Chapter 3
The First American Economy

All for ourselves, and nothing for other people, seems, in every age of the world, to have been the vile maxim of the masters of mankind.

—Adam Smith, 1776¹

Of the ten Americans whose wealth at their deaths was the greatest, as a percentage of the GDP of the United States, three died before 1850—the third wealthiest, John Jacob Astor (1763–1848), the fourth, Stephen Girard (1750–1831), and the tenth, Stephen Van Rensselaer III (1764–1839).² They owed their status not to the fact that they were particularly rich by modern standards, but to the fact that the American economy of their time was so small and poor.

It was not until the mid-nineteenth century that growth angled sharply upward in Britain, the United States, Western Europe, and other industrializing societies. Since the industrial era began, industrial countries have enjoyed average real growth of 1.5 to 2 percent a year, a growth rate roughly ten times greater than the negligible growth rate that existed in preindustrial societies.³ The phenomenon of high, sustained economic growth is recent, following millennia of economic stagnation and, in some places, periods of regression. According to one calculation, the hourly wages of real construction workers in Britain were approximately the same from AD 1200 to the 1860s.⁴

In a premodern biomass economy, most energy came from firewood and human and animal muscle, supplemented sometimes by windmills and water mills. The majority of people in agrarian societies had to till the soil to feed themselves and the small upper classes. The self-sufficient village or plantation economies of the farm laborers who made up most of the population were divorced from interregional and international trade. Long-distance trade consisted almost entirely of trinkets and drugs that the landlords and courtiers of one country exchanged with the landlords and courtiers of another—gold and silver and silk, tobacco, coffee, opium, and tea. In the premodern economy, any growth in luxury trade meant greater exploitation of the peasant farmers who were taxed by the landlords to finance their purchases. Today’s historians who write cheerfully about the “flourishing commerce” of Asia in the Middle Ages or early modern Europe and the Americas overlook the suffering of the exploited laborers who obtained or produced the mostly frivolous and unnecessary goods that were the objects of international trade: Chinese workers in porcelain and silk sweatshops, South American Indian silver miners, Bengali and Turkish poppy growers, and Indian and white fur trappers and traders in North America. Among these were the slaves of the Americas, North and South. Between 1700 and 1820, the number of Africans transported to the Western Hemisphere was roughly five times greater than the number of Europeans.

Manufacturing, too, was different in the preindustrial world. It did not mean the use of machinery to produce low-cost goods. The peasants and the poor were clothed, shod, and equipped with goods they made at home or purchased from village craftsmen. Premodern factories specialized in luxury goods that were consumed by the local aristocrats or sold to the foreign rich.

The workers in these sweatshops were among the most miserable of the poor. Frequently they were children of peasant or serf families who could not be supported by their starving parents in countries suffering from famine and overpopulation. Working seven days a week in dark premodern factories was almost as miserable as laboring in mines or galleys. In Britain, the acts of enclosure, which privatized land formerly held in common by village farmers, had contributed to the creation of an urban proletariat with no alternatives except destitution, which could be employed for subsistence wages in manufacturing.

The term “corporation” also had a different meaning in preindustrial Europe and America. Most corporations were government-chartered monopolies, created for a single purpose. Many of these were utilities, like bridges or canals or roads. Some were imperial agencies that functioned as quasi governments overseas, like the Dutch East India Company, the British East India Company, and the Virginia Company, which founded the first enduring British settlement in North America at Jamestown, Virginia, in 1607. The shareholders of these government-backed monopolies were usually well-connected aristocrats or wealthy businessmen who grew rich from tolls or other exactions.

The American Revolution promised freedom from the premodern institutions of monarchy and aristocracy to most Americans. But the promise of the liberation of most Americans from various forms of premodern economic subjugation, as a result of science and technological progress, would have to wait until the industrial revolution came to the New World from the Old.

AN ECONOMY BUILT ON WATER AND WIND

The first American economy was built on water and wind.

During the colonial period, most of the important cities and towns in the future United States had grown up along the fall line, where the rolling Piedmont plateau that stretches eastward from the foothills of the Appalachian Mountain chain drops down to the Atlantic coastal plain. Here, in the rivers that drained eastward from the mountains to the ocean, rapids or waterfalls prevented sailing ships from traveling farther upriver. Here cargo had to be unloaded for overland portage, and falls provided waterpower for mills. The cities of the fall line included Trenton, New Jersey; Philadelphia, Pennsylvania; Baltimore, Maryland; Georgetown, Maryland (later a part of Washington, DC); Richmond, Virginia; Fayetteville, North Carolina; Columbia, South Carolina; and Augusta, Georgia.

Most of the US population was clustered near the seacoast. Coastal trade among the states was less expensive than overland trade. In order to create a US merchant marine that could be mobilized to support the navy in wartime, Congress protected the American shipbuilding and cabotage (intranational shipping) industry. The second law passed by Congress after the adoption of the federal constitution in 1789 required US flag ships to be built in American shipyards and imposed discriminatory duties on foreign ships in US ports. The Navigation Act of 1817 outlawed waterborne transportation of goods between two points in the United States by foreign vessels, reserving internal shipping for American ships. This protectionist measure had the support of no less an authority than Adam Smith, who in The Wealth of Nations endorsed the British Navigation Acts that required all trade to and from Britain to be carried in British ships: “The act of navigation is not favourable to foreign commerce, or to the growth of that opulence which can arise from it. . . . As defence, however, is of much more importance than opulence, the act of navigation is, perhaps, the wisest of all the commercial regulations of England.”⁵

The Allegheny and Appalachian Mountains separated the Atlantic seaboard from the Northwest Territory that would be carved into Illinois, Indiana, Michigan, Ohio, Wisconsin, and part of Minnesota. The expense and hardships of overland travel made movement to the territory difficult for settlers and hindered the ability of the future Midwest to trade crops, timber, and minerals for goods from the East and overseas. Roads in the early American republic, including those built and operated by turnpike companies chartered by state governments, were crude and sometimes impassable. Before the evolution of steam-powered locomotives, the infrastructure projects that could best promote freight and passenger transportation were canals.

“LITTLE SHORT OF MADNESS”—THE ERIE CANAL

By far the most successful was the Erie Canal. In 1808, Jefferson told a New York assemblyman that the idea of a canal between the Hudson River and Lake Erie was “little short of madness.”⁶ New York City mayor and later New York governor DeWitt Clinton and Gouverneur Morris, who chaired the New York State board of canal commissioners, met with President Madison and obtained his and Treasury Secretary Gallatin’s support for the Erie Canal. Gallatin even proposed to use money from a land grant in Indiana to pay for it.⁷ But Congress rejected federal aid.

