Chapter 2
Commerce in the new nation, 1780–1820
In the decades after the American Revolution, from 1790 (the first US census) to 1820, the US population grew from 3.9 million to 9.6 million. In 1803, the country effectively doubled in size following the Louisiana Purchase, the acquisition of land from France that included territory west of the Mississippi River to the Rocky Mountains. Farming and agriculture continued to be the most common occupations. In 1800, 83 percent of the workforce labored in these industries.
Yet other types of business activity, including manufacturing, also began to grow during this period, in some cases roughly following the pattern of development described by the Scottish political theorist Adam Smith. In Inquiry into the Nature and Causes of the Wealth of Nations (1776), Smith argued that increased output came from the division of labor in manufactures and the specialization of trade. Sure enough, in the years after the American Revolution, as the pace of business increased, the general merchants who had dominated the colonial economy increasingly found themselves in competition with more specialized merchants, who traded only in certain commodities, like cotton, fur and pelts, lumber, sugar, tobacco, and whale oil, or who carried out a specific business function, like warehousing or insuring.
However, the national economy got off to a rocky start. Immediately after the end of the Revolutionary War, the nation fell into a deep recession—one that some economists see as nearly as severe as the Great Depression of the 1930s. During the war, Congress had accumulated a debt of $27 million, owed to Continental soldiers for their service during the war, to farmers who sold goods and supplies to the Continental Army, and to foreign creditors who had supported the American cause. Congress, as outlined in the Articles of Confederation (ratified in 1781), was unable to levy taxes and thus unable to pay this debt. The Articles of Confederation had largely preserved the sovereignty of each state and provided little power to the federal government.
It was not until 1788, with the ratification of the Constitution, that the contours of the American republic began to take shape, with its characteristic distribution of power among the three branches of government (executive, legislative, and judicial), as well as between the federal and state governments. Indeed, federalism became a defining characteristic of the US government, ensuring that, at least in this period, corporations would have state charters rather than national ones.
The Constitution also helped to foster domestic industry by allowing for tariffs on imports, forbidding taxes on goods sold across states (which was essential for the creation of a large domestic market), and, importantly, prohibiting states from passing laws to “impair the obligation of contracts,” a necessary legal step for the development of business.
Alexander Hamilton was a key figure in the development of early American economic policy. Hamilton was born on the Caribbean island of Nevis and worked for a merchant trading firm as a teenager before arriving in New York City. This early experience gave him a unique perspective on the problems facing a debt-ridden country with an agricultural population. He served as the first secretary of the Treasury (1789–95) and during that time made several significant contributions to securing the commercial and financial foundations of the American economy. In 1790, he promoted a controversial plan to have the national government assume states’ war debts—a move that would reassure European creditors of the financial soundness of the new nation, yet also reward speculators for buying up debt at prices far below face value. The proposal passed, but only after a compromise with Southern congressmen that moved the new US capital from New York City to Washington, DC.
The following year, Hamilton published his Report on Manufactures (1791), which called for federal support of industry and manufacturing. He proposed several possible ways to achieve strong economic growth, for instance, by providing subsidies for industry and imposing tariffs on imported goods and by the implementation of production bounties, as a way to keep prices up. Hamilton also pushed for the creation of a central bank, which was realized with the founding of the Bank of the United States (chartered from 1791 to 1811). These measures, Hamilton believed, would help the United States protect and defend itself in times of war.
The rise of business in the decades immediately following the Revolution was also aided by a commercial culture that attracted immigrant entrepreneurs. Éleuthère Irénée du Pont, for example, fled his native France in 1800, bringing with him a knowledge of chemistry. Shortly after his arrival in the United States, he opened an explosives manufactory on the Brandywine Creek near Wilmington, Delaware, and imported machinery from France. E. I. du Pont de Nemours & Company became one of the country’s largest suppliers of gunpowder.
The contours of modern unions also began to take shape during the early republic period. Although European guild-style associations never took hold to the same degree in the American colonies, there were comparable trade associations, particularly among carpenters, shoemakers (cordwainers), tailors, and printers. Philadelphia printers undertook one of the first recorded strikes in 1786, successfully lobbying for higher wages of six dollars per week.
