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Submitted: May 11, 2010

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Submitted: May 11, 2010




by Carole E. Scott

Copyright 1997-2001

Today antebellum America is a far distant place. No one alive can remember it. Few people alive today have ever spoken to someone who could remember it. As a result, antebellum America is the province historians. Unfortunately, historians do not agree about some very important respects about what it was like.

It was during this era that the industrial revolution flowered in America. As a result, per capita income and wealth soared and life was revolutionized. For the first time in history technological advance played a major role in economic growth and development. Previously, specialization: producing what a region or a state had a comparative advantage in and utilizing the division of labor and capital (specialization of labor and capital) had accounted for the great majority of the productivity growth necessary to increase per capita income. However, according to economic historians Jeremy Atack and Peter Passell, \"After 1815 much of the nation's growth was generated by increased British demand for cotton and Midwestern settlement that created opportunities for regional specialization and trade.\"

The American Revolution

Then American Revolution has been labeled as the leading edge of a massive upheaval in the Western world. It was the first of revolutions, large and small, that would transform the world.

In contrast to the colonists, the British had an experienced army and command of the sea. They were led by a government that was not being challenged. It had a larger population and greater total wealth. They could move their troops from place to place by sea, while the colonists had to move via land, which hampered both troop movements and supplying them. The British quickly took seven northern ports. Later some were retaken, but by them some southern ports were taken.

This War did not place anywhere near as heavy a burden on what was to become the U.S. as did the Civil War or World War II. The Continental Army never exceeded 20,000 men. Often General Washington had only one third this many men. Maybe 10,000 men served on navy ships or aboard the larger number of privateers. About 800,000 of the colonies' 2.5 million people were men of fighting age. Many soldiers continued to practice their civilian occupation part time.

Today is believed that only a minority of the colonists' people actively supported the gaining of independence. Arms for the Patriot Cause, as its supporters labeled it, had to be imported. Some Patriot governments would not sent its troops outside the state. Some men refused to serve far from home. Many Patriot officers owed their positions to political pull and had no military training or experience. Fortunately for them, the British sent second rate generals to fight them. Before the conflict ended, the Americans were helped by the fact that the British were also fighting in Europe, the Caribbean, and even in the Orient. Ultimately the British decided winning the war wasn't worth the cost.

The Patriots were led by an articulate middle class composed of lawyers, merchants, and planters. Supporting them were radical farmers and city dwellers opposed to aristocratic privilege. Their domestic opponents were called Loyalists or Tories (after a British political party opposed to the Whig Party the Patriots favored). The Loyalists were led by wealthy landowners in the North, British civil servants, and Anglican clergy.

The War lasted nearly seven years, beginning in 1775 in Lexington, Massachusetts and ending with a skirmish at Combahee, South Carolina in August, 1782. Very little of this time was spent fighting. The British troops spent most of their time occupying a few major (port) cities. General Washing was mostly occupied in keeping an army in the field. In contrast, the war at sea was active.

Unable to finance the war by taxation, the Patriots' Continental Congress also resorted to printing paper money and confiscating Loyalist property. Some of what the army consumed it simply took. Through the destruction brought about by the war, the tax base shrank. Because the Patriots were fighting over British taxation, it was not politic to press people too hard for the payment of taxes. Loyalists and those not taking sides refused to pay. Taxes could not be collected from Patriots behind British lines. Borrowing was difficult when the army was not doing well, which often happened. State and national borrowing financed about 28 percent of wartime expenditures. Foreign loans accounted for eight percent.

The paper money issued by the Continental Congress combined with the specie spent by the British and the French, and a reduction in the supply of goods and services brought about by the War led to runaway inflation. (Long after the War, Americans described something really worthless as not being worth even a Continental in reference to the Continental Congress' paper money.) Prices peaked at about 135 percent of their prewar level. Soldiers found the purchasing power of their pay shrinking to near nothing, and this caused some to desert. Farmers did not want to accept Continental money in exchange for the food the army needed. This led to the seizures. Washington complained of farmers selling the British, but not to his army.

Some men profited from the War by feeding, clothing, and housing troops. The Middle colonies benefited from the increased demand for food. Money was earned by some, too, by selling to the British and the Patriots' French allies. After the War some speculators made money by purchasing, for a fraction of its face value, the unbacked currency issued by the Continental Congress to finance the War because it was redeemed after the War.

After 1777, the thirteen colonies' overseas trade rose, but foreign trade was less than it would been if there had been no war. Through British-held areas, smuggling, and purchases of British goods in other nations, some British goods were imported. Privateering brought in goods, and trade with the rest of Europe increased. Domestic manufacturing increased, causing the thirteen colonies to become more self sufficient.

After 1775, because fighting shifted to the South, New England did not experience much fighting. However, British privateers damaged its fishing and whaling fleets, and the British market for whale oil was lost. The South was the only area in which the British employed economic warfare. Besides seizing slaves and luring them into their lines with promises of freedom,, the British destroyed many buildings, crops, and livestock. Because there was no longer a British indigo subsidy, its production fell.


It has been estimated that the thirteen states' population grew from 250,000 in 1700 to 2.8 million in 1780. This is a very rough estimate, as no census was ever taken in the colonies. Today, of course, the U.S. Census taken every ten years provides a great deal of economic and demographic data. (Population is needed to compute per capital income from total income. Obtaining economic data, however, was not the original purpose of the census.) The Census dates back to when the Articles of Confederation were replaced by the Constitution.

The Patriots, as those seeking the thirteen colonies independence called themselves, would very much like to have had the kind of data we have today. During the War for Independence the thirteen original states (formerly colonies) used estimates of their populations in order to determine their ability to wage war and their tax capacity, and their propaganda used this demographic data to show that the infant nation had a large and growing population.

Thomas Jefferson wanted the second census taken in 1800 to include occupational or economic data, but it wasn't. In 1810, however, a Census of Manufacturers was authorized. This came about because the Napoleonic Wars, which interfered with foreign trade, caused the government to decide to encourage manufacturing. The purpose of this census was to find out what the nation was already manufacturing.