Undeterred, New York built the canal on its own. Alexander Hamilton’s father-in-law, General Philip Schuyler, a New York senator, helped to create the Western Inland Lock Navigation Company to build a precursor to the canal and joined the lobbying effort to have the state build it. In 1817, Clinton persuaded the New York State legislature to authorize $7 million to build the canal. Half of the bonds for the Erie Canal were purchased by foreigners.⁸

The work was begun in 1817 and finished in only eight years. On October 26, 1825, Governor Clinton departed from Buffalo on a canal boat named the Seneca Chief. The Seneca Chief was accompanied by a canal boat called Noah’s Ark, which carried, not two of each kind of animal, but symbols of the West: fish, birds including two eagles, a beaver, a bear, and two Seneca Indian boys. Cannons fired in a relay, bringing the news of Clinton’s departure in two hours to New York City.

In Rochester, the captain of a boat called the Young Lion of the West took part with a member of the procession in a catechism:

“Who comes there?”

“Your brothers from the West on the waters of the Great Lakes.”

“By what means have they been diverted so far from their natural course?”

“Through the channel of the great Erie Canal.”

“By whose authority and by whom was a work of such magnitude accomplished?”

“By the authority and by the enterprise of the people of the State of New York.”⁹

It took nine days for Clinton and his entourage to arrive at New York. Waiting there with the crowds were President John Quincy Adams, former presidents John Adams, Jefferson, Madison, and Monroe, and the marquis de Lafayette, who was visiting the United States.

Towed by eight steamboats, the canal boats arrived in New York Harbor on November 4, 1825. The steamboat Washington towed the Seneca Chief to Sandy Hook, where New York Harbor meets the Atlantic Ocean. Imitating the ceremonial marriage of Venice with the sea enacted by the doge, or elected chief magistrate, Clinton enacted the “marriage of the waters.” He poured water from Lake Erie into the Atlantic, then mixed waters from eleven major foreign rivers, including the Rhine and the Amazon, with the mingled water of the Great Lakes and the Atlantic. In a subsequent ceremony on November 25, water from the Atlantic was poured into Lake Erie.

The 363-mile canal, with 83 locks and 18 aqueduct crossings over other bodies of water, ascended nearly six hundred feet from the Hudson River to Lake Erie. The Erie Canal facilitated passenger travel between the East Coast and the Great Lakes. Streams of pioneer families on canal boats traveled to new homes in the growing Midwest. It may be presumed they were less fastidious than the British visitors who wrote about the experience of canal-boat travel in America. Frances Trollope thought that American women settling into the confined spaces “look like hedgehogs, with every quill raised.”¹⁰ Another British traveler, Harriet Martineau, complained: “The heat and noise, the known vicinity of a compressed crowd, lying packed like herrings in a barrel, the bumping against the sides of the locks, and the hissing of water therein like an inundation, starting one from sleep; these things are disagreeable.”¹¹

The contribution of the Erie Canal to low-cost freight transportation was profound. By dramatically reducing the costs of long-distance shipping, the canal permitted farms in the Midwest to supply the Atlantic seaboard. Following the completion of the canal, the cost of shipping a ton of wheat from Buffalo to New York City dropped from one hundred dollars to ten dollars.¹² In 1829, 3,640 bushels of wheat traveled along the canal from Buffalo. In 1841, the number had grown to one million.¹³ One consequence was the decline of wheat growing in New England under competitive pressure from the Midwest, to which many New Englanders migrated.

The Erie Canal enabled Manhattan to defeat its rivals Boston, New Orleans, and Baltimore for primacy as the leading American port. Beginning in 1790, when it had 33,000 inhabitants, New York increased its population by more than 50 percent each decade until 1860, when it had 800,000 residents. DeWitt Clinton’s vision of the future of Manhattan was fulfilled: “The city will, in the course of time, become the granary of the world, the emporium of commerce, the seat of manufactures, the focus of great moneyed operations. And before the revolution of a century, the whole island of Manhattan, covered with inhabitants and replenished with a dense population, will constitute one vast city.”¹⁴

CANAL MANIA

Even before construction began on the Erie Canal, Albert Gallatin, Jefferson’s Treasury secretary, published an ambitious plan for a nationwide system of canals. Although the Gallatin plan was never enacted, many of the canals he proposed were built by individual state and local governments, in the era of canal building from 1815 to the 1840s.¹⁵

The success of the Erie Canal inspired other states to emulate New York in the 1820s and 1830s. Pennsylvania paid for its own “Portage and Canal System” from Philadelphia to Pittsburgh and the Miami Canal linked Cincinnati to Lake Erie. But the government of Virginia failed to complete the Chesapeake and Ohio (C&O) Canal, which ended at Cumberland in Maryland, and the James River Canal, which ended more than one hundred miles from the Ohio River.

Convict labor was sometimes used in canal construction and in the South some slaveowners rented out slaves. Much of the labor in every region was supplied by poor Irish immigrants, many of them indentured servants. Tools were primitive—wheelbarrows, shovels, and dangerous blasting powder. Irish laborers used the phrase “sprig of Shillelagh,” a term for a club, to describe an endless screw machine that used a cable to snap trees so that they could be uprooted. As they built the Erie Canal, workers sang a ballad:

I learned for to be very handy;

To use both the shovel and spade;

I learned the whole art of canalling;

I think it an excellent trade.

I learned for to be very handy,

Although I was not very tall,

I could handle the “sprig of Shillelagh”

With the best man on the canal.

Accidents were common and disease even worse. The canal diggers spent much of their time partly immersed in water or in mud. They suffered from mosquito-borne illnesses, including malaria, typhus, and cholera. During the construction of the Erie Canal near Syracuse, a thousand workers suffered from typhoid fever, malaria, ague, and other diseases, and many died.

The combination of alcohol and exclusively male company led to frequent fights among the canal workers and between them and hostile locals. Workers frequently deserted projects like the C&O Canal. The Maryland Chronicle on February 22, 1786, warned local residents that “several servants who had been purchased to work on the Potowmack Navigation lately ran away, but being soon after apprehended, were sentenced to have their heads and eyebrows shaved, which operation was immediately executed, and is to be continued every week during the time of their servitude, or until their behavior evinces that they are brought to a sense of their duty.” The problem continued, however, forcing James Rumsey, the manager who oversaw the project, to advertise on June 21, 1786: “Wm. Fee (Shaved,) James Nevin, Francis Cary, Arthur Mullin, (shaved) Thos. Moore, James Munnay, Hugh Taylor, Rob’t Meighan, Taylor took a variety of clothes with him, among them a super fine green cloth coat with bright buttons. £60 reward for all or £10 for each.”¹⁶

SLAVERY AND THE TRAGEDY OF GEORGE WASHINGTON

In the American South, the rhetoric of equal rights and democracy was turned into a mockery by black slavery and a hierarchical social order, in which a few rich white slaveowning families lorded it over their slaves and poor whites. Thomas Jefferson tried to reconcile his vision of a nation of humble white farmers and mechanics with his racist belief in black inferiority by proposing colonization, the voluntary emigration of freed slaves to some other country. This doomed scheme was championed by members of the American Colonization Society, including such prominent slaveholders as James Madison and Henry Clay. Clay’s disciple Abraham Lincoln championed colonization as well, abandoning it only reluctantly during the Civil War.

