To the average American in 1789, the most pressing national duty was to develop the vast resources which lay all around him. The national domain embraced about eight hundred and thirty thousand square miles, and the average density of population was less than five persons to each square mile.
That the day would come when the country would be as well settled and as rich as the old countries of Europe was believed by all. A desire to anticipate such a development led to much speculation in land, and sometimes to rash public enterprises which could not be supported in the state of society then existing. In spite of such mishaps, there went on from the beginning a rapid growth in all the forms of industry. The wars in Europe made a strong demand for provisions; wheat rose in price till it brought as much as two dollars a bushel, and in spite of the restrictions on neutral trade, business conditions were good.
More than nine-tenths of the people were engaged in agriculture. Hamilton realized the disadvantage of this concentration of interests, which made the country dependent on foreign markets for manufactured commodities, and preserved that bucolic cast of thought which is ever the weakness of an entirely rural people. In his report on manufactures, he announced a plan for the artificial encouragement of town-building by protective duties or bounties, the chief purpose of which was to bring about a better distribution of rural and urban population. He was in advance of his day: the small duties which Congress could be induced to lay gave only incidental protection, and that did little towards developing manufactures.
Food products, tobacco, and lumber were the chief articles marketed by the rural communities. Wheat was raised everywhere except in the coastal plains of the far south. The farms of New England were not rich enough to give the world much surplus beyond home requirements, but the forests were still abundant, and staves, masts, timber, and boards were still exported. Fishing was also an important industry, for the West India market was always open, though not for American vessels. The best wheat lands were in the middle states and in the upper parts of Maryland and Virginia. The tobacco industry of the latter suffered heavily from the duties which, as an independent people, we now had to encounter in England, and from the exhaustion of lands where tobacco grew. The Virginians, who saw the commerce of the north encouraged by the national government, raised many complaints that nothing was done to protect their ancient industry, but it is not clear that the government could have found a remedy for the evil. Naval stores and pork were the chief exports from North Carolina, a rich agricultural region in which the lack of harbors was to retard its development till the days of railroads. South Carolina and Georgia raised rice and indigo with great profit. But the South stood at the beginning of its cotton cultivation, the most significant development in the history of American agriculture.
The raising of cotton in this region passed its experimental stage even before 1789. It was evident that the vast alluvial plains of the south, which produced neither wheat nor rice profitably, were peculiarly adapted to cotton. One difficulty only stood in the way, and that was the expense of removing the seed by hand. In response to this economic demand, Whitney invented the cotton gin in 1793. He was a New England school-teacher then resident in the south. His ingenious mind fashioned a machine which he patented in 1794. He attempted to market his invention through a system of licenses approved and guaranteed by the state legislatures. This plan afforded abundant opportunity for fraud, and the inventor reaped but little advantage from his ingenuity.
In the north, free hired labor was generally employed. The old system of indentured servants had not entirely disappeared, but it furnished an inconsiderable part of the labor supply. There is some reason to suppose that it was used frequently in bringing skilled labor into the country. Of such laborers, the country had very few: the predominance of rural life was not calculated to develop artisans, and many such workmen who came to the country were drawn off into agriculture by the cheapness of land and the uncertain demand for their crafts.
In the South, slavery displaced all the lower forms of hired labor. The "new negroes" just from Africa tended to keep the standard of efficiency among the slaves at a point lower than that of fifty years later. The new arrivals were unaccustomed to the work they were expected to perform, and frequently intractable. Some of them pined away for their African homes, a few of them ran off to the forests, but the majority were absorbed into the mass of the black people among which they were distributed, took the habits of their associates, and their children became like other slaves. At its best, slave labor was rarely more than three-fourths as efficient as white labor. Among the small farmers of the interior of the south, slaves were at first found only in small numbers, but the extension of cotton cultivation into this region is marked by a rapid increase of the slave population there.
Commerce, of course, existed in every part of the country, but in the South it was small. Slavery precluded the existence of a wage-earning class, and thus mightily lessened the purchasing element. There was also a tendency for the plantation system to supply many of its wants from its own resources. The money of the planters was spent in large orders which could be filled most profitably through commission merchants in remote places. Local trade was thus reduced to trifling proportions.
The conditions of retail trade were, therefore, abnormal in the South. In the north, trade proceeded in the usual manner. Local commerce looked to large commercial centres, sending thither its products and receiving from thence its manufactured goods. A commercial class was thus built up in a normal way, and in the large towns it was powerful and stood in close alliance with the financiers. In the rich opportunities of the day, trade became so prosperous, and so overtopped the modest exchanges of the rural regions, that deep-seated conviction spread in those parts that the merchants and ship-owners had not reached success by honest means.
