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Home -> Orville Marcellus Powers -> Commerce and Finance -> Chapter XI

Commerce and Finance - Chapter XI

1. Chapter I

2. Chapter II

3. Chapter III

4. Chapter IV

5. Chapter V

6. Chapter VI

7. Chapter VII

8. Chapter VIII

9. Chapter IX

10. Chapter X

11. Chapter XI

12. Chapter XII

13. Chapter XIII

14. Chapter XIV

15. Chapter XV

16. Chapter XVI

17. Chapter XVII

18. Chapter XVIII

19. Chapter XIX

20. Chapter XX

21. Chapter XXI

22. Chapter XXII

23. Chapter XXIII

24. Chapter XXIV

25. Chapter XXV

26. Chapter XXVI

27. Chapter XXVII

28. Chapter XXVIII

29. Chapter XXIX

30. Chapter XXX

31. Chapter XXXI

32. Chapter XXXII

33. Chapter XXXIII

34. Chapter XXXIV

35. Chapter XXXV

36. Chapter XXXVI

37. Chapter XXXVII

38. Chapter XXXVIII

39. Chapter XXXIX

40. Chapter XL

41. Chapter XLI

42. Chapter XLII

43. Chapter XLIII

44. Chapter XLIV

45. Chapter XLV

46. Chapter XLVI

47. Chapter XLVII

48. Chapter XLVIII

49. Chapter XLVIX

50. Chapter L

51. Chapter LI

52. Chapter LII

Commerce Of The United States.
Colonial Period; Financial Policy; War Op 1812.

By the treaty of Paris in 1783, the American Colonies secured
their independence and became the owners of a domain embrac-
ing 1,400 miles of sea coast and consisting of 827,844 square
miles of rich and productive land. The natural resources of
this vast domain embraced every' species of raw product, animal,
vegetable and mineral, which might be needful in the growth
and upbuilding of a nation in the arts of agri-
culture, manufacture and commerce. At that time
the great majority of the population lived on
farms, but three and one-third per cent, having their homes in
the towns and cities, and there were but six cities having a
population of over 8,000. Naturally the energies of the people
were devoted to the utilization of the natural products of the
soil and forests. Shipbuilding early became an important in-
dustry, owing to the abundance of excellent timber along the
coast and rivers, and this led to the development of the fishing
industry. New England ships were made in great numbers,
and were largely engaged in whaling and in the cod fisheries
of that coast. Dried codfish was used as money in the Massa-
chusetts Colony at one time, and was one of the chief sources
of wealth of that colony. Whatever of foreign commerce ex-
isted was carried on chiefly with the mother country. The
northern colonies exported timber in the form of shingles and
ship timber; and the southern colonies, tobacco, tar, turpentine,
rice and cotton.

Several of the colonies made early attempts at the manufact-
ure of woolen, linen and cotton goods for home consumption,



but England regarded all such displays of colonial enterprise
with a jealous eye. She wanted no rival manufactories in her
colonies. It had been the uniform policy of Spain and Portugal
to use their colonies for their sole benefit, and England fell
into the same error. The English idea was that the colonies
should produce only what England needed, should sell to
England only, and in return buy what England had to sell.
Accordingly, when the Americans began to make woolen goods
to the extent of diminishing the demand for English woolens,
Prohibition of they were promptly forbidden to export wool or
Manufactures woolen goods from one colony to another. When
1650 they turned their attention to the production of

hats they met a like prohibition against the exportation of hats
from colony to colony, and the number of hatter apprentices
was limited by law. When they made an attempt to smelt a
small quantity of iron ore, for their daily needs, a statute was
passed which permitted the importation of pig iron into En-
gland duty free, but forbade the erection of "any mill for slitting
or rolling iron, or any planting forge to work with a tilt-hammer,
or any furnace for making steel." During the decade of 1760
to 1770, wonderful improvements were made by Hargreaves
and Arkwright in machinery for spinning and weaving, and the
colonists made great efforts to secure some of these machines, but
the legislation of England prohibited the exportation of ma-
chines, tools, plans, and even the immigration of any one who
knew how the machines were made. By these means, together
with the navigation laws forbidding trade with England, includ-
ing English Colonies, except in English ships, she made it ex-
ceedingly difficult for the colonists to supply themselves with
even the coarsest articles of everyday use.