Like Jefferson, Washington recognized the harm that slavery did to his native region. Although Washington sought to appear nonpartisan, he repeatedly sided with Hamilton and the emerging Federalist Party against Jefferson, Madison, and the Republicans (who later became Democratic Republicans and then Democrats in the 1830s). In his political and economic views, he had more in common with the merchants and landowners of the North than with other southerners. Washington complained that his fellow Virginians had “the most malignant (and if one may be allowed the expression, the most unwarrantable) disposition toward the new government.”¹⁷

Washington believed in national and regional economic diversification. In 1774, he and other delegates in Williamsburg called on Virginians to reduce their imports from Britain and support “manufactures of all sorts.” In his tour of New England as president in 1789, Washington was fascinated by its mills, ships, roads, and ports. In the same year, Washington wrote to Lafayette: “Equally certain it is, that no diminution of agriculture has taken place, at the time when greater and more substantial improvements in manufacturers were making, than were ever known before in America.”¹⁸

Washington supported large-scale economic development for personal as well as patriotic reasons. Following the French and Indian War (1757–1763), he had obtained land in reward for his military service and added other purchases, in the amount of around thirty thousand acres in the Ohio River valley near present-day Pittsburgh. He was outraged when the British government, seeking peace with the Indians, banned settlement of the area with a royal proclamation in 1763. Following his retirement to Mount Vernon after the end of the War of Independence, Washington turned his energies to building his own economic empire. In 1784, he traveled to western Pennsylvania to visit some of the acreage he owned, and when he discovered that settlers had taken up residence and refused to leave, he successfully sued to have what he called this “grazing multitude” evicted.

In order to raise the value of both his western and eastern lands as well as to promote national commerce, Washington organized and became the first president of the Potomac Company, which sought to make the Potomac River navigable beyond Georgetown, where a series of falls, including the Great Falls of the Potomac, blocked ships from traveling farther upstream. Washington dreamed of making the neighborhood of Mount Vernon a center of national and global commerce. In his vision, goods from the Midwest would travel over a link between the Ohio River and the Potomac to meet with trade from Europe. An experiment with a steam engine in the Potomac inspired this reflection by Washington: “I consider Rumsey’s discovery for working boats against the stream, by mechanical powers principally, as not only a very fortunate invention for these States in general, but as one of those circumstances, which have combined to render the present time favorable above all others for fixing, if we are disposed to avail ourselves of them, a large portion of the trade of the western country in the bosom of this State [Virginia] irrevocably.”¹⁹

Washington envisioned a shift from a slave-based plantation economy in his home region to one based on economic diversification and free labor. In 1786, he wrote: “I never mean . . . to possess another slave by purchase; it being among my first wishes to see some plan adopted, by which slavery may be abolished by slow, sure and imperceptible degrees.”²⁰ On his own estates he switched from tobacco for export to wheat and other crops. He proposed a national agency to promote scientific agriculture and supported the idea of a national university in the capital.

But all of Washington’s grand schemes for the economic development of his part of Virginia were doomed to fail. Following his death in 1799, the Potomac Company was absorbed into the Chesapeake and Ohio Canal company, which completed a canal only to Cumberland, Maryland, in 1850. By that time the canal had been superseded by the Baltimore and Ohio Railroad. Long before, the Erie Canal had turned New York City into the dominant entrepôt of North America. Virginia fell further and further behind the commercial, industrial North. Not until the Lincoln administration was a US Department of Agriculture established, and Washington’s gift in his will of fifty shares of Potomac Company stock to the never-founded National University in Washington, DC, was never used.

Washington had hoped to sell some of his western land to finance the purchase of the “dower slaves” at Mount Vernon that his wife, Martha, had inherited from her first husband, but he could not raise the money. In his will, he asked that his own slaves, who had intermarried with Martha’s, be freed at her death, and that the younger should be educated while the elder should be cared for. But according to Abigail Adams, who visited Mount Vernon shortly after his death, his widow Martha “did not feel as tho’ her Life was safe in their hands” and freed Washington’s slaves to remove any incentive on their part to accelerate her demise in order to gain their freedom—a grim reflection on the nature of slavery. She did not free her own slaves in her life or in her will. And in the decades following Washington’s death, the industrial revolution, by creating a lucrative market in Britain for slave-picked cotton, entrenched slavery in the Southern economy to the point that by the mid-nineteenth century many southerners viewed slavery not as an inherited evil but as a positive good.

LORDS OF THE MANOR

Outside of the South, the region with the most unequal patterns of land ownership and labor relations was the Hudson River valley of New York. In the seventeenth century, Dutch settlers called “patroons,” or patrons, had been granted vast estates, which they populated with tenant farmers. When the British captured New Netherland from the Dutch in 1664 and made it part of the colony of New York, the British government kept and extended the system of patroonship for English settlers. Like other states, New York abolished primogeniture soon after the American Revolution, but for seventy years, until the 1840s, “lords of the manor” continued to lord it over their tenants along the Hudson.

A Pole who visited the region in the late 1790s wrote: “The word Patroun is pronounced by everyone with deference and a certain fear. [Stephen Van Rensselaer III] holds here the place held by the Radziwills in Lithuania. The Czartoryski family, that is the Livingstons, is large, wealthy and greatly honored.”²¹ The Van Rensselaers owned three-quarters of a million acres that stretched for twenty-four miles along the Hudson. In the late eighteenth century, the Livingston family owned 35 percent of the land in Columbia County, New York. Their holdings were divided between the Upper Manor, with about 600 tenant farms, and the Lower Manor, with around 120.²²

Stephen Van Rensselaer III, who inherited the rights to the Manor of Rensselaerwyck, was the tenth richest American in US history to date, based on his personal fortune as a percentage of the national economy at the time of his death. Van Rensselaer’s political ambitions were damaged when he proved to be a disastrous failure during the War of 1812. Elected to Congress, in 1825 he cast the deciding vote that put John Quincy Adams in the White House, even though he had received less of the popular vote than Andrew Jackson. A regent of the University of the State of New York, he founded Rensselaer Polytechnic Institute, which flourishes today. His marriage to Margarita Schuyler, daughter of the Revolutionary War general Henry Schuyler, made him an in-law of Alexander Hamilton, who married another of Schuyler’s daughters, Elizabeth.

