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CONTENTS INTRODUCTION: HOW BUSINESS EXPLAINS AMERICA 1 CONQUEST, COLONIES, AND CAPITALISM 2 THE BUSINESS OF BONDAGE 3 FACTORIES COME TO AMERICA 4 THE POLITICS OF BUSINESS IN THE EARLY REPUBLIC 5 BUSINESS GETS BIG 6 WARRING WITH THE OCTOPUS—WORKERS, FARMERS, AND TRUSTBUSTERS 7 THE DAWN OF MODERN LIFE 8 FROM ROOSEVELT TO ROOSEVELT: BUSINESS AND THE MODERN STATE 9 IN LOVE WITH BIGNESS: THE POSTWAR CORPORATION 10 THE PERSONAL, THE POLITICAL, AND THE PROFITABLE 11 AFTER THE INDUSTRIAL ECONOMY 12 FINANCE TAKES FLIGHT CONCLUSION: AFTER THE CRISIS ABOUT THE AUTHOR NOTES INDEX For Luna and Gabriel INTRODUCTION HOW BUSINESS EXPLAINS AMERICA Americans love to think that their country has been inherently entrepreneurial throughout its history, and that this nation’s path to greatness and global power was laid by its exceptionally capitalist value system. We hail the mighty railroads that crisscrossed a continent and the technological marvels that defined the ages, from steam engines to automobiles to smartphones. Yet when we tell our national story, we tend to focus on disembodied questions of ideology, cultural identity, and politics. Too often, we relegate business to the margins of the tale, as though merchants, manufacturers, workers, and bankers existed on a separate plane, independent of the major currents of our history. This book offers the opposite. It argues that when traditional approaches to the history of the United States fail to integrate the history of business itself, they overlook a key aspect of our national story that helps explain how the United States developed into the land it is today. President Calvin Coolidge famously remarked in 1925 that “the chief business of the American people is business,” by which he meant that Americans were notably oriented toward “producing, buying, selling, investing, and prospering in the world.” This book takes Coolidge’s aphorism and expands it: The chief business of American history is business. The story of the nation is the story of business history. Sometimes it takes moments of disaster for us to see the links between business and the broader arc of national experience, and the financial meltdown of 2007 and 2008 provided just such a crisis. As the American housing market tanked, giant banks collapsed, and a global economic catastrophe threatened to plunge the world into a new Great Depression, people called out for explanations. Scholars rushed in, promoting research on such dry subjects as the history of debt, regulation, banking, and monetary policy. Thick academic books like This Time Is Different: Eight Centuries of Financial Folly by economists Carmen Reinhart and Kenneth Rogoff and Thomas Piketty’s Capital in the Twenty-First Century gained widespread readership during and after the Great Recession.1 Op-ed pieces, graduate seminar papers, and book proposals flowed from the keyboards of historians, economists, and others who hoped to capture that rare academic gem—relevance!—by linking their research to the crisis. It’s a shame that such a world-historic cataclysm had to erupt to draw attention to the vital lessons that history has to offer about the modern world of business. Today’s college students graduate into a world of work fundamentally different from the one their parents and grandparents entered. The top performers are most likely to find jobs as consultants or bankers who work within the global financial services juggernaut, whereas few will work for manufacturing firms. Others may secure less remunerative employment in a variety of service fields, from retail and hospitality to business-services and IT, but almost none will join labor unions. Just as important, only young people in the highest percentiles will earn salaries much above what they would have forty years ago. Finally, young graduates encounter a political culture that is deeply divided over the role that government should play in business and economics—how (and where, and whether) to “bring the jobs back,” whom to tax and how much, and which problems to leave to the private sector. By linking the pivotal events of business history to our national story, we can gain a better understanding of some of today’s most pressing public debates. The origins of today’s fights over global commerce, local industries, and jobs, for example, go back to the country’s birth. No sooner had the ink dried on the Constitution in the 1790s than a fierce fight emerged between entrenched factions over the balance between trade and the protection of domestic manufacturing. What role should the young government play? Should the United States actively support the growth of industry through tariffs, subsidies, and a centralized banking system? Or should power devolve to the local level to empower individual small-scale producers—yeoman farmers—preserving a free society? That foundational debate dominated politics in the early national period and carried over into more than two centuries of disputes over business practices. Other problems of business history likewise resonate today. Late-19th-century monopolies such as John D. Rockefeller’s Standard Oil provoked a fierce public blowback against undemocratic privilege and the concentration of economic power. The story of those giant corporations and the trustbusters who challenged them provides important lessons for today’s arguments over massive financial institutions —those banks that are “too big to fail.” The history of business does more than provide the backstory to today’s issues, however. It also gives us a critical vocabulary with which to assess our current moment by highlighting how the nature, character, and even definition of such vital concepts as “firm” and “corporation” have changed over time. Early businesses were small and locally controlled, but the rise of industrial capitalism in the late 19th century brought about impersonal and hierarchical corporations. By the middle of the 20th century, these large, integrated, and bureaucratic corporations reigned over the American economy. Proponents hailed corporate structure as a boon to efficiency and productivity, yet critics saw only social conformity and worried that corporate bloat would stifle innovation. Whatever one thought of “Big Business,” however, that model grew less common by the turn of the new millennium. Today’s corporations, even the largest and wealthiest, are structurally leaner and more inclined to outsource business functions around the country and around the world. To understand how the modern business environment took shape—from global financial titans to local shops—we must put these developments in historical perspective. The story that emerges helps explain how corporations both shaped and were shaped by global trade, competition, and the consumption patterns of people around the world. From debates over trade to questions of labor policy, from notions of individual rights to concerns about growth and technological innovation, the story of business is deeply intertwined with the development of America’s political institutions and national values. Exploring those links shows how much business needs history, and how much history needs business. The twelve chapters in this book chart the major developments in the history of American business and argue for their indispensable importance to vital issues in our national history, from slavery and immigration to foreign affairs and modern political debates. Naturally, I am not able to cover every monumental innovation, successful entrepreneur, or groundbreaking policy. What I have tried to do, though, is highlight the most important historical developments, especially changes in business practices, the evolution of different industries and sectors, and the complex relationship between business and national politics. Although business historians have traditionally focused on firms and the men and women (usually men, until recently) who run them, this book tries to a take a broader approach. Using business to tell the story of the United States allows us to incorporate the unnamed millions who shaped history by trading their labor (sometimes by choice, often not) or deciding what products to consume (sometimes by informed choice, often not). This story encompasses those who fought against what they saw as an oppressive system of exploitation as well as those who defended free markets from any outside intervention. From executives and bankers to farmers and sailors, from union leaders to politicians to slaves, business history is American history. 1 CONQUEST, COLONIES, AND CAPITALISM We don’t know who the first person born in Europe to set foot in North or South America was, and it is clear that no European could ever “discover” a gigantic plot of land where millions of people lived. But we do know that, beginning in the 1490s, European monarchs began to claim a right to lands in the “New World” of the Western Hemisphere. Within a few decades, those rulers sent thousands of soldiers, miners, farmers, and others to bring back precious metals, furs, timber, human slaves, and other goods. We also know that, between 1500 and 1750, the center of economic power in Europe shifted from the southern parts of the continent—Italy, Spain, and Portugal —to a small island in the North Atlantic comprising England, Scotland, and Wales. The kingdom known as Great Britain after 1707 emerged in that early modern period as a dominant sea power, an imperial colonizer, a global trader, and the leader in factory-based manufacturing. And then in 1776, a major part of Britain’s colonial empire seceded, fought a long global war, and achieved political independence. The economic relationship that Anglo-Americans cultivated with Britain during the colonial period proved pivotal. As part of the British empire, white colonial Americans participated in a vibrant, trade-oriented economic system rooted in the exploitation of natural resources and the creation of increasingly sophisticated business forms. After independence, the future of that economic landscape appeared uncertain, and vital debates unfolded about what type of economy the new country should pursue—one devoted to export-based agriculture, or one that built on the new manufacturing technologies that Britain had pioneered in the second half of the 18th century? As American politicians sat down to write the Constitution in 1787, these questions created powerful rifts as competing factions argued—with farreaching consequences—over the future of business and the legacy of the colonial economy. The World Economy, c. 1500 To grasp the economic challenges that the first generation of Americans faced when the United States achieved political independence, it is helpful to take the long view of business practices during the period of European colonization. As the major powers of Europe spread their navies and peoples across Africa and the Americas in the late 15th and early 16th centuries, economic life came increasingly to revolve