The new status of American trade after the Revolution was the source of much distress; for although England made only trivial discriminations against it, it was a disappointment that she put it out of the pale of her navigation laws and steadily neglected to make the long-desired treaty of commerce through which American merchants hoped to get special concessions. Hard feelings were more easily produced in America, because it was felt that we could not afford to break our trade relations with the only country which was prepared to give us the requisite credit and to furnish on short notice those assorted cargoes which our general trade demanded. The non-commercial classes in America talked bravely about breaking commercial bondage as easily as political bondage, but men who had embarked all their fortunes in the trade with England thought differently about it. To them, it seemed that it would be possible to induce England to relent. They were not mercantile economists, and they were in a position to see the advantages of liberal intercourse between nations.
One British statesman, at least, did see these advantages, but he was impotent against the combined will of the English merchants. Pitt, in 1783, offered a bill in Parliament to give trading concessions to the United States. He wisely saw that a conciliating spirit might preserve to his country the advantages of keeping one of her best customers. But he was in no position to encounter the opposition of the merchants, and the bill failed. In 1791, a slight concession was secured by which we were allowed to import into Great Britain on equal terms with other nations certain articles which her own colonies did not largely produce.
The next step was the Jay Treaty. This instrument, after the omission of the twelfth article, left our trade in the following condition: each nation might freely trade with the other, subject to its ordinary customs duties and regulations; and the United States might trade freely with the British East Indies. Under this treaty, our imports from Great Britain increased from $23,313,000 in 1795 to $39,519,000 in 1801; and our exports from $6,324,000 to $30,931,000 in the same period. Our trade with the French West Indies, which grew rapidly from 1793 to 1795, fell off to inconsiderable proportions by 1801, no doubt because of the distressed condition of those islands by reason of internal commotions and the activity of English ships of war. In 1795, the total exports were $47,855,000, and in 1801, they were $93,020,000. The imports were $69,756,000 in the former year, and $111,363,000 in the latter; but of the exports, nearly $25,000,000 in 1795 and over $46,000,000 in 1801, were foreign products re-exported.
One of the greatest economic difficulties of this period was a lack of capital. A mint was established in 1793 and proceeded to coin into American money the indiscriminate English, French, and Dutch coins which had up to that time been the money of the people. But at its best speed, it could not make the transition quickly, and foreign coins were still in wide popular use. Credit was also freely employed, and by 1801, many banks of issue had been established. The following statistics are taken from the estimate of a contemporary and are probably nearly correct -}
Year No. of banks Metallic currency Circulation Capital
1790 4 $9,000,000 $2,500,000 $2,500,000
1801 31 $17,000,000 $11,000,000 $22,400,000
Although some of the banknotes issued by these banks must have been poorly secured, the mass of bank money was not greatly discounted, and it did valuable service in aid of the business of the young nation. The extravagance of "wildcat" banking was yet to come. In the abundance of business opportunities, the rate of interest rose till ten percent, or more, was not unusual. The cheap rates in Holland tended to counteract this rise in America, but when the European war involved that country, money was no longer to be got there; and then the rate rose so high in the United States that the government itself at times paid eight per cent, on the funds actually realized from the sale of bonds. The collapse of the group of stock speculators whom Duer led* did not put an end to over-speculation: land companies embarked in extravagant enterprises; development companies of one kind and another undertook tasks which could not be remunerative in a long time; and merchants went deeply into debt in anticipation of enormous volumes of trade which did not materialize. The seizure of American ships by both Britain and France involved losses also. In 1797, all these forces came to a crisis. Many a wealthy man was forced into bankruptcy, among them Robert Morris, the patriotic banker of the Revolution. He had bought large holdings of western lands and had engaged also in a real-estate venture in Washington. From neither could he realize the money necessary to keep him out of a debtor's prison. The panic, however, was only a temporary check to the business of the country. By the end of the century, matters assumed a normal condition, and the economic forces of a new country carried industry forward with the usual rapid stride.
Manufactures came slowly into a country where the simpler forms of industry were so profitable. English policy had thwarted their rise in colonial times, and the Revolutionary era was no time for new developments of this kind. Power machinery and other inventions in England were effectively developed by 1785, and it was impossible for the old hand system, still used in America, to compete in the production of manufactured commodities. Both capital and governmental protection were necessary to overcome the initial difficulties of such a step and to enable the Americans to undersell England, and the mild tariff policy of the period had not much effect in this direction.