The contracts between patroons and their tenants were modeled on those between European aristocrats and their peasants. The leaseholders were required to provide payment in cash, kind, and personal service. For example, when James Van Deusen leased a 130-acre farm from Robert Livingston in 1785, the terms of his lease required him to bring, on “rent day” (January 1), thirty bushels of “good, clear, and merchantable Winter wheat,” plus two fat hens. Two days a year, Van Deusen was required to provide unpaid labor or else pay a fine as a penalty. Van Deusen also had to pay 6 shillings a year to support the manor’s own Protestant minister.²³ The tenants had to pay state taxes on the farms they leased, while the patroons themselves paid taxes only on farm and common land they controlled directly. The Van Rensselaers, Livingstons, and other manorial dynasties in New York also owned black slaves.

The Livingstons’ manor house, Clermont, was described in 1813 by a New York newspaper as “among the largest and most commodious houses in the state. Its front on the river is 104 feet, depth 91, and it consists of a main body of 2 stories; and 4 pavilions. The south or garden-front is a greenhouse, with bathing-rooms and offices adjoining; over these is a large elegant breakfasting room, and 4 bedrooms. The second story is conveniently divided into rooms connected by a gallery. One of the pavilions contains a well chosen library of about 4000 volumes, in various languages.”²⁴ Many of the tenants, however, lived in conditions little better than those of slaves in the South.

THE ANTI-RENT WARS

The manor of Rensselaerwyck had more than three thousand tenants. Before the American Revolution, there were tenant revolts against the patroons in 1755 and 1766.²⁵ Stephen Van Rensselaer III was known as the “good patroon” for his forebearance in collecting rents from struggling farmers among his roughly three thousand tenants. But when he died in 1839, his estate passed to his two sons, Stephen Van Rensselaer IV and William, who insisted that tenants repay all debts immediately.

After their protests failed, tenants organized a mass meeting on the symbolic date of July 4, 1839. When the sheriff’s department served writs of ejectment against tenants, their allies organized vigilante groups whose members disguised themselves as “Injuns,” wearing calico dresses, sheepskin hoods with holes for the eyes and mouth, and feathered headdresses. Led by men with code names like Bluebeard, Redjacket, Yellowjacket, Big Thunder, and Little Thunder, they vandalized property, burned farms and houses, and tarred and feathered sheriffs’ agents. Their chief goal was destroying records of leaseholds.

On August 7, 1845, as he was confronting a mob of two hundred men in “Injun” costume and trying to confiscate cattle in repayment for a debt to the Van Rensselaers, Under-Sheriff Osman Steele was shot to death. Following the murder, hundreds of people were arrested. Around sixty were imprisoned and two were condemned to be hanged (their sentences were commuted later to life in prison).²⁶ Public opinion favored the tenants. The New York Constitution of 1846 abolished manorial leases, forcing the lords of the manor to sell most of their lands to former tenants or others.

FLOWERY FLAG DEVILS

The American Revolution had partly democratized the political order, but the economic structure of the new republic remained far from democratic, from the South, which was dominated by slave-owning planters like Washington, Jefferson, and Madison, to the Hudson River valley with its semifeudal patroons. In the first half of the nineteenth century, before the rise of a new class of rich industrialists, the nation’s slavelords and landlords were joined by another wealthy elite, the merchants.

“I am sending some ships to China in order to encourage others in the adventurous pursuits of commerce,” Robert Morris wrote in November 1783.²⁷ On February 22, 1784, the Empress of China, financed by Morris, set off from New York. Its major cargoes were ginseng, prized by Chinese as a medicine and aphrodisiac, and specie, or metal coin.

China traded with the outside world only through Canton (Guangzhou), where foreign trade was controlled by a guild of merchants, the Co-Hong. The most famous among them was Wu Ping-chien, known to British and American traders as Houqua (“qua” is a title like “mister”). Houqua was reputed to be the richest man in the world.²⁸

After the arrival of the Empress of China at Canton on August 28, a crewmember wrote: “The Chinese had never heard of us, but we introduced ourselves as a new Nation, gave them our history, with a description of our Country, the importance and necessity of a trade here to the advantage to both which they appear perfectly to understand and wish.” To distinguish the Americans from the other fanqui (foreign devils), the Chinese, mistaking the stars on the US flag for flowers, called them the “Flowery Flag Devils.” Loaded with tea, silk, porcelain, and a buff-colored Chinese cotton cloth called “nankeen,” the Empress of China returned to New York Harbor on May 11, 1785.²⁹

Soon the China trade attracted Americans who dreamed of making a quick fortune and retiring to a rural estate or urban mansion. One of the wealthiest Americans in the early republic was Elias Hasket Derby, a shipowner in Salem, Massachusetts, who himself never went to sea. His ship Light Horse in 1784 was the first to trade with Russia. A pioneer of the China trade, he became known as “King” Derby because of the size of his fortune.

The race to beat other ships home inspired the evolution of the “clipper ship,” from the word “to clip,” meaning “to move quickly.” One of the first clipper ships was named Houqua.³⁰

Like other Western merchants, the Americans in the China trade had difficulty finding items that the self-sufficient Chinese needed or wanted. Officials in China prized sea otter fur, which they obtained at first from Russian traders in the Pacific Northwest. The American fur trade with China began in 1787, when five Boston merchants, including a son of Elias Derby, financed the Columbia and the Lady Washington. Their ships stopped on the Northwest Coast of North America, where their crews obtained animal pelts from the local Indians in return for blankets, beads, metal buttons, and fishhooks, among other items, then sailed to Canton and sold the fur. In addition to furs for the garments of affluent Chinese, they sought to sell ginseng and sandalwood, which was made into a paste and burned before Chinese religious images. American merchants even sold rice to China.

Then there was opium. While opium consumption dates back millennia in China, opium smoking is thought to have been introduced by seventeenth-century Dutch traders, who combined opium with tobacco in pipes. Although the Chinese government banned importation of the drug, the British East India Company made large profits by smuggling Indian opium to China. The firm of Jardine, Matheson originated as a British opium-smuggling operation. Britain’s Indian opium was off-limits to American merchants, but in 1804 Benjamin Chew Wilcocks of Philadelphia found a substitute in Turkish opium. American ships bought opium from Smyrna, Turkey, either by sailing to the eastern Mediterranean or purchasing it at Gibraltar.

