Engerman S.L., Gallman R.E. The Cambridge Economic History of the United States, Vol. 1: The Colonial Era

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The

Revolution,

Constitution,

and New Nation 377

prices there reduced dramatically the value of American exports by the

mid-i78os. And after 1792, the direct trade of tobacco to Holland and

France entered permanent decline. Southern rice and naval stores exports

also declined in value during the 1780s because of British restrictions, and

only during the years of high demand for these commodities during the

Napoleonic Wars did values and volume increase temporarily. Finally,

although northern states were steadily gaining over England in the ability

to carry southern exports in northern vessels, England still transported

about 50 percent of southern exports in 1789.

Some commercial decline was doubtless a result of the reorganization

and restructuring in the domestic economy in the wake of

the

Revolution.

The growing domestic population was most likely consuming much of the

rise in production of agricultural and small craft commodities, until west-

ern farm output rose faster than demand. It may also be true that a

growing population in settled areas absorbed farm surpluses that might

otherwise have been exported. Small retailers, grocers, merchant-

manufacturers with little capital, ambitious peddlers, and "mechanicks"

all created demand for food and rural byproducts. Although immigrants

often brought investment capital with them and the sons of American

merchants diverted investments toward coastal trade and some "infant

manufactures," many of these new efforts involved minimal amounts of

capital and little or no changes in the organization of production and

labor. Unstable international commercial conditions prevailed. Although

the various regions of the country experienced great differences in their

productive capacities and in their pace of

economic

recovery following the

Revolution, current estimates of per capita exports, as well as of per capita

wealth, suggest that there was little or no growth nationwide over the

period 1781 to 1793. Some evidence suggests years of declining incomes

in many locales.

The commercial troubles of the 1780s derived not only from the down-

turn in international markets and from British policies but also from the

limitations of Congressional power under the Articles of Confederation.

The various states stepped into this vacuum, much as they had during the

Revolutionary years, and responded to particular immediate interests with

bold and timely measures that at first drew praise for state leaders. By the

mid-i78os, however, it was becoming clear to Americans concerned about

international and interstate developments that distinct state policies often

pitted some groups of Americans against others. Different state taxation

policies, or discriminatory legislation against the commerce of neighbor-

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378 Cathy Mat son

ing states, said Nationalists, weakened the economies of all states. "State

particularism" heightened the critical character of

the

decade.

In a retreat from reliance on the now-worthless continental paper

money, leading Nationalists helped to convince Congress to appoint Rob-

ert Morris as Superintendent of Finance and to give him significant powers

over the conduct of the war in the first years of Congress's existence under

the new Articles of Confederation. In February 1781, Congress chartered

the first note and specie bank of national proportions, the Bank of North

America, and located it near Congress in Philadelphia. In his capacity as

Superintendent from May 1781 to December 1784, Morris issued notes

redeemable in specie and covered by the credit and reputation of Congress

and Morris' own fortune; its function was to discharge the great public

war debt. His bank might have functioned well during the 1780s except

that both potential sources for providing a fund for the BNA failed to

materialize: foreign loans of specie, and the grant from the states to

Congress of the power to levy a uniform national impost. Congress's

February 1781 proposal for a permanent uniform national duty of

per-

cent on the value of all goods imported

—

which was dependent on the

united consent of all the states

—

was defeated by some northern state

legislatures, as were similar proposals in 1783 and 1785.

Instead, the states continued to experiment with their own means of

raising revenues and defraying financial obligations, thereby undermining

further Congress's minimal authority. In the North, varied interests threw

their support behind state attempts to (1) raise revenue from commerce,

(2) repay private and public debts, (3) create temporary monopolies to

foster the development of inland navigation routes, (4) promote new

inventions to advance commercial agriculture, and (5) support shipbuild-

ing and immigration of skilled labor. Although some degree of state

promotion and regulation continued over the 1780s, state efforts to pro-

vide a circulating currency and to retire Revolutionary debts were more

consequential during depression years. Some states also reverted to the

colonial experiments in

land banks —

a practice whereby individual sub-

scribers put up personal real estate as collateral against a loan of paper

money for conducting long-distance exchange. But even these measures

were insufficient, and only seven states were issuing paper money by

1785,

when the depression hit. By declaring this paper money legal

tender, and by fixing the periods of its circulation, these states were

somewhat successful in their efforts to ease the burden of Revolutionary

war debts. Moreover, although the Nationalists made familiar warnings

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The

Revolution,

Constitution,

and New Nation 379

against inflationary panaceas, there was widespread sentiment that the

states were providing a circulating medium to which urban artisans, lesser

merchants, and itinerant craftsmen all could subscribe. State issues of

paper currency, they argued, were superior to federal notes such as Robert

Morris's because they were locally controlled and more conveniently ob-

tained. Pennsylvania, New Jersey, and New York could point to a rela-

tively smooth system of state

finance;