In the late 1830s, Congress used Census data in determining how much money each state would receive when it decided to distribute the federal government's surplus to the States. In 1840, the Census was enlarged,and information about Revolutionary War pensioners, schools and colleges, literacy, occupations, idiocy, insanity, commerce, and industry was gathered. With a lot of acrimony, every decade the House was reapportioned on the basis of Census data.

In the 1830s and 1840s the nation's infant statistical community began to press for the creation of a more professional national statistical system, which they got after 1860. In the 1850s, amid acrimonious squabbles between Northerners and Southerners, Congress grappled with reforming the Census. Many Southerners believed that gathering all the data some proposed would give the federal government too much power. Also, Southerners feared that data gathered about slaves would somehow be used against the South. Although the 1850 Census only contained eight relatively innocuous questions on a separate schedule about slavery, some people tried to tease out of this data either pro or con arguments about slavery. Both sides misused the data. Neither convinced the other of the validity of their position. Northerners used some of the data to portray how miserable was the condition of the slaves. Southerners countered by claiming that other data revealed that free Northern laborers were even worse off.

Abraham Lincoln used Census data to try and compute how much it would cost to free the slaves by paying their owners for them. (This was not done in the U.S., but the British did this in the West Indies.) During the Civil War (War Between the States, War for Southern Independence) Census data aided the U.S. in fighting it. Census data was used to measure the relative military and economic strength of the two regions. Also, as Union troops invaded the South, Census data indicated what they would find there. Census data was also used to estimate how much tax revenues might be collected and how to obtain them. After the War, the Supreme Court ruled that the income tax the federal government imposed during the War was not a direct tax; therefore, it did not need to be apportioned on the basis of population. Thereafter, Congress levied no direct taxes.


The thirteen original states united under the Articles of Confederation, which established a weak central government that had no power to tax. Under them the central government was not strong enough to negotiate concessions from the major colonial powers: Great Britain, France, and Spain, that controlled areas adjoining the new United States of America. Under them, the states had the power to levy tariffs on imports and exports, even between themselves, and they controlled the supply of money and credit within their borders. However, under them some useful legislation was passed, including the Land Ordinance of 1785 and the Northwest Ordinance of 1787.

The Treaty of Paris (1783) that ended the Revolutionary War and gave the nation its independence ceded to the new nation territory West of the thirteen colonies that was called the Northwest Territories. By 1860, this area, today called the Midwest, had a quarter of the nation's population. Access to this territory was via the Mississippi River and the Gulf of Mexico, which were controlled, first by Spain, and then, briefly, France. Dissatisfied this situation, President Thomas Jefferson attempted to purchase permanent transite rights on the Mississippi through New Orleans, but ended up purchasing the entire Louisiana Territory (828,000 square miles) in 1803.

The acquisition of the Midwest, Midsouth, Southwest (result of Texas gaining its independence from Mexico and the U.S. winning the Mexican War), and the Northwest, of course, tremendously increased the nation's Gross Domestic Product (a concept that then did not exist). The Land Ordinance of 1785 required that the Northwest Territories be settled on the basis of the New England model, that is, the land would be surveyed prior to settlement on the basis of a rectangular grid (east-west base lines and north-sough principal meridians) and be divided into townships six miles square. The land would be publicly auctioned off. (There was a minimum price.)

The Land Act of 1796 (passed after the new Constitution was ratified) made permanent a system of rectangular surveys similar to the one established by the Ordinance of 1785. As time passed, Southerners became ever more opposed to the public lands being sold cheaply in small-sized parcels because they believed this would assure that new states would be free states because slavery was not profitable on a small farm. Once the Southern states left the Union, the advocates of free land (free soilers) and small farms got what they wanted when the Homestead Act of 1862 was passed. (At a very small cost 160 acres of public land could be acquired by anyone over 21.) By this time, however, the available, very dry land was too poor for 160 acres to support a family, but some tried, and, as a result, land that should never have been plowed up was. (It was, in short, an environmental disaster.) The Westward movement was spearheaded by immigrants from New England, the Middle Atlantic states, and foreigners.

The Northwest Ordinance of 1787 provided for the administration of an area by a governor appointed by Congress and the establishment of a territorial legislature once the area had 5,000 males of voting age. Once the population exceeded 60,000, it would become a state with rights equal to the existing states. (Clearly, censuses were necessary.) Foreign governments believed the new nation's government could not force compliance with any treaties it signed. Because they thought it was weak, the British refused to remove its troops from the western frontier; the Spanish closed the mouth of the Mississippi River to all American commerce; and Barbary (North African) pirates freely looted American shipping in the Mediterranean. These were extremely serious problems.

Both during and after the War of Independence, under the Articles of Confederation Congress had trouble raising revenue. This is because the central government's only source of revenue was voluntary contributions by the States. It had what today economists call a free rider problem, because each state held back, hoping other states would fund the national government that provided benefits all the states would enjoy. Under the Articles, \"all charges of war and other expenses\" or the U.S. were to be paid for by the states \"in proportion to the value of all land within each state, granted to or surveyed for any person.\" There were a lot of problems with this method. How was unimproved and improved land to be valued? What about the fact that much property in the South consisted of slaves? What about mercantile wealth in the North? Why were these forms of wealth ignored?

Under the Articles, Congress was subject to a great deal of wrangling. Lying behind much of it was controversy over the labor system employed in the South: slavery. Controversy also swirled about Congress because large states resented the equal representation the Articles provided smaller states. Small states feared bullying by large states if this was changed. States with no claims to western lands resented those had them because of the potential wealth they represented. This was settled when the states with them gave them up. (In exchange for giving up its claim to land stretching to the Mississippi River, Georgia was promised that the federal government would remove the Indians from the State. When it did not, Georgia did so on its own.)

The Southern states wanted to preserve slavery because they believed that otherwise they would have a massive shortage of labor. (Keep in mind that a great deal of work involved in clearing land and planting and harvesting crops done today with machines was then done by hand.) Blessed with rivers on which goods could be transported from their interiors to the coast (rivers flow South), Southerners did not want their tax money spent on canals and roads in the North; so they opposed the federal government spending money on internal improvements that would take business away from their ports. (The building of East-West canals and, later, railroads took Midwest business away from New Orleans, for example.) Because their cities would benefit, Northerners favored internal improvements.

