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Ch 4 – Economic Relations of the Colonies

Chapter 4 discusses the economic relations of the American colonies, focusing on mercantilism, trade practices, and currency systems from 1500 to 1800. It highlights the role of colonies in providing raw materials to Britain, the Navigation Acts regulating trade, and the various forms of currency used, including commodity money and wampum. The chapter also notes the trade deficits faced by the colonies and their reliance on British credit and shipping services to finance these deficits.

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8 views5 pages

Ch 4 – Economic Relations of the Colonies

Chapter 4 discusses the economic relations of the American colonies, focusing on mercantilism, trade practices, and currency systems from 1500 to 1800. It highlights the role of colonies in providing raw materials to Britain, the Navigation Acts regulating trade, and the various forms of currency used, including commodity money and wampum. The chapter also notes the trade deficits faced by the colonies and their reliance on British credit and shipping services to finance these deficits.

Uploaded by

wyattwright666
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Chapter 4 –Economic Relations of the Colonies

Key Terms:
Barter – Exchanging a good or service for another good or service
Commodity Money - Money whose value comes from a commodity of which it is made. It is objects that have value
in themselves as well as for use as money. Examples include: Cattle, Grain, Raw Tobacco, Alcohol, Tallow, etc.
Specie - Coins made from precious metals.
Wampum - Beads used as currency. Woven belts of wampum created to commemorate treaties or historical events.

Mercantilism 1500 – 1800


• Economic philosophy in Europe
• Primary goals:
- Colonies provided raw materials to mother nation
- Mother nation would produce manufactured goods to sell to the colonies & other nations
- Strong merchant fleet could also act as a Navy
- Direct gov’t control in the economy:
1. Trade Restrictions 2. Duties 3. Subsidies
- Exports exceeded imports
- Achieve power and wealth for the state
- Achieve political and economic unity
- Keeping artisans in the home country
• They tried to achieve this by:
- Have colonies export raw materials and import manufactured products from the mother country
- Establish an excess of exports over imports
- Strictly regulating economic life through the national military power
- During the colonial period, goods that could only be exported legally to Britain were known as, “enumerated
goods” and included:
1. Tobacco
2. Sugar
3. Indigo
4. Cotton.
5. Dyewoods
6. Ginger
Navigation Acts (mid-17th Century)
- Under the British Navigation Acts (first passed in 1651 but started to be really enforced in 1696),
enumerated goods were a list of colonial exports that had to be shipped through British middlemen.
- It required all colonial trade to be carried on English vessels.
- It allowed colonial trade on British ships commanded by English captains.
- Aimed to curb or destroy Dutch shipping
- English ships, captains & crews
Colonial Economic Activity
Top 10 Commodity Exports from the 13 Colonies
(Average Annual Values, 1768-1772, in Thousands of Pounds Sterling)
North: 154
Commodity Pounds Sterling
Middle: 608 Tobacco £ 766
South: 1191 Bread and Flour 410
Rice 312
Fish 154
Wheat 115
Indigo 113
Corn 83
Pine Boards 70
Staves (The individual wood strips that form the sides of a barrel) 65
Heading (Metal working a process which incorporates the extruding and upsetting processes)
Horses 60

During the English civil war in the 1640s, the Dutch made great inroads into the carrying trade.
Imports:
New England colonies, the Middle colonies, the upper Southern colonies, and the lower Southern
colonies obtained most of their imported goods from the United Kingdom
In terms of imports to the colonies, the West Indies and the United Kingdom were the top two trading
partners.
Exports:
New England  Fish and Maritime Industries  primarily to the West Indies.
The Middle Colonies  Bread and Flour primarily to the West Indies
The Southern Colonies  Tobacco, Rice and Indigo  primarily to the United Kingdom.
Colonial coastal commerce comprised about 1/3 of the volume of total overseas trade.

Percentage Distribution of Colonial Trade by Region

Shuttle routes for colonial trade


1. lowered labor costs.
2. reduced delays and costly extensions of port times.
3. were more common than triangular trade patterns.
4. allowed captains to negotiate with a small number of familiar trading partners.

In 1776, was the most populated colonial cities were – all were port towns:
Philadelphia (Pennsylvania) = 40,000 Middle
New York (New York) = 25,000 Upper Middle
Boston (Massachusetts) = 16,000 North
Charleston (South Carolina) = 12,000 Southern
Newport (Rhode Island) = 11,000 Northern
Trade and Money:
1. Wampum
Used as money until latter part of 18th Century

Quahog Clam Shell

Wampum Beads
from Clam Shell

Figure 1: Examples of quahog clam shells

Belt made from Wampum Beads

2. Commodity money
Money whose value comes from a commodity of which it is made. It is objects that have value in
themselves as well as for use as money.
Examples include:
Cattle Grain
Furs and Hides Raw Tobacco
Musket Balls Alcohol
Tallow (a hard fatty substance extracted from the fat of sheep and cattle. Use: candles, soap.)
Problem with using commodity money in the US colonies prior to 1700 included:
1) Commodity spoilage rates were high
2) Controlling the quality of payments made with commodities
3) Inconvenience
4) High storage costs of commodities
5) Portability

3. Coins and Specie


Types of money used by colonists included all of the following
1) Gold and silver coins
Spanish Reales “Pieces of Eight” - ½ coinage in circulation.
Were the most common form of specie used in the colonies

Pine Tree Shilling - 1st coin minted in British North America


2) Promissory Notes
3) Bills of Exchange
4) Bills of Credit issued by colonial government

1630 Massachusetts Bill of Credit

Bills of exchange and bills of credit typically had a market value that was less than their face value.
Currency Acts
The Currency Act of 1751
Passed in response to English merchants’ concerns about the fluctuating value of colonial money.
Purpose was to limit Bills of Credit to 2 years life in attempt to limit problem of over-issuance
Bills only to be used for payment of public debt - taxes
Limited to New England colonies
The Currency Act of 1764
Extended the 1751 provisions to all of the colonies
Gave Parliament the exclusive power over the American money supply
Gradually eliminated Bills of Credit
Was supported by British merchants

Money, Debt, and Capital


Virtually no banks
No gold or silver discovered in the colonies
Americans wanted manufactured goods
Inflation of paper currency
A notable and unique feature of the colonial monetary system was Colonial America was the first region in the
world to permanently use paper money –China invented paper money and had used it long ago, but
nowhere had used paper money after 1500.
The Middle colonies had the largest commodity trade deficit.
The annual colonial trade deficit (which equaled 20,000-40,000 pounds sterling in 1768-1772) was mostly
financed by short-term credit from England.

Annual Rate of Exchange in London for Pennsylvania Currency


The colonies as a whole had a significant commodity trade deficit with England. In order to finance this deficit
the colonies relied on all of the following sources of income1) a commodity trade surplus with Southern
Europe, 2) the sale of colonial shipping services, and 3) British government spending in the colonies.

Capital formation in the colonies was mostly due to savings and investments from the colonists themselves.

The most important source of foreign exchange earnings to offset the colonial deficit with England was the sale of
colonial shipping services.

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