Colonial America

1. Colonial America

2. Motivation of Colonialism:Mercantilism • Meant different things to different countries • Government exists to increase the wealth of nations • Trade is a zero sum game-the goal is maximizing exports to maximize imports of gold • Colonies exist to increase the wealth of the mother country • Most would agree with first and third, but not second

3. Differences between North and South America • All of the Americas were colonized by European powers but outcome is different in North and South America

4. South and Central American Colonies • Spain and Portugal colonize this area • Native population is relative large, urban with central government • Life expectancy on par with Europe • Lack iron tools, wheel, draft animals (Llama and alpaca are the only draft animals native to the Americas) • Easily subdued

5. Organization of South and Central American Colonies • Spanish population is declining at this time. Immigration is discouraged. • Spanish Conquistadores given large grants of land or mines with natives tied to land. (Similar to serfdom in Europe) Encomienda system. • Harsh treatment results in high mortality rate of native population. • Population is 25 million in central Mexico in 1492. Falls to 1 million by 1620

6. Organization of South and Central American Colonies • Important economic activities are mining gold and silver and sugar production. • Sugar production has large economies of scale • Large plantations with hundreds of slaves • Large capital requirements • High concentration of wealth

7. North American Colonies • Late commers, English, French and Dutch end up in North America • Native population is much smaller, little urbanization, decentralized tribes • Best guess is around 2 million in 1600 reduced to 250,000 in 1700. • Result of disease and war. Native population not used as workforce

8. Organization of colonies • First permanent settlement is Jamestown in 1607 • Virginia company is joint stock company given monopoly trading privileges . • Bound workers provided much of labor. • Fed by company and worked communally. • Did not work hard. • Replaced by indentured servants and free labor • Private property

9. Organization of colonies • Plymouth colony in Massachusetts in 1620. • Also financed as a business venture although most were religious dissenters. • For its first two-and-a-half years, the economy of Plymouth was form of a communal system • Food distributed equally and no division of labor • Result was lack of production, starvation.

10. Tragedy of the Commons • Five workers together produce 100 bu of corn. • If shared equally each gets 20 bu. • One worker shirks, only 90 bu are produced. • Each gets 18 bu. The shirking worker only pays part of the cost. • If everyone shirks production goes down. • Provides on incentive to change institutions(the rules of the game).

11. Organization of colonies • Land was then allotted to each family and productivity increased. • According to William Bradford. “This had very good success, for it made all hands industrious, so as much more corn was planted than otherwise would have been by any means the Governor or any other could use, and saved him a great deal of trouble, and gave far better content. The women now went willingly into the field, and took their little ones with them to set corn; which before would allege weakness and inability;” 

12. Organization of colonies • Example of Incentives matter and Institutions (the rules of the game) matter. • Incentive to change institutional structure to increase efficiency • Economies that make these types of property rights changes will be more efficient. • Sometimes property right changes are not made • Beavers • Buffalos

13. Organization of colonies • British population is growing rapidly and immigration is encouraged • No mineral wealth is found so the focus of colonies is on agriculture. • Land is abundant but not free. Must be cleared. • Cost of transportation limited immigration

14. Different outcomes Large percentage of North American colonies are of European descent. Most on small farms which were originally self-sufficient producing 80% of what they consume. Land ownership is not concentrated compared to South and Central America.

15. Population Change in Colonial Period • No official census until 1790 • By 1780 there were 545 time more people than in 1630 • U.S. population grew 3% per year from 1790 to 1860. • This is twice as high as Great Britain which had the highest rate of population growth in Europe at time. • True for both slave and free population • Current rate is about 50% less. • Increase in population caused by high Birthrate, immigration

16. High Birthrate • In 1800, the typical American mother had given birth to 7 children. • Higher than ever recorded for any European country. • Reasons • Relatively young population • Abundant resources • Favorable disease environment • Different outcome for British colonies in Caribbean

17. Labor Scarcity • In spite of high population growth, labor is scarce relative to land and natural resources • Institutions change in response to labor scarcity • Slavery • Indentured Servitude

18. Colonial Labor Supply: dealing with labor scarcity • Slavery is legal in all colonies initially, but most slaves are used in southern agriculture. • Small farms use family labor. Because of economies of scale Southern farms are larger, need outside labor.