The strained relations between the colonists and the mother
country became more aggravated, and the tie which had bound
them together for a hundred and fifty years was broken by open
hostilities in 1775. The American Revolution was carried


through to a successful issue, but peace did not bring prosperity.
The war had shattered business, sapped the brawn of the country,
The colonies an ^ thrown the states heavily into debt. The
under the confederation proved weak and ineffectual. It had

no power to enforce its determinations,, carry out
its agreements or redress its injuries. In the treaty of Paris it
was promised that Congress should "use its influence" to secure
the payment of private debts due to Englishmen. But it turned
out that Congress had no influence and the debts were never
paid. In consequence the British refused to give up some of
the military posts on the western frontier. American ships
were captured or plundered by the Barbary pirates with im-
punity, the new republic being powerless to fight them.

In order to prosecute the war of the revolution, Congress
issued bills of credit, which were to pass as money. This con-
tinental currency at first was taken readily, but as million
after million was printed and the credit of the Congress ap-
peared more and more doubtful, its value declined, and at last
it grew so cheap that "not worth a continental" became a by-
word to express utter worthlessness. During the summer of
1780 the currency became so depreciated that it required ten
dollars of the paper to make one cent. Prices rose until corn
sold in Boston at $150 per bushel and flour $1,575 per barrel.
Samuel Adams is said to have paid $2,000 in paper
money for a suit of clothes, and Washington to
have remarked that it required a wagon load of
money to buy a wagon load of provisions. The people of Ehode
Island thought they had hit upon a solution of the trouble, and
issued a legal tender paper currency. Any farmer could borrow
this from the public treasury upon security of one-half the
appraised value of his land. Nevertheless the currency de-
preciated, and all their efforts to keep it at par proved futile.
In Massachusetts riots broke out in opposition to the efforts of
creditors to collect their debts, and discontent and lawlessness
were rife.


To add to the unfortunate situation the states became in-
volved in quarrels with each other. Having the right to levy
duties on imports, they set out to compete with each other for
foreign commerce the one building up its trade at the expense
of another. They went a step farther and laid taxes on goods
imported from neighboring states. New York laid a duty on
Quarrels imports from New Jersey and Connecticut. New

between the Jersey retaliated by taxing the New York light-
house on Sandy Hook. New Hampshire quarreled
with New York over claims, and Pennsylvania and Connecticut
wrangled over land in the Wyoming valley. The whole state of
affairs demonstrated the imbecility of the government, and the
country was steadily drifting into hopeless bankruptcy and
anarchy, when in 1787 a convention met in Philadelphia to
form our present constitution, which went into effect March 4,

With the organization of stable government came a revival
in business. Commerce and manufactures began to thrive and
expand as soon as men could begin to depend on the future.
General distrust and uncertainty gave place to confidence and
faith in the future of the new republic. Trade between the
states was no longer hampered by troublesome tariffs, and
bickerings ceased. The federal government was able to collect
its revenues and its obligations were promptly met.
Hamilton as Secretary of the Treasury formulated
a financial system which bred confidence and cre-
ated a national credit. Capital began to move in the develop-
ment of the resources of the country, manufactures began to
expand, and commerce redoubled its activity. The federal gov-
ernment assumed the debts of the states, and the holders of
continental script suddenly awoke to find that the paper which
they had considered of doubtful value was genuine wealth.

Hamilton recommended the establishment of a bank of
the United States, with branches in the principal cities. The
capital of the bank was to be $10,000,000, and the federal gov-
ernment was to own one-fifth of the stock and appoint one-fifth
of the directors. The bank was to be a depository of government
money, issue paper currency payable in gold or silver and receiv-
able for all dues to the United States, and transact a general
banking business. The proposition aroused the fierce objections
of those who feared the results of associating government with
banking, and the objection was at once set up that
*he Constitution gave Congress no specific au-
thority to organize a bank. Hamilton then laid
down the doctrine of "implied powers," claiming that Congress
could by implication do anything "necessary and proper" to
carry into effect its express powers, and that a bank was such an
agency for the conduct of the finances of the government. This
was the beginning of the "loose construction" and "strict con-
struction" theories held by the opposite political parties to the
present time. The bank bill was passed and President Washing-
ton signed it, creating the United States Bank with a- charter for
twenty years 1791-1811. The bank served as a balance-wheel
to our financial system, and as a manufactory of credit, by giving
stability and definiteness to the currency, and enabling the
people to economize the use of capital. Branches were estab-
lished in New York, Boston and six other cities, the parent
bank being at Philadelphia. Secretary Gallatin strongly recom-
mended the renewal of its charter in 1811, but after a vigorous
debate on the question Congress voted it down.