The leading American drug-smuggling operation in China was J. & T. H. Perkins Company, which brought in more Turkish opium than its rivals.³¹ One of its principals, Thomas Handasyd Perkins, instructed a captain in 1791 that he had “best sell the furs down the River, to avoid [customs] charges.”³² On behalf of the hong merchants, Houqua warned the Americans: “Opium, the dirt used in smoking, has long been prohibited by an order received, it is not allowed to come to Canton.”³³ The Americans, like the British, ignored the law. In 1817–1818, if silver coin is factored out, opium is estimated to have made up 10 to 30 percent of the value of US commodities used to purchase Chinese merchandise, while Americans supplied between 10 percent and a third of the opium consumed in China.³⁴

In 1823, Warren Delano II sailed to Canton and within seven years rose to be a senior partner in the Boston-based firm of Russell and Company. Having made his fortune, Delano retired in 1851 to Newburgh, New York. He wrote: “I do not pretend to justify the prosecution of the opium trade from a moral and philosophical point of view, but as a merchant I insist that it is a fair, honorable, and legitimate trade. I considered it right to follow the example of England, the East India Company, and the merchants to whom I had always been accustomed to look up to—the Perkins, the Peabodys, the Russells, and the Lowes.” Delano’s daughter Sara married James Roosevelt and gave birth to his grandson, Franklin Delano Roosevelt.³⁵

In the Opium Wars of 1839–1842 and 1856–1860, the British, with assistance from the French, invaded China in response to the government’s attempts to stamp out the foreign opium trade. Britain and other Western powers imposed “unequal treaties” that gave them commercial privileges on the Chinese. In 1844, the Treaty of Wang Hiya guaranteed Americans the same terms that were extorted by the British. Following the example of Britain, the United States imposed trade treaties on Japan beginning on July 8, 1853, when Commodore Matthew Perry’s fleet steamed into Tokyo Bay.

From that point until the Chinese Revolution of 1911, China was a shattered state, riven by warlords and drenched with blood in the catastrophic Taiping Rebellion of 1850–1864. The historian John K. Fairbank called the opium trade in which American merchants took part “the most long continued and systematic international crime of modern times.”³⁶

STEPHEN GRASP-ALL

In January 1805, Stephen Girard wrote instructions to two of his agents in the Mediterranean: “I am very much in favor of investing heavily in opium. While the war lasts, opium will supply a good price in China.”³⁷

When Girard got out of the trading business around 1812, he invested much of the wealth he had made from trade in banking, real estate, Pennsylvania coal lands, and early railroads. He was one of the richest Americans of all time when, after suffering injuries in a street accident, he died in 1831.³⁸

Born under the name of Étienne Girard into a family of merchants in Bordeaux, France, Girard sailed on trading trips to the West Indies. Fearing debtors’ prison after losing money on goods he had purchased on credit, Girard moved to New York and became a mate or captain on ships trading with the West Indies and Louisiana. When war broke out in 1776, Girard brought his ship for safety to Philadelphia and settled there.

His marriage to his American wife produced no children and when she went insane she was confined for the last quarter century of her life to a hospital. When, during her confinement, she gave birth to a daughter, Girard claimed the child was not his; mother and daughter both soon died. Girard lived with several mistresses but never remarried.

The mature Girard whom his fellow Philadelphians came to know was a small, balding man with a blind, disfigured right eye. He spoke poor English with a French accent and made his home above his offices near the waterfront. Girard is still remembered in Philadelphia for his philanthropy. During a yellow-fever epidemic in 1793 that killed between four and five thousand people, Girard won the admiration of his neighbors by remaining in Philadelphia and organizing operations in Bush Hill Hospital.

Girard was the embodiment of the secular North Atlantic bourgeoisie in the age of the American and French Revolutions. He sided with the Francophile Jeffersonian Republicans against the Anglophile Hamiltonian Federalists. He named three of the ships in his merchant fleet the Montesquieu, the Voltaire, and the Rousseau and hired the painter and sculptor William Rush to fashion busts of the philosophes as their figureheads. All but $140,000 of the childless merchant’s $7 million fortune went to Girard College for “white male orphans.” In his will he stipulated that clerics would not be allowed in the school.

His enemies called the odd little French immigrant “Stephen Grasp-all.” Girard bribed customs officials on three continents, forged ship manifests and other documents, and used young apprentices in order to avoid paying high wages for experienced sailors.³⁹ During a spell of exile in Philadelphia, Napoleon’s brother Joseph, the former king of Spain, rented a house from Girard and wanted to buy an entire block. When Joseph Bonaparte proposed that he would pay the amount that resulted from covering the entire area with silver half-dollars, Girard is said to have replied, “I will take that offer, on condition that you stand them on edge.”⁴⁰

Girard got into the China trade in the 1790s. Much of his fortune was made in trade with the West Indies. Girard sent flour, rice, lard, ham, and other foodstuffs to be consumed mostly by slaves to the French sugar colony of Saint-Domingue (Santo Domingo), in return for sugar, molasses, coffee, and cocoa. On one occasion Girard instructed agents to give customhouse officers “a few portugaises to silence them.”⁴¹ He evaded customs duties and engaged in large-scale smuggling with the help of his brother, a resident of the island who threatened to blackmail the rival partner whom Girard chose after a quarrel.

When a massive slave rebellion broke out, following the revolutionary French Assembly’s promise to grant rights to slaves, Girard suffered losses and helped refugees from the white French-speaking elite of the island in Philadelphia. He owned slaves, including a black woman named Hanna whom he freed and provided for in his will, as well as dozens of slaves who worked a Louisiana plantation he owned. Although historians dismiss the rumor that he grew rich by stealing assets of refugees killed in the slave rebellion, Girard like many merchants and bankers of the time was deeply implicated in the institution of slavery. In 1906, the New York Daily Tribune reported: “The charge that Stephen Girard, philanthropist, was a slave dealer, is being forced upon the unwilling attention of the world by the recent discovery, in demolishing his old house at No. 22 North Water street, Philadelphia, of three tiers of underground cells that seem to have been used for the purpose of incarcerating human beings.”⁴² Wachovia Bank has officially apologized for the participation of one of its predecessors, the Bank of Stephen Girard, in the slave trade and the slave plantation system.

“NOW I WILL MAKE MY FORTUNE IN THE FUR TRADE”

Like Girard, John Jacob Astor was one of the richest Americans who ever lived, on the basis of the proportion between his wealth and that of the national economy. And like Girard, Astor made part of his fortune in the China trade, in part by selling opium but mainly by selling the furs of beavers, otters, and other North American mammals whose populations he did more than any other individual to decimate.

Astor was the son of a butcher, born in 1763 in Waldorf, Germany, near Heidelberg. Following the examples of his brother George in England and his brother Henry in New York, Astor emigrated, against the wishes of his father. Astor spent four years in London working with his brother George, before emigrating to join Henry in the United States in 1783, following the end of the war between Britain and its former colonies.