In the manufacture of cotton goods, an early beginning was made, which was to have an important result in the history of manufactures in America. In 1789, Samuel Slater landed in New York. He was an ingenious and well-intentioned English lad who had just completed an apprenticeship in one of the newly established cotton factories of his country. Slater expected to introduce the English machinery into America, but strict regulations in England prevented any of the models or drawings of the new machinery from getting out of the country. The lad, however, relied on his memory for the designs. He came at last to Moses Brown, of Rhode Island, who had been making some unsuccessful attempts in the same direction through persons who proved themselves incompetent to reproduce the coveted machines. Slater was able to do the things expected of him and became a partner with his employer. In 1793, the same year in which Whitney invented the cotton gin, the firm of Almy, Brown & Slater set up at Pawtucket the first successful New England cotton factory. By the end of the century, other factories were established, and from that time this industry has been exceedingly important in American economic, social, and even political life.
In the period from 1789 to 1801 there was a thriving hand industry in the homes of the people. In New England, for example, many families made nails in the long winter evenings. Furniture, hats, shoes, simple iron implements, and a hundred other articles which in later times have yielded to the advance of machinery construction, were then made by village artisans in the north or by plantation mechanics in the south.
Dealing in frontier lands was ever a favorite way of making money with the colonial capitalists. Many a great fortune in the South and middle states was made in this way. The method was for men of wealth to get large grants from the government in advance of the tide of settlement, hold them till they came into the market, and then sell at a profit. There was a notion abroad that this was the best way to settle the new lands, for men of means alone were able to induce small farmers to emigrate thither.
The beginning of national life turned men's attention to the west, where speculators began to buy up the lands. They secured in large quantities the warrants of soldiers who had received land bounties for their services in the army. These warrants were presented in great batches at the western land offices, and expert judges of good land were employed to locate the best tracts for the owners. In this way, much of the land of Tennessee and Kentucky was first taken up. From that region, the movement went into the northwest and into the western portion of New York. These land speculators differed in their methods of procedure in no respect from the land-boomers of the more recent west. Voluble, overconfident, and not too truthful, they deluded the credulous in many cases, although it must be confessed that they planted the seed of American communities in many waste places. Sometimes they sold land to settlers, the title to which they had not absolutely acquired, and this practice was called "dodging." They frequently sold to European peasants and shopkeepers, and in such transactions, many instances of delusion occurred. In colonial times, land speculations were usually conducted by individuals, and the tracts taken ran from twenty-five thousand to one hundred thousand acres. But after the Revolution, companies were organized which secured tracts ten times as great. In 1789, three great grants aggregating one million two hundred and fifty thousand acres in the northwest were secured from Congress.
The first regulations for the sale of lands provided that they should be sold at Philadelphia. Individual settlers were thus almost prevented from purchasing directly from the government, and the people of the West protested that it put them at the mercy of the speculators. It was more calculated, also, to draw settlers from abroad than from the east, and the people of the west believed that the east supported it in Congress from this design. From the beginning of our national existence, the easy sale of public lands has been a favorite policy of the frontiersmen.
Albert Gallatin, who was himself a westerner, in 1796 secured the passage of a new law which tended to satisfy the settlers. It applied to the lands of the Northwestern Territory, defined the township system which later became universal in the west, and authorized the sale of land in sections of six hundred and forty acres. Land offices were opened at Pittsburgh and Cincinnati, and the price was fixed at not less than two dollars an acre. The sales of land went on so slowly under this act that in 1800, the principle of popular distribution was further extended. Four district land offices were now created, and purchasers were allowed to buy land on credit, complete payment not being required for four years.
The land speculators were not exempt from the frauds which have so often existed in connection with government franchises. At one time, a scheme was unearthed by which a company made extensive plans to secure a large part of the Michigan peninsula by means of a collusive grant from Congress. The most prominent scheme of this kind, however, was that which grew out of the old Yazoo companies, which had first been prominent in connection with western filibustering. These companies were revived under other names, and in 1795, the legislature of Georgia granted them, for five hundred thousand dollars, about thirty million acres on the Mississippi. It was soon discovered that every man but one of those who voted for the charters was concerned in the speculation. The land was actually sold at about one and a half cents an acre. Great indignation was aroused among the people of the state. James Jackson, noted for his peppery Republican speeches in Congress, resigned his seat in the federal Senate to lead the fight against the perpetrators of fraud, and the next legislature revoked the franchises. Such action was later held by the Supreme Court to be contrary to the clause in the Constitution which forbids a state to violate a contract, but Georgia persisted in her position. Congress was not prepared to coerce her, and in 1802, the dispute was compromised by a payment of money by the national government to the members of the fraudulent companies.