the population owned 2/3s of the wealth, with the bottom 20% owning only 1%. But Gordon says this is deceptive because the population was so very young and children obviously possess no wealth. Another offered that of those in their 40s only about 8% would have been considered poor by the standards of the day. Gordon:

"The reason was, simply enough, that colonial America before the Revolution was a land of opportunity such as the world had not yet seen."

The key was land, lots of it, as opposed to the West Indies and Europe where little was undeveloped. If the family farm wasn't big enough, American families just up and moved to find bigger tracts. And then you had the steady flow of immigrants, especially after 1750.

In 1767 Sir Henry Moore, royal governor of New York, explained that "as soon as the time stipulated in their indentures is expired, they immediately quit their masters and get a small tract of land, in settling which for the first three or four years they lead miserable lives, and in the most abject poverty. But all this is patiently borne and submitted to with the greatest cheerfulness, the satisfaction of being land holders smooths every difficulty and makes them prefer this manner of living to that comfortable subsistence which they could procure for themselves and their families by working at the trades in which they were brought up."

John Steele Gordon:

"This willingness to accept present discomfort and risk for the hope of future riches that so characterized these immigrants, and the millions who would follow over the next two centuries, has had a profound, if unmeasurable, effect on the history of the American economy."

And then there is the evolving issue of slavery, which I'm not spending time on in this space except to note Gordon uses the life of Ben Franklin as an example of the changing attitudes of society at large.

"In his youth he regularly ran advertisements in the Pennsylvania Gazette for slaves he was selling. And he owned two, George and King, who worked in his household. By 1750 he regarded slavery as injurious to the welfare of a country because it bred a contempt for labor, and he thought that slavery was economically inefficient at best. By the last decades of his life, however, he was an abolitionist. The first abolitionist society was founded in Philadelphia in 1775, and Franklin accepted its presidency in 1787. By that time even major slaveholders such as George Washington and Thomas Jefferson thought that slavery was immoral, but neither knew how to rid the country, or even their own plantations, of it."

Finally, a word or two about taxes. The British government during much of the 17th and 18th centuries ignored the colonies, "other than to use them as a convenient dumping ground for convicts and other undesirables," [Gordon] and to protect its economic interests such as in the West Indies.

But as Britain emerged as a Great Power it built up huge debts. By 1748 and the end of the War of the Austrian Succession, Britain's national debt stood at 76 million pounds. Fifteen years later at the end of the Seven Years' War (called the French and Indian War in North America), it was 131 million pounds. This was at a time when a family could live in comfort on 100 pounds a year.

So picture this. The British government spent 60% of its budget on just servicing the debt, while at the same time still having to maintain its vast armies. It only made sense that Britain then looked to North America for support, and it's not as if the colonists were being heavily taxed. The average British subject living in England paid 26 shillings a year in taxes while the average American paid just one.

Sounds like a good deal to me, sitting here in colonial New Jersey, but the rest of the colonists resisted paying more taxes with every fiber of their being, arguing that Parliament had no say in how they were treated, only their colonial assemblies did. John Steele Gordon observes:

"As so often happens in a family quarrel, as the arguments deepened, neither side made much of an attempt to understand the other's point of view, while more and more grievances were aired. The colonists frequently stated that knuckling under to British demands would reduce them from free men to slaves, a condition of servitude with which they were all too familiar. And, realizing that they no longer needed British military power for their own defense, they could not see its necessity for the empire as a whole."

The British back home made fun of the "children" across the pond, convinced their superb army could squash the colonists if necessary. But one, William Pitt, Earl of Chatham, knew better. "You cannot conquer America," he told Parliament. His voice fell on deaf ears.

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

Brian Trumbore