19. Colonial Labor Supply: dealing with labor scarcity • Two choices, hire labor or use slaves • Cost of free hired labor is wage rate plus the monitoring cost. • Cost of slave labor is maintenance cost plus the cost of monitoring. • Monitoring cost is higher for slaves than for hired labor • Must maintain slaves even when labor is not used.

20. Colonial Labor Supply: dealing with labor scarcity • Slave labor is not the low cost method of production for most crops. • Most slaves imported to the Americas are used in sugar production. • Very little produced in US colonies

21. Destinations of slave imported to New World. Two reason why most slaves are not imported to American Colonies. Sugar is not grown in the original 13 colonies. BR<DR for slaves in the Caribbean because of disease environment and males are higher productivity in sugar, sex ratio of slaves bought was unbalanced. American slave population is mostly born in America because BR>DR.

22. Indentured Servants • What should happen in a market economy if the price of a good is higher in one place than another? The same is true of labor. • What prevents labor from moving from England to Colonies? • Cost of transportation • Should this persist? • Not if capital markets are efficient • Should be able to borrow money to mover just like you borrow money for college • What are problems with this type of loan? • No collateral

23. Indenture Contracts • Made between immigrant and shipper • Worker agreed to work a set number of years to pay the cost of transport to the colonies. • When ship landed in colony, shippers would sell the contract to merchant or business owner compensating him for the cost of voyage. The merchant would providing food, housing etc, for servant. • 50-66 % of white immigrants come to colonies under these contracts.

24. Form of Indenture contract

25. This contract was made in Middlesex county England in Jan 1683

26. Slaves vs Indentured Servants • Not clear that slaves and indentured servants are used as substitutes • Majority of slaves are used in plantation agriculture • Indentured Servants are used throughout the colonies and in urban areas

27. Economics of Indentured Servants • David Galenson is one the first to study indentured servants • contract as compensating for imperfect capital market • Essentially a loan with labor as security. • Shipper bears the risk if something happens to worker on voyage or labor market conditions are bad and he cannot sell the contract for a high enough price to cover the cost of transport.

28. Demand and Supply for contracts • Demand comes from workers who want to immigrate to Colonies but cannot afford transport • Supply comes from shippers. Who will they supply contracts to? • To make money must be able to sell the contracts for price at least equal to cost of transportation

29. Who gets a contract? • Who does economic theory predict will be most productive? • Male or Female? • Young or Old? • Skilled or Unskilled?

30. Galenson Results • Galenson looks at people who are indentured servants • finds that most are male late teens or early twenties • most are literate • Even early on about 1/3 are skilled and this increases over time. • Few are convicts or low productivity workers.

31. Indentured markets • Also see Redemptionists • Labor borrows money from shipper. Sells their own contract when they arrive and pays the shipper. • laborer is now bearing the risk. • Another example of institutional change which makes the economy more efficient • Indenture contracts end as transportation costs decrease and incomes in Britain increase.

32. Regional Differences in Colonial Agriculture • Source of differences is factor endowments • New England • In 1660 has 37% of population, 1780 has 26% • More urban • Small family farms, market oriented • Size of market limited by transportation costs- 25 miles was a days travel • Shipping is also important • Aided by British trade restrictions • Fur trade

33. Regional Differences in Colonial Agriculture • Southern Colonies • Focus is on commercial agriculture. Plantation crops tobacco, rice, indigo, naval stores. • No cotton or sugar during this period. • Large farms used slave labor. • tobacco plantations are relatively small average 30-40 slaves, rice plantations are larger • Most prosperous colonies. In 1660 40% of population by, 1780 has 50% of population.