On his way to New York, Astor learned about opportunities in the fur trade from another German passenger on a ship. Soon he was working for a New York fur merchant, William Backhouse. Astor made arduous trips up the Hudson River to negotiate for furs from beaver, otter, muskrat, bear, and other mammals with members of the Iroquois and other tribes. He learned much of the business from a friend, Alexander Henry, an experienced employee of the British-Canadian Hudson Bay Company, which dominated the North American fur trade. From an early age he seems to have envisioned establishing a private monopoly that he would completely control to rival the Hudson Bay Company. When Jay’s Treaty with Britain permitted both British subjects and American citizens to share in the jointly administered Northwest Territory, Astor exclaimed: “Now I will make my fortune in the fur trade.”⁴³

In 1800, Astor and fellow investors sent a ship called the Severn loaded with furs to Canton. On its return, Astor invested his profits in his own ship, which he named the Beaver, and soon began to invest in the Manhattan real estate that would further enrich him and his heirs. Following the Louisiana Purchase of 1803 and the Lewis and Clark Expedition of 1806, Astor saw an opportunity to expand his operations. He won the support of President Thomas Jefferson to establish a trading community called Astoria at the mouth of the Columbia River. The expeditions that he sent to Astoria ended in disaster, but Astor hired the celebrated writer Washington Irving to pen a romantic account of the debacle, portraying it as a success. Astoria: Or Anecdotes of an Enterprise Beyond the Rocky Mountains became a best seller.

In November 1807, a British order in council declared all ports in France and its allies blockaded. Neutral vessels were required to enter a British port and pay for a license. In retaliation, under the leadership of Jefferson in December 1807, the US adopted a self-imposed embargo—known by its critics as the “Dambargo” or “O-grab-me”—that outlawed all foreign trade, although American ships were permitted to engage in coastal trade in the United States. Instead of forcing Britain to change its policy, this ill-conceived measure merely crippled American commerce and inspired smuggling on a heroic scale. In 1809, Congress repealed the Embargo Act but maintained a prohibition on trade by US vessels with Britain, France, or ports they controlled.

When Jefferson’s embargo banned American ships from engaging in international trade, Astor asked for an exemption from the law. First he pretended that he needed to bring back property he owned in Canton. After the Swiss-born Treasury secretary Albert Gallatin refused to grant an exception, the German-American merchant came up with another plan. Astor lobbied New York senator Samuel Latham Mitchell to write a letter to President Jefferson, explaining the desire of a Chinese merchant in the United States named “Punqua Wingchong” to return “to Canton, where the affairs of his family and particularly the funeral obsequies of his grandfather, require his solemn attention.” A letter from the alleged mandarin followed. Jefferson told Gallatin: “I consider it a case of national comity . . . the departure of this individual may be the means of our making our nation known advantageously at the source of power in China to which it is otherwise difficult to convey information.” Gallatin obeyed, but complained to Jefferson: “Had I any discretion to the application itself I would have hesitated.”

When news of Astor’s ruse spread, other merchants protested. There was speculation that Astor’s “mandarin” was “a common Chinese dock loafer” or an Indian “dressed up in Astor’s silks and coached to play his part.”⁴⁴

WHEN THE RICH BAILED OUT THE GOVERNMENT

In modern America, the government sometimes is forced to bail out the financial sector. In early America, the rich sometimes bailed out the government.

Stephen Girard bought shares in the first Bank of the United States, which had been created by Alexander Hamilton, and lobbied for the renewal of the bank’s charter in 1811. When Congress refused to renew the charter, Girard bought not only most of the bank’s assets but also the buildings and hired much of the staff. He reopened the former Bank of the United States under a new name: the Bank of Stephen Girard.

During the War of 1812, the federal government suffered from financial distress as well as humiliations such as the burning of Washington, DC, by British forces and the defeat of the American attempt to conquer Canada. The Madison administration turned to Girard and Astor for help. The two foreign-born financiers were joined by a third, David Parish.

Parish was born in Germany into a trading dynasty founded by his grandfather, a British merchant who moved to Hamburg. With the benefit of his family connections, Parish made a fortune in Antwerp during the wars of the French Revolution. In 1806, he went to Philadelphia as the agent for a European syndicate involved in shipping silver from Mexico to Napoleon and appears in that capacity in Hervey Allen’s historical novel Anthony Adverse (1933). This made him even richer. He used his wealth to purchase two hundred thousand acres in upstate New York from Gouverneur Morris, developed the towns of Ogdensburg, Antwerp, and Parishville, and set up an ironworks after iron was discovered on land he owned at Rossie. After helping Gallatin, Girard, and Astor finance the War of 1812, Parish moved back to Europe to join a bank in Vienna. A financial crisis in 1825 led to ruin not only for him but also for his father and the following year Parish committed suicide by drowning himself in the Danube.

During the War of 1812, Girard teamed up with Astor and Parish to buy federal bonds and raise loans. In 1813, Girard, Astor, and Parish were the major subscribers to the government’s Sixteen Millions Loan. In the spring of 1814, the three discreetly discussed plans to create a second Bank of the United States. When Gallatin took up his duties as peace commissioner at the end of the war, the Treasury was briefly in the hands of two native-born Americans, William Jones and George W. Campbell, who proved so incompetent that the post was once again given in the fall of 1814 to an immigrant who understood finance, Alexander Dallas, who was born in Jamaica and raised in Edinburgh and London. Dallas worked closely with Girard, Astor, and Parish to design the new bank.

The three financiers profited from the rise in the US bonds that they held following the new bank’s charter. Girard and Astor also obtained seats on the bank’s board of directors. Dissatisfied with its first president, William Jones, who proved to be as inept at the bank as he had been at the Treasury, Girard resigned. Girard was pleased by Jones’s successors, Langdon Cheves and the even more capable Nicholas Biddle.

The domination of trade and finance in the early United States by immigrants from Europe or the West Indies—Albert Gallatin, Stephen Girard, John Jacob Astor, David Parish, and Alexander Hamilton—illustrates how provincial and undeveloped the United States was in this period. As a postcolonial, agrarian country, the early United States resembled the Central American “banana republics” of later times, with their inaccessible hinterlands, landed elites, and port cities where many of the merchants and bankers were expatriates.

As in Southeast Asia, where guanxi (connections) link overseas Chinese middlemen living in different countries, webs of kinship ties and personal relationships were critical to the success of most merchants and financiers in the preindustrial era. Girard, Astor, and Parish all worked with family members who lived abroad. This merely reinforced the assumption, among the agrarians who made up nine-tenths of the US population, that trade and finance were foreign and sinister.