Hamilton's next important measure was the establishment of
a national mint. The coins in use throughout the states were a
mixture of English, French and Spanish, gold, silver and cop-
per of various denominations, weights and values. The English
system of pounds, shillings and pence had been the standard
money of the country. To Thomas Jefferson is due the credit for
the adoption of a uniform decimal scale, with the dollar as the
unit. Jefferson's mint bill followed closely after this reform,


and reduced the metal currency of the country to a uniform
system of coins. The double standard of gold and silver was
adopted, with a ratio of fifteen ounces of silver to one of gold.
Establishment '^ e ^ a ^ eT being then the dearer metal at that ratio,
of a National the cheaper, silver, drove it out of circulation, and

silver and paper were the only mediums of circu-
lation. With the decimal system of coinage and a national
mintage, the facilities for the computation of values and trans-
action of business were greatly improved.

At the time of the adoption of the Constitution the exports
of all kinds of the new republic amounted to about $20,000,000
annually. Of this amount a very small portion, probably not
more than $1,000,000, was manufactured goods, for it must be
remembered that before the war England* had thrown almost
insurmountable hindrances in the way of the manufacturing
industries of the colonies. Owing to the scarcity of skilled labor,
and its consequent high price, together with the low prices pre-
vailing, the manufactures of the country picked up slowly for

the first few years after the close of the war, but by

1789 ^ e y began to expand with great rapidity.

In that year Congress passed a tonnage act, which
taxed vessels built and owned by the United States six cents a
ton; those built but not owned in the United States thirty cents
a ton; and foreign ships fifty cents a ton. The tariff act which
was passed in the same year discriminated in favor of East
Indian goods imported direct, as against the same goods
imported from Europe. Stimulated by these provisions, exports
and imports rapidly increased, and the American flag went to
distant parts of the world. New England ships embarked with
cargoes for the far East or intermediate ports, to bring home
in return immense quantities of coffee, spices, tea, silk, nankeen
and other cloths, all of them articles of great value in com-
parison with their bulk, and hence yielding good profits to the
carrying trade. Portions of these cargoes which did not find a


ready market at home were re-shipped to Hamburg and other
European ports. Thus American commerce rapidly expanded,
and shipbuilding became more active, so that while in 1789 less
than one-fourth of our ocean traffic was in American vessels, in
1792 less than one-fourth was in vessels not American.

An untoward combination of circumstances in Europe arising
about this time proved a great advantage to American com-
merce. The French Revolution was in progress and had moved
beyond control. Thrones were in danger. France had been
attacked by Germany in the interest of the "divine right of
kings." England became involved, and in 1793 declared war
upon France. The effect of this war was to further stimulate
American manufactures and shipping. Each of the belligerent
nations needed the provisions and stores which the Americans
Effect of the now ^ood. ready to furnish. Under the colonial
Napoleonic systems of England and France commerce with

their colonies was confined to their own ships,
but the British navy swept French merchantmen from the seas
and visa versa, and hence the colony of Louisiana could render
France no help in the form of supplies. The French govern-
ment therefore threw open French ports to American vessels.
The sugar of the West Indies, the coffee and hides of South
America, and the provisions of America were thus carried se-
curely into France, thus greatly increasing our foreign com-

The Middle and Southern states had, as colonies, long been
raisers of cotton, but very little of this useful fiber had been
exported until after the adoption of the Constitution, owing
chiefly to the difficulty of separating the seed from the fiber.