34. Regional Differences in Colonial Agriculture • Middle colonies are the frontier of this period. • Initially subsistence agriculture. • Later Wheat and grain crops. • In 1660 23% of population by, 1780 has 24% of population

35. Growth of GDP and GDP percapita • Little data collected by either British gov or colonial gov • Some on trade but not much else • Any estimates are going to have large errors • Given population growth even if GDP per capita did not change GDP would have increased.

36. GDP per capita • Best estimates are • 1710 Taylor $28 (350 1989$) • 1710 Gallman $45 (550 1989$) • 1775 $60 (750 1989$) • yearly growth rate of 1.18-.48%

37. Other measures of standard of living • Height by Age. • Data is available-military records, school records, slave records. • Height is a net measure of nutritional status. • Measures difference between intake and consumption of food. • Height by Age is a measure of net nutritional adequacy over a lifetime

38. Preliminary findings—U.S. Life Expectancy and Adult Final Height. Rising heights and life expectancy in the 18th century, consistent with increase in per capita income Life expectancy declined from 1790 to 1860 while heights did not begin to decline until 1830. Modern rise in life expectancy and heights from 1890 to present.

39. US vs. Great Britain • Adult males in American were about 68 inches in Revolutionary War • British soldiers were about 64-65 inches • part of this difference was due to lower class of British soldiers • Average height in developing countries today is about 63-64 inches.

40. US vs. Great Britain Life expectancy data is consistent with height by age data. Colonial Americans were healthier and had better diets than British upper class. Although colonies were underdeveloped relative to Europe in the sense they lack public goods like roads and other infrastructure, income was not low.

41. What explains Growth? • Think of Aggregate Production function, Y= F(L,K,T) • Y =GDP or income • K=capital • T=land • Lots of Land and Natural resources to support population growth without running into diminishing returns • Both capital and labor are scarce relative to land

42. Measures of productivity • Partial measures • Labor productivity Y/L • Capital Productivity Y/K • Land productivity or yield Y/T • If these increase do not know if the increase is due to more of the other factors or true productivity

43. Source of Productivity growth • Reduction in transportation costs • Ocean shipping • New types of boats made possible by reduction in piracy-especially in Carribean • Less crew , less time in port. • Organization Change • Increases in market size (Smithian growth increases in division of labor) – More population reduced transportation cost mean larger markets.

44. Shows increase in efficiency of Pennsylvania agriculture. Output was 9% higher than could be explained by growth in inputs. Probably true for other crops. Reduction in the price of tobacco and increase in exports consistent with increase in supply.

45. Government and Economic Growth • No central government in North America • British provide defense, not much else • Not interested in intervening until 1763 • Each colonial government is separate • British appoint governor • Most colonies had legislatures with two houses at least one of which elected by adult male population. • Governors could veto but were dependent on legislature for funds.

46. Government and Economic Growth • In general colonial laws enforced property rights • Increase in volume of trade during this period

47. Did Colonies suffer from lack of a central government • Money • Specie- gold and silver coins • Comes from trade with the Spanish, West Indies and British • Overall probably a small deficit. • Barter • Commodity money • Tobacco most common in colonies

48. Paper currency • Bills of Exchange • A promise to pay B a sum of money some time in future • Merchants in towns extended credit to farmers and other in this way. • Colonial governments printed money in the form of promises to pay specie some time in the future. • Both these sold at a discount

49. Was there too much or too little paper currency? • Different experiences in different colonies. • Competing supplies of money • Result of issuing too much is money is worthless. • Not much evidence of inflation • Between 1720 and 1775 price increase was less than 1% per year.

50. Too Little Money? • Lots of complaints about shortage of specie, not the same thing as shortage of money. • Interest rates low • Prices rise, not fall • Economy grew • If the economy grew during the colonial period, why do the colonists revolt?