Georgia, South Carolina, and North

Carolina also emitted their own monies. New York, Connecticut, and

Pennsylvania fostered alliances between agricultural and commercial inter-

ests by effectively balancing solicitude for creditors with

popular commit-

ment to paper currency. Their assumption plans neither repudiated Revo-

lutionary debts nor depreciated them into oblivion, nor did they repay

state debts with specie. But just as often these Confederation-era curren-

cies depreciated in value in relation to specie - Rhode Island's abuses were

the most serious

—

and caused endless quarrels about whether they should

be accepted at face or depreciated value. Massachusetts legislators com-

pounded the problem of using paper money by requiring that all taxes and

private debts be paid in specie, which in effect scoffed at individual efforts

to use paper money at all.

In addition, six states enacted their own imposts rather than approve a

uniform Congressional form of

revenue.

Nine states interpreted the 1783

British Orders in Council as a cue to pass steeper duties against British

imports than other foreign imports after 1784. Duties ranged from 5

percent to 25 percent; Rhode Island placed a treble duty on British goods.

Pennsylvania passed an act in 1785 that became a model for the first

national tariff in 1789. Seven of the states passed duties on British ship

entrances and commodities, varying from 5 percent to 8 percent ad

valorem. A few states also passed duties against other foreign trade, al-

though in nominal amounts ranging from 2 percent to 4.5 percent. Three

New England states even prohibited British vessels from exporting Ameri-

can products, thus forcing the ships to unload their British and European

goods and then retreat to another port with an empty hold.

Although state commercial discrimination seemed to combine the best

contemporary wisdom about protecting "infant manufactures" at home

and providing "free trade" for American ships and agricultural surpluses,

results were mixed. At first, state protective tariffs on luxuries and new

American manufactures seemed to abet initiatives for "useful manufac-

tures."

New York, Pennsylvania, Massachusetts, New Hampshire, Mary-

land, and Virginia passed legislation to prohibit imports of certain fin-

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380 Cathy Matson

ished commodities; the list grew to fifty-eight items in Massachusetts by

1786.

By 1785—6, some states passed additional tonnage and ad valorem

duties on foreign commerce.

Many northern wholesale importers objected that duties were a burden-

some additional cost to them. Some wholesalers went so far

to assert that

the costs of commercial taxation prevented them from seeking supplemen-

tal investment opportunities in processing imported goods. Nor did state

paper-currency emissions offer consolation to retailers and wholesalers, who

required specie for international remittances. Their long-term credit had

been stretched to the breaking point by late 1785, as commercial formers

and "country

buyers"

proved unable to pay dry

goods

importers their debts.

Particularly where state duties on the imports of sugar, molasses, and

tobacco were high, distilling, refining, and snuff manufacturing became

costly enough to drive even established concerns into bankruptcy and their

workers into unemployment. Only

five

New York distilleries were in busi-

ness in 1786, compared to twelve in 1774; in Boston, sugar, barreled salted

meat, and snuff manufactories frequently suffered until at least

1788.

Nomi-

nal prices of iron goods and textiles fluctuated until the time of the ratifica-

tion controversy, when they finally began to increase.

States with major port cities, especially New York and Massachusetts,

took advantage of their superior position in international commerce and in

regional markets to pass discriminatory duties against neighboring states'

traffic at their ports, while weaker states tried to divert trade to themselves

by abolishing duties altogether, thus setting parameters for intense inter-

state rivalries by mid-1785. In early 1785, the New York legislature

imposed an additional 5 percent tax on all commodities imported from

other states for sale to New

Yorkers.

New York pursued interstate discrimi-

nation with respect to exports, too, when it continued a long-term policy

of embargoing exports of its own wheat and flour - thereby encouraging

bolters and bakers to lower prices to consumers as supplies accumulated

—

while raising prices of wheat and flour from Connecticut and New Jersey.

Since 1784, New York had extended the double duty on British imports

to reexports destined for out-of-state customers.