around transatlantic trade. By 1500, intercontinental land-based commerce had flourished across the Eurasian landmass for several hundred years. The expansion of the Arab empire across the Middle East and North Africa, as well as the Moghul Empire in the Indian subcontinent, connected China, India, North Africa, and Eastern Europe. Powerful rulers across that vast geography secured trade routes and reaped significant wealth from the labor of agrarian people. Fabrics—silk from the East; wool from colder climates—as well as spices, wood, and precious metals all traveled tremendous distances.1 Further south, traders from the Arab and Ottoman empires did a brisk overland business with their counterparts in West African kingdoms across the Sahara. In the mid-15th century, seafaring Europeans, particularly from Portugal, began to arrive regularly by ship along the West African coast to trade textiles for goods such as ivory, sugar, and gold. And by the end of that century, such trade regularly included slaves. Portuguese and later Spanish and other European traders purchased captured Africans to work first on sugar plantations they established on the Canary Islands and later, by the first decades of the 16th century, in the Caribbean and South and North America.2 Before the 1500s, people in the Americas lay outside these trade networks. The indigenous population of the American continents included vast empires such as the Aztec in present-day Mexico, major city-states such as Cahokia near present-day St. Louis, Missouri, and smaller societies of more mobile and less agriculturally rooted people, particularly near the Atlantic and Pacific coasts of North and South America. Trade was extensive within and between the Americas before 1500, but the continents were cut off from the rest of the world. As most students of history know, that situation changed with the advent of European transatlantic voyages in the 1490s, with devastating consequences. In the next three hundred years, a combination of disease, war, and genocide at the hands of European conquerors decimated the native populations of the Caribbean, destroyed empires such as the Incas in Peru, and dramatically affected the number of indigenous people of the eastern woodlands of North America, pushing many inland away from the coast. By the late 16th century, entrepreneurial English businesspeople looked to those “abandoned” wooded areas along the Atlantic as promising sites for colonies.3 The most significant change to the world economy, therefore, was the ascent of European seafaring merchants whose newfound prowess in shipbuilding and navigation allowed them to reach parts of Africa, Asia, and the Americas in greater numbers, and to profit immensely in the process. These new trade ventures changed the distribution and settlement patterns of people around the world. But just as important for the development of business and modern capitalism, the “Age of Exploration” (as the textbooks somewhat cheerfully call this period) also marked a monumental reorganization of the European economy. Historians have traditionally tried to capture the changes in European social, political, and economic life that developed around 1500 in response to increased global trade by suggesting a transition between the earlier “medieval” period and the subsequent “modern” (or “early modern,” to be more precise) period.4 Essentially, what happened was a change from a feudal model of economic organization to a mercantilist model, the forerunner to a capitalist system. As with everything in history, this shift was far more complicated than such a simple claim would suggest. Many people quibble over these terms, since the period of so-called feudalism included such diverse experiences over time and space. Ditto for mercantilism, modern, and, for that matter, capitalism. After all, history is a longrunning, continuous process, and human beings never jump from one way of living to a different one overnight. So suggesting a clean break from a “feudal” past to a “capitalist” present does injustice to truth. However, if we’re taking a long view and accept these concepts as generalities, not rigidly defined systems, this division provides a helpful way of characterizing important changes. When historians use the term feudalism, they are attempting to describe an economic system in which power relations among people formed the building blocks of society. In a classically feudal model (not to be confused with reality), most people worked as farmers (the peasants), giving over their agricultural product to a local ruler (the lord) in exchange for military security. Political power flowed from the strength of these personal connections. The concepts of private property and individual rights did not factor into these arrangements, and most people’s socioeconomic status was fixed at birth. Wealth was tied up in the control over land and agricultural production. Trade existed, but not on a massive scale, and most of the agricultural yield was consumed locally. Even within an archetypal feudal society, not everyone lived this way. Off the feudal manors, artisanal craftspeople populated small towns and produced tools, equipment, and clothing for the agricultural system. Artisans typically conducted such manufacturing out of the home and adhered to a strict labor hierarchy: Masters taught their skills to apprentices, who hoped to one day move up to the master level. Guilds—organizations of skilled craftspeople—regulated the number of up-andcoming apprentices to keep competition low and prices stable. Another key group in medieval towns was the merchants, who exchanged the surplus production from both the farmers and the craftspeople for foreign-made goods. In places such as Italy, traders accumulated significant wealth and many turned into bankers, making their living by guarding other people’s money and lending it out, at a price. These town-dwellers—manufacturers, shopkeepers, bankers, and traders— constituted an important minority in feudal society. Known as “burghers,” from the Latin word for a fortified dwelling, they constituted a social class distinct from either the landless peasants or the land-owning feudal rulers. When Europe’s dominant economic paradigm shifted toward capitalism, they became the core of the bourgeoisie, the property-owning middle class. Europe transitioned away from feudalism in the 15th and 16th centuries. Monarchs in Spain, France, and England grew wealthier through trade, which spread from the Mediterranean to coastal West Africa, and then to the Americas. In the process, they consolidated military power at the expense of local lords. A new economic philosophy that historians call mercantilism gradually took hold, reflecting the conviction that economic activity should bolster the wealth and power of nations. Western European monarchs in particular found new ways to expand, promote, and protect trade, reaping both profits and the political power that came with it. This decidedly unfeudal attitude toward external trade led European powers to business opportunities emerging in the New World.5 The Business of Conquest The renowned historian Carl Degler famously wrote about America that “capitalism came in the first ships.”6 His point was that the European conquest of the New World coincided historically with the profound economic changes that produced a recognizably new system that we call capitalism, but the story was quite a bit more complicated, of course. Capitalism did not emerge as a coherent system. It has never achieved that status. As a system of economic organization, capitalism has taken on many forms across time, and exists in a variety of manifestations even today. But even though “capitalism” defies a simple definition, Degler’s notion still stands that major changes in economic organization and business opportunities accompanied the European colonization of the Americas, beginning around the year 1500. Europeans’ exploration, exploitation, and ultimate inhabitation of the New World was at heart a financial undertaking, enacted in the mercantilist spirit of profit-making for the realm. Just as important as its causes were its consequences: The act of setting up colonies—with all the bloodshed, atrocity, and hardship it entailed for native people—had long-range consequences for the way European and colonial economies operated. From gold and silver mines in New Spain to fur trapping by the French in present-day Canada to massive sugar, indigo, tobacco, and eventually cotton plantations, European colonizers used the Americas to create new wealth, new types of business, and new ways of thinking about property, profit, and enterprise. For students of American history, it’s an old story: ships funded by the Spanish and Portuguese governments began to journey regularly to the Caribbean and South America starting in the 1490s in search of material riches. And, in general, they found them. During the 16th century, Iberian soldiers and merchants traded and stole untold quantities of precious metals, kidnapped natives for sale into slavery in Europe, and established permanent settlements—frequently after waging genocidal war on local inhabitants—to facilitate this exploitation.7 Those initial conquests followed a traditional economic model: Generate wealth by accumulating valuable stuff. At the same time, these mercantilist exploits brought a major economic downside. The huge amounts of silver shipped back to Spain flooded the currency market, sparking a bout of inflation that lasted a century and crippled the Spanish economy. In spite of its large land-holdings in the Americas, Spain would never recover the economic power it wielded in the early 16th century.8 By the mid-1500s, a second wave of European voyages to the New World brought merchants from France and England who had motives and strategies similar to those of their Iberian counterparts. With the powerful Spanish and Portuguese empires laying physical claim to lands to the south, early French and English explorers headed north. Given France’s superior military and economic position, the French crown began to fund fur-trading outposts along the St. Lawrence River in present-day Quebec.9 England, poorer than the major continental kingdoms, showed less interest in establishing Atlantic trading routes until later in the 16th century, by which time political and economic power had shifted away from Spain and Portugal. In the 1570s and 1580s, Queen Elizabeth authorized and underwrote imperial operations first in Ireland and then across the North Atlantic in Nova Scotia, urging explorers to claim lands for the crown and search for precious metals.10 While the quest for riches proved disappointing, these ventures led to permanent colonial establishments. Over the course of the next hundred years, several hundred thousand English people migrated to the New World. Most of those early migrants lived along the Atlantic coast in former Indian towns that had been abandoned during the plague epidemic that