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Paul Gilje, ed., "Special Issue on Capitalism in the Early Republic" _Journal of the Early Republic_ 16 (Summer 1996): 159-308. Essays by Paul Gilje, Jeanne Boydston, Douglas R. Egerton, Christopher Clark, Jonathan Prude, Richard Stott, Cathy Matson, and Gordon S. Wood. Reviewed by Diane Lindstrom University of Wisconsin-Madison firstname.lastname@example.org In this Special Edition, eight historians grapple with capitalism in the early national period. While they contribute to our understanding of many of the ramifications of this economic transformation, they obscure the larger picture. First of all, several authors adopt a very limited definition of capitalism, one that better fits the late nineteenth century. Second, the decision to analyze the impact from the perspective of groups, notably plantation owners, farmers, artisans, and women, produces a fragmented narrative. Third, the groups selected are viewed as reluctant participants, or as one author described it, "dragged" into the process. Fourth, for many of the authors, capitalism exacts costs with few if any benefits. In this review, I'd like to address these assumptions, which are widely shared by modern historians. By selecting the "ism" capitalism, these authors force us to consider how and why economic behavior changed in this formative era. But the definitions offered lead us astray. How can we ponder the impact of capitalism in agrarian America, if it "is properly understood to be a series of social relations characterized by free wage labor and the separation of the labor force from the means of production, so that labor is rendered incapable of subsisting without recourse to the market"? (p. 211). Why even debate whether the plantation economy was capitalist? The issue has been defined away. In Northern agriculture, the most important feature was the widespread ownership of land. Insisting upon the significance of hired labor obscures rather than illuminates the dynamics of capitalism in the countryside. Further, I would argue that we ought not to focus unduly upon ownership of capital. Capital deepening, that is, the increase in capital per unit of output, at least in the manufacturing sector took place after the Civil War. Similarly we should not confuse financial intermediation with capital formation. Banks facilitated economic development especially in their provision of working capital; however, but they rarely funded fixed capital. Some economists, notably Jeffrey Williamson, argue that it is not the supply of capital (much less its intermediation), but rather the demand for it that matters most. Having cast doubt upon the prevailing definition, how should early American capitalism be viewed? It seems to me that we have to return to more market-oriented descriptions, and more specifically, how the ever more efficient markets shaped American choices of how to spend and save, how to allocate their labor, and what to produce. This I think is the essential message that Winnie Rothenberg offers in her splendid _From Market-Places to a Market Economy_. During the early years of the new republic, more and more Americans attuned more and more of their behavior to the market. This occurred in large measure because of widened opportunities presented by the rapidly growing economy. Abundant evidence exists to document this. After growing some 3.5 percent per annum between 1650 and 1770, the economy peaked at some 4.2 percent annually in the first half of the nineteenth century, a rate unmatched for any comparable period in American history. Similarly, per capita income growth rates doubled, rising from .4 to .6 percent between 1700 and 1770 to .9 or 1.0 percent between 1800 and 1860. Historians resist this emphasis upon aggregates and especially upon relentless quantification. Indeed this Special Edition contains virtually no quantitative evidence. At best the work of economic historians has been reduced to footnotes. One looks in vain for recognition of Claudia Goldin's extraordinary work on women in the early republic, Thomas Weiss's estimates of farm income and productivity in the nineteenth century, or Jeffrey Williamson's controversial but highly illuminating calculations of antebellum inequality. Ken Sokoloff's pathbreaking dissertation on early manufacturing in the Northeast receives only the shortest shrift. Robert Fogel's work on slavery endures another onslaught, but what about his more recent investigations into morbidity and mortality? How could this research contribute to our understanding of the early Republic? First of all, it documents how Americans responded to the opportunities presented by markets and the material success gained from such efforts. For example, studies such as mine on Philadelphia show greater specialization and division of labor throughout the economy. In the countryside, farmers increased their efforts to produce goods for nonlocal sale. We can draw crude von Thunen rings, which predict accurately what crops farmers specialized in based upon distance from the Philadelphia market. And the rewards for such activity can be measured, both in terms of increased farm incomes and capital gains. The division of labor becomes even more apparent in the work of Ken Sokoloff on northeastern industrialization. Here he uses the