But these policies did not necessarily establish a preeminent place for

large ports in New York, Pennsylvania, and Massachusetts; weaker states

could counter with distinct policies. New Jersey and Delaware, states

without dominant ports, established free-floating grain prices and free

exporting, while they simultaneously discouraged the flow of

raw

materi-

als to manufacturers in states which assessed heavy taxes on "foreign"

—

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The

Revolution,

Constitution,

and New Nation 381

that is, other states'

—

commodities. These initiatives enjoyed some suc-

cess,

at least in the region around Wilmington where numerous flour

mills and

vigorous shipping industry

flourished.

But merchants in Provi-

dence, Rhode Island, believed that they were virtually barred from trade

by 1785 because of the high state duties at Massachusetts and New York

ports.

Moreover, it is unclear whether "free ports" in Rhode Island, Con-

necticut, and New Jersey alienated portions of the agrarian farmers and

middling artisans in those states; until we know who benefited from

untaxed wholesale prices and who paid the burdensome transport fees and

export duties at some ports, we will not be able to say how such "free

trade" satisfied specific interests. It can be said with a degree of certainty,

however, that Connecticut's free ports policy did not succeed in attracting

British carriers to New Haven and New London; Connecticut's commer-

cial farmers continued to gather agricultural surpluses from the country-

side for transshipment to New York. Most of Connecticut's foreign goods

also came through New York between 1783 and 1786. Other state laws

were not especially helpful to aspiring manufacturers and artisans, because

the effects of protective legislation were undercut by the high duties

placed on raw materials and form goods imported from nearby states. The

consequences were that (1) artisans and exporters could not compete with

their British counterparts for the trade of the southern states, and (2) the

mutual dependencies of country and city could not be developed to their

fullest potential. And, as noted by many contemporaries, state duties

promoted smuggling across state borders in the interiors.

The crises of international commercial recovery and interstate rivalries

made it impossible for Congress to attend to the most pressing issues

threatening the stability of the republic. From the vantage point of Nation-

alists in the mid-i78os, one issue was the enormous sum of Revolutionary

debts still outstanding. From 1776 to 1780, Congress emitted certificates

with a face value of $241.6 million; the specie value of this debt was

approximately $3.7 million by 1782. From 1776 to 1782, Congress also

borrowed $63.6 million from private American sources. The specie value

of the foreign debt was about $7.8 million by 1783. Although state

requisitions of money and state assumption of some war debts reduced

Congress's debts in the first months of peace, the total federal debt by

1784 came to $39.3 million owed to domestic and foreign creditors. In

1785 and 1786, only $1,110,000 was remitted by states to help defray a

small portion of the interest due to foreign governments and private

American creditors. By January 1790, Congress reported the federal Revo-

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382 Cathy Matson

lutionary war debt at $52,788,000. The total of individual state debts

came to about $13.5 million in 1787, even after commendable efforts by

some of the states to repay large portions of it. North Carolina owed

private creditors over $1.7 million; Virginia owed about $2.7 million. By

January 1790, the combined state debt was well over $18 million.

Although the remaining debts of the states tended to concentrate in

fewer hands over the early 1780s, it was the concentration of the federal

debt at tremendously discounted prices that drew most public attention.

Small war suppliers, commercial farmers, and veterans tended to sell their

Congressional warrants and notes quickly. Some were in desperate need of

ready cash to meet postwar

needs.

Others feared that because Congress had

no authority to tax the states

—

and thus no means to create a revenue

which might serve as a fund to convert its note obligations to citizens into

cash

—

it was prudent to dispense with the notes quickly. Buyers, on the

other hand, were willing to accumulate large quantities of these notes at

low prices, because they anticipated that Congress would redeem the debt

at face value.

But, argued Nationalists, redemption could proceed only if Congress

secured a reliable source of

revenue.

It had failed to secure impost duties

and tariffs on foreign goods and ships, and the states enjoyed the benefits

of commercial revenues from their own imposts. Taxes on land, most

policy makers admitted, would be difficult to secure; a national domain

created by the land cessions of states with vast western reserves would not

produce significant revenue from the anticipated numbers of small farmers

moving west, while such a policy might see land passed into the hands of

speculators. And manufacturing for markets accounted for a minuscule

part of American productive energies as yet; although some rising small

entrepreneurs began to insist on protective tariffs, they were forced to rely

on the rather piecemeal efforts of states trying to serve myriad distinct

interests. The specter of mutually annihilating special interests

—

a com-

mon lament of Nationalists by 1785

—

seemed to endanger the continued

existence of the new republic.

