The Colonial American Economy | Alan Kulikoff | The Readers Companion to American History as

excerpted from History.com

The American colonial economy was export-driven, although by far the largest share of output
was consumed internally. English merchant-capitalists financed the settlement of American colonies,
hoping that they would gain profits from their investments. Notwithstanding the English navigation laws,
which attempted to ensure the profits of English capital by restricting American manufacturing and
mandating the markets for exports of colonial crops, colonists sought self-sufficiency, not only growing
most of their own food but making many of the crude tools they used in production. Colonial economic
development should be seen as the result of both foreign commerce and dynamically growing local
economies.
Joint stock companies, founded by English merchants and landlords, financed the initial conquest
of New England and the Chesapeake colonies. Expecting profits from the riches of the New World, these
investors wound up merely paying the colonists' bills. Ultimately, after several decades of
experimentation, colonists discovered that agricultural goods (corn, wheat, tobacco, rice, indigo, naval
stores) were in great demand in England and Europe. By the mid-seventeenth century, trade under
England's umbrella was mutually beneficial: the English navy protected colonial commerce, and colonists
gained a guaranteed market in England and access to English and Scottish credit and manufactured goods;
the English gained markets for manufactured goods, profits from the sale of colonial staples on the
Continent, and interest payments on the credit they extended.
Although a majority of free and indentured white colonial migrants came from towns (where they
had been artisans and wage laborers), the colonies were overwhelmingly agricultural. As many as four-
fifths of all colonists, including their families, servants, and slaves, were farmers. Most of the rest
provided such essential services for farm communities as shopkeeping, blacksmithing, or carpentry. Such
behavior suggests that urban people sought the independence that farming entailed. At first, however,
there was remarkably little land available to colonists to farm. During the seventeenth century, the Indian
"menace" restricted quantities of land available for exploitation, but after disease and warfare decimated
Indian populations, millions of "widowed" acres awaited cultivation.
A few towns developed in the eighteenth century--Boston, New York, Philadelphia, Charleston--
but they served mostly to collect agricultural goods from the countryside and disperse English
manufactured goods to farmers. Such commercial activity, bounded by rural needs, not only employed
merchants but also such artisans as coopers and shipbuilders. As trade grew, town populations increased,
and the internal life of towns (newspapers, government, petty shopkeepers) rose as well. But since most
manufacturing and credit came from England, towns stayed small. Philadelphia, the largest town, and its
suburbs counted less than forty thousand people on the eve of the Revolution.
Each colonial region developed its own peculiar economy. Staple export economies, using unfree
indentured or slave labor, developed in the southern colonies. Booming tobacco prices in the 1620s led
Virginia planters to export the crop, and production spread throughout the Chesapeake region (Maryland,
Virginia, and adjacent North Carolina) before the end of the century. Notwithstanding lower prices and
slow diversification of crops, most planters in that region still exported tobacco on the eve of the
Revolution. After experimenting with livestock production and naval stores, planters in coastal South
Carolina (perhaps aided by the skills of their slaves) took up rice cultivation, developing large plantations
that persisted through the colonial era. Farmers in southern mountains and valleys, however, produced
mostly grains and livestock, and entered the export economy only gradually.
The northern colonies developed more diversified economies, relying less upon the export of
staples. Northern frontier settlers engaged in the fur trade, but that trade diminished rapidly because of
overhunting. Although some New England farmers exported grain and livestock, many could barely feed
themselves and their families. New Englanders therefore turned to alternative occupations, trading with
the West Indies and developing vigorous fishing, small manufacturing, and shipbuilding industries.
Farmers in the Mid-Atlantic, in contrast, sent flour and grain (wheat, corn) to the West Indies in great
quantities from the beginning of colonization, thereby encouraging the growth of Philadelphia and New
York. Nonetheless, many of these farmers participated in grain commodity markets only in occasional
years of high prices until the 1760s and 1770s, when wars and crop failures in Europe opened new
markets in southern Europe for grain, enticing farmers to greater market production.
Farm operators relied heavily upon their families for labor. While fathers and older sons cleared
land and planted, cultivated, and harvested grain or other staples, mothers and older daughters operated
the dairy and vegetable gardens. The greater the level of staple production, the higher the likelihood that
farm operators had access to labor beyond the family. The great majority of farm families in New
England owned few slaves and infrequently hired wage laborers, but wealthy men in the Mid-Atlantic
colonies (including Quakers before the 1770s) owned slaves and indentured servants in some numbers.
Although Chesapeake planters at first used English and Irish indentured servants, by the early eighteenth
century a significant (and increasing) minority of southern tobacco planters and nearly all rice planters
owned slaves.
Notwithstanding the importance of international market exchange to the colonies, farm families,
especially in the North, invented a complex system of local "gift" exchange, which sheltered them, to a
degree, from the vagaries of the market. Farm women and farm men traded labor for goods or goods for
goods (fieldwork for corn, mutual help with the harvest, eggs for wool, weaving for spinning), expecting
eventual repayment in kind, but charging no interest. Such neighborliness permitted households to
procure food and cloth that they could not produce themselves. Families with insufficient resources to
participate in such exchange networks had to sell their labor or personal goods to feed and clothe
themselves.
The American colonies, affected by the vagaries of the North Atlantic economy, experienced
booms and busts, much like England. Nonetheless, the colonial economy grew cumulatively at a slow
rate. Starting with few possessions, typical colonials owned goods worth $1,150 (1976 dollars) in 1650.
After a century of slow growth (.3-.4 percent annually), average colonists owned property valued at over
$1,500; a quarter of a century later, after faster growth (.5 percent), per capita wealth reached almost
$1,800.
Average growth rates and income and wealth levels obscure both increased prosperity and great
poverty among Americans. Between two-thirds and three-quarters of white male farmers owned the land
they cultivated; they and their families enjoyed not only the fruits of their labors but progressively higher
levels of consumption of consumer goods (amenities like ceramic plates and knives and forks) over the
eighteenth century. But many other families were poor, and nearly a quarter of all Americans were
enslaved and consumed very little. Moreover, inequality in property ownership among free people had
been high since the outset of settlement, and probably grew somewhat more concentrated in older regions
over the eighteenth century, with the wealthiest tenth of the population owning between one-third and
two-thirds of the total wealth.