forced survivors inland from the coast in the late 16th century.11 From the outset, the English colonization of North America was driven by economic imperatives. Although Americans often remember the religious motivations behind that process—stressing the story of the Puritans in Massachusetts, for example—business opportunities and economic institutions played just as important a role. Just as explorers sailing for Queen Elizabeth had scouted the continent for hidden riches, so, too, did English colonists create more durable communities in the 17th century as part of a larger, transatlantic business venture. In fact, the first two successful English colonies in what would become the United States—Virginia (1607) and Massachusetts Bay (1620)—were themselves private companies.12 More specifically, each was chartered in the style of a jointstock company, an early-modern legal entity that grew increasingly important to the global economy during the height of Europe’s colonial expansion. Joint-stock companies, the forerunners of today’s publicly owned corporations, pooled private sources of capital under the official protection of the crown, funding ventures that were too expensive or risky for an individual person. Drawing on a system of legal contracts developed in Italy centuries earlier, 16th-century English monarchs pioneered the practice of issuing corporate charters that granted an exclusive right to trade in a certain area to a particular group of subjects. In addition to creating a helpful monopoly, these charters created legal entities whose ownership was spread among several investors. These people purchased shares, or stock, to make up the whole company, which they owned jointly. Hence, “joint-stock company.” Under the legal and military protection of the crown, English merchants gained tremendous advantages. Large sums of capital came together to form the Muscovy Company (chartered in 1555 to trade with Russia) and the East India Company (1600). Building on the English model, the kingdom of the Netherlands chartered the Dutch East India Company in 1602.13 In 1606, English joint-stock investors expanded from trade to colonization. That year, King James I issued a charter to the Virginia Company to establish a settlement in the part of the Atlantic coast near the Chesapeake Bay that, about thirty years earlier, English people had renamed “Virginia” in honor of Elizabeth (the nevermarried “virgin” queen). According to the charter decree, James specifically bestowed on a group of investors, whom he cited by name, a “licence to make habitacion, plantancion and to deduce a colonie of sondrie of our people into that parte of America commonly called Virginia.” Those investors could choose “anie place upon the saide coaste of Virginia or America where they shall thincke fitte and conveniente” between specific lines of latitude. Most crucially, the king continued, “noe other of our subjectes shalbe permitted or suffered to plante or inhabit behind or on the backside of them . . . without the expresse licence or consente of the Counsell of that Colonie.”14 The florid language of the charter, in other words, gave the Virginia Company’s investors exclusive trading and exploitation rights and the explicit promise of military backing from the crown. James intended the Virginia Company’s colony to send back products such as timber, fur, and, the investors hoped, precious metals from the vast woodlands of the mid-Atlantic. He also hoped the colony could grow sugar and citrus, whose appeal was growing in England but that had to be imported. (Turns out those crops couldn’t be grown in Virginia, a fact that only worsened early Virginia’s fortunes.) In addition, the king hoped English settlers would locate the mythical “Northwest Passage,” a water route through North America to the Pacific, which England could then claim. (No such waterway existed.) Finally, James had geopolitical motives: A permanent agricultural community, he wagered, would provide a buffer against French and Spanish expansion and help solidify his land claims. In 1607, employees hired by the company established a camp at a site called Jamestown and began working the land, building forts, searching for gold, and trading with Indians. The project turned disastrous. The company’s workers found no precious minerals and failed to cultivate exotic produce—or really enough food to live on—and the colony fought a series of wars with the Powhatan confederacy, on whose land the Jamestown settlement sat. Approximately 80 percent of the English migrants to Virginia between 1607 and 1624, or close to five thousand, were dead by 1625. Hemorrhaging money and unable to attract new investors, the Virginia Company failed in 1624, when the English government declared Jamestown a royal colony.15 Running the Virginia Colony as a private business failed, but the joint-stock model of colonization persisted. English private investors, buoyed by royal support, established permanent English habitations in places such as Newfoundland (for fish) and Bermuda (for tobacco). In 1617, a small group of religious dissenters known as Separatists, fleeing persecution from the Church of England, purchased special permission called a patent from the (not yet dead) Virginia Company to create a settlement near Jamestown. Three years later, approximately one hundred people—a combination of the Separatists who had bought the patent and others who purchased their own passage directly—landed by accident far to the north of Jamestown in a former Massasoit Indian town, which they renamed Plymouth. In 1629, a group of English Puritans—other religious dissenters from the Church of England—secured a royal charter to establish the Massachusetts Bay Company, which founded a colony just north of Plymouth the next year. But Massachusetts Bay proved to be the last North American colony founded on the joint-stock model. England thereafter established many colonial settlements along the Atlantic coast and in the Caribbean, but used a different model based on direct land grants to individual proprietors (notwithstanding competing claims of ownership by people already living there) and direct political rule from London. And in the 1680s, infighting among Massachusetts colonists led the crown to nullify the corporate charter and disband the unprofitable company, just as it had in Virginia. The use of joint-stock companies as instruments of colonization left a profound legacy for the development of British North America. Like their joint-stock forebears, the businesspeople who managed early English colonies had a clear mandate to exploit natural resources, expand farming and artisanal production, and export surpluses for profit back to England. As those colonies increasingly identified themselves as distinct—and increasingly as “American” as the 18th century wore on —they retained the focus on commerce, profit, and independent business activity that had marked their founding.16 In 1748, the Philadelphia printer Benjamin Franklin—then in his early forties— summoned the business-oriented attitude of the colonies in a letter of advice to a younger friend. “Remember, that time is money . . . that credit is money . . . that money is of the prolific, generating nature,” he wrote. “In short, the way to wealth, if you desire it . . . depends chiefly on two words, industry and frugality.”17 British North America on the Eve of the Revolution The colonial settlements in the parts of North America claimed by Great Britain were economically vibrant in the mid-18th century. (We start to refer to “Britain” instead of “England” after the Acts of Union in 1706 and 1707 by the English and Scottish Parliaments unified those two countries into the United Kingdom of Great Britain.) An active consumer culture emerged among white colonists as their communities and cities became more permanent. “The quick importation of fashions from the mother country is really astonishing,” one British visitor to Maryland wrote. “I am almost inclined to believe that a new fashion is adopted earlier by the polished and affluent American than by many opulent persons in the great metropolis [of London].”18 Most colonial Americans lived close to the ocean and made their living growing and exporting raw agricultural products. Mid-Atlantic colonies like Pennsylvania grew wheat, while the hot and humid climate of the Carolinas and Georgia supported the cultivation of rice and indigo. In New England, where rocky soil and cold winters made large-scale commercial agriculture difficult, colonists supplemented meager crops with an elaborate fishing industry. The most profitable crop of the colonial period, tobacco, flourished in the Chesapeake region of Virginia and Maryland. Cheap and easy to grow, tobacco remained the mainstay of the colonial export economy until the American Revolution, when the total value of tobacco exports nearly equaled that of all food grains combined.19 Yet while farming occupied most people’s energies, seaports in the North— especially Boston, New York, and Philadelphia—also developed a thriving merchant class rooted in the transatlantic trade. Colonial merchants acted as wholesalers who financed trading voyages but did not undertake significant travel themselves. Rather, they managed the money, owned the trading ships, and invested in the cargo—the wheat, tobacco, timber, indigo, whale oil, human beings, and other products that crisscrossed the ocean. They operated by collecting a return on profitable voyages to offset losses from piracy or shipwrecks. As they accumulated wealth, many merchants branched into related activities, setting up shipyards and selling ships themselves or establishing retail outlets for items such as books, equipment, and clothing imported from Britain. Still others parlayed trading successes into finance, operating as local colonial bankers.20 Business opportunities were generally more varied in the North than in the South. With fewer major ports and a climate conducive to cash crops such as tobacco, rice, and indigo, the southern colonies remained nearly entirely agricultural throughout the colonial period. (Charleston, South Carolina, which boasted a bustling merchant and artisan class, supported by both free and slave labor, was a notable outlier.) Large plantations tended to specialize in exporting cash crops, and they relied on smaller local farms for much of their food and other supplies. Small-scale colonial farmers had less surplus than their plantation neighbors, but they moved what extra goods they had to market, using any profits to expand their landholdings. Those small farmers helped inaugurate what would become a classic theme in the history of business and modern capitalism: small operators aiming to become big.21 Slavery, in addition to land, represented a major marker of wealth in colonial America. The practice of racialized slavery expanded in the British colonies as early settlements became increasingly stable and market demand for mass-produced crops, starting with