Monied and commercial interests wanted a revision of the Articles that would provide a system capable of protecting property and creating situations where profits could more easily be obtained. They wanted to curtail the power of debtor classes, who had gained control over the states' legislatures and, they believed, were expropriating property via creating excessive--inflationary--amounts of unbacked, paper currency. (Unbacked paper money is not redeemable by its issuer in specie.) What they got was not a revision of the Articles, but a new Constitution that created an entirely new system of government that held out the promise of improving economic conditions and providing economic stability.

Since wealth and population are correlated (partially), under the Constitution population was selected as the basis of taxation. It was also used for determining a state's representation in the House of Representatives. One hundred percent of the free population was used for these purposes, but only 3/5ths of the slave population was used. (Note: a slave was not considered to be 3/5ths of a person. This provision was the result of Northerners not wanting any slaves counted and Southerners wanting them all counted.)

Until it was later amended, only direct--per head--taxes were permitted. Therefore, it is obvious why censuses were called for. One of the first tasks of the new government was to conduct the Census of 1790. This census only counted households. Asked were how many males and how many females there were in the household. How many were free, and how many were slaves. Only the name of the head of the house was listed. (Only property-owning men could vote.) Not until 1850 were the names of all family members recorded. In that year, too, note was taken of the value of the household's property.

The apportionment of representation in Congress and taxes among the states on the basis of population is only one of several checks and balances provided for in the Constitution. Large states received more representation in the House, but would pay more taxes. In the Senate, each state had equal representation. The men who wrote the Constitution were familiar with Adam Smith's The Wealth of Nations and were, it seems, as a whole in general agreement with it. In it, Smith did not use the term capitalism; instead, he described in this book what he called a \"society of perfect liberty.\" He described it in this manner because of its emphasis on freedom of economic contract. He recommended it, not because it what it would do for the rich, but for the enhancement of the wealth of the entire nation it would bring about.

The Constitution achieved several economic objectives: 1) it provided the political environment necessary for a single, free-trade area within the nation; 2) it made the federal government a potentially effective instrument of foreign policy; 3) it recognized the primacy of property rights and the freedom of individuals to acquire and transfer property. The Constitution gave the federal government the exclusive right to regulate both foreign and interstate trade. It gained exclusive right to levy import duties. Previously the states had done this, but they had collected much because any state that levied a high tariff found itself losing import business to another state whose tariff was lower. New Englanders desired uniform protective tariffs because after the Revolutionary War was over cheap British goods began to pour into the United States. This was because, since farming was not very profitable in New England, it turned to alternative activities, including manufacturing.

A protective tariff is one that, while, obviously, producing revenue, is levied to keep foreign goods out. A revenue tariff is one levied to obtain revenue, although it will reduce imports. A tariff designed to raise revenues will be lower than a protective tariff, because if a tariff is set high enough, less revenue will be collected than from a lower tariff because of the great reduction in the amount of imports. Besides providing the federal government with the ability to levy tariffs for revenue and the protection of domestic industry, the Constitution also gave the federal government the power to define, create, and regulate the supply of money. The states were denied the right to issue currency, however, they were granted the right to charter banks that could issue currency. The federal government gained the right, too, control the naturalization of foreigners; establish a postal service; establish a common set of weights and measures (important to business); grant patents and copyrights (important to business);levy taxes; and to make treaties with foreign nations that take precedence over state laws. It forbade the States from enacting laws interfering with the obligations of contract.

In the antebellum period tariffs and the proceeds from selling the public lands provided the federal government with the bulk of its revenues. A bone of contention between the North and the South was the price at which the public lands were to be sold and in what size parcels they were to be sold. Northerners generally favored low prices and small parcels, while the South favored the reverse. Opponents of slavery though low land prices and small parcel size would keep slavery out of the West.


Agrarians like Thomas Jefferson believed that agriculture is the most beneficial and productive of all human activities. Men like him feared the nation becoming dominated by industrial workers and city dwellers. Jefferson said that, \"I consider the class of artificers as the panders of vice and the instruments by which the liberties of a country are generally overturned. I view great cities as pestilential to the morals, the wealth and the liberties of man.\"

Farmers and farms held center stage in the Antebellum world, as by as late as 1850, they accounted for 85 percent of the population. Early and heavy immigration by whites into New England, New York, New Jersey, and Pennsylvania created conditions that led to rapid population growth and family farming. The South had unfree labor and landed aristocracy. The rest of the nation lacked both.

Over the decades, differences between the Northern and Western states and the Southern states increased. Perhaps the most distinctive difference was slavery. Certainly it was the most contentious. By 1850, nearly 37 percent of the South's people were slaves, and South Carolina was a majority slave state. The number of slaves in the North had been negligible, as was its black population after it was eliminated there. Conflict between the slavery-based agricultural system of the South and the family-farm based system of the North and West led to both intellectual and political conflict.

People from New England, Pennsylvania, and New York were the chief settlers of the Midwest. Southerners chiefly settled in Kentucky, Tennessee, Alabama, Mississippi, Louisiana, Arkansas, and Texas. Although not dominant, a number of Southerners settled in Southern Indiana, Ohio, and Illinois. New Englanders and immigrants from Europe were heavily represented in the Great Lakes states. By 1860, the population of the new Northern states beyond the Appalachian Mountains exceeded that of new Southern states beyond the Appalachians. While most immigrants were seeking farm land, many immigrants to the Far West were miners once gold was discovered in California and, subsequently, in Colorado,

Improvements in transportation such as the Erie Canal and, subsequently, railroads, enabled farmers by 1860 to buy more than twice as many manufactured products with a given output as they could have in 1820.

In 1815, when New York's population surpassed that of the previously largest state, Virginia, tobacco's prospects were declining because American tobacco had lost a large part of its market to Turkey. By that time, the use of it to grow tobacco had ruined much of Virginia's farm land, and some land in the Chesapeake Bay area had been allowed to return to pine forest. In Georgia, one generation of farmers was enough to ruin the Sand Hill region around Augusta.

