Transcript Colonial America

Colonial America
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
Differences between North and South
America
• All of the Americas were colonized by
European powers but outcome is different in
North and South America
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
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
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
North American Colonies
• 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
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
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
• Results were starvation .
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;”
Organization of colonies
• Example of Institutional Change in a market
environment.
• Incentive to change institutional structure to
increase efficiency
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
Different outcomes
Large percentage of
North American
colonies are of
European descent.
Most on small
farms which were
originally selfsufficient
producing 80% of
what they
consume. Land
ownership is not
concentrated
compared to South
and Central
America.
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
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.
Regional Differences in Colonial
Agriculture
•
•
•
•
Middle colonies are the frontier of this period.
Initially subsistence agriculture.
Latter Wheat and grain crops.
In 1660 23% of population by, 1780 has 24%
of population
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
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
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.
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%
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
Height by Age Profile-Theoretical
Birth length indicates nutritional status of mother.
Infant growth spurt-0 to 3 years.
Adolescent growth spurt-age 12.
Final Adult Height reached around 18.
Height by Age Profile-malnourished
Short periods of severe under nutrition or prolonged periods of moderate
under-nutrition delay adolescent growth spurt.
Severe prolonged under-nutrition leads to diminished typical growth spurt
pattern (spurts smaller) and contribute to substantial stunting.
Hence average age at which growth spurts peak, average length at birth, average
age at which growth terminates. mean adolescent height and mean final height
are all important indicators of nutritional status.
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.
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.
US vs. Great Britain
Life Expectancy
Birth
Cohort
18th
1
2
3
4
England and
Wales (both
sexes)
British
Peerage
British
Peerage
US Native
Born males
at birth
at birth
at age 10
at age 10
35.1
33.8
36.3
37
35.1
38.8
44.6
46.9
39.4
44.4
46.3
46.1
50.3
55.5
55.8
51.9
41.5
44.6
49.3
52.2
54.7
53.7
48.3
49.5
51.4
47.4
52.3
48.9
55.3
60.1
54
56.9
19th
1
2
3
4
20th
1
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.
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
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.
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.
Colonial Labor Supply: dealing with
labor scarcity
• Slave labor is not the low cost factor of
production for most crops.
• Most slaves imported to the Americas are
used in sugar production.
Destinations of slave imported to New
World.
1500-1800
13 colonies
Other British colonies
French colonies
Spanish colonies
Brazil
others
slaves
8%
19
20
13
33
7
immigrants
21%
14
14
21
27
2
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.
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
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.
Form of Indenture contract
This contract
was made in
Middlesex
county
England in Jan
1683
Slaves vs Indentured Servants
• Not clear that slaves and indentured servants
are used as substitutes
• Majority of slaves are used in plantation
agriculture
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.
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
Who gets a contract?
• Who does economic theory predict will be
most productive?
– Male or Female?
– Young or Old?
– Skilled or Unskilled?
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.
Galenson Results
• Observes lots of variation in contract price
– Lot of uncertainty about value of labor services over
time.
• When contracts are sold terms of service are also
altered.
• In a market with perfect information, price of
contracts should move to an equilibrium where
they are equal to cost of transportation and
terms of service should change with productivity
– Evidence is mixed, probably because of lack of
information
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 income in Britain increase.
Growth due to productivity
Measurement
Aggregate Production function,
Y= F(L,K,T)
– Y =GDP or income
– K=capital
– T=land
• Productivity increase changes the function
itself
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
Agregate Production function
• Assume a Cobb-Douglas Production Function
• Q=LaKbTc
– a, b and c are output elasticity with respect to L, K,
T (a tells us how much output would increase if L
increases by 1%)
– a+b+c tells us about economies of scale
– In a perfectly competitive economy with constant
returns to scale a+b+c=1
– a,b,c will also be equal to factor shares
• For example a= W*L/Y etc
Total Factor Productivity
• Total Factor Productivity
– TFP=Y/LaKbTc
– Can think of it as productivity of a weighted
measure of inputs
– Or the residual of production function
– (See appendix B of chapter 1)
Table 2.1
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.
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.
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.
Government and Economic Growth
• In general colonial laws enforced property
rights
• Increase in volume of trade during this period
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
• Paper currency
• Bills of Exchange
– A promise to pay B a sum of money some time in future
– Colonial governments printed money in the form of promises to
pay specie some time in the future.
– Both these sold at a discount
– Why do we care about the size of the money supply?
• MV=PY
• 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.
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?