manufacturing censuses and the McLane Report to show the increase in scale, not just in new industries like textiles, but in a host of smaller ones. His description of the shift from artisanal shops to the nonmechanized factory highlights the greater productivity made possible by the both the division and intensification of labor. Again the material rewards are clear, real wages in manufacturing rose impressively. These two examples highlight a larger process, the extension of markets. Improved transportation and communication held out the prospect of increased income for those who would respond to market signals. For farmers, this required shifting their output mix, but sizeable productivity gains did not follow, and agricultural incomes inched up slowly. In manufacturing, however, increased market access facilitated growth in scale, the division of labor, and soaring productivity. As a result, industrial wages rose even as the prices of industrial goods plummeted. In both cases, higher incomes permitted the purchase of goods foregone in the process of specialization. Imagine the attraction of lighter weight, easier to clean, cheap cotton textiles to the farm family whose alternative was to undertake the laborious processes of say retting flax and spinning wool. Growing markets not only elicited greater effort, they encouraged greater inventiveness. Kenneth Sokoloff noted the rise in patenting activity as areas became more tightly intertwined in the market economy. In short, rapid economic growth came from the myriad decisions of millions of Americans. More effort and better organization--not mechanization and capital accumulation by the few--drove the economy forward. When compared to other eras, this was a very competitive economy. Particularly with the extension of transportation and communication, monopoly pricing powers could rarely be enforced. Entry into most occupations was easy. Labor faced neither the guilds of early modern Europe nor the escalating education and training requirements of the twentieth century. Albert Gallatin summarized this when he claimed: "every species of trade, commerce, and professions and manufactures [is] equally open to all without requiring any regular apprenticeship." And capital presented a much smaller barrier to entrepreneurs than it would in the late nineteenth century. In manufacturing, one needed very little capital to start up a firm, and most of that was working (wages and inventory costs) not fixed (plant and equipment) capital. Even in farming as late as 1860, folks could undertake a tenancy of eighty acres with about $325 in implements and livestock. When compared to other nations and to other times, entry into a "proprietorship" was easy. To be sure some were precluded from full participation, but women and African Americans faced barriers to opportunity well before the early nineteenth century. As Jeanne Boydston points out, women's participation in market based activity increased during the early nineteenth century. Factories, both mechanized and not, sought their labor since they could be hired for one quarter to one third of the going male wage. And as employers hired them, wages rose, reaching perhaps half the male wage by 1850. Slave prices rose as well, but slaves could not reap the rewards. In fact, soaring slave prices wedded the south even more tightly to its peculiar institution. But to claim that masters were precapitalists ignores one of the central features of the slave economy: slave sales. Robert Fogel's age-price curves derived from New Orleans's slave auctions graphically support his assertion that "masters assessed each purchase with as much shrewdness and concern for value as any western horse trader or northern manufacturer." What about Douglas Egerton's assertions that the South failed to develop? No economic historian would argue that the South was not prosperous. But most would agree that it did fail to develop, that is to build industry, to control its own commerce, and to foster urbanization. Here Gavin Wright's distinction between labor lords (slave owners) and land lords (northern farmers) is instructive. Southern slave owners found few constraints upon the size of their businesses, they could grow fabulously wealthy maintaining large plantations. Indeed Southern wealth was primarily in the form of slaves, so that the region sought to do all that it could to maximize slave values. And to do this they took up more fertile western lands, creating a large but sparsely populated region. This discouraged manufacturing, since markets were too small to permit full time operation and to reap the productivity advantages of scale. In the Midwest, labor constraints meant that the most entrepreneurial settlers would go into nonagricultural activities, while those who remained on the farm could increase their capitalized worth by making their land more attractive. So they built churches, founded schools, promoted internal improvements, all designed to encourage migration to their community and drive up land values. These choices depended not on "mentalite" but upon rational calculation. Access to the land shaped American capitalism in the Northern countryside. Allan Bogue has documented the avidity with which farmers bought and sold parcels of land: "Certainly the man who came west, bought a tract of