Early immigrants to a new area typically improved the land and then sold it and moved further West. As the soil became exhausted, the later comers moved West to lands opened by pioneers. \"Old stock\" (descendants of early settlers) Americans comprised the majority of the pioneer farmers moving Westward from the older states, taking with them their tools, equipment, and livestock. Penniless immigrants from Europe settled in Eastern cities and became wage workers.

Tobacco cultivation was set back both by the wearing out of much of the land suitable to its cultivation; the closing of the slave trade; and the rise of cotton cultivation because this caused slave prices to rise. This made it more profitable for many Virginians to sell their slaves to cotton planters in the lower South than to employ them in Virginia to raise tobacco. Although slaves were removed from the cultivation of tobacco cultivation to cultivating cotton, they were not removed from cultivating sugar, an important crop along the Gulf Coast.

Before 1790, wool dominated the textile industry. But, once a cheap way was found to remove seeds from it, cotton quickly replaced it. As a result, cotton cultivation swept away cattle, indigo, and pine trees through much of the Piedmont South. The cotton gin both made producing cotton cheap enough so the masses could afford cotton clothing, and transferred the center of the cotton-growing from the coast where long-staple cotton was grown to the interior of the South where short-staple cotton, from which seeds are harder to remove, was grown. By 1840, the center of cotton cultivation had shifted to the West, and Mississippi alone produced more than Georgia and South Carolina combined. Planting much of the cotton in Alabama, Mississippi, and Louisiana were men who had moved there after wearing out the land they had earlier farmed in the older cotton states.

Cotton was an almost perfect crop for the lower South. It was easy to grow, and its demands were met by the region's climate and soil. Between the cotton South and the wheat North, there was a middle ground in which the main crop was corn. (Georgia always grew more corn than cotton, but cotton was the prime cash crop.) Cattle, hemp, and tobacco began being produced in the vicinity of Lexington, Kentucky, Nashville and Knoxville, Tennessee, and what is now Charleston, West Virginia. (It was then part of Virginia.) Corn was also a widely-planted crop in these hilly regions. (Kentucky and Tennessee were the first states West of the Appalachian Mountains to be admitted to the Union.)

Northern farmers did not need as much labor as did Southern farmers because the crops they grew, grains, are not as labor intensive as are the crops Southerners grew: cotton, rice, sugar, and tobacco. Also, mechanical methods of harvesting grains was developed early because it was easier to accomplish than in the case of Southern crops. Although the South has often been branded as being backward because of its less developed transportation system, less urbanization, and less industrialization, the per capita income of its free citizens in the antebellum period seems to have grown just about as fast as it did in the rest of the country. Also, poverty-stricken agricultural countries today are not, as was the antebellum South, feeding themselves and exporting very large amounts of their agricultural output. Retrogression in the South appears to have begun with the Civil War, which subjected it not only to great physical destruction resulting from battles, but also to a policy of total war aimed at destroying its economy.

The cash crops of the North: wheat, corn (much of which was fed to hogs) , oats, hogs, and cattle were also subsistence crops. This was not true of cotton, the South's chief cash crop. Therefore, unlike the Southern farmer, the Northern farmer participating in the market economy (cash cropping) only had to extend the same activities he would pursue anyway in order to feed his family. The cotton farmer, on the other hand, distributed his resources between growing cotton for cash and growing corn, hogs, cattle, and other foods to be used, as in the North, for subsistence. The typical slave-state farm in 1860 had a valuation of $7,101. In the free states this figure was $3,311. Slave owners constituted the wealthiest class in the nation. The average slave owner was more than five times as wealthy as the average Northerner; more than ten times as wealthy as the average non-slave holding Southerner.

Improved transportation and the resulting competition from Western farmers caused farmers in the Northeast to reduce their production of grain and shift to dairy farming and truck gardening, both of which provided them with products to sell to city dwellers that would not face competition from Western farmers. (These products would spoil before they could reach the East from the West, as this was before refrigerated railroad cars had been developed.) So, in this period, thanks to improvements in transportation and communications, we see national markets developing for Western farmers and Eastern manufacturers; thereby stimulating both.


Before the Civil War, the greatest regional difference in the U.S. was between the South and the rest of the nation. The cornerstone of that difference was slavery. The South kept it, while between 1777 and 1804, eight Northeasters states passed laws eliminating it. There also were other differences of economc significance. For example, the South was less urbanized than the Northeast, and there were vastly fewer foreign born people, relatively and absolutely, living in the South than in any other region, but these were less significant and were related to slavery.

Although slaves were owned by Southerners who lived in cities to work in their homes, ply some trades like blacksmithing, brick laying, etc., and in factories, the great majority were employed in agriculture, which was the dominant economic activity in the South. The South exported most of its cotton through New York, and many of its imports came through this Northern port city. (Charleston and Savannah were never abe to find a way to funnel busines to themselves as New York did with the Erie Canal.) Immigrants with little or no money or skills did not settle in the South because they would have to compete with slave labor, and laborers in the rest of the country were very opposed to slavery being introduced into their states for this reason. Many immigrants in the late antebellum period settled in Northen cities to work in factories. After railroads connected the Midwest with Northern ports, New Orleans lost much of the Midwestern trade to them.

It was only about 200 years ago that very many of the world's people began to damn slavery. (This does not mean that slaves wanted to be slaves!) Historically, slavery had been practiced throughout the world, and it existed as far back as we have any knowledge of. In form, it varied from place to place and over time. Even though since not long after World War II slavery ceased to be legal anywhere in the world, it is still practiced. A frequent form is called debt peonage, that is, someone is required to work for someone else because they owe them money which they are, due to the system they are enmeshed in, unlikely to ever be able to repay.