Roads and canals
One aspect of trade that improved markedly during the early republic period was the ability to transport and distribute goods. American merchants continued to expand the reach of their overseas shipping, sending ships regularly to China and other far-flung places. Importantly, the delivery of goods, whether domestic or imported, to the interior of the United States began to become easier. Beginning in the late 1790s, many new corporations (often in the form of joint-stock companies) emerged, seeking to improve domestic trade by building roads. In 1795, the Lancaster Turnpike Company linked Philadelphia with Lancaster, Pennsylvania, about seventy miles to the west.
Canals allowed for a substantial increase in the weight horses could pull on riverbanks and augmented the network of rivers to reach the interior of the country. The most important canal project was the 360-mile Erie Canal, completed in 1825. The canal allowed for lower shipping costs and greater speed. A flatboat loaded with cargo at Lake Erie in Buffalo, New York, could travel to Albany and down the Hudson River to New York City’s Atlantic port in just six days, and, conversely, imported goods—for instance, dry goods from Manchester, iron from Sweden, and tea from China—could easily reach the interior after originally landing on Manhattan’s docks. New transportation technologies, most significantly the steamboat, also facilitated distribution.
The steamboat substantially improved the pace and reliability of transportation. Like many important inventions of the day (including the spinning jenny, the pistol, and the harvester), the steamboat had many different inventors, though posterity tends to emphasize only one: Robert Fulton. Following the debut of Fulton’s steamboat Clermont in 1807, a growing fleet appeared on American rivers. Whereas a sail- or oar-driven boat might have taken weeks or months to travel from Cincinnati or St. Louis to Natchez, Mississippi, or New Orleans, a steamboat could make the same journey in a few days. Moreover, upriver travel had been all but impossible in older barges, but steamboats rapidly developed the capacity to move tons of freight upstream at a speed of about ten miles per hour. Steamboats proved such a useful mode of distribution that, by 1848, New Orleans had become the second-busiest port in the country, following New York City.
Cotton
Improvements in internal transportation greatly speeded the movement of agricultural goods to coastal cities for international export. Cotton was the fastest-growing export in the decades following independence. Cotton production was still quite small in the United States in the 1790s, but it became more significant than tobacco or sugar.
In 1793, Eli Whitney’s patenting of a cotton gin helped trigger the rise of an “Empire of Cotton” in the southern United States. Whitney’s invention made it possible to remove seeds from cotton fiber approximately fifty times faster than before, enabling the acceleration in US cotton production in the early nineteenth century. American cotton exports soared from accounting for a value of about $5 million, or 16 percent of the total of American exports, in 1800 to a value of about $200 million, or 60 percent, in 1860.
The sale of cotton brought wealth to a new class of plantation owners, financiers, and brokers. It also increased the reliance of the Southern economy on commercial agriculture and slavery and dampened its industrial development. Although some cotton producers did not depend on slave labor, large plantation owners often had more than 50 slaves and sometimes 100 or 200 spread over several plantations. Enslaved persons were legally defined, and bought and sold, as property. By 1860, a male “hand” would sell for $1,800. By that year the total value of the slave population was $3 billion, three times the amount invested in US manufacturing.
In 1807, Congress passed legislation banning the further importation of slaves into the United States. Though most support for this restriction came from abolitionists, some historians contend that slaveholders also favored this measure because it effectively increased the value of their slaves. Furthermore, the bill did not spell the end of the institution of slavery. Quite to the contrary, the slave population continued to grow. Moreover, the center of the slave population moved farther south. As plantation owners expanded cotton production into new territories, they purchased huge numbers of enslaved people from the upper South, forcing them to relocate, and, in the process, breaking up families and communities. Indeed, several new states that became part of the United States after 1800—including Louisiana (1812), Mississippi (1817), Alabama (1819), Missouri (1821), Arkansas (1836), Texas (1845), and Florida (1845)—became cotton-producing slave states.
As the American cotton industry grew, native peoples suffered further loss of their lands through violent theft by whites. The Creeks and Cherokees were displaced from their land in Alabama and Georgia to make way for cotton farms. The Chickasaw and Choctaw nations were removed from land in western Tennessee and as far south as Mississippi. These relocations were part of what is today known as the Trail of Tears, the large-scale dislocation of Native Americans from their homelands during the 1830s, most often to lands west of the Mississippi. During the Cherokee removal of 1838, more than 2,000 of the 16,000 Cherokees who were forced to relocate died on the arduous journey.