the size that he thought necessary for his farming operations, and then tilled it for the rest of his life was rare indeed. The more common picture was one of several moves or repeated purchases or sales." Rising land values reflect not only the wisdom of investment in land, but also the enormous effort Americans expended to improve their land, devoting untold hours to clearing the land, fencing it, and buildings farmsteads and out buildings. The prospects of landownership and the possibilities of capital gains in land encouraged the settlement of the West. The voluntary movement of millions of Americans most of whom had already accumulated assets and begun their families speaks to pioneers' perceptions of the rewards to be gained by working raw land. Once settled these Midwestern pioneers specialized even more intensively than their eastern counterparts, shifting as quickly as possible to market-oriented crops once transportation permitted it. Rather than being the props for industrial and commercial capitalism, farmers embodied in their own behavior the essence of capitalism as I have defined it. The result was broad participation in commercial activity, the emergence of a large middle class market, "and greater equality among white males than existed elsewhere in the world at the time." Perhaps the greatest disruption to established patterns of work came in manufacturing. Growing markets permitted the transformation of artisanal shops to nonmechanized industries. First of all, in more densely populated areas or those with immediate access to markets, average firm size rose. Artisanal shops with six or fewer employees found that they were at a competitive disadvantage with firms employing 6 to 20 workers. Why? Because the nonmechanized factories engaged in the division of tasks and specialization of labor. Rather than have one worker make an entire product, the process was subdivided and tasks assigned to a number of workers. Not only could employers benefit from the classic Smithian advantages that accrue to the division of labor, they could hire the much lower waged women and children to do the unskilled tasks while reserving the higher priced male labor for the most demanding processes. Faced with the "bastardization of the crafts," artisans found that they could either move to rural areas or smaller cities and still ply their crafts as they had always done or they could take the higher paying positions in the new factories. Either way, as both Jonathan Prude and Richard Stott note, most artisans were not reduced to the status of factory operatives (p. 250 and 266). Moreover, for those who moved to the countryside, the gap between their incomes and the national average narrowed. And the skilled who remained in the cities witnessed impressive gains in real wages. Since artisans and chandlers ranked near the bottom of colonial wealth-holders in 1774 (besting only mariners, laborers, and men and women whose occupations could not be determined), the material well-being of the average antebellum artisan must have improved substantially. Capitalism is not a zero sum game in which the gains of some must entail losses for others. Too often the focus upon those who were adversely affected by the dynamics of "creative destruction" permits the inference that the process of economic development just reshuffled the deck, the gains of a few "monied men" came at the expense of the multitudes. In contrast to today, the pace of change was far less rapid in the early nineteenth century, and skills were far more fungible. And as several authors noted, capitalism--no matter what definition we chose--was not fully formed. Most white Americans enjoyed greater economic opportunities and higher incomes than ever before. And this widely shared prosperity led them to sanction institutions and policies, such as easier terms for the purchase of land, open immigration, banks, and transportation systems, that would promote even greater commercialization and more rapid growth. Economic progress was far from even; business cycles were far more violent than today, The 1850s, for example, brought soaring food prices without compensating increases in wages for urban workers. Mortality among virtually all groups of Americans rose, presumably because increased contact in the marketplace and the workplace stemming from the quickened pace of trade, population mobility, and immigration introduced and spread disease. My definition will not satisfy many if not most of the authors in this volume. But it has the virtue of focusing attention upon the most salient changes taking place during this era. Market participation was on the rise. Ever more sophisticated product, labor and capital markets encouraged millions of ordinary Americans to make modest changes in how they produced goods and services. The collective result was higher productivity, more rapid growth, and rising incomes. NOTES  There is an unintended irony here. Years ago Paul Conkin chided me for confusing agricultural and agrarian. The latter term is more limiting, it relates to the land, normally a preference for equal division of land.  "Inequality, Accumulation, and Technological Imbalance: A Growth-Equity Conflict in American History?," _Economic Development and Cultural Change_, 27 (January 1979): 231-54. Williamson does see the period from 1840 to 1870 or 90 as one of capital-deepening economy wide.  