tobacco, exploded in Europe. The American slave population became self-sustaining in the early 18th century, so even as the international trade declined, the population of enslaved people grew. By the 1770s, nearly seven hundred thousand people, or 15 percent of the total non-Indian population of the United States, were enslaved. Although slavery remained legal throughout the British empire, it was increasingly rare north of Pennsylvania. Almost 95 percent of all enslaved people in the United States at the time of the Founding lived in Delaware, Maryland, Virginia, the Carolinas, and Georgia. One-third of the population of those southern colonies was enslaved, and approximately one-third of all southern households owned slaves.22 British North America included far more than the thirteen colonies that declared independence in July 1776, and economic conditions played a critical role in determining which seceded and which did not. Compared to their counterparts in Quebec and the Caribbean, white colonists who lived between New Hampshire and Georgia enjoyed a more diverse economy and relatively greater security. By the 1770s, only about one hundred thousand Indians lived in those thirteen colonies, along with more than 2 million white Europeans and half a million Africans and descendants of Africans, the majority of them slaves. The push for national independence grew strongest in the parts of the British empire that could envision their economies operating without the British army present. On the other hand, Europeans on the periphery of the British empire depended greatly on the mother country. In present-day Canada, which Britain acquired from France after the Seven Years War in 1763, ongoing conflicts between the substantial native population and far-flung European fur traders and fishers meant that colonists depended greatly on British military support. In the slave societies of the West Indies, native inhabitants had been almost entirely annihilated, and small numbers of English colonists owned massive sugar plantations farmed by African slaves, whose numbers eclipsed those of their white owners by as much as ten to one in 1780. Landowners relied on brutal violence, sanctioned and backed by British law, and the strength of the British military, further cementing their ties to the crown.23 Writing the Constitution: The Place of Business in a Young Nation In the summer of 1787, fifty-five delegates from thirteen American states convened in Philadelphia first to reconsider, and then to replace, the governing structure known as the Articles of Confederation, which had organized the states since their independence from the British empire the decade before. When I poll my college students about the reasons behind the Constitutional Convention, they all demonstrate a clear sense of the common story: The Articles of Confederation devolved too much power to state governments at the expense of the national government; internal conflicts, such as Shays’s Rebellion, abounded over unpaid veterans’ benefits; and the weak central Congress couldn’t raise national taxes to pay foreign war debts. All this left the country weak and vulnerable to attack. That story is largely accurate, but the standard telling of the Constitutional Convention often misses the intense debate over fundamental economic questions that propelled the convention. Questions about the separation of powers and the distribution of rights among the people, the states, and the federal government were not merely philosophical abstractions. Rather, they reflected material issues that pitted different business interests against each other, and their resolution had real consequences for the development of business in the United States. More than one hundred years ago, the historian Charles Beard published An Economic Interpretation of the Constitution of the United States, in which he argued that the Founders created a particular structure of government to serve their immediate financial interests.24 Beard claimed that the wealthy merchants and bankers who had loaned money to the war effort could only hope to be repaid if a strong national government compelled the individual states to repay them. Subsequent historians threw considerable cold water on parts of this thesis, demonstrating that many of the Constitution’s opponents, called the Antifederalists, also had significant financial interests at stake. Ideological concerns about republicanism and self-government, they showed, were at least as important to the Founders as economic gain. Clearly the story is more complicated than Beard suggested. But even if Beard overreached in his particular condemnation of the Founders as wholly profit-driven and self-interested, he was right that promoting a healthy national business climate was a paramount issue for them. “The prosperity of commerce is now perceived and acknowledged by all enlightened statesmen to be the most useful as well as the most productive source of national wealth,” boasted Alexander Hamilton in one of his essays defending the federal Constitution. Union, the Founders insisted, would only create greater economic opportunity and, as a result, political security.25 The Constitution, drafted in 1787 and ratified the next year, affirmed the central place of business in early American politics. The first three sections of the document laid out the roles and responsibilities of the three branches of the federal government: the Congress, the presidency, and the judiciary, in that order. Section 8 of Article 1—the longest section of the entire document—provides a substantial list of Congress’s powers. Here is an abridged list of what that section says: Article I, Section 8: The Congress shall have Power: To lay and collect Taxes; To borrow Money; To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes; To coin Money; To provide for the Punishment of counterfeiting; To establish Post Offices and post Roads; To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries; To define and punish Piracies and Felonies committed on the high Seas, and Offences against the Law of Nations. Section 10 then lists things that states cannot do: No state shall . . . pass any . . . Law impairing the Obligation of Contracts. Through this list of enumerated powers, the Founders made clear that the federal government was responsible for creating a stable, profitable environment for private enterprise. Some of these points may appear obvious: The power to borrow money and collect taxes meant that people who loaned money to the public purse, particularly wealthy merchants and southern planters, could be confident that they would be reimbursed. In addition, the power to coin money and punish counterfeiters allowed the federal government to stabilize the national economy— people in New York could conduct business with people in South Carolina using a verifiable, trustworthy currency. And the oft-cited “Commerce Clause” guaranteed that the federal government should monitor and regulate business transactions that crossed state lines or involved foreign countries. That clause made the land from New Hampshire to Georgia a giant free trade zone, where products and people could move free of tariffs or other barriers. In addition to enumerating specific rights, this part of the Constitution illustrates the Founders’ business-oriented values. By retaining the right to define and punish piracy on the high seas, they declared that protecting private property—that which pirates were most likely to abscond with—was in the national interest. By establishing post offices and roads, Congress would create a vital infrastructure for transporting goods and facilitating communication across state lines. And finally, by enshrining the principles of patent protection—the “exclusive Right to their respective Writings and Discoveries”—the Constitution protected intellectual property at the highest level. For businesspeople, this clause promised that the federal government would protect them from dishonest competitors and promote new ideas and innovations. Finally, and perhaps most important, the Founders enshrined the paramount importance of contracts by barring states from contravening legal agreements. The Contracts Clause represented an overt exercise of federal authority—remarkable in a document committed to the separation of powers—that reaffirmed the critical role of the government in economic transactions from tobacco wholesaling to whaling to slaving. Most public discussions of the U.S. Constitution today tend to stress the document’s contribution to political philosophy, including questions about individual liberty and the limitations of governmental authority. Reading the document from an economic perspective, however, reveals the vibrant, enterpriseoriented legal system its authors envisioned. By the 1780s, business practices in the United States had grown more diversified than they had been earlier in the colonial period. As industrialization spread across the Atlantic from Britain, American businesspeople would benefit tremendously from the economic order created by those who wrote and ratified the Constitution. 2 THE BUSINESS OF BONDAGE In the early spring of 1841, a farmer and part-time violinist named Solomon Northup traveled from his home in Saratoga, New York, to Washington, D.C., for what he believed was a temporary job playing music for three dollars a night, plus a dollar a day for travel time. He arrived in the nation’s capital amid the public commemorations of the funeral of President William Harrison, the first U.S. president to die in office. Shortly after his arrival, Northup was drugged, kidnapped, and sold for $650 to a slave trader. Since kidnapping and selling a free citizen violated the law, that merchant, whom Northup later called a “speculator in human flesh,” beat and tortured his new acquisition to force his silence about his true status. Within weeks, Northup arrived in a slave pen in New Orleans, where would-be buyers inspected his body. The slave pen’s keeper, a business partner of the original slave trader/kidnapper in Washington, hoped Northup would fetch $1,500, but settled on $900. (The decreased selling price may have reflected Northup’s exposure to smallpox during the trip south; to negotiate even that price, the pen keeper had to lie about Northup’s age, claiming the thirty-two-year-old was twenty-three.) Twelve years later, when Northup regained his freedom and returned to New York, his market value as a slave may have approached $2,000. The abject horror of Solomon Northup’s ordeal became known, particularly in the North, when he published a memoir called Twelve Years a Slave in 1853.1 Along with countless other slave narratives, Northup’s book became a powerful weapon rallying public sentiment against the barbarity of slavery. At the same time, it provided a vivid picture of the cold, calculated financial considerations that underlay the hell he had endured. Chattel slavery was a complex business deeply intertwined with the