FEDERALISTS AND ANTIFEDERALISTS

By early 1786, the core of Nationalists had broadened to incorporate

interests suffering from the decline in international commerce and from

thwarted expectations in manufactures, as well as state leaders who grew

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The

Revolution,

Constitution, and New Nation 383

disgruntled with fragmented responses to conflicting interstate

—

and

intrastate

—

demands. By mid-1786, a vocal group of Americans in each

region, occupation, and socioeconomic standing expressed opposition to

state particularism. Nationalists who met at Annapolis in September 1786

to promote a "uniform system in their commercial intercourse and regula-

tions"

articulated an increasingly representative sentiment for a more

authoritative central government. Expansionists, developers, and "projec-

tors"

joined Nationalists in Congress and state governments to call for the

creation of a national domain that might be surveyed and sold to citizens

who sponsored commercialization of the frontier with new enterprises and

settlement; proceeds from land sales might also help to defray the national

debt. Westward migration held out the prospect for new agricultural

bounty only if the "drain" of population into "savage" country could be

given sufficient economic and social order, and if distinct state jurisdic-

tional quarrels could be halted. Squatters and speculators who spread onto

the frontier in advance of surveys or with little regard for developmental

transformation of the frontier thwarted hopes of national leaders to create a

national domain that would provide revenue from, and give coherence to,

settlement west of the Appalachian ridge.

Following the Revolutionary peace settlement, the old Northwest Terri-

tory comprised the claims of many former colonies to lands granted in

original charters or acquired from Indians. Virginia's claims overlapped all

of the others. Complicating the issue for Nationalists was Maryland's

insistence that, as a "landless" state without western claims, it would not

ratify the Articles of Confederation until other states made cessions to a

national domain that settled overlapping and extensive western claims.

New York did so in 1781-2, establishing agreements with the Iroquois

and also setting a western boundary; Virginia made its momentous contri-

bution to the national domain in 1784. Following these cessions, Con-

gress passed the Land Ordinance of

May

20, 1785, a plan for creating an

extensive national domain that would be surveyed, sold, and deeded in

regular portions and governed much as extant states were. Following the

venerable New England township tradition, surveys were to be of 6-mile-

square tracts, each with 36 sections of 640 acres. The Northwest Ordi-

nance of 1787 furthered these plans by creating one large territory that

included three to five potential new states; further, it prohibited the

extension of slavery into this new domain.

But ambiguities remained. For one, the Ordinance itself could not

ensure the integration of new states into the national political economy

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384 Cathy Matson

without a centralized enforcement of its provisions. For another, the inse-

curities of frontier life required that an external authority be created with

the power to negotiate ongoing disputes as the region was integrated into

the union. Conflicting claims of migrants showed repeatedly the need for

resources and planning for newly settled areas. New roads and canals built

by the states inspired even grander interstate projects that would promote

production in the budding local markets along internal waterways, except

when continuous disruption in the countryside

—

exemplified by the tur-

moil in western Massachusetts starting in September 1786 under Captain

Daniel Shays

—

could not be tamed by state authorities.

Nationalists were also joined by failing distillers and sugar refiners who

decried the West Indies British Orders in Council, and by shipbuilders

and whalers who wanted their Newfoundland and general Atlantic trading

rights returned but found the states incapable of securing their interests.

Real estate brokers, retailers, and ambitious tradesmen joined in the

attack against state sovereignty by arguing that banks and other urban

institutions would boost commodities exchange, money transactions, in-

vention, education, and a host of

services;

but contemporary state experi-

ments along these lines were inadequate to the magnitude of these tasks

and deprived creditors of essential confidence in their dealings with debt-

ors.

Aspiring urban entrepreneurs, some of them craftsmen and some of

them former merchants, began to promote regulations for the uniform

quality and transport of agricultural goods, uniform tender laws, and a

uniform currency in order to correct discriminatory interstate laws.

Delegates at the Constitutional Convention made important strides

toward creating the political authority necessary for establishing America's

commercial reputation among nations and its own internal economic devel-

opment. On some issues, especially the creation of a federal revenue

through a uniform 5 percent impost, there was considerable agreement

among delegates. Such a measure recognized that international commerce

was (1) a primary source of revenue from which to repay outstanding

foreign and domestic debts, and (2) the basis for national accountability in

seeking future international loans for internal development. A uniform tax

on imports, they continued, would curb the most damaging contentions

among the states, because its burdens would be shared relatively equally

among importers.