The productivity of cotton fields increased significantly over the period for many reasons, including the move to more fertile land and the improvement of seeds, which made cotton bolls easier to pick. The rise in cotton production also corresponded with the increasingly brutal treatment of slaves, as overseers attempted to maximize the output of each slave. Cruelty was methodical and deeply ingrained in the plantation system. Plantation owners and overseers collected and analyzed data from their hands and compared production across years. Some cotton planters in the antebellum years relied on careful bookkeeping practices to manage their plantations. Thomas Affleck’s Cotton Plantation Record and Account Book (published around 1850) taught standardized record-keeping methods and calculations—such as pounds of cotton produced per acre and the gross and net value of production—and even urged the keeping of statistics on the lives and deaths of slaves, their use of clothing and tools, and their productivity over time.
The growing demand for cotton triggered the rise of an extensive network of intermediaries and brokers. Planters shipped their raw cotton to a cotton factor, who not only purchased the planter’s crops but also provided credit and supplies. The factor then sold the cotton to manufacturers or shipped it to other middlemen along the route to Liverpool—the hub of the nineteenth-century textile industry—or to New England. Many of these cotton brokers, such as Henry Lehman (who immigrated to the United States from Bavaria in 1844 and went on to found the financial services firm Lehman Brothers), made their livelihoods in the booming cotton industry of the mid-nineteenth century.
The sale of cotton brought many links between the slave-labor system in the South and the free-labor system in the North. Northern factories made agricultural tools such as rakes and plows for plantations, and Northern insurance companies insured slave owners against the loss of their human “property.” The products of slavery—tobacco and cotton, especially—went to supply Northern factories.
Despite deep connections to New York finance and New England textile mills, Southern cotton plantations lagged in adopting, in equal measure, the innovative technology that by the 1840s and 1850s was reshaping the North, including manufacturing machinery. Moreover, although plantations were profitable for the slave owners and their middlemen, they were costly for society. Slave patrols, for instance, monitored and policed much of the South to try to apprehend runaways. Slavery was also, needless to say, a moral blight. Indeed, many Europeans who visited the United States were struck by the stark contradictions inherent in American society, which tolerated the institution of slavery in a land supposedly founded on the virtue of equality. In 1842, while touring the United States, Charles Dickens, reflecting on the cruelty of slavery, lamented the state of the Republic: “Rather, for me, restore the forest and the Indian village.”
Whale oil
Like the production and sale of raw cotton, the processing and marketing of whale oil became a global business in the first half of the nineteenth century. The industry, which supplied the fuel for the illumination of many cities and provided lubrication for manufacturing machinery in the production of textiles and other industries, also brought fortunes to American entrepreneurs, who dominated the industry. At the time of the American Revolution, there were about 360 whaling vessels (and roughly 9,000 men) engaged in whaling. By 1840, that number had nearly doubled to 700 vessels—accounting for over three-fourths of all whaling ships operating around the globe.
Even before the Revolutionary War, whale oil and baleen (used in the manufacture of umbrellas, whips, and corsets) were among the colonies’ most significant exports to Britain. Around 1750, merchants in Rhode Island and Nantucket began separating the waxy spermaceti and oil of the “head matter.” The resultant oil was of the highest quality, and spermaceti candles were marketed (and priced) as a luxury item because they burned with less smoke and odor than tallow candles and gave a brighter light. George Washington and Thomas Jefferson both specified spermaceti candles for their homes.
New England ports dominated the whaling industry—especially New Bedford, the island of Nantucket, and Provincetown, Massachusetts. Whalers sailed to the Cape Verde Islands, South America, Japan, and Alaska and the Bering Strait, as well as into the Arctic Ocean. Whaling was, moreover, a capital-intensive industry. In 1850, a New Bedford whaling venture required a capital investment between $20,000 and $30,000—far more than that needed for the average American farm at that time ($2,258) and more, too, than the average manufacturing firm ($4,335). But a good haul yielded a high return, as evidenced by the large mansions that sprung up around the port of New Bedford in the early nineteenth century.
Whaling “agents” started ventures and organized the necessary capital. They acquired a ship and worked with the captain to settle on the crew and equipment. They purchased insurance because whaling was riskier than many kinds of trade: ships could be lost at sea or catch on fire, or captains could experience mutiny. The agents picked out the type of whales to target and the route. Crew members with various skills—coopers, carpenters, cooks, stewards, skilled and semiskilled seamen—were contracted for a fraction of the voyage’s profits. Payment took the form of a lay, or a percentage of the net returns from a trip. A harpooner, for instance, might receive one-ninetieth lay.