country’s economic growth and industrial development, in the South as well as the North. As integral parts of the expanding American economy, slaves were more than unpaid workers. They were also stores of capital value, both as hired-out day laborers and as tradable commodities. Traders such as Northup’s kidnappers were speculative investors, buying low-priced human cargo in bulk and selling it at inflated prices. Slavery devastated millions of lives and left an unending and ugly moral legacy for the United States. It was also integral to national economic development from the colonial period until 1865. The story of the business of slavery winds through the physical expansion of European- and African-descended Americans into the interior of the North American continent. That continental movement not only solidified the country’s geopolitical power, but also created a vast domestic market for American- produced goods. As plantation-based slavery in the South became the “big business” of the antebellum era, it created a new class system that defined American politics until the Civil War. And most important, the wealth produced by enslaved hands in the South created the engine for industrialization in the North and abroad. Far from a peripheral part of the story of business and capitalism, slavery was central to the economic development of the United States. Trading in Flesh The business of modern slavery began long before the existence of the United States. It predates the permanent settlement of nonindigenous people in the Americas by several generations. Beginning in the early 15th century, merchants from kingdoms and city-states along the west coast of Africa established commercial relationships with Portuguese merchants, trading gold and spices for European metals and textiles. From the beginning, African-European commerce included the trade in human beings. At first, most human trafficking was internal, as Portuguese merchants would purchase slaves at one point along the coast and resell them at another to African merchants who needed laborers to transport bulky European goods inland. Yet within a few decades, the outflow of African slaves to Europe and Atlantic sugar islands (especially Cape Verde and the Azores) outpaced the circular coastal trade. Between 1450 and 1520, Portuguese ships exported 150,000 human captives away from Africa. Over the next century, as early conquering expeditions in the New World gave way to permanent European settlements, demand for slave labor grew and the trade expanded to include other European powers, particularly the Spanish, French, Dutch, and English.2 The first African slaves to live in what would become the United States arrived in Spanish-claimed territory in what is now Georgia and Florida in the early to mid16th century. In August 1619, a Dutch sea captain set anchor in the struggling colony of Jamestown and sold approximately twenty Africans whom he had pirated from a Portuguese slave ship. Virginia tobacco farmer John Rolfe (famous for being the widower of Pocahontas, the teenaged daughter of the leader of the Powhatan confederacy) reported that the colony’s leaders bought the human cargo “for victualle” (food) and paid “the best and easyest rate they could.”3 The slave trade, controlled by Dutch and Portuguese companies, remained mostly focused on the Caribbean and South America during the early years of the English colonial presence in the New World, and mainland English colonists purchased a relatively small number of African slaves. By 1675, scholars estimate, only four thousand Africans had arrived in the mainland British colonies, while more than two hundred thousand were sold to the far more agriculturally sophisticated (and profit-making) sugar colonies of Jamaica and Barbados. Most of the grueling and exploitative agricultural work in the English colonies—the type performed by enslaved people elsewhere in the New World—was instead done by European indentured servants. Those workers, while less than fully free, labored for a fixed period of time, generally in exchange for their passage to the colonies. That arrangement changed by the end of the 17th century. After the tumultuous civil war of the 1640s, England’s economy stabilized and its sea power expanded, creating major growth opportunities for all its colonies. By breaking the Dutch and Portuguese oligopoly on the Atlantic slave trade, English merchants reduced the costs of slaving. At the same time, prosperity reduced the supply of indentured servants, as members of the English lower classes found more attractive opportunities at home. As demand for labor in the North American fields and the cost of European workers rose, English colonists increasingly turned to African slaves. Slave importation grew dramatically: 11,000 people arrived between 1675 and 1700; 39,000 between 1700 and 1725; 107,000 between 1725 and 1750; and 119,000 between 1750 and 1775. By the turn of the 19th century, a total of 388,747 people had disembarked as slaves in the land that, after 1776, became the United States.4 Such statistics blur two important facts. First, some 84,000 additional people left Africa on slave ships destined for British North America but perished during the journey. Second, the slave population of the British North American colonies became self-sustaining by the early decades of the 18th century. American slaves, despite their horrendous living conditions, survived long enough to have children, and a sufficient number of those children reached adulthood to increase the nativeborn population of African Americans who inherited the legal status of their parents. (In much of South America and the Caribbean, by contrast, slave-owners more frequently worked people to death and continually imported slaves from Africa to maintain their workforces.) By the 1780s, the African American population of the United States reached approximately 750,000 people, the vast majority of whom had been born in the New World. As Britain’s North American colonies grew during the 17th and 18th centuries, the trade in human beings developed into a massive business. When Americans today think about the economics of slavery, most people tend to think about the value of the labor slaves performed for their owners. Just as important to the developing business of slavery, however, were the profits reaped from the exchange itself. The act of buying, transporting, and reselling slaves created tremendous business opportunities and contributed to the growing wealth of the colonies. Over the course of four hundred years, European, American, and African businesspeople kidnapped and transported approximately 10.7 million African people to the New World (and another 2 million were sold out of Africa but died during the voyage). From 1450 until the early 19th century, many more Africans crossed the Atlantic Ocean than Europeans. Most of that trade was organized through state-sponsored joint-stock companies that engaged in a “triangular trade”: African merchants supplied slaves to the Americas, where land-owning colonists sent raw goods to Europe, which manufactured finished products. As colonial cultivation of staples such as tobacco, indigo, cotton, and particularly sugar expanded, European investors in those trading ventures earned rich dividends, and their rulers reaped revenues through taxes and import duties. As the prominent historian of slavery Walter Johnson has put it: “People were traded along the bottom of the triangle; profits would stick at the top.”5 The transatlantic slave trade slowed considerably in the late 18th century, around the time of American independence. In 1807, both the British Parliament and the U.S. Congress outlawed the international trade of slaves. (The Constitution of 1787, in an effort to forge a compromise between slave-owning interests and antislavery advocates, had included a clause prohibiting any move to ban the trade for twenty years.) By 1820, all other major European powers had as well. Nonetheless, the internal slave trade remained a vibrant and vital part of the economy of the United States until the Thirteenth Amendment abolished slavery after the Civil War. As the country expanded its territorial boundaries to the south and west, slaves moved with them. In the antebellum period, approximately one million people were forcibly relocated within the United States, mostly from the Upper South states of Virginia and Maryland to the Deep South, where indigo, sugar, and increasingly cotton production created an ever-rising demand for slave labor and an increasingly profitable business for “speculators in human flesh.” Varieties of American Slavery By the end of the colonial period, the legal structure of American slavery had grown rigid and racially defined. Generally speaking, African and African-descended enslaved people were defined as chattel property in perpetuity—they remained slaves until they died or (in rare circumstances) their owners freed them, and status passed from mother to child, regardless of paternity. Enslaved people generally could not legally own property, vote, participate in the legal system, or enter contracts such as marriage. And they had no legal recourse when an owner chose to sell them, an injustice that resulted in unquantifiable suffering and the destruction of generations of families. American slavery by the 19th century was largely confined to the South, but despite that regional limitation, the nature of slave work varied in important ways. Many Americans have an image of slavery along the lines projected by Hollywood movies such as Gone with the Wind: expansive cotton or sugar plantations, where landlords owned hundreds of slaves. Reality, however, was more complicated. Large plantations certainly wielded disproportionate economic power, but most southern whites were not slave-owners. Historians estimate that, by the time of the Civil War, about 385,000 out of a total of 1.5 million white households in the South owned slaves. (African Americans and Native Americans did not own slaves in significant numbers, and were usually legally barred from doing so.) About half of these slave-owning households owned between one and five slaves; another 38 percent owned between six and twenty. Although they held a vastly disproportionate level of wealth, the remaining 12 percent of slave-owners (those who had twentyplus slaves) represented only 3 percent of all white households.6 About half of enslaved people labored on small and midsized farms, which produced a variety of agricultural goods. Whether they employed slave labor or not, such farms grew grain and vegetables and raised livestock. Among their biggest buyers were large plantations that dedicated most of their resources to cash crops such as cotton and sugar and needed to supplement their daily provisions with local products. In addition, small and midsized farms supplied urban areas in ports such as Charleston and New Orleans. The daily toil of enslaved people on such farms included a variety of tasks, from