Hard Realities for a New
Nation
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1) Why were the Articles of Confederation
inadequate?
2) What are the important economic sections of
the Constitution?
3) How did the Constitution set the framework for
growth and development?
4) How did independence change the nature and
type of trade?
5) How important was the role of neutrality during
the period 1793 and 1815?
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Why would the colonists revolt against England?
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Revolutionary War: began 4/19/1775; lasted more
than 6 years
Effects:
1) Both imports and exports fell dramatically
2) Import substitution
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Articles of Confederation:
Unifying rules; no real substance or power to
federal government
By 1780, all 13 colonies had their own constitutions
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Articles of Confederation:
Weak federal government had limited ability to
negotiate
Power to tax left to states
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Consequences of tax issues:
Free riding among states
Printed money to finance war
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1786- Virginia called for the Annapolis Convention
(nothing really happened there)
1787- delegates instructed to amend Articles in
Philadelphia (ignored instructions and wrote
constitution)
12/7/1787- Delaware ratified
6/21/1788- New Hampshire cast ninth vote
3/4/1789- Constitution became effective
1791- Bill of Rights passed
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Let’s review some details
Article I Section 8
Article I Section 10
Bill of Rights Amendment IV
Constitutional Amendment XVI
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General economic effects from independence:
1) US ships excluded from direct trade with
British West Indies
2) Spain withdrew privilege of direct trade with
Cuba, Puerto Rico, and Hispaniola
3) Increased trade with French West Indies
4) No more protection under British flag- shipping
became more risky
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New England
Primary effect:
Shipbuilding markets declined dramatically
Secondary effects:
Fishing, lumber, naval, and support industries were
depressed
Overall:
Economic conditions worse than any other region
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Middle Colonies
Primary effects:
Shipbuilding markets declined dramatically
Trade in food such as wheat and flour decreased
Secondary effects:
Lumber and support industries were depressed
Farming not as profitable
Overall:
Region recovered a little more quickly when food
restrictions were lifted
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South
Primary effects:
Rice and tobacco exports fell (some nations
prohibited American products)
Secondary effects:
Not many other products to turn to (importance of
cotton didn’t happen until 1793)
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Relative prices:
Since the relative price of exports rose, the relative
price of imports fell
Terms of trade improved but leveled off around
1790
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Terms of trade changed, wealth was redistributed,
some regions were harmed more than others,
some regions recovered more quickly than
others
There were clearly “winners” and “losers”
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product or service or otherwise on a password-protected website for classroom use.
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product or service or otherwise on a password-protected website for classroom use.
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Putting things in perspective:
Export sector was never bigger than 10% of
national income
From 1784 to 1789, the volume of US trade with
Britain was almost as much as the volume
between 1770 and 1775
1781-83 were the bad years
By early 1790s, export trade estimated to be 30%
higher than Colonial period
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Putting things in perspective:
See Goldin & Lewis (1980) “The Role of Exports in
American Economics Growth during the
Napoleonic Wars, 1793-1807”
Growth may be overstated, some years still in
dispute
One estimate is that income would have been 3%
lower without the Napoleonic Wars
Re-exports may have inflated export data
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Why did trade with England rebound so quickly?
If exports were limited, where else could those
products go?
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Summary:
Economic conditions were depressed immediately
following independence but didn’t last for an
extended time
New England and Middle states recovered more
quickly
New markets were opened
Trade increase did not keep pace with population
increase so per capita exports fell by about onethird
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1793-1815 period
Can be described as boom or bust
Booms during wartime between other nations
Busts during peacetime between others and
wartimes for us
See Adams (1980) “American Neutrality and
Prosperity, 1793-1808: A Reconsideration”
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Two major capital improvements:
US, 1793:
Eli’s Cotton Gin
England, 1785:
Mechanical loom
1810:
Cotton becomes America’s leading export
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