Often slavery has been eliminated peacefully, as it was in the British West Indies prior to our Civil War and after it in Brazil. There was, however, prior to 1860, a bloody, successful revolt by the slaves in Haiti--then a French colony--that greatly frightened Southerners, who liked to point out that Haiti thereafter remained mired in poverty and suffered from frequent violence. The anti-slavery crusade was led by Great Britain, which abolished it in its colonies and pressured other nations to cease practicing it. The British gradually eliminated it, doing so by compensating slave owners.

Slavery remained legal in some parts of North Africa, where white ownership of black slaves originated, until after World War II. Today various forms of slavery are practiced in several impoverished nations. Because to people today slavery is so repulsive, it is difficult to look at it objectively, but if we are to understand pre-1860 America, we must. Although slavery was practiced throughout the nation, in the North laws were passed that gradually eliminated it. However, some Midwestern states banned both slavery and blacks from living in them.

Although elsewhere slaves might be of the same race as were their masters, and this was true in America before the arrival of whites and blacks, in the thirteen colonies and, subsequently, in the U.S., slaves were either Indians or Africans. The practice of enslaving Indians was abandoned because it did not work out well. The great majority of African slaves were owned by whites, but a few were owned by Indians or free Africans. (Africans generally gained their freedom by buying it with money their owners allowed them to earn on the side; being freed by a white parent; or being freed by a provision in their owner's will when the owner died. Free blacks became ever less welcome in the South, and various tactics were used to get them to leave.)

The great majority of white Southern families owned no slaves. The approximately four million slaves in 1860 were owned by about 385,000 individuals. About 72 percent of slave owners owned fewer than ten slaves. Only about 10,000 owned more than 200. About half the slaves were owned by 12 percent of slave owners. Non-slaveholding Southerners did not tend to be abolitionists. Many Southern counties called white counties due to having few or no black residents forbid blacks to reside in them. These counties' soils were relatively poor, and many were located in the mountains. There were abolitionists in the South, but as anti-slavery sentiment grew in the North, most of them seem to have either been silenced or changed their minds. Typically, Southern abolitionists wanted to return the slaves to Africa, and some were, and accounts for the founding of the nation of Liberia.

The larger cotton plantations were of such a size and complexity that they were comparable to New England's factories. (New England was the most industrialized region of the nation during this period.) Lumber and grist mills were typically a part of these plantation's operations. Some had their own cotton gins. Large sugar plantations processed the cane once it was harvested. Some men owned several plantations and, therefore, found hired managers essential.

The history of the middle decades of the 1800s is dominated by the growing sectional conflict between the North and the South. For years, this conflict was settled by compromises. These compromises were ultimately based on an understanding of a balance of power and compromise of interest between the North and the South. This balance required a rough equality of resources, population, and wealth between these regions. Disparities in these were viewed with alarm by people in both sections who sought peace and the maintenance of the Union because they disrupted the balance between the North and the South.


Transportation in this period suffered from three major handicaps: 1) high cost; 2) slow speeds that kept perishables from moving very far; and 3) irregular service. In addition, overland travel was damaging to fragile goods. It limited competition, raised prices, and protected the inefficient. Manufacturers more than fifty miles from Philadelphia, claimed Senator Daniel Webster, enjoyed natural protection equal to that Philadelphia merchants enjoyed from manufacturers in Stockholm, Sweden. By this he meant that the cost of transportation from Philadelphia to areas more than 50 miles away was so high that Philadelphia manufacturers could not compete with local manufacturers. According to Webster, the cost of only 50 miles of land transportation equaled the cost of transportation from Stockholm to Philadelphia.

The first and least important improvement in transportation were the turnpikes that began appearing after the Revolution. Tolls charged for their use was used to grade and maintain them better than other roads. According to economic historians Jeremy Atack and Peter Passell, report that they may have cut the cost in terms of labor and capital of moving heavy freight in half. As was true of the other forms of transportation, most were privately financed. Only a few turnpikes were profitable. (A big problem was that people could avoid passing toll booths.)

Two canals were built in the 1790s: the Santee in South Carolina and the Middlesex in Massachusetts. More, the most successful of which was the Erie, which connected between New York City and the upper Midwest, were built later. Canals' great advantage was that one work animal could move as much freight as 50 could on land. They were, however, very expensive to build and possible to build in only a few places. Their high fixed costs made them economic only where the volume of traffic would be high. Fixed costs are costs which do not vary with the level of output or (in this case) service. The higher is the level of output or service, the lower are fixed costs per unit of output or service. Other costs are called variable costs. Technologically, building canals were a challenge. Most of the money invested in canals was provided by state and local governments, mostly with funds acquired via taxation Low cost transportation, of course, boosted economic activity, and this is how spending this money was justified Atack and Passel estimate that they drove the cost of transportation down from 20 cents per ton mile in 1810s to 2 to 3 cents per ton mile in the 1820s. The last canals built were failures.

Another major improvement in transportation was the development of the steamboat, which made it possible to cheaply transport freight and people upstream and speed downstream trips. Prior to their development the muscle power of humans or animals was required to drag boats upriver. Robert Fulton demonstrated the first successful steamboat in 1807. In 1815, the feasibility of using them to transport freight up the Mississippi was demonstrated. The removal of snags in rivers and reductions in steamboats' draft made more areas reachable. Night travel eventually became possible. Larger steamboats reaped economies of scale. Boiler explosions and a short useful life were problems. Competition became fierce, driving down price.

Employing steam to power ships on the Great Lakes and the Ocean took longer to achieve than using it to power river boats. \"Sail power,\" say Atack and Passell, [long] held its own against steam...for a number of reasons. The construction costs of sailing ships were much lower than steamships, and the ratio of cargo space to total ship tonnage was much higher.\" A handicap of using steam for ocean travel was the necessity of carrying a lot of wood or coal to power the engine. (On a river steamships stopped periodically to pick up fuel.) (The first ship to cross the Atlantic (partly) via steam power sailed from Savannah.)

The most important and well known advance in transportation in the antebellum period was the development of the railroad. This development led to the introduction of the telegraph. Before the introduction of the telegraph, because only single track lines were economic, a train could not travel, say North, until a South bound train arrived. The telegraph made it possible for trains to travel in both directions by informing one of them to pull off on a siding to allow a train going in the other direction to pass.