field tending to carpentry to artisanal work. Other slaves participated in industrial production. We don’t typically associate the antebellum South with manufacturing, and with good reason—the vast majority of such production took place in the North. Even so, some enterprising whites in the Upper South managed to construct textile mills modeled after New England’s factories and even iron-works facilities. And, although the experience was not typical, some southern industrialists used slave labor. In fact, by the mid-19th century, approximately two hundred thousand slaves worked in industrial settings. At the outbreak of the Civil War, more than sixty worked for, and were owned by, William Weaver, a native Philadelphian who moved to Virginia in 1814 to establish an iron forge with two charcoal blast furnaces in the Shenandoah Valley. The dynamics of industrial slavery differed critically from slavery on farms, as the historian Charles Dew has recounted. Violent coercion and discipline often proved ineffective, since beatings could leave a slave physically unable to perform factory work. Moreover, resentment from a beating could inspire industrial slaves to commit expensive sabotage, such as breaking a valuable piece of equipment. To compel obedience, Weaver deployed a reward system, granting “overwork credit” with which slaves could purchase commodities on their own. Yet many industrial slavers, such as the Virginian James Davis, compared “the negro to the dog”: To maintain authority, “you must whip him occasionally & be sparing of favors.” Whatever their use of physical violence, industrial slave-owners also found that the threat of selling slaves away and breaking up families was a highly effective tool.7 A significant number of enslaved people lived in urban areas such as Charleston and Baltimore. There, some slaves labored for, and often alongside, their owners in workshops, but many were owned by urban professionals—doctors, bankers, and lawyers who kept slaves as investment property. Some performed domestic duties, but more often they were hired out to work for private companies or to perform public works projects, such as digging canals or dredging harbors. Slave-owners received hourly pay for their slaves’ labor, and in many cases the enslaved people themselves brought home those wages in cash. In both cases, urban slaves often labored alongside free workers, both black and white.8 Through the variety of their experiences, enslaved people contributed to many different aspects of the American business system. While most slaves toiled in agriculture, others performed skilled and unskilled industrial labor, specialized in artisanal craftwork, or provided domestic services. Critically, though, their economic importance came not only from their daily labor, but also from their market price. On average, slaves were worth $200 each in the early 19th century, and some were worth far more—Solomon Northup recounted a negotiation over an attractive young girl for whom a white man offered $5,000. By the eve of the Civil War, historians estimate that the total cash value of the 4 million slaves in the American South was $3.5 billion in 1860 money. At more than 80 percent of the country’s total economic output, that figure would be roughly $13.8 trillion today. Understood in that way, enslaved people were capital assets worth more than the country’s entire productive capacity from manufacturing, trade, and railroads combined.9 Slavery and the Rise of the Cotton Kingdom In 1776, when Thomas Jefferson declared the “self-evident” truth that “all men are created equal,” nearly 15 percent of the 4 million non-Indian inhabitants of the United States were enslaved. Although slavery remained legal in all states, almost 95 percent of enslaved people lived south of Pennsylvania, and the highest concentration was in Virginia. Beginning in the 1770s, however, legislatures in northern states began to pass first gradual emancipation laws and ultimately complete bans on slavery. By 1804, every state north of Delaware had legally abolished the practice, and new midwestern states and territories that joined the nation in the decades to come likewise prohibited it.10 Meanwhile, the enslaved population in the South exploded in the first half of the 19th century. From fewer than 700,000 in 1790, the number of slaves grew to 1,191,000 in 1810—two years after the importation of slaves from abroad was outlawed. It ultimately reached 4 million by the eve of the Civil War. As the territorial boundaries of the United States extended south and westward, so too did slavery. By 1860, the enslavement of black Americans defined social and economic life from Maryland to Florida, and westward to Missouri and Texas. Why did slavery disappear in the North yet expand in the South in the fifty years after independence? The answers lie in the severe economic, social, and political dislocations that rocked the young country and erupted in the bloody Civil War. Slavery in the North died out because of the organizational power of antislavery activists combined with the lack of large-scale commercial agriculture in the region. Farms in the North never achieved the scale and specialization of southern plantations, and never came to rely on slave labor. In addition, the growth of industrial manufacturing and urban living militated against slave labor. Abolitionist messaging, rooted in religious appeals to human freedom as well as overtly racist warnings about racial mixing, shaped public discussion and the votes of state legislators. Evidence suggests that many, if not most, white northerners had no moral problem with slavery, but few powerful interests had much to gain by defending it. The story of slavery in the South is more complex and more hotly debated. As the rate of importation of African slaves declined after the mid-18th century, the future profitability of cash crops such as tobacco and sugar came into doubt. No one can say for sure what might have happened (and woe to the historian who tries!), but many prominent white southerners in the 1770s and 1780s believed slavery would soon die out on its own. Early in his public career, the slave-owner Thomas Jefferson believed that slave labor represented an inefficient and unenlightened method of organizing work. Moreover, his racist dismissal of blacks as inferior led him to predict that whites and blacks could not long live together, even if one were master of the other. By the early 1800s, however, Jefferson changed his view, telling a correspondent: “I have long since given up the expectation of any early provision for the extinguishment of slavery among us.”11 What had changed? Why did a system that seemed to be declining make such a comeback in the few short decades between the 1780s and 1800s? The answer is cotton. Cotton changed everything. The rising demand for raw cotton first came from England in the 1780s, where textile factories in places such as Manchester fed a growing global market for cheaply produced cloth. These British manufacturers wielded a technical monopoly over the textile industry and offered high prices to cotton farmers who could best meet their needs. Most important, after experimenting with various types of cotton grown around the globe, these industrialists came to prefer a particular type—a variety of the genus Gossypium—that grew well in the Deep South of the now independent United States.12 In the years immediately following the Revolution, American farmers searched for more marketable crops. Separating from the British empire had meant an end to price subsidies for tobacco, rice, and indigo, and profits from those crops declined. Cotton offered a new and promising source of revenue. A timely technological innovation helped further drive the growing profitability of southern-grown cotton. In 1794, a twenty-eight-year-old Yale-educated New Englander named Eli Whitney, engaged as a tutor for the children of a plantation owner in South Carolina, patented a machine that mechanically separated cotton fibers from cotton seed. According to the traditional story, Whitney invented this “cotton gin” (gin was short for “engine”) after observing enslaved people slowly and painfully removing seeds from cotton balls. It is clear that Whitney patented his design the next year and went into business to manufacture and sell his product, but historians debate the degree to which he “invented” it. It is probably more accurate to say that Whitney found a mechanical way to improve on a technique that slaves on many plantations already employed, at times, to scrape the seeds from the fibers with metal rollers.13 Yet to argue about whether Whitney “invented” the cotton gin misses the larger point. The process of mechanically separating seeds from fiber, whether through one of Whitney’s patented machines or one of the many imitators that followed, revolutionized the process of cotton production in the American South. Mechanization decreased the processing time necessary to render raw cotton salable, so plantation managers could direct their enslaved workforce to spend more time in the fields, harvesting the crop itself. The amount of cotton an individual enslaved person could prepare for export rose as use of the mechanical devices spread. By some estimates, the per-slave cotton yield increased 700 percent. Business history is full of stories of entrepreneurial and innovative people such as Whitney. As students of the past, however, it is important for us to understand that technological breakthroughs can only drive change when the social and economic context is right. (Just ask Leonardo da Vinci, who came up with ideas like the helicopter four centuries before human beings mastered air flight.) Did innovation drive the market, or did the market drive innovation? In most cases, including this one, the more complete answer is that the two mutually reinforced each other. Before long, domestic textile producers joined English factories in propelling this cotton boom. American textiles underwent a technological revolution at the turn of the 19th century, and mill owners in the North began to compete with more established British cloth manufacturers. International conflict led to a trade embargo between America and Europe in 1807. While that hurt international merchants, it benefited American textile producers by making their cloth more competitive. And fueling this massive increase in textile production was the critical raw material— southern cotton, grown on large plantations and harvested by the unfree hands of African American slaves. The results for the cotton industry were astounding. Southern planters produced around 3,000 bales of cotton per year in the early 1790s. By 1820—by which time domestic textile manufacturing had spread considerably—that number approached 450,000. By the eve of the Civil War in 1860, the South grew and exported (either domestically or abroad) nearly 5.5 million bales of cotton per year.14 This explosion in cotton production redefined the