II. Industrial History of the Colonies and of the United States before 1808

II. The Industrial History of the United States, and the Course of Protective Legislation, from 1789 To 1838

The early economic history of the United States may be divided into two periods. The first, which is in the main a continuation of the colonial period, lasted till about the year 1808; the embargo marks the beginning of the series of events which closed it. The second began in 1808, and lasted through the generation following. It was during the second period that the most decided attempt was made to apply protection to young industries in the United States, and with this period we are chiefly concerned.

During the first period the country was, on the whole, in the same industrial condition in which the colonies had been. The colonies had been necessarily engaged almost exclusively in agriculture, and in the occupations closely connected with it. The agricultural community could not get on without blacksmiths, carpenters, masons, shoemakers, and other artisans, and these existed side by side with the farmers. In those days, it must be remembered, handicraft workmen of this kind occupied a more important place in industrial organizations than they do at the present time. They made many articles and performed many services which are now the objects of manufacturing production and of extensive trade, and come within the range of international dealings. Many tools were then made by individual blacksmiths, many wares by the carpenter, many homespun cloths fulled and finished at the small fulling-mill. Production of this kind necessarily takes place at the locality where consumption goes on. In those days the division of labor between distant bodies of men had been carried out to a comparatively slight extent, and the scope of international trade was therefore much more limited. The existence of these handicraft workmen accounts for the numerous notices of “manufactures” which Mr. Bishop industriously collected in his “History of Manufactures,” and is not inconsistent with the mainly extractive character of the industry of the colonies. What could be imported at that time was imported, and was paid for by the exportation of agricultural produce. The exportation took place, so far as the northern colonies were concerned, largely to the West Indies. From the West India trade the means for paying indirectly for the imported goods were mainly obtained. There were some important exceptions to this general state of things. Ship-building was carried on to a considerable extent in New England, where abundance of material and the necessity of transportation by water made such an industry natural. The production of unmanufactured iron was carried on to a considerable extent; for at that time the production of pig and bar iron tended to fix itself in those countries where wood, the fuel then used, was abundant, and was therefore an industry much more analogous to agriculture than it has been since the employment of coal as fuel. In the main, however, the colonies made only such manufactures as could not be imported. All manufactured goods that could be imported were not made at home, but obtained in exchange for agricultural exports.

This state of things was little changed after the end of the Revolutionary war and the adoption of the Constitution. The year 1789 marks no such epoch in economic as it does in political history. Agriculture, commerce, and the necessary mechanic arts, continued to form the main occupations of the people. Such goods as could be imported continued to be obtained from abroad in exchange for exports, mainly of agricultural produce. The range of importable articles was, it is true, gradually extending. Cloths, linens, and textile fabrics were still chiefly homespun, and fine goods of this kind were still in the main the only textile fabrics imported. But with the great growth of manufacturing industry in England during this time, the range of articles that could be imported was growing wider and wider. During the Napoleonic wars the American market was much the most important for the newly established English manufactures, Large quantities of cotton and woollen goods were imported, and the importations of manufactures of iron, in regard to which a similar change in production was then taking place, also increased steadily. Sooner or later the change in the course of production which was going on in England must have had, and did have, a strong influence on the economic condition of the United States; but for the time being this influence was little felt, and the country continued in the main to run in the grooves of the colonial period.

This absence of development was strongly promoted by the peculiar condition of the foreign trade of the country up to 1808. The wars of the French Revolution opened to this country profitable markets for its agricultural products in the West Indies and in Europe, and profitable employment for its shipping, both in carrying the increased exports and in a more or less authorized trade between the belligerent countries and their colonies. For many years the gains arising from these sources, though not regular or undisturbed, were great, and afforded every inducement to remain in the occupations that yielded them. The demand for agricultural products for exportation to the belligerent countries and their colonies was large, and the prices of wheat, corn, and meat were correspondingly high. The heavy exports and the profits on freights furnished abundant means for paying for imported goods. Importations were therefore large, and imported goods were so cheap as to afford little inducement for engaging in the production of similar goods at home.¹