This process has been accomplished by slow and
The Cotton Gin tedious hand labor until 1794, when Eli Whitney

invented his cotton gin, one of the first and most
useful inventions of America. By means of this machine cot-
ton became a more thoroughly marketable article, and its pro-


duction was vastly stimulated. The development of cotton
raising in the south and its manufacture in the north began with
this invention, and continued to develop until it has become in
recent years one of the largest articles of export among our raw

In the decade from 1790 to 1800 the population of the
republic increased from 4,000,000 to 5,000,000. Frenchmen
carne from San Domingo and other West Indian Islands; Irish-
men from what they regarded as oppressions in Ireland; Scotch-
men, Englishmen and Germans came to enjoy the advantages of
popular government and escape the discontent, monarchial op-
pressions and wars of Europe. These foreigners were rapidly
assimilated, and went to work to acquire land and better their

condition. The tide of immigration which set in
immigration thus early in the history of the republic continued

to flow hither during the century following. Not
being able to compete with the slave labor of the south, these
emigrants avoided that section, and settled along the east and
west lines, developing the great West and carrying their skill
and thrift to the borders of civilization.

The most important event in the early history of the repub-
lic was the Louisiana purchase, made during the administration
of President Jefferson, by which the United States acquired
title to all the land from the Mississippi to the Rocky Mountains
and from the Gulf of Mexico to British America. This vast
Purchase of domain had originally belonged to France, but in
Louisiana 1762 that nation transferred it to Spain. The

Mississippi River was the natural outlet to the
Ohio valley and the northwest, and since transportation over the
Alleghany Mountains was exceedingly difficult owing to the
lack of suitable roads, it became highly necessary that the west-
ern settlers should have the great waterway to the gulf kept
open. The Spanish officials at New Orleans were vexatious, and
hampered the commerce of the Americans with useless restric-


tions. In 1800 the Territory of Louisiana was ceded again to
France, and President Jefferson soon after sent Mr. Monroe to
Paris as a special envoy to act in conjunction with our resident
minister, Mr. Livingston, and if possible purchase New Orleans.
Two million dollars were allowed for the purchase. Napoleon
was in need of funds to prosecute his war with England, and
knowing that he could not protect his colony while England
ruled the sea, proposed to sell the entire province of Louisiana
for $15,000,000.* The commission had no authority to make
the purchase at such a price, and it was impossible to communi-
cate with the government at Washington in time to carry through
the deal, so they assumed the authority, accepted the offer, and
trusted to the President and Congress to ratify their acts. This
purchase not only secured the desired outlet to the sea by water,
but doubled our national area and added immensely to the
wealth and resources of the nation.

In 1807 Fulton built his first steamboat on the Hudson
River, and demonstrated the use of steam in propelling ships.
This invention exercised a vast influence upon the future inland
commerce of the United States, and was a potent element in
developing the resources of the country. It was of the greatest
importance that our numerous waterways should be utilized as
channels of commerce, but this was impossible until the applica-
tion of steam power was invented. Prior to this event travel in
the interior was slow. By land the pioneer wagons were heavy

and the roads dreadful; by water the farmers near
steamboats the rivers floated their produce down to market in

flat boats, and poled them up again. Four months
were consumed in making the return journey from New
Orleans to St. Louis. The effect was that the farmer paid dearly

*The price was $11,250,000 payable in 15-year 6 per cent. United States
bonds, and the assumption by the United States of claims of American
citizens against France, amounting to $3,750,000. Napoleon agreed not to
negotiate the bonds at a price which would injure the credit of the United


for all articles which he bought, but received little for his prod-
uce. In 1811 Fulton put his first steamboat on the Ohio River
at Pittsburg, and the results were marvelous. By 1815 the time
from New Orleans to St. Louis was 25 days and in 1823 it was
reduced to 12 days. Freight rates were rapidly reduced and
prices of commodities consumed by the settlers correspondingly
fell; while on the other hand grain and provisions, being assured
a more accessible market, rose in price. Lines of packet steam-
ers were established on all the principal rivers, and developed as
rapidly as the growth of the carrying trade would justify, until
the river commerce of the country became very extensive and
handsome passenger boats were plying on our rivers. This
means of transportation proved of immense value in the develop-
ment of the country, and continued until the demand arose
for more rapid transportation, and the general era of railroad
building set in soon after the Civil War.

