Colonial Economic Activities

1. 3 Colonial Economic Activities

2. Land and Natural Resource Abundance, Labor Scarcity • In British North America, there was a relative abundance of both land and natural resources while there was a relative scarcity of labor and physical capital. • This implies that the relative prices of land and natural resources were low and the relative prices of labor and physical capital were high.

3. Land and Natural Resource Abundance, Labor Scarcity • Economic theory suggests then that there will be a flow of labor and physical capital from England to North America. • What physical capital did flow was mostly in the form of loans as direct forms of capital were usually derived from the land. • In particular, physical capital took the form of things built from wood such as housing, barns, wagons, and ships.

4. Land and Natural Resource Abundance, Labor Scarcity • Given the relatively high wages in the colonies, there was a steady flow of labor coming primarily from England. • Since the cost of transport was beyond the wealth of many, one means to finance the cost of emigrating was to sell an indentured service contract. • The contract was between three parties. • The laborer • The ship’s captain • The ultimate employer in the colonies

5. Land and Natural Resource Abundance, Labor Scarcity • The laborer first sold the contract to the captain who promises to deliver the laborer to the colonies. • Upon arrival the employer bought the contract from the ship’s captain. • The laborer then worked a specified number of years to pay off the contract. • The amount of time to pay off the contract was a function of age, sex, skills, etc.

6. Southern Colony Agriculture • The Southern colonies (VA, NC, SC, GA) had a comparative advantage (relative to elsewhere in the world) in the production of tobacco. • The long growing season, the abundance of fertile soil, and a ready market in Europe provided a strong incentive to plant tobacco. • Tobacco farming began in the early 1600s and was being exported by 1615.

7. Southern Colony Agriculture • Tobacco production entails large economies of scale – the marginal cost of production is declining over a large range of operations. • This implied that it was necessary to operate on a large scale in order to achieve the minimum marginal cost of production. • This in turn led to the introduction of plantation farming and the use of slave labor.

8. Southern Colony Agriculture • Maximum economic efficiency in the production of tobacco was usually reached once there were at least 10 slaves working in the fields. • One consequence of the plantation farming system was that it led to the concentration of land ownership, and hence wealth, in the south.

9. Southern Colony Agriculture • Near the turn of the 17th Century, rice production was introduced into the southern colonies. • The southern colonies had a comparative advantage in that there was a great deal of low lying coastal areas that could be flooded with river water using tidal flows and dikes to control fresh water flows. • In areas of higher ground where rice could not be grown, indigo was introduced.

10. Middle Colony Agriculture • The climate and soil of the Middle colonies (DE, MD, NY, NJ, PA) provided them with a comparative advantage in growing grain crops. • First wheat, and later rye, corn, barley, and oats were grown in areas where the forest had been cleared. • By the late 1600s, wheat was being exported to the West Indies.

11. Middle Colony Agriculture • The production of grain crops was fundamentally different than the production of tobacco. • There were no economies of scale to be had so production typically took place on family farms with little outside labor employed. • As a result, there was little demand for slave labor in these areas.

12. New England Colony Agriculture • The New England colonies (CT, MA, RI, VT) were at a comparative disadvantage for agriculture. • This area was typically hilly and rocky and had severe winters. • Consequently, there was little agriculture in these colonies other than some localized subsistence farming. • Not surprisingly, other activities thrived.

13. Extractive Industries • The harvesting of furs (often beaver) was a small industry mostly limited to the interior areas of the colonies. Pelts were quickly harvested at a rate above the maximum sustainable yield causing the industry to quickly contract. • Instead, the forest themselves became the main source of extractive industries. • Besides its use for building homes and ships, wood was a source of pitch, tar, and resin; all important inputs to ship building.

14. Figure 3.1- Fur Prices and Simulated Beaver Population: York Factory, 1716–1763

15. Figure 3.2 - Fur Prices and Simulated Beaver Population: Fort Albany, 1700–1763

16. Extractive Industries • In New England, fishing and whaling became major industries and a substitute for the lack of agriculture as a source of employment. • The presence of several excellent harbors along the New England coast supported the rise of these industries.

17. Manufacturing Industries • From the beginning of colonialization, there were home-based manufacturing industries. • The output of these activities were primarily for direct consumption. • Mills were constructed along rivers with rapidly flowing water. As such, they were mostly found in some Middle colonies and in New England.

18. Manufacturing Industries • Perhaps the most important colonial manufacturing industry was shipbuilding. • New England had a comparative advantage in shipbuilding since it had an abundance of forests whose felled trees could be floated downriver to the shipbuilding yard. • This allowed New England shipbuilders to quickly surpass British shipbuilders in efficiency.

19. Manufacturing Industries • Ships could be built in the colonies for 2/3 the cost of doing so in England despite the higher labor costs in the colonies. • By 1775, roughly 1/3 of all of the ships in the British Merchant Marine had been built in the colonies. • The rise in colonial shipbuilding led to a rise in a complement industry, namely the number of colonials who captained ships.

20. Manufacturing Industries • With the rise in colonial ships and captains, came a rise in the colonial merchant marine industry. • Colonial ships successfully competed with the world’s leading merchant marines, Britain and the Netherlands. • Revenue to the colonies from the sale of merchant marine services were second only to those from the export of tobacco.