More consequential in the long run, but less easy to glimpse in 1787,

was delegates' agreement to eliminate barriers against competitive trade

among the states: they began to create an arena of what Hamilton would

The

Revolution,

Constitution,

and New Nation 385

call in

Federalist

Nos. 11 and 12 the "natural reciprocity" among various

interest

within

America. What has come to be called the

interstate commerce

clause

of the Constitution embodied a grant of authority to Congress that

created the conditions for the free movement of people, transport of

products and capital, and uniform institutions that, together, proved

crucial to establishing a national market. A similar grant of power to

Congress to settle the conditions under which (1) new territory would be

developed, (2) new states admitted to the union, and (3) boundaries set

was also integral to creating this national market over time.

Many delegates at the Convention anticipated a market economy of

great dimensions when they established the theoretical and institutional

safeguards for contracts and the rights of private property against custom-

ary rights or popular agitation - Shaysites and Rhode Island debtors were

fresh on the minds of the founders. The national government would

regulate the commerce of Americans as citizens of the same country, with

the same obligations and immunities, irrespective of state of residence

—

thus setting the stage for standardization of business practices, weights

and measures, patenting, and dissemination of information and invention

across the states and national sections. Finally, America's international

reputation would be fostered by the federal government's power over

foreign affairs, especially those on the high seas. The Constitution also

granted the federal government power over unorganized territory and over

admitting new states to the union, steps that would bolster central control

over the creation of a national market. Further, Congress alone would coin

money, regulate its value, and establish uniform rules about bankruptcy

and naturalization, thereby overcoming additional state particularisms.

However, despite Nationalist expectations for a more authoritative cen-

tral government that would dispense with divisive forms of state sover-

eignty, they neither destroyed all state economic powers nor extended

federal economic powers

far

their avowed hopes during the 1780s. The

federal system created in 1787 permitted a dual governmental authority

over economic affairs; with respect to the powers granted to the proposed

national government, only

few of the far-reaching

possible

grants of power

were

adopted by

the

delegates.

The most plausible explanation for their

self-

limiting tendencies lay in delegates' acute awareness of the distinct interests

they represented, and the likelihood that those interests had even more

varied representation in the several states. If they made more than a few

significant alterations in the structure of the political economy, they might

invite opposition that could collectively defeat the whole plan.

386 Cathy Matson

Unlike the impost discussion, controversy over export taxes most clearly

revealed delegates' broadly divergent and apparently contradictory assess-

ments of local and regional interests represented at the Convention. Since

the early years of the Revolution, such divisions over commerce had been

apparent.' During the 1780s, in the face of British discrimination, south-

erners called even more loudly for open, competitive trade with all foreign

nations, thereby keeping freight rates down and prices for staples up.

Southerners were afraid that the northern states would exploit their tempo-

rary advantage in Congress to impoverish the South; southern staple ex-

porters were convinced that export duties would burden their region with

a disproportionate share of the national taxes and that resulting higher

transport costs would undermine its prosperity. For their part, northern

merchants believed that export duties were generally less harmful than

import duties; while exports usually bore lower rates, Americans' "taste

for refinements" created demand for luxuries and foreign imports that

were taxed steeply. Many importers argued that higher import duties

would be passed along to consumers in the form of higher prices. How-

ever, they argued, lower import duties would encourage greater consump-

tion and promote American shipping and commercial interests, while a

tolerable rise in export duties would support American manufactures by

discouraging the exportation of valuable raw materials.

The Convention delegates proposed to compromise such differences by

circumscribing national power over exports, but they were aware of the

sectionalism that would be made manifest with the discussion over slavery

after July 13. Although many Convention delegates from northern states

opposed slavery on moral grounds, almost all the delegates were willing to

make important concessions to the South's continued reliance on the

institution in order to gain approval for northern navigation rights. In the

famous Convention compromise of August 16-24, delegates guaranteed

the interests of slaveholding staple producers by denying Congress the

right to prohibit the importation of

slaves

before 1800; at the same time,

however, Congress would have the power to pass, by a simple majority

vote,

navigation acts that affected shipping and commodities at American

ports

—

a concession to northern commercial interests. The next day, dele-

gates easily passed a motion to extend the limit on congressional interfer-

' See early examples of admitted sectionalism in Speech of William Henry Drayton to the South

Carolina Assembly, Jan. 1778, repr. in Hezekiah Niles, Principles and Acts of the Revolution in

America (Baltimore, MD, 1822), 357—64, esp. 363; and Journals of

the

Continental

Congress,

Jan.

20,

1778.