The first railroads faced not only technological problems, but hostility from those associated with competing forms of transportation. Also, some feared traveling over 20 miles per hour would kill a person. Some didn't want these noisy, smoky things around. Decatur, Georgia, for example, turned down the opportunity to have a rail line the State of Georgia was building from the Tennessee River terminate there. As a result, it ended a few miles away, where a new town called Terminus came into being. Today this town is the City of Atlanta. More fortunate than Atlanta transportation wise was Chicago, a mid-continent, Great Lakes port that became a major rail center. Railroads could travel uphill. They could reach inland areas not near rivers. They could be built at a fraction of the cost of a canal. Their speed exceeded that of a wagon, and they could transport a ton at a far lower cost than could a wagon. However, it took a quarter of a century after their introduction for them to come to dominate interregional transportation.

A major drawback to antebellum railroads was that different railroads did not use the same track gage. As a result, when transferring from one line to another, cargo had to be unloaded and reloaded. Only one antebellum railroad was state owned, Georgia's Western & Atlantic. However, some cities and states invested in railroad stock.

Much of the money needed to finance the construction of canals, turnpikes, steamships, and railroads came from private sources abroad, mainly Great Britain. Transportation and land booms collapsed whenever foreign money was scarce. Internal improvements during this period were financed by the states, and when depression hit, many of them repudiated the debt they incurred to finance them. This alienated Great Britain, whose citizens held much of this debt. In 1839, about $200,000 worth of American securities were in the hands of British citizens.

By 1841, $120,000 of these were at risk. (Keep in mine the vastly greater purchasing power of the dollar then.) The British government asked the federal government to assume these obligations. It refused. As a result, when the federal government sought foreign loans in 1842, it was rebuffed.

The transportation revolution that played the most important role in economic development was the one which opened up the interior of the country; thus making possible the exploitation of its vast resources. This revolution matured after 1850, when the nation's regions began to be connected by railroads. (Railroads were first introduced in the 1830s.) Some railroad companies became the nation's first big businesses and its first major issuers of corporate stock. Railroads were big because of: 1) the wide geographical area they cover; 2) the huge amount of capital they utilized; and 3) their technological complexity. Solving the problems in building and operating the railroads required a managerial revolution. Railroad companies split management from entrepreneurship, creating a new class: professional managers. Railroads required the delegation of authority and specialized employees, and they introduced middle management.


From 1783 to 1815, the nation's financial system was only a bit more complicated than during colonial times. Capital was primarily invested in local business ventures. Only a few corporations existed, and they were in endeavors like canals and banks. The interruption of foreign credit flows during the Revolution forced American merchants to create their own financial institutions. Banking was the chief political issue at both the state and national level until the 1840s, when the slavery issue began to heat up.

From the start, banking in this country was conducted on the basis of fractional reserves. In the antebellum period bank reserves consisted of specie (gold and silver). Fractional reserve banking allows banks to create money. They do so by making loans. Example: You deposit $100 in gold in a bank in exchange for a $100 demand deposit. Now there is $100 less money in circulation in the form of coins, but there is an equal increase in checkbook money; so the amount of money in circulation hasn't changed. Your bank only has to keep on hand a fraction of the $100 in reserves you have provided; say, $10; so it loans the other $90 to someone. Now the amount of money in circulation has increased by $90.

During the antebellum period, the federal government minted gold and silver coins, and commercial banks provided paper money (banknotes). Banks issued banknotes in exchange for specie coins (gold and silver) or customers' promissory notes. The amount of domestically produced gold expanded substantially in the antebellum period. It first grew significantly when gold was discovered in Georgia. Subsequently, gold output expanded even more when gold was discovered in California and then in Colorado. Gold was also obtained through foreign trade.

The nation's first commercial bank, the Bank of North America, was founded in Philadelphia in 1781. It did not take long for commercial banks to come to dominate the banking business. While today they only issue checkbook money, in the antebellum period they issued all our currency (banknotes, paper money). Unlike previous American banks called private banks, the Bank of North America was incorporated.

Private banks, unlike incorporated banks, do not accept deposits or issue banknotes (paper money). They make loans like commercial banks do, and they may engage in investment banking and other activities. (Investment banks purchase securities from their issuers for resale.)

By 1790, there were commercial banks in Philadelphia, New York, Boston, and Baltimore. By 1800, there was at least one chartered bank in every state but Vermont, Georgia, North Carolina, and New Jersey. In the nation's early years, commercial banks accounted for the great majority of its financial intermediaries. (Insurance companies are an example of another type of financial intermediary.)

The first banks were established to underwrite the trading activities of merchants. (In the colonial and early national period mercantile activity was almost the only economic activity going on in America besides agriculture.) The loans these banks made were short term because that was what merchants needed. However, by the 1840s, the growing demand for long term finance by transportation companies, manufacturers, and Southern planters led to more and more banks making long term loans. Difficulties they encountered during the depressed, early 1840s caused some states to forbid banks from making many long term loans.

The cornerstone of nineteenth century banking was what is called either the real bills or commercial loan doctrine. The theory behind this doctrine was that if a bank only made productive, short-term, self-liquidating loans that banknotes would expand and contract in step with trade; thus there would be no inflation or deflation. While this was a widely accepted doctrine, banks often did not follow it. A short-term, self-liquidating loan is one expected to be quickly repayable via the proceeds of the sale of what was acquired with the borrowed money. (Loans to finance retail inventories are an example.)

The belief behind this theory is that by only lending to finance the production or sale of already produced goods, the price level could only very briefly rise because additional goods would soon be on the market to absorb the money created by the making of the loan. After the goods were sold, the money supply would shrink because the loan would then be repaid. This theory would not have worked even if all banks had followed it. This is because businesses that wanted, say, to get the money to build a new store would simply tell its bank that it was borrowing the money for the inventory of an existing store. If the bank did not make the loan, the business would buy the inventories anyway with cash on hand. So, if the loan was made, there would be no more goods on the market than there otherwise would have been, but the money supply would be greater.

