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
dllindst@facstaff.wisc.edu

        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).[1]  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.[2]

        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.[3]  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.[4]  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.[5]

        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.[6]  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?[7]

        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.[8]
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.[9]  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.[10]  Again the material rewards are clear,
real wages in manufacturing rose impressively.[11]  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.[12]  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."[13]
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.[14]  Even in
farming as late as 1860, folks could undertake a tenancy of eighty acres
with about $325 in implements and livestock.[15]  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.[16]  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."[17]

        What about Douglas Egerton's assertions that the South failed to
develop?
 No economic historian would argue that the South was not prosperous.[18]
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.[19]  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.[20]
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."[21]  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.[22]  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."[23]

        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.[24] 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.[25]  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.[26]

        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.[27]

        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

[1]  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.

[2]  "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.

[3]  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).

[4]  Moses Abramovitz and Paul David, "Reinterpreting Economic Growth:
Parables and Realities," _American Economic Review_ 63 (May 1973):430.

[5]  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.

[6]  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).

[7]  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).

[8]  _Economic Development in the Philadelphia Region_ (New York: Columbia
University Press, 1978).

[9]  "Industrialization and the Growth of the Manufacturing Sector in the
Northeast, 1820-1850," (Unpublished Ph.D. dissertation, Harvard
University, 1982).

[10]  "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.

[11]  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.

[12]  "Inventive Activity in Early Industrial America: Evidence from
Patent Records, 1790-1846," _Journal of Economic History_ 48 (December
1988): 813-50.

[13]  As quoted in Stanley Lebergott, Manpower in Economic Growth_ (New
York, McGraw-Hill [1964), 119-120.

[14]  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.

[15]  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."

[16]  "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.

[17]  _Without Consent or Contract: The Rise and Fall of American
Slavery_, (New York: Norton, 1989), 69.

[18]  Ibid., 85-89.

[19]  _Old South, New South_, 19-50.

[20]  Viken Tchakerian, "Productivity, Extent of Markets, and
Manufacturing in the Late Antebellum South and Midwest," _Journal of
Economic History_ 54 (September, 1994): 497-525.

[21]  _From Prairie to Corn Belt_ (Ames: Iowa State University Press, 1994
Reprint), 51.

[22]  Jeremy Atack and Fred Bateman, _To Their Own Soil: Agriculture in
the Antebellum North_ (Ames: Iowa State University Press, 1987).

[23]  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.

[24]  Sokoloff, "Was the Transition," 365.

[25]  See note 11 and Sokoloff and Villaflor, "The Market for
Manufacturing Workers," 61.

[26]  Alice Hanson Jones, _The Wealth of a Nation to Be_ (New York:
Columbia University Press, 1980), Table 7.1.

[27]  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.

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