The tariff legislation of this period was naturally much influenced by the direction taken by the industries of the country. The peculiarly favorable conditions under which agriculture and commerce were carried on prevented the growth of any strong feeling in favor of assisting manufactures. Much has been said in the course of the protective controversy about the views of the fathers of the republic. But for nearly twenty years after the formation of the Union other subjects so absorbed the attention of public men that no distinct opinion appears in their utterances for or against protective duties. Considering the state of economic knowledge in those days, the example set by European countries, and the application of the colonial system before the days of independence, we cannot be surprised that some disposition was shown to impose protective duties. It is curious that in the first session of Congress these were advocated most earnestly by the representatives from Pennsylvania, who took their stand from the first as unflinching advocates of a protective policy. On the other hand, the current toward more liberal views, which had set in so strongly after the writings of the French economists and the publication of the “Wealth of Nations,” had made its way to the United States. One might expect to find its influence most strong among the followers of Jefferson, whose political philosophy led them in general to oppose government interference. But both Federalists and Republicans were influenced in their attitude to the question of protection most of all by its bearing on the other more prominent questions on which parties began to be divided.

Madison had maintained the principle of free intercourse in 1789,² and Jefferson in 1787 had extolled the virtues of a simple agricultural State.³ But in 1793, when the Federalists and Republicans began to differ on questions of foreign policy, and especially on the attitude the country should take in the wars of the French Revolution, Jefferson advocated vigorous measures of protection directed against England, and Madison brought forward a set of resolutions based on his recommendations.⁴ On the other hand, Fisher Ames had said, in 1789, that the general government should nurture those industries in which the individual States had an interest; but in 1794, when his political views led him to oppose Madison’s resolutions, he called the whole theory of protection an exploded dogma.⁵ The first tariff act, that of 1789, was protective in intention and spirit. The Congress of the Confederation had framed a plan for a general five per cent. duty, with a few specific duties on articles like tea, coffee, and sugar,—a plan whose failure was one of the most important events leading to the adoption of the Constitution. When Congress met in 1789, this scheme, which had aimed solely at procuring the needed revenues, was presented anew by Madison, who advocated it not only on financial grounds but on the general principles of free trade. But several of the States, especially Massachusetts and Pennsylvania, had imposed protective duties before 1789; and they were desirous of maintaining the aid then given to some of their industries. Moreover, the feeling of resentment against Great Britain was strong. Consequently, Madison’s simple proposal was replaced by a more complicated scheme. The general duty of five per cent. was retained on all goods not otherwise enumerated. On certain articles of luxury, higher ad valorem rates were fixed, the highest, on carriages, being fifteen per cent. Specific duties were imposed on some selected articles, such as hemp, cordage, nails, manufactures of iron, and glass. These articles were selected, and made subject to the specific duties, with the clear intent of stimulating domestic production. The general range of duties was by no means such as would have been thought protective in later days; but the intention to protect was there.⁶

The legislation of the next twenty years, however, brought no further appreciable development of the protective policy. For a short time after 1789, it may be possible to detect a drift in favor of protective duties, which doubtless was strengthened by the powerful advocacy of protection in Hamilton’s “Report on Manufactures” (1792). But that famous document had little, if any, effect on legislation. The moderate policy of 1789 was maintained. The duties were increased from time to time as more revenue was needed, but they were in all cases moderate. Those which were most distinctly protective had no appreciable influence in diverting the industry of the country into new channels. No action at all was taken for the encouragement of the production of textiles, of crude iron, and of the other articles which later became the great subjects of dispute in the protective controversy.