During the period just prior to the war of 1812 the prosperity
of the young nation was almost phenomenal. Its foreign com-
merce had grown to large proportions and the American flag
was to be found in all the seas and harbors of the world. Home
industries were equally prosperous. Raw produce was varied
and abundant. Motive power in the shape of rivers and torrents
was abundant, and steam power was just making its appearance.
Labor being scarce, labor-saving machines naturally suggested
themselves to an ingenious people. Sawmills multiplied wher-
ever timber afforded materials for house and ship building, and
Home Indus- streams afforded it the means of transportation.
t S wIrof Agricultural implements were improved. Cotton
i8ia. began to be raised on an extensive scale and was

woven at home as well as exported raw. The products of the
loom could not for many years compete in quality with those
of England in fineness, but they were stronger and more durable,
and on these accounts were often preferred. Woolen and linen
manufactures, first begun on a small scale, were afterwards


developed into considerable industries. Hemp and flax grew
abundantly and furnished the materials for sacking, cordage
and sailcloth. Leather became an important article of manu-
facture, and in some of the forest towns of New England, where
hemlock forests abound, extensive tanneries were established.
Iron and glass from small beginnings rose to be important indus-
tries, while paper making, one of the humble attempts of the
young republic, developed into such a flourishing branch of
manufacture as to become of immense extent and value. Fish-
eries were vigorously prosecuted .and gave employment to a
large population, chief of which were the cod fisheries of New
Foundland, the mackerel and the whale fisheries. The latter
was carried on in the Arctic, Pacific and Southern Oceans;
whale-bone and whale oil, with seal oil and skins, being the
valuable products of these enterprises. In the year 1800 Ameri-
can ships amounting to 130,000 tons burden were engaged in

During this period (1803-1812) France and England were en-
gaged in a gigantic struggle. All Europe was affected, and
nation after nation was dragged into the conflict. England
ruled the seas and Napoleon's armies were invincible on land.
America, under the wise policy of Washington, remained neutral,
and was reaping a rich harvest in her foreign commerce. Ameri-
can ships swarmed every sea. They were loaded with the prod-
ucts of every clime, sailed to the United States, broke the
capture of vova g e > unloaded the cargo, immediately reloaded

American it again, and proceeded to France and Spain to dis-

pose of it. The English admiralty courts had held
in 1800 that while it was illegal for the ships of a neutral
to carry the products of a belligerent to or from that belligerent's
colony, yet where the goods were carried from a belligerent
colony to a neutral port, unloaded, and entered in the custom
house, they could then be sent in the same ship to a belligerent,
without violating international law. Under this decision En-

WAR OF 1812. 117

gland saw in 1805 that France was prospering and her colonies
furnishing her with produce the same as in time of peace, and
this under the sanction of an English court. The decision was
accordingly reversed, and it was held that a voyage from the
United States to a belligerent port with goods from a belligerent
colony was illegal. Under this decision American ships by
the score were captured by the British cruisers.

Parliament followed up the matter by passing in 1806 an
Order in Council declaring the whole coast of Europe under
blockade, and prohibiting any ship from trading in any of these
ports without a British license. In retaliation, Napoleon issued
the "Berlin Decree" declaring the coast of the British Isles in
a state of blockade. Thus American commerce was placed at the
mercy of both the French and English. As a result over 1,600
American ships were captured by France and England and their
cargoes, worth millions of dollars, condemned and confiscated.

President Jefferson struggled against these out-
warofiSia rages as best he could. The people were hot for

war, but Jefferson knew that the nation was in
no condition for war, and hence he tried "peaceable coercion."
Congress passed the "Embargo Act" in December, 1807, declar-
ing an embargo on all American shipping. Our ports were
sealed absolutely to foreign trade. Jefferson believed that the
loss of our products would bring England to terms. The
embargo ruined the commerce of the nation for the time being.
The price of wheat fell from $2 to 75 cents a bushel, and
general stagnation and business distress prevailed. Prior to
the embargo the British had claimed and exercised the right to
search American ships for British subjects, thousands of whom
were employed in the American merchant marine, owing to the
higher wages paid on American vessels. This right of search
was exceedingly obnoxious to the Americans. The Embargo
Act not having the desired effect on England, war was declared
a war which cost the United States $150,000,000, besides the
destruction of a profitable commerce, but it vindicated American
rights, taught the young republic the necessity for a navy, and
laid the foundation for reciprocity in international trade, a
principle which has since exercised an important influence on
the commerce of nations.

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