A characteristic of American banking which set it apart from banking in the rest of the world and one that has had a significant impact on the timing and direction of economic development in this country is that states have often limited the area in which a bank can operate. As a result, though there might be a lot of banks relative to population, many banks could be near monopolies.

Another distinguishing characteristic of the monetary system was the fact that it was a bimetallic standard, that is, the federal government minted two types of specie coins: gold and silver. This produced a problem: periodically one or the other types of coins ceased to circulate. This was the result of the fact that these metals' relative market prices varied from the ratio of the price in silver the mint paid for gold to the price in gold it paid for silver. Sometimes people could profit by taking gold to a government mint and exchanging it for silver; other times the reverse was true. The government, of course, could only mint what was being brought to it; so that was what was available to circulate.

The mechanics of bank lending in the antebellum period differed significantly from today's, but the economic effects of their operations was the same. Back then borrowers received in exchange for their promissory notes or mortgages banknotes (paper money). Today a borrower gets a deposit on which checks can be written. Like paper money, checks are part of the money supply. Checks did not come into wide use until the latter part of the nineteenth century.

Most banknotes circulated at a discount (below face value). That is, although a merchant would, say, accept a ten dollar gold piece for some merchandise, he would charge more than ten dollars if offered banknotes. The more doubtful a merchant was of whether a bank would redeem its notes either because he was familiar with the bank's bad record or knew little about it, the greater would be the discount. Banknotes from distant banks, ceteris paribus, would carry the highest discounts due both to lack of knowledge about the bank and the cost of presenting its notes to it for redemption. Counterfeiting was a significant problem both because nobody could be familiar with the appearance of the many different banks' notes in circulation and because making good counterfeits was easy.

Many people distrusted banks, believing them to be engines of inflation that profited a few and harmed everybody else. Hostility to banks was so intense in some states that they banned banks. Anti-bank sentiment was most common in the West and least common in the Northeast. In some states banking was either a state monopoly or near state monopoly. Banks were said by their critics to increase the incidence of usury; diverted funds from agriculture; and drove specie out of circulation and out of the country.

After the 1830s, so many people were sour on banks that 7 states outlawed them. Only private banks that did not issue banknotes operated in these states. Some commercial banks were established in other states (including Georgia) with the intention of circulating most of their notes in these 7 states. These banks were called wildcat banks. Supposedly they were called this because they were located in the backwoods where wildcats roamed. Those who received their notes were not expected to show up asking that they be redeemed.

During the antebellum period, state regulation of banking gradually increased. States set ceilings on the ratio of the banknotes (paper money) a bank issued to its specie reserves and on the ratio of its deposits and banknotes to the capital invested by its owners. (This capital was supposed to be provided in the form of specie.) Banks that issued banknotes had to be incorporated. (There was no federal regulation.) Although the requirement that banks redeem their banknotes in specie on demand, this was frequently not enforced during money panics (liquidity crisis due to the public net withdrawing gold from banks).

Some states, including New York, established deposit insurance funds that in the long run were not very successful. In the late 1830s, as the nation fell into a depression, a few states tried to take politics out of the obtaining of a bank charter by passing free banking laws: meet certain requirements, and a state official had to issue you a charter. (New York and Georgia were the first to pass a free banking law, and many free banks were established in the former.) Previously, someone wanting a bank charter only choice was to get a state legislature to provide it, and this might require paying the state a subsidy, making it a loan, or bribing legislators.

Assuming a monetary system is well run, trade carried out by the use of money is far more efficient than trade conducted by barter. If the price level is not to decline, the money supply must rise as trade increases because the possible increase in the velocity of money is limited. The Equation of Exchange explains this: the money supply times the velocity of money equals the average price per transaction times the number of transactions. Producers suffer when the price level declines because inputs are bought at a higher price level than outputs are sold at. Creditors, however, gain, as the dollars they receive from debtors have a greater purchasing power than those they loaned. However, bad debt losses rise as a result of producers' profits declining or turning negative.

Inflation, too, can cause problems. Inflation discourages saving and investment. In the antebellum period the only time inflation produced serious problems was during the Revolutionary War.

The Bank of the United States was the first federally-chartered bank. It was chartered in 1791. (There were only two federally-chartered banks in the antebellum period: this bank and a later bank of the same name.) Both the federal government and private investors owned this bank's stock. (The government financed its investment in the Bank with a loan from the Bank!) This bank is today called the First Bank of the United States to distinguish it from a second bank with this name.

The First Bank of the United States tried to control other banks and was the federal government's fiscal agent, that is, the government deposited its funds in it and it disbursed them for it. It was the nation's most important bank because it was the largest. Regular commercial banking was the source of most of its income. (This is not true of our central bank today, the Federal Reserve System.) The Bank of the United States made itself a force for bank stability by systematically presenting other banks' notes to them for specie redemption

Many Southerners did not believe that the First Bank of the United States would benefit them. Therefore, it got its charter because it had a great deal of support in the North. Rural interests on the frontier that needed easy credit, farm debtors, and some businesses desiring easy credit were other classes of people often opposed to the First Bank. This opposition arose from the fact that because the First Bank would refuse to accept the banknotes of banks that would not redeem their notes in specie, it made it difficult for many banks to expand their lending. The First Bank lost its federal charter, but it continued to operate under a state (Pennsylvania) charter.

Some banks, like the Suffolk Bank in New England, took it upon themselves to try and restrain other banks' issuance of banknotes in the same way as the Banks of the United States did: demanding they redeem their banknotes in gold. (If the ratio of a bank's notes constantly rose relative to its stock of gold, it would eventually be forced out of business because it could not meet redemption demands; thus taking away some of a bank's holdings of gold would reduce the amount of banknotes it could safely issue.) Preventing inflation wasn't the Suffolk's bank's only motive. This also increased its profits because banks created banknotes in making loans, and the fewer loans other banks made, the more the Suffolk could make. The Suffolk's system's success meant that New England banknotes circulated at par throughout New England. This was the only region that was successful in controlling the quantity of its banknotes.