The industrial situation changed abruptly in 1808. The complications with England and France led to a series of measures which mark a turning point in the industrial history of the country. The Berlin and Milan decrees of Napoleon, and the English orders in Council, led, in December, 1807, to the Embargo. The Non-Intercourse Act followed in 1809. War with England was declared in 1812. During the war, intercourse with England was prohibited, and all import duties were doubled. The last-mentioned measure was adopted in the hope of increasing the revenue, but had little effect, for foreign trade practically ceased to exist. This series of restrictive measures blocked the accustomed channels of exchange and production, and gave an enormous stimulus to those branches of industry whose products had before been imported. Establishments for the manufacture of cotton goods, woollen cloths, iron, glass, pottery, and other articles, sprang up with a mushroom growth. We shall have occasion to refer more in detail to this growth when the history of some of these manufactures comes to be considered separately. It is sufficient here to note that the restrictive legislation of 1808–15 was, for the time being, equivalent to extreme protection. The consequent rise of a considerable class of manufacturers, whose success depended largely on the continuance of protection, formed the basis of a strong movement for more decided limitation of foreign competition.

Some signs of the gradual growth of a protective feeling appear before the close of the war.⁷ It was natural that the patriotic fervor which the events of the period of restriction and war called out for the first time in our history, should bring with it a disposition to encourage the production at home of a number of manufactured articles, of which the sudden interruption in the foreign supply caused great inconvenience. Madison, whose views on this subject, as on others, shifted as time went on and circumstances changed, recommended the encouragement of manufactures; and in some of Clay’s earlier speeches we can see the first signs of the American system of the future.⁸ The feeling in favor of the manufactures that had sprung up during the time of restriction obtained some clear concessions in the tariff act of 1816. The control of the policy of Congress at that time was in the hands of a knot of young men of the rising generation, who had brought about the war and felt in a measure responsible for its results. There was a strong feeling among these that the manufacturing establishments which had grown up during the war should be assisted. There was little feeling, however, either in Congress or among the people, such as appeared in later years, in favor of a permanent strong protective policy. Higher duties were therefore granted on those goods in whose production most interest was felt, textile fabrics; but only for a limited period. Cotton and woollen goods were to pay 25 per cent. till 1819; after that date they were to pay 20 per cent. A proviso, intended to make more secure this measure of protection, was adopted in regard to a minimum duty on cotton goods, to which reference will be made in another connection. These and some other distinctly protective provisions were defended by Calhoun, mainly on the ground of the need of making provision for the exigencies of another war; and on that ground they were adopted, and at the same time limited. The general increase of duties under the act of 1816, to an average of about twenty per cent., was due to the necessity of providing for the payment of the interest on the heavy debt contracted during the war.

For some time after the close of the war and the enactment of the tariff of 1816, there was no pressure for a more vigorous application of protective principles. The general expectation was, that the country would fall back into much the same state of things as that which had existed before 1808; that agriculture and commerce would again be as profitable as during the previous period, and would be as exclusively the occupations of the people. Such an expectation could not in the nature of things be entirely fulfilled, but for a time it was encouraged by several accidental circumstances. The harvests in Europe for several seasons were bad, and caused a stronger demand and higher price for the staple food products. The demand for cotton was large, and the price high. Most important of all, the currency was in a state of complete disarrangement, and concealed and supported an unsound economic condition. Under cover of the excessive issues of practically irredeemable bank-notes, the prices of all commodities were high, as were the general rates of wages and rents. The prices of bread-stuffs and provisions, the staples of the North, and of cotton and tobacco, the staples of the South, were high, not only absolutely, but relatively, and encouraged continued large production of these articles The prices of most manufactured goods were comparatively low. After the war the imports of these from England were very heavy. The long pent-up stream of English merchandise may be said to have flooded the world at the close of the Napoleonic wars. In this country, as in others, imports were carried beyond the capacity for consumption, and prices fell much below the normal rates. The strain of this over-supply and fall of prices bore hard on the domestic manufacturers, especially on those who had begun and carried on operations during the restrictive period; and many of them were compelled to cease production and to abandon their works.

