💵Growth of the American Economy Unit 2 – American Revolution: Economic Independence

Key Economic Issues Leading to Revolution

• Mercantilism economic theory held colonies should provide raw materials to the mother country and serve as a market for finished goods, leading to trade restrictions and resentment
• British imposed various taxes (Stamp Act, Sugar Act) on the colonies to raise revenue, which colonists viewed as taxation without representation
• Navigation Acts required colonial trade to be conducted through British ports and ships, limiting free trade opportunities
• Proclamation of 1763 restricted westward expansion to appease Native Americans, but colonists wanted access to new land and resources
• Growing sense among colonists that economic policies were designed to benefit Britain at the expense of colonial prosperity and self-determination
  • Believed their economic potential was being stifled by British regulations
  • Felt their rights as British subjects were being violated without their consent

British Mercantilism and Colonial Trade Restrictions

• Mercantilism theory aimed to maximize a country's wealth through exporting more than importing, accumulating gold and silver
• Colonies were expected to provide raw materials (timber, tobacco, cotton) to Britain and import manufactured goods, creating a trade imbalance
• Navigation Acts (1651-1733) required colonial trade to pass through Britain, even if the final destination was elsewhere
  • Goods had to be transported on British ships with predominantly British crews
  • Certain "enumerated goods" (tobacco, sugar, cotton) could only be exported to Britain, even if better prices were available in other markets
• Trade restrictions limited colonial manufacturing to prevent competition with British industries
  • Iron Act of 1750 prohibited new iron mills and steel furnaces in the colonies
• Currency Act of 1764 restricted colonies' ability to print their own money, leading to currency shortages and economic instability

Colonial Economic Grievances and Protests

• Stamp Act (1765) placed a tax on printed materials (newspapers, legal documents), leading to widespread protests and boycotts of British goods
  • Stamp Act Congress formed to coordinate resistance and petition the king
  • "No taxation without representation" became a rallying cry
• Townshend Acts (1767) placed import duties on glass, lead, paper, paint, and tea, leading to further boycotts and the Boston Massacre (1770)
• Tea Act (1773) gave the British East India Company a monopoly on tea sales in the colonies, undercutting colonial merchants
  • Boston Tea Party (1773) saw colonists dump tea into the harbor in protest
• Coercive Acts (1774) closed the port of Boston and restricted Massachusetts' self-government, escalating tensions
• Continental Association (1774) organized a boycott of British goods and encouraged domestic manufacturing to reduce dependence on imports

Economic Aspects of the Declaration of Independence

• Declared the colonies' right to establish trade relationships with other nations as a sovereign power
• Criticized the king for "cutting off our Trade with all parts of the world" through restrictive policies
• Asserted the colonies' right to levy taxes and regulate their own internal economies without interference
• Argued that economic independence was necessary for political independence and self-determination
  • Believed economic freedom would lead to greater prosperity and innovation
• Signers pledged their "Lives, Fortunes, and sacred Honor" to the cause, recognizing the economic risks of revolution

Financing the Revolutionary War

• Continental Congress issued paper money (Continental currency) to fund the war effort, leading to inflation as the money supply increased
  • "Not worth a Continental" phrase emerged as the currency depreciated
• Colonies also issued their own paper money and borrowed from domestic and foreign lenders (France, Spain, Netherlands)
• Robert Morris served as Superintendent of Finance (1781-1784), working to stabilize the currency and manage war debts
  • Established the Bank of North America (1781) to provide loans and facilitate transactions
• Lack of a strong central government made it difficult to coordinate financial policies and repay debts
  • Articles of Confederation (1777) gave Congress limited power to tax or regulate commerce
• Hyperinflation and debt issues persisted after the war, contributing to economic instability and social unrest (Shays' Rebellion)

Economic Policies of the Continental Congress

• Established a committee to regulate prices and wages to combat inflation, with limited success
• Imposed an embargo on British trade (1775) to pressure the British economy and demonstrate economic independence
• Sought foreign loans and aid, particularly from France, to finance the war effort
  • Negotiated the Treaty of Alliance (1778) with France, securing military and financial support in exchange for trade concessions
• Attempted to coordinate economic policies among the colonies through resolutions and recommendations, but lacked enforcement power under the Articles of Confederation
• Debated the need for a stronger central government with the power to tax, regulate commerce, and manage the national economy
  • Federalist arguments for a new Constitution gained traction in the post-war period

Post-War Economic Challenges and Solutions

• Debt from the war totaled approximately $79 million, including foreign loans and domestic borrowing
  • Interests on the debt consumed a significant portion of the national budget
• Depreciated Continental currency and state-issued paper money led to a shortage of specie (gold and silver coins) and economic uncertainty
• Trade disruptions and British restrictions (Navigation Acts still in place) limited access to international markets
• Alexander Hamilton, as the first Secretary of the Treasury, proposed a series of economic reforms to address these challenges:
  • Assumption of state debts by the federal government to consolidate the national debt
  • Establishment of a national bank (First Bank of the United States) to provide a stable currency and credit
  • Tariffs on imported goods to raise revenue and protect domestic industries
  • Excise taxes on domestic products (whiskey tax) to generate additional revenue
• Hamilton's policies aimed to establish the creditworthiness of the new nation and promote economic development, but also sparked political divisions

Long-Term Economic Impact of Independence

• Breaking free from British mercantilism allowed the U.S. to pursue its own economic interests and trade relationships
  • U.S. merchants could now trade directly with other countries without going through British ports
  • Domestic manufacturing expanded without the constraints of British regulations
• Economic nationalism and the idea of protecting domestic industries became a recurring theme in U.S. economic policy debates
  • Tariffs remained a major source of federal revenue throughout the 19th century
• The Constitution (1787) established a stronger federal government with the power to tax, regulate commerce, and manage the national economy
  • Created a common market among the states by prohibiting interstate tariffs and trade barriers
• The First Bank of the United States (1791-1811) and the Second Bank of the United States (1816-1836) provided a measure of financial stability and a national currency
• Territorial expansion (Louisiana Purchase, westward migration) opened up new land and resources for economic development
  • Agriculture remained the dominant sector of the economy, but industrialization began to take root in the early 19th century
• Economic independence laid the foundation for the U.S. to become a major economic power in the 19th and 20th centuries