economic landscape of the American South. Large plantations came to specialize in a single crop, cotton, to a far greater degree than they had during the colonial period. With more resources dedicated to reaping high profits from cotton, southern planters relied more than ever before on manufactured goods brought in from the North and overseas, as well as on small and midsized southern farms for supplementary food crops. More important, their reliance on slaves—the hands that picked the cotton—grew ever stronger. Earlier notions that slavery would peter out vanished before the might of the global cotton trade. The new economics of cotton also produced fierce competition for land and resources among white southern landowners. Looking for more fertile soil, many migrated south and west into what is now the Deep South. And where cotton and cotton planters went, so, too, did slavery. The enslaved population of the Mississippi Territory increased by 400 percent in the first ten years of the 19th century alone, from approximately 3,500 to 16,700. By the turn of the 19th century, those migrating white Americans and their burgeoning cotton business gratefully received tremendous assistance from the federal government. Conflicts with the various Indian nations, as well as the remnants of Spanish settlements, were common, and the cotton frontier was only secured through territorial treaties backed up by the strength of the American military. After President Jefferson negotiated the purchase of the Louisiana Territory in 1803 from Napoleon (whose right to sell it, even by European standards, was shaky), government officials sent soldiers to secure the area, surveyors to chart and subdivide the territory into farmable plots, and agents to organize the sale to private ventures.15 Because most cotton was grown on large plantations that employed more than twenty slaves—and in some cases in the Mississippi Valley up to a hundred or more —the wealth from the cotton boom became increasingly concentrated in fewer hands. As the cotton economy expanded, the people at the helm of this industry— both the landowning planters and the merchants who moved the product through a series of ports to its final destination in the mills—coalesced into a powerful ruling class. Wealthy southerners had long held sway over American politics. Even in the 1780s, when many people thought slavery would die out, Constitutional Convention delegates from states such as South Carolina had insisted that the nation’s founding document protect the interests of slave-owners from abolitionists. Yet with the cotton boom, the power of plantation owners—which contemporaries often dubbed the Slave Power, or the Plantocracy—reached new heights. A South Carolina senator named James Henry Hammond put a rhetorical point on the issue in 1858. During a congressional debate over whether Kansas should become a state and allow slavery, Hammond—who had ridden his success as a plantation owner to a political career—rose to defend the slave-based economy of the cotton South. The South, he declared, was no mere feeder-system to the industrializing North. Downplaying the importance of industrial manufacturing, Hammond claimed that the South’s ability to produce vital agricultural staples made it more powerful than the North, whose livelihood depended on southern cotton. Without southern cotton, he asserted, “England would topple headlong and carry the whole civilized world with her, save the South.” None would “dare make war on cotton,” Hammond chided the North: “Cotton is king.”16 The cotton “kingdom” fueled business development in the early United States. Tremendous wealth flowing to plantation owners and merchants created a political class of men such as Hammond, whose fervent defense of slavery would lead to disunion in 1860 and 1861. The cotton they produced fed an increasingly industrial society in Europe and in the North, propelling changes in business operations and changing the social context in which Americans worked and consumed. And most critically, the expansion of the cotton economy cemented and promoted the practice of slavery. By the beginning of the Civil War, slavery had expanded to record levels across the South. The 4 million women, men, and children confined to chains were, for “speculators in human flesh,” tremendous financial assets, as well as the labor power that fueled the southern economic juggernaut. Slavery and Capitalism Traditionally, scholars considered slavery and capitalism to be separate, even contradictory historical phenomena. Nineteenth-century economic thinkers often framed capitalist economic relations in terms of freedom: freedom to make contracts; freedom to own property; freedom to generate profits from one’s activity. Perhaps most important was the freedom to negotiate a price for labor. Karl Marx, who was simultaneously capitalism’s fiercest critic and its most trenchant analyst, viewed slavery and capitalism as incompatible. Without the freedom to contract for labor, society could not have the essential features of capitalism—a class that owned the means of production (factories, for instance) and a class that sold its labor in the form of wages. Slavery, for Marx, represented a different stage in economic development that served as a necessary precursor to capitalism (just as capitalism, for Marx, was a necessary precursor to socialism).17 And Marx was not alone. Even people who otherwise had no interest in Marxist theories agreed that unfree labor was, by definition, inimical to capitalism. Throughout the 20th century, many historians buttressed that claim with evidence that slavery was an economically inefficient and costly way to organize labor. Slaves certainly did not live well, but they had to eat, and providing basic necessities constituted a business expense for their owners (which was not the case with wage workers), as did the costs of imposing coercive violence. Economists argued that agricultural production was inherently linear and could not experience the exponential returns on investment that capitalistic enterprises achieved. A farmer who doubled his landholdings could potentially double his yield, while factory owners and industrial investors could improve productivity many times over and achieve much higher rates of return. More recently, however, historians have begun to challenge the notion that capitalism and slavery existed in separate spheres. Recent histories paint southern cotton producers as efficient, modern businesspeople, very similar to their capitalist neighbors to the North. Farmers in the antebellum South managed to generate evergrowing stocks of cotton not only by bringing more land under cultivation, but also by adopting more productive business practices. Plantation records show that they developed increasingly efficient accounting systems, surveying tools, and plans for maximizing crop yields.18 Slave-owners also increased cotton production through brutal workforce management, adopting labor policies that resembled those of industrial factories. Whistles and horns regulated the workday, labor was divided, and overseers, acting like factory foremen, supervised individual workers. And as historian Edward Baptist has shown, slave-owners used violence not merely as a tool of social control, but deliberately as a strategy to increase productivity. Beatings and torture pushed slaves to work harder and faster, increasing the yield of the cotton kingdom.19 Slavery and capitalism were also deeply linked through the dual nature of slaves themselves—as not just a source of labor, but also a store of capital value. Southern slave-owners used their chattel human property as collateral for mortgages to expand their landholdings. Planters like James Henry Hammond made capital investments outside their own industries, purchasing stocks in railroad corporations. And urban slave-owners renting out their slaves’ labor monitored the market to consider when to buy and when to sell. The spirit of capitalism was far from uncommon in slave society. The history of slavery was deeply intertwined with the history of capitalist development in the sixty years after American independence. The northern and southern economies both developed rapidly and in tandem, and businesspeople in both the slave South and the free North relied on the federal government to advance their economic interests. Southerners used the military to secure new territory, the police to enforce slave codes and prevent rebellion, and the taxing authority of the federal government to promote the export of cotton. Northerners relied on state investments in infrastructure and the protection of domestic manufacturing. From wealthy slave-owning planters to northern merchants and bankers, as well as the manufacturers who grew rich producing textiles from slave-grown cotton, the business of bondage shaped all aspects of the early American economy. 3 FACTORIES COME TO AMERICA In January 1790, the first U.S. Congress commissioned a special report by the secretary of the treasury, Alexander Hamilton. Facing profound internal disputes about what the economic future of the young country should look like, Congress charged Hamilton, a West Indian immigrant and veteran of the American Revolution, with assessing the place of “manufactures,” the common term for finished products, from textiles to iron to shoes. In a land overwhelmingly populated by farmers, what role should manufacturers play? And what steps should the national government take to keep the United States “independent [from] foreign nations, for military and other essential supplies”? Nearly two years later, Hamilton delivered his Report on Manufactures, the last of three major reports he prepared on national economic planning. (The first two dealt with public finances and led Congress to consolidate the country’s war debts into a single national debt and create a national bank.) In his report, Hamilton made a principled case that, while the United States should not abandon its tradition of selfsufficiency and commercial agriculture, Congress should take steps to develop the manufacturing sector as well. “[T]he establishment and diffusion of manufactures,” he argued, would make “the total mass of useful and productive labor, in a community, greater than it would otherwise be.” Government policy, Hamilton insisted, should encourage Americans to build mechanized mills, expand factories, and devote resources to creating better machines and equipment. In addition, Hamilton promoted levying selective import taxes, or “protecting duties,” and stricter inspections on imported products to raise the cost of imported goods and provide a boost to domestic ones. Furthermore, he urged, the national legislature should make inland trade easier by putting money into national roads and highways, and should provide financing options for small American manufacturers.1 Hamilton’s Report on Manufactures was controversial and exposed the political and economic schisms in the United States in the early national