This abnormal period, which had its counterpart of feverish excitement and speculation in Europe, came to an end in 1818–19. The civilized world then settled down to recover slowly from the effects of a generation of war and destruction. In the United States the currency bubble was pricked in the latter part of 1818. Prices began to fall rapidly and heavily, and continued to fall through 1819. The prices of the agricultural staples of the North and South underwent the greatest change, for the harvests in Europe were again good in 1818, the English corn-laws of 1816 went into operation, and the demand for cotton fell off. A new scale of monetary exchange gradually went into operation. During the period of transition there was, as there always is in such periods, much suffering and uneasiness; but gradually the difficulties of adjusting old contracts and engagements were overcome, and the habits of the people accommodated themselves to the new régime. Within three or four years after 1819 the effects of the crash were no longer felt in most parts of the country.

Two results which it is important to note in this connection followed from the crisis of 1819: first, a great alteration in the position and prospects of manufacturing industries; and second, the rise of a strong public feeling in favor of protecting these industries, and the final enactment of legislation for that purpose. The first of these results was due primarily to the fact that the fall in prices after 1819 did not so greatly affect most manufactured goods as it did other articles. The prices of manufactured goods had already declined, in consequence of the heavy importations in the years immediately following the war. When, therefore, the heavy fall took place in 1819 in the prices of food and of raw materials, in the gains of agriculture, in money wages and money rents, the general result was advantageous for the manufacturers. They were put into a position to produce with profit at the lower prices which had before been unprofitable, and to meet more easily foreign competition. After the first shock was over, and the system of exchange became cleared of the confusion and temporary stoppage which must attend all great fluctuations in prices, this result was plainly felt.⁹ It is easy to see that the whole process was nothing more than the evolution of the new state of things which was to take the place of that of the period before 1808. In that earlier period manufactured goods, so far as they could be obtained by importation at all, were imported cheaply and easily by means of large exports and freight earnings. These resources were now largely cut off. Exports declined, and imports in the end had to follow them. The tightening of the English corn-law, and the general restriction of trade and navigation by England and other countries, contributed to strengthen this tendency, and necessarily served to stimulate the growth of manufactures in the United States. That growth was indeed complicated and made more striking by the revolution which was then taking place in many departments of manufacturing industry. Especially in the production of textile fabrics, machinery was rapidly displacing—in England had already largely displaced—production by hand on a small scale. Home-spun textiles were gradually making room for the products of the spinning-jenny and the power-loom. The state of things that followed the crisis of 1818–19 was favorable to the rise of manufactures; but the change took place not so much by an increase in the relative number of persons engaged in such occupations, as in the substitution of manufactures in the modern sense for the more simple methods of the previous period.¹⁰

The second effect of the change that followed the financial crisis of 1819, was the strong protective movement which exercised so important an influence on the political history of the next generation. The diminution of the foreign demand, and the fall in the prices of staple products, naturally gave rise to a cry for a home market. The absence of reciprocity and the restrictive regulations of England, especially in face of the comparatively liberal import duties of this country, furnished an effective argument to the advocates of protection. Most effective, however, was the argument for protection to young industries, which was urged with persistency during the next ten or fifteen years. The character and history of this early protective movement will be discussed elsewhere.¹¹ Here it is sufficient to note that its effect on legislation was not merely to maintain the protective provisions of the tariff of 1816, but much to extend the protective element in tariff legislation. Already in 1818 it had been enacted that the duty of 25 per cent. on cottons and woollens should remain in force till 1826, instead of being reduced to 20 per cent. in 1819, as had been provided by the act of 1816. At the same time the duty on all forms of unmanufactured iron was considerably raised; a measure to which we shall have occasion to refer in another connection. In 1820, while the first pressure of the economic revulsion bore hard on the people, a vigorous attempt was made to pass a high protective tariff, and it barely failed of success, by a single vote in the Senate. In 1824 the protectionists succeeded in passing the tariff of that year, which increased all duties considerably. Four years later, in the tariff of 1828, the protective movement reached its highest point. The measures which followed in 1832 and 1833 moderated the peculiarly offensive provisions of the act of 1828, but retained the essential parts of protection for some years longer. On the whole, from 1816 on, there was applied for some twenty years a continuous policy of protection; for the first eight years with much moderation, but after 1824 with high duties, and stringent measures for enforcing them.