ASTOR AND THE INDIAN FACTORIES

When Jay’s Treaty with Britain restored commercial relations between the former colonies and the mother country in 1795, the Northwest was opened up to American fur traders. Astor bought cheap manufactured goods from Britain and sold them to Indians in return for furs, which he shipped to China in exchange for tea, silk, and chinaware. Astor created the Pacific Fur Company, headquartered in the town of Astoria on the Columbia River, to ship furs directly to China. His Southwest Fur Company bought out Canadian rivals in the Great Lakes region. Astor also made deals with the Russian government in then-Russian Alaska.

Following the War of 1812, one thing stood in the way of the fur trade monopoly of which Astor dreamed. The federal government had set up a system of trading posts, or “factories” (from the term “factor” for merchant), in Indian country, with the goals of winning Indian tribes away from Britain’s influence while protecting them from unscrupulous private traders. However, the government licensed trading companies like Astor’s to compete for trade with the government Indian factories.

In 1821, around the time that Astor was getting out of the opium trade in China, liquor became the American Fur Company’s major item offered in exchange for animal pelts.⁴⁵ A federal agent wrote: “The traders that occupy the largest and most important space in the Indian country are the agents and engages of the American Fur Trade Company. They entertain, as I know to be the fact, no sort of respect for our citizens, agents, officers of the Government, or its laws and general policy. . . . The whisky is sold to the Indians in the face of the agents. Indians are made drunk, and of course, behave badly.”⁴⁶

Astor was the archetype of a “crony capitalist,” buying political influence in order to plunder the public domain. Having opposed the creation of the Indian factories in 1796, Astor successfully appealed to President Jefferson to allow him to compete with the government trading posts. Following the War of 1812, Astor successfully lobbied for a protectionist bill that limited the ability of foreigners to trade with Indians on American soil without presidential permission. After he succeeded, he obtained permission to employ Canadian trappers from President James Monroe, who happened to owe Astor thousands of dollars for a loan.

During successive congressional sessions he sent his deputy, a Scots immigrant named Ramsay Crooks, to live in Washington in order to direct a lobbying campaign that included pseudonymous attacks in the press on the Indian factory system and its supervisor, a dedicated and idealistic civil servant named William McKenney. Among those on Astor’s payroll was his legal representative in Saint Louis, Thomas Hart Benton, who happened to be the chair of the Senate Committee on Indian Affairs. On May 6, 1822, the law abolishing the nonprofit factory system went into effect. Crooks wrote Benton: “The result is the best possible proof of the value to the country of talents, intelligence, and perseverance, and you deserve the unqualified thanks of the country for destroying the pious monster.”⁴⁷

Once the federal factory system had been wrecked, Astor moved to monopolize the North American fur trade, with devastating results to Indian societies and the natural environment. Astor was now free to flood the Indian territories with smuggled alcohol, in violation of federal law. One contemporary observed: “So violent is the attachment of the Indian for it that he who gives most is sure to obtain the furs, while should any one attempt to trade without it he is sure of losing ground with his antagonist. No bargain is ever made without it.”⁴⁸

The Hudson’s Bay Company of British North America (later Canada) was as ruthless as Astor and his associates, saturating Indian country with alcohol and even attempting to undercut its American rivals by decimating fur-bearing mammals east of the Rockies, in a kind of scorched-earth policy. In 1822, when Congress was debating an absolute prohibition of alcohol in Indian territory, Astor wrote the lieutenant governor of Missouri, William H. Ashley: “If the Hudson’s Bay Company did not employ ardent spirits against us, we would not ask for a single drop. But without it, competition is hopeless.”⁴⁹ What was called “Indian Whiskey” consisted of straight alcohol mixed with river water and other ingredients as various as red peppers, molasses, ginger, tobacco, gunpowder, and sometimes strychnine.⁵⁰

Later generations romanticized the fur traders and scouts as mountain men, larger-than-life figures in deerskins and fur hats. The most famous was Kit Carson, a Kentucky-born frontiersman. Carson guided the early explorations of John C. Frémont, who went on to win fame in the United States–Mexican War of 1846–1848 and to be the antislavery Republican Party’s first nominee for president in 1856 (the second was Abraham Lincoln in 1860). More than six feet tall, Virginia-born Jim Bridger was another archetypal mountain man. After his first two Indian wives died, he married a third. He identified Bridger’s Pass for a route used by overland pioneers and later by the Union Pacific and interstate highway 80.

While some were free agents, most of the trappers and traders worked in brigades headed by a “boosway,” a corruption of the French bourgeois. Most were white Americans and English Canadians, but their ranks included French Canadians, including part-Indian métis, Mexicans, and black Americans like Jim Beckwourth, the son of a Virginia slave by a British immigrant, Sir Jennings Beckwith. He was adopted by the Crow nation and blazed the Beckwourth Trail in Nevada and California. Following the decline of the fur trade, some traders served as scouts for the army or explorers, while others opened up trading posts, went into farming or ranching, or joined the Forty-niners in the California gold rush that began in 1848.

While he was poisoning Indians with alcohol and devastating the North American mammal population, Astor was exploiting the traders who worked for him. One of them, William Johnston, complained: “At these exorbitant charges, the traders were through necessity compelled to take the merchandise, the consequence was, and still is, that for them to pay for the goods, and barely to obtain a livelihood, they are in part compelled to use fraud and deceit towards the men they have in their employ.”⁵¹ Debt forced many of his employees to become, in effect, indentured servants.

In the 1830s, Astor pulled out of the fur trade and devoted his last years to real estate investments and founding a dynasty, which included one descendant who went down on the Titanic, another who bought his way into the British aristocracy, and Franklin Roosevelt’s lifelong friend and confidant Vincent Astor. Legend has it that when asked if he had any regrets, John Jacob Astor said that he regretted not having bought every inch of Manhattan.

By 1834, when Astor sold his company, changes in fashion and the collapse of populations of fur-bearing mammals had doomed the ephemeral industry. A government Indian agent calculated that between 1815 and 1830 the fur trade on average sold $3,750,000 of furs, in the following quantities each year: 26,000 buffalo skins; 25,000 pounds of beaver skins; 4,000 otter skins; 12,000 raccoon skins; 150,000 pounds of deer skins; and 37,000 muskrat skins.⁵²

Astor’s company spread social and ecological blight beyond North America. Visiting Hawaii, his merchants discovered that Hawaiian sandalwood could sell for high prices in China. Hawaiian chiefs began to compete in harvesting the wood and quickly destroyed sandalwood forests. Suffering from disease and demoralization, the native Hawaiian population collapsed from more than a million in 1798 to fewer than a quarter of a million by the 1820s.

“THE CLEAREST AND MOST BEAUTIFUL FLAME”: THE WHALING INDUSTRY IN THE EARLY AMERICAN REPUBLIC

The ecological effects of the American whaling industry were as destructive as those of the North American fur trade.