After the First Bank of the United States lost its national charter, the number of state-chartered banks rose rapidly. By 1816, there were 246 banks. The U.S. Treasury did not attempt to restrain these banks' note issuance, and the number of banknotes in circulation tripled from 1811 to 1816. Demand deposits (checking accounts) also rose. Between 1830 and 1837 the number of state-chartered banks doubled, and their note issue nearly tripled. The business boom these banks financed drove cotton prices from 9 cents to 18 cents per pound.

President Thomas Jefferson was unsuccessful in keeping us from going to war (with either England or France) through the passage of the Embargo Act (1807), as we went to war with England anyway. This Act banned trade with England and France, who were at war. As a result, our foreign trade collapsed and the Act was repealed in 1809. The negative impact of the loss of foreign trade was concentrated in New England and port cities. The impact on manufacturing and the subsequent War of 1812 was favorable. Financing the War of 1812 was difficult. There was no income tax back then because the levying of taxes directly on individuals was then unconstitutional; so the government had to resort to issuing fiat money. (Fiat money is money because the government says it is; not because it is redeemable in specie.)

During the War of 1812, the federal government was so financially strapped that the State Department could not even afford to pay its stationary bill. It was only the willingness of Secretary of State James Madison to pledge his personal fortune as security that enabled General Andrew Jackson to obtain the funds he needed to move his troops to New Orleans, where we experienced our greatest victory on land during the War of 1812. (Unfortunately, unknown to General Jackson, our diplomats in Europe had already signed a peace treaty.)

The British attack on Washington led to all the banks in Washington and Baltimore being closed. Those in Philadelphia and New York closed shortly thereafter. Only New England banks were able to maintain specie convertibility. Under these circumstances, some who had opposed the First Bank of the United States changed their minds. Also, people who loaned the U.S. money to finance the War were very much interested in another Bank of the United States being established because they thought it would protect their interests.

Most Congressmen from the South and the West supported chartering a second Bank of the United States, but, because they had many large commercial banks, many Northerners did not. However, a second Bank was established that operated much like its predecessor. State-chartered banks were promised that there would not be a sudden resumption of specie redemption--the objective of those favoring the creation of this bank--as a result of the chartering of this bank.

What we today call the Second Bank of the United States dealt only in bills of exchange, gold and silver, and the sale of goods pledged as security that were obtained as a result of loan defaults. It issued banknotes and dealt in foreign exchange (foreign currencies). A bill of exchange is an unconditional order in writing drawn on one party by another party commanding payment to the second or a third party. The firm it is drawn upon has bought on credit from the firm which draws it. Usually bills of exchange arise in foreign trade. They are negotiable; so the party drawing one can get cash before it comes due by selling it. It will sell at a discount, that is, less than its value at maturity. A bank bill of exchange is one drawn by an exporter on the importer's bank, which has given its permission for this to be done. By turning over to someone you owe a bill of exchange you own, you can pay off a creditor. Thus, Southerners who exported cotton to Europe would pay off Northerners from whom they had purchased manufactured goods.

The Second Bank of the United States was denounced as an anti-democratic monopoly. President Andrew Jackson was suspicious of banks and believed the Second Bank was unconstitutional and that it was too closely associated with a monied oligarchy and foreigners; so he vetoed its rechartering. It continued to operate under a state charter until it failed in 1841 during the depression which began in 1837. After its demise, Jackson began putting the federal government's funds in some state-chartered banks, six of which were closely associated with some of his advisers. As a result, they were referred to as his pet banks.

After 1840, New York City became the nation's reserve city. That is, banks elsewhere deposited their surplus gold there. These banks could than offer note redemption in New York, which was the nation's major port and the source of many commercial transactions. New York banks used much of this gold to make call loans. These are loans that are due whenever the lending bank decided to demand they be repaid. Call loans were usually made to people buying stocks. Because stocks are such a risky investment, banks would not lend for their purchase except on this basis.

States and cities sometimes during the antebellum period issued fiat money that called skin plasters. It was called this because the money wasn't worth much because enough of it was issued to cause it to depreciate rapidly. People were often induced to accept this money because the issuing government would accept it in payment of taxes.

Many historians believe that in the 1800s banks aggravated and accentuated the ups and downs of the business cycle by offering credit (loans) liberally during the upswing of the cycle, when their specie reserves were high, and drastically reducing the amount of credit during the downswing. Changes in the level of banks' reserves in the antebellum period were closely correlated to fluctuations in exports and imports. Ceteris paribus, banks' specie reserves would rise when exports (mostly agricultural commodities--primarily cotton) and/or their prices rose and decline when the reverse took place. Rising imports and/or their prices, ceteris paribus, would diminish banks' reserves and vice versa.

Some have blamed the Second Bank of the United States for not preventing inflation in 1817 and 1818. Then, they complain, it caused a contraction from 1818 to 1820 by refusing to accept the notes of state banks that would not redeem them and reducing its lending. Only a Supreme Court decision prevented some states from shutting down the Second Bank's offices in their states.

Go to article about antebellum banking in the South.


America's low level of industrialization was a serious handicap during the Revoluntionary War. The small colonial iron industry, for example, became a critical factor. Washington located his winter camp at Valley Forge in order to guard its essential metal-working shops. The tiny textile industry was indispensable for providing the army with shirts, breeches, coats, and caps. Therefore, the War revealed the need for a strong, domestic manufacturing industry. During the antebellum period the industrial revolution in America began in New England. The cotton textile industry was the most important industry. Industrial mix varied regionally. The average factory during this period appears to have been profitable.

After 1806, non-importation laws and the clearly impending war with either Great Britain or France led to policies designed to spur manufacturing. Bounties and premiums were offered for fine goods and technological improvements. Fairs and festivals were held where the goods and improvements could be displayed and studied. To raise funds, lotteries were conducted, and some cities directly invested in factories. (They also invested in railroads.)

For a decade after 1806, American capitalists built a diversified industrial base and took over domestic markets from the British. Cotton and woolen mills, machine shops, iron forges, and flour mills were scattered throughout New England, New York, Pennsylvania, Kentucky, and Ohio. Thousands of men, women, and children were employed by them. However, after the War of 1812 was over, the British recaptured much of the American m

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