The technology of whaling improved over the decades. In the late eighteenth century, whalers began building tryworks—furnaces for melting blubber—on the boats, so that a whale could be processed at sea rather than hauled back to port. The size of the main vessels doubled, with smaller whaleboats used to attack the whale. Harpooning also changed. Initially, the harpoons were attached to log floats, which were meant to stay afloat during the hunt, but often allowed the whale to swim away if oarsmen failed to keep up. In the 1760s, whalers began to attach the harpoon directly to the ship. This proved dangerous—sperm whales can swim at twenty-five miles per hour and dive deep into the ocean—but it did increase the rate of capture. Still, the dangers associated with whaling were well known, immortalized in Herman Melville’s classic Moby-Dick, published in 1851.
2. Whaleships and casks of whale oil at Central Wharf in New Bedford, Massachusetts, about 1870. Since colonial times, whale oil had been used for illumination in homes, lighthouses, streets, and shops.
By the 1830s, American fisheries were annually producing about 4.7 million gallons of fine sperm oil, 5.8 million gallons of regular whale oil, and 1.6 million pounds of whalebone. The industry peaked in 1845–46 and then steadily declined as a result of foreign competition, the discovery of petroleum-based lubricants, and, after the mid-1860s, the destruction of a significant portion of the whaling fleet during the Civil War. However, some companies survived. Nye Lubricants, Inc., founded in 1844, even went on to supply lubricants for NASA spaceships in the twentieth century.
The fur trade
Like the oceans, America’s forests were also a source of profit for entrepreneurs. One especially lucrative industry was the trade in animal hides, furs, skins, and pelts. Since 1608, French trappers were active in the North American woods along the St. Lawrence River, and the Dutch and English trapped and traded furs (mostly beaver) along the Hudson River in New York. In both British settlements in the Northeast and French outposts in the upper Midwest, Europeans depended on Native Americans, who had long-established trading networks, extensive geographical knowledge, and skill in trapping animals and processing furs. The scale of production was staggering. By the early 1800s, estimates placed the number of furs and pelts exported per year at around 200,000.
John Jacob Astor became one of the most prominent figures in the trade. Astor was a German-born musical instrument maker who moved to England before sailing to New York around 1784. He met a fur trader on the voyage to North America and, even while working in his brother’s butcher shop, was inspired to purchase and resell furs. Astor set up a shop selling musical instruments and simultaneously began making trips to western New York, seeking out European and Native American trappers to acquire furs to sell in his shop.
At this time, Montreal was a center of the fur-trading industry because of its location on the St. Lawrence River and access to the Great Lakes. To gain a larger share of furs and pelts compared to rival Canadian companies, Astor began trading in the Pacific Northwest. There, he worked with Russian traders to acquire seal and sea otter pelts. He also established an overland route to ship furs and pelts from the west, using a set of posts along the route traveled by Lewis and Clark in their expedition of 1804–6. Astor achieved a milestone in 1808 when he acquired a New York state–issued corporate charter to establish the American Fur Company. Astor always treated the concern, though technically a corporation, as something closer to a partnership, with few significant investors.
The War of 1812 disrupted Astor’s commercial plans, but he still succeeded in building an international network. His fur-trading business (which also traded teas, sandalwood, opium, and other items) reached its height in the late 1810s to the early 1830s, with ships traveling to China, Spain, the Netherlands, Germany, Cuba, and Brazil. However, by 1833, Astor was seventy years old and his health was declining. He withdrew from the American Fur Company in 1834, and it was defunct by 1847.
Astor’s legacy, however, endured. His dominance in the continental fur trade and his subsequent investments in banking, insurance, and especially New York real estate prefigured the next stage of the American economy—an era of geographic expansion and economic growth. Astor became the model of a business tycoon, who made use of the corporation as an organizational form, invested in property, was socially prominent, and acquired an extensive library later given to the public. (Astor’s library was eventually merged with that of philanthropist James Lenox and others to form the New York Public Library.) The Astors became the first of several family dynasties whose origins were in business. They were soon followed by others, such as the Vanderbilts, Rockefellers, Morgans, and Mellons.