Two thousand nautical miles west of the coast of South America in the Pacific, on November 20, 1820, the American whaling ship Essex was attacking a pod of sperm whales when one whale fought back. The enraged creature rammed the ship and crushed its bow, causing it to sink. The captain and the surviving crew in lifeboats traveled thousands of miles across the open water for three months, surviving by cannibalizing the dead. The story of the Essex, along with legends about a white whale called Mocha Dick, because it was said to haunt the waters off the island of Mocha near Chile, inspired a young whaler named Herman Melville who later became a novelist to write his masterpiece, Moby-Dick.

The sailors aboard the doomed Essex were after whale oil, a term that included both oil made from the blubber of whales and sperm oil or spermaceti, a waxy substance found in the heads of sperm whales. In the days before kerosene and electric lighting, whale oil was coveted for its use in illumination. As America’s minister to Britain following the War of Independence, John Adams, tried to persuade the British to lower their barriers to the import of American whale oil: “The fat of the spermaceti whale gives the clearest and most beautiful flame of any substance that is known in nature, and we are all surprised that you prefer darkness, and consequent robberies, burglaries, and murders in your streets, to the receiving, as a remittance, our spermaceti oil.”⁵³

When the industry peaked in 1847, nearly seven hundred American whaling ships operated on the oceans of the world. Whaling was the fifth largest industry in the United States, employing seventy thousand people and harvesting nearly eight thousand whales a year. The two largest whaling ports were Nantucket and New Bedford, Massachusetts. New London, Connecticut, and Sag Harbor, New York, were important as well.

Whales like the right whale, the bowhead, the humpback, and the gray that remained near the shore were soon decimated in the Northern Hemisphere. Whalers began undertaking longer voyages into the South Atlantic and Pacific to target sperm whales. American whalers stopped in Hawaii for sex and alcohol, and San Francisco became a major port for them.

One whaler, Charles Melville Scammon, used “bomb lances” to decimate the nurseries of gray whales along the West Coast. Following his retirement from whaling, in 1874, Scammon published The Marine Mammals of the North-Western Coast of North America, writing without irony: “The mammoth bones of the California Gray lie bleaching on the shores of these silvery waters, and are scattered along the broken coasts, from Siberia to the Gulf of California; and ere long it may be questioned whether this mammal will not be numbered among the extinct species of the Pacific.”⁵⁴

By the 1840s, whale oil was being pushed out of the market by less expensive lard oil made from the fat of hogs, which were nicknamed “prairie whales.”⁵⁵ Whale oil faced competition as well from camphene, distilled from alcohol and turpentine, and from “town gas,” hydrogen derived from coal. Toward the end of the 1840s, a Canadian geologist named Abraham Gesner distilled kerosene from asphalt and bituminous tar. By the time the Civil War erupted in 1861, even before Edwin Drake successfully drilled for oil in Titusville, Pennsylvania, in 1859, Americans spent more on coal gas and kerosene than on whale oil.⁵⁶

A shrunken American whaling industry survived for at time, supplying baleen (erroneously called “whale-bone”), a supple material used in women’s corsets. But the development of pliant steel and plastics and changes in women’s fashion eliminated the market for baleen as well. The American whaling fleet shrank from 735 ships at its height in 1854 to only 32 in 1914.⁵⁷ A cartoon in Vanity Fair in 1861 depicted a party in a ballroom filled with whales in fancy dress. Beneath festive banners that read “Oils Well That Ends Well” and “We Wail No More For Our Blubber,” the jubilant whales raised the glasses they held in their flippers in a toast. The cartoon’s caption read: “Grand Ball Given by the Whales in Honor of the Discovery of the Oil Wells in Pennsylvania.”⁵⁸

THE AMERICAN REVOLUTION AND THE INDUSTRIAL REVOLUTION

The United States may have been the first modern republic, but it inherited a premodern economy. In the gap between the political revolution of 1776 and the industrial revolution, which only got under way on a large scale in the United States in the 1830s, negative views of large-scale capitalism took root in American culture and endured, even after premodern capitalism gave way to far more productive, less exploitative industrial capitalism.

The characteristics of premodern commerce, manufacturing, and corporations naturally led Jefferson, Madison, and other American agrarians to equate an industrial, urban economy with one in which a miserable, landless urban proletariat labored in sweatshops making trinkets for the rich, to the benefit of monopolists with government connections. In the zero-sum economy of the agrarian era, it was usually the case that the wealth of the elite and middlemen came at the expense of the majority. Like Adam Smith, who feared the crippling effects of premodern factory labor on the bodies and minds and souls of workers, Jefferson preferred a society in which as many people as possible were independent yeoman farmers.⁵⁹

Adam Smith, David Ricardo, and other classical economists, including Thomas Malthus and J. S. Mill, did not expect industrial technology to produce radical improvements in the human condition. The measures that they advocated—eliminating parasitic government-sponsored monopolies, increasing the division of labor in labor-intensive production (as in Smith’s famous pin factory), free trade, and specialization among countries along the lines of absolute advantage (Smith) or comparative advantage (Ricardo)—were intended to squeeze a little more efficiency out of an agrarian economy. In the twentieth century, the economist Joseph Schumpeter observed that Ricardo and Malthus “lived at the threshold of the most spectacular economic development ever witnessed . . . [yet] saw nothing but cramped economies, struggling with ever-decreasing success for their daily bread.”⁶⁰ They believed that diminishing returns and declining profits were the norm in every industry. Ricardo predicted that in the long run landlords would prevail over both capitalists and starving workers. Malthus argued that any temporary improvements in human well-being caused by economic growth would be neutralized quickly by the breeding of the poor. The labor theory of value, which held that capitalists could grow rich only by stealing surplus labor value from workers, was combined with the pessimistic prediction of inevitably diminishing profits and opportunities for investment in the philosophy of Karl Marx, which, in spite of its idealization of the industrial worker, is a patchwork of preindustrial economic doctrines.

If there had been no industrial revolution, if the American and world economies had continued to be constrained by the amount of energy produced by firewood, wind, water, and human and animal muscle, the producerist political economy of Jefferson and the “system of natural liberty” of Smith would have remained relevant. By a striking coincidence, however, James Watt and his business partner Matthew Boulton produced their first commercial steam engine in 1776, the year in which The Wealth of Nations by Smith and the American Declaration of Independence drafted by Jefferson were both published. The industrial revolution begun by Watt quickly rendered the economics of Smith and the politics of Jefferson obsolete. But a lingering Jeffersonian distrust of large-scale enterprise, finance, and government would continue to shape American political culture, with sometimes damaging effects for America’s industrializing, modern economy, from the nineteenth century to the twenty-first.