Paul Gilje captures the essence of this when he posits capitalism's "rise to a point where it permeated and affected a large component of American society" (p. 160).  Moses Abramovitz and Paul David, "Reinterpreting Economic Growth: Parables and Realities," _American Economic Review_ 63 (May 1973):430.  Paul David, "Real Income and Economic Welfare Growth in the Early Republic Or, Another Try At Getting the American Story Straight," (unpublished paper, revised version, January, 1996), Table 1.  Claudia Goldin, _Understanding the Gender Gap: An Economic History of American Women_ (New York: Oxford University Press, 1990); Thomas Weiss, "Long Term Changes in U.S. Agricultural Output per Worker, 1800 to 1900," in National Bureau of Economic Research, _Working Paper Series on Historical Factors in Long Run Growth_ (February 1991), #23. Jeffrey Williamson and Peter Lindert, _American Inequality: A Macroeconomic History_ (New York: Academic Press, 1980).  Robert Fogel, "Nutrition and the Decline in Mortality since 1700: Some Preliminary Findings," in Stanley Engerman and Robert Fogel (eds.), _Long-Term Factors in American Economic Growth_ (Chicago: The University of Chicago Press, 1986).  _Economic Development in the Philadelphia Region_ (New York: Columbia University Press, 1978).  "Industrialization and the Growth of the Manufacturing Sector in the Northeast, 1820-1850," (Unpublished Ph.D. dissertation, Harvard University, 1982).  "Was the Transition from the Artisanal Shop to the Nonmechanized Factory Associated with Gains in Efficiency? Evidence from the U.S. Manufacturing Censuses of 1820 and 1850," _Explorations in Economic History_ 21 (1984): 351-82. See also his "Productivity Growth in Manufacturing during Early Industrialization: Evidence from the American Northeast, 1820-1860," in Engerman and Gallman, _Long-Term Factors_, 697-736 and Sokoloff and Villaflor, "The Market for Manufacturing Workers during Early Industrialization: The American Northeast, 1820 to 1860," in Claudia Goldin and Hugh Rockoff, _Strategic Factors in Nineteenth Century American Economic Growth_ (Chicago: University of Chicago Press, 1992), 29-65.  Wages rose between 1.2 and 1.6 percent annually between 1820 and 1860: ibid. More specifically, Claudia Goldin and Robert Margo calculate that nominal wages rose .8 of a percent annually in the Northeast and Midwest between 1820 and 1856, 1.1 percent for laborers. "Wages, Prices, and Labor Markets before the Civil War": ibid., Tables 2A1, 2A2, and 2A3.  "Inventive Activity in Early Industrial America: Evidence from Patent Records, 1790-1846," _Journal of Economic History_ 48 (December 1988): 813-50.  As quoted in Stanley Lebergott, Manpower in Economic Growth_ (New York, McGraw-Hill [1964), 119-120.  Kenneth Sokoloff, "Investment in Fixed and Working Capital During Early Industrialization: Evidence from U.S. Manufacturing Firms," _Journal of Economic History_ (June 1984), 44, Table 1.  Jeremy Atack and Peter Passell, _A New View of American Economic History_ (New York: W. W. Norton & Co., 1994, Second Edition), 279. They go on to note that at $325, the costs "were still out of the range for perhaps a third of the population."  "The ratio of female to male earnings was exceptionally low in the northeastern states prior to industrialization but rose quickly wherever manufacturing activity spread. Around 1815, the ratio of female to male wages in agriculture and domestic activities was 0.288, but rose to about .303 to .371 among manufacturing establishments at the very inception of industrialization in America around 1820. By 1832, the average ratio in manufacturing was about 0.44, and it continued to rise to just below 0.50 in the northeastern states by 1850." Goldin, _Understanding the Gender Gap_, 63.  _Without Consent or Contract: The Rise and Fall of American Slavery_, (New York: Norton, 1989), 69.  Ibid., 85-89.  _Old South, New South_, 19-50.  Viken Tchakerian, "Productivity, Extent of Markets, and Manufacturing in the Late Antebellum South and Midwest," _Journal of Economic History_ 54 (September, 1994): 497-525.  _From Prairie to Corn Belt_ (Ames: Iowa State University Press, 1994 Reprint), 51.  Jeremy Atack and Fred Bateman, _To Their Own Soil: Agriculture in the Antebellum North_ (Ames: Iowa State University Press, 1987).  Stanley Engerman and Kenneth Sokoloff, "Factor Endowments, Institutions, and Differential paths of Growth Among New World Economies: A View from Economic Historians of the United States," National Bureau of Economic Research, _Working Paper Series_ (December 1994), #66.  Sokoloff, "Was the Transition," 365.  See note 11 and Sokoloff and Villaflor, "The Market for Manufacturing Workers," 61.  Alice Hanson Jones, _The Wealth of a Nation to Be_ (New York: Columbia University Press, 1980), Table 7.1.  Dora Costa and Richard Steckel, "Long-term Trends in Health, Welfare, and Economic Growth in the United States," National Bureau of Economic Research _Working Paper Series_ 76 (November 1995): 22-24. Copyright 1997 by H-Net, all rights reserved. This work may be copied for non-profit educational use if proper credit is given to the author and the list. For other permission, please contact H-Net@H-Net.MSU.EDU. 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