period. In the 1790s, most of the country engaged in agriculture or other endeavors that exploited natural resources. Even though Hamilton argued for a mixed economy of both farming and industry, many of his critics believed that his defense of manufacturing amounted to a veiled attack on agriculture. His trade policies, they charged, would disproportionately benefit wealthy northern elites (like Hamilton himself) at the expense of farmers. That conflict formed the core of a political debate that would define American business history throughout the 19th century. Congress took no immediate action on Hamilton’s industrial policy recommendations, but the rapid rise of industrial manufacturing in the following decades would make the issues he raised unavoidable. Hamilton himself died in 1804, shot in a duel by the sitting vice president, but his early advocacy for manufacturing proved prescient. In the half-century after independence, the production of finished goods moved from small shops and households into increasingly large-scale factories and mills. Fueled by a booming international trade and growing global demand, as well as technological advances in transportation and communication, American craftspeople and artisans—almost entirely in the North—created larger business operations than had ever existed in the past. Important innovations, including early forms of assembly-line production, the separation of ownership from labor, and the rise of the corporate legal form, propelled this new economy forward. Just as slavery drove the southern economy, manufacturing became increasingly important to the economies of the Northeast and, by the middle of the 19th century, the Midwest. And just as slavery’s social and economic reach extended far beyond the South, so, too, did industrialization exert a powerful influence on all Americans. Economic growth spurred population growth, infrastructure, and new methods of production, communication, and transportation. Just as important, the production and trade of manufactured goods gave rise to a new model of social organization that historians often call the “Market Revolution.”2 From simple day-to-day purchases to long-distance shipments of cotton, iron, wheat, and slaves, Americans became more connected to one another through the market economy. And the growth of the factory model altered traditional working arrangements. As labor moved outside the home and off the farm, new categories of wage-earning workers developed and urban populations boomed. By the late 19th century, industrial manufacturing, as Hamilton had predicted, came to dominate American economic and social life. Business Becomes Specialized after Independence When Alexander Hamilton wrote his defense of manufacturers in the early 1790s, business enterprise in the United States looked much as it had during the last hundred years of the colonial period. Most Americans worked on farms, and most farms—even large southern plantations—were controlled by individual households. Industrial activities such as mining and smelting were organized around family units, and the production of textiles, metals, and farm equipment took place either in homes or in small artisanal shops. Atop that economy sat general merchants, who ruled over domestic and international trade in port cities, supervising and profiting from the flow of a variety of products. This situation began to change at the end of the 18th century. Businesses began to specialize and general merchants were replaced by a network of enterprises devoted to specific business activities—from canal building to money lending, from wholesaling to textile production. What prompted this shift from a personalized business world to a more formalized structure based on specialized firms? Among the most important factors were new opportunities to trade that opened up after the American Revolution. No longer bound by their place within the British empire, American merchants could seek markets in continental Europe, the Middle East, and China. In addition, independence and expansion into Indian land in the West, as well as immigration from Europe, brought about rapid population growth, creating a vast domestic market that manufacturers back East could serve. But the most significant force behind specialization was the advent of industrialization itself—not in the United States, but in Britain. In the last half of the 18th century, Britain emerged as a world leader in the increasingly mechanized production of cotton textiles, and it owed its competitive advantage to a series of technological innovations. The spinning jenny increased the speed of spinning cotton fibers into thread, helping make cotton a viable alternative to traditional materials like wool, which was heavy and scratchy. And British weavers harnessed the power of steam to propel the looms that wove thread into cloth. These innovations increased output and lowered costs. Britain’s geopolitical dominance helped its textile merchants corner the global trade in textiles, undercutting competitors from India and China.3 Most important for business in the United States, Britain’s textile revolution created a tremendous demand for cotton. A specialized chain of middlemen emerged to facilitate the movement of ever-greater volumes of slave-grown cotton from farms in the South to relay centers and port cities, and onto ships bound for Manchester and Liverpool. At the same time, the young United States became a key market for finished textiles produced in British factories. Growing volumes of trade propelled merchants to specialize in importing those goods, which they handed off to wholesalers and retailers, and finally to shopkeepers.4 Textile Mills: The First Factories Techniques for mechanically producing textiles crossed the ocean from Britain to the New World in 1789, when an English mechanic named Samuel Slater immigrated to the United States. Born in Derbyshire, Slater began working in cotton mills as a child and developed a deep understanding of the machinery he worked with. To circumvent British laws prohibiting the exportation of industrial designs, Slater committed much of the process to memory and, at age twenty-one, sailed to Rhode Island. After teaming up with a candle manufacturer who fronted the advance money, he created a water-powered mechanized textile mill in the early 1790s and amassed a fortune. At the turn of the 19th century, others imitated Slater’s successes. Most notable was a Boston-born merchant named Francis Cabot Lowell. In 1813, Lowell used his connections with the New England trading community to form a partnership called the Boston Manufacturing Company, based in Waltham, Massachusetts. That group, which soon changed its name to the Boston Associates, established an integrated production facility that united the processes for spinning, weaving, and finishing textiles. Slater, by contrast, had followed a more traditional model and performed each of these activities in a separate location, frequently sending packets of work out to farming households to be performed after hours or in the winter. Capitalizing on a more efficient production method, Lowell’s company grew. The partners reinvested their profits, founding a new mill on the Merrimack River northwest of Boston in 1822. That development grew into one of America’s first “factory towns”—the city of Lowell. The scion of a well-connected family, Francis Cabot Lowell benefited from a much higher social position than Slater, and so had access to considerably more start-up capital. Historians estimate that Lowell’s original mill in Waltham started with twice the funding that Slater had, which partly explains his greater success. Lowell’s foray into factory production came at an auspicious moment. In 1807, U.S. president Thomas Jefferson enacted an embargo on goods imported from Britain and France in response to aggression against American ships by the two warring European powers. Five years later, the United States entered the War of 1812 with Britain. The war curtailed imports of manufactured goods, most significantly cotton textiles. In this vacuum, well-financed and technologically sophisticated factories created by the Boston Associates achieved great success.5 The water-powered, machine-intensive textile factories of Lowell required a significant labor force. For the first several decades of their operation, the Lowell factories found a promising source of workers among the young women of the local farming communities. The Boston Associates engaged so-called “mill girls” to perform the difficult and monotonous work of textile production. Primarily the daughters of white Protestant farmers, these workers encountered a paternalistic social system at the mills, designed to “protect” their feminine virtue and convince their parents to allow them the social independence to live away from home. Lowell provided dormitories for workers as well as churches, libraries, and stores. Work in the textile mills was monotonous, dreary, and strictly supervised— workers’ lives were not their own. Yet some claimed that their compensation, economic stability, and relative freedom during the down hours made up for the drudgery. “The time we do have is our own,” reported Josephine Baker, a “Lowell girl” who contributed to a pro-industry magazine called The Lowell Offering in 1845. “The money we earn comes promptly; more so than in any other situation; and our work, though laborious is the same from day to day; we know what it is, and when finished we feel perfectly free, till it is time to commence it again.”6 The experiment with “mill girls” only lasted until the 1840s, when the Lowell mills increasingly turned to poor, immigrant labor. Throughout the Northeast and Midwest, industrial factories that employed hundreds of workers upset traditional social structures by shifting the site of work away from the home. In the process, a new class—a working class—started to take shape. These factory workers, whether young women from local farms or, increasingly, European immigrants (both women and men, and frequently children), developed a different relationship to their labor than home-bound spinners and weavers had. They worked for hourly wages, put in long hours on dangerous machinery, and faced harsh discipline from owners and overseers. Machinists on cotton mills typically worked twelve or fourteen hours a day in large, noisy rooms, and faced the constant threat of debilitating or deadly accidents. The growth of industrialization pulled many Americans away from farms and toward factories, where they joined with European immigrants to boost the population of America’s cities. In 1790, only 5 percent of Americans lived in urban settings; by 1860, 20 percent did.7 Revolutions in Transportation and Communication In the first half of the 19th century, Americans performed business transactions across ever-greater distances and, more and more, with people they had never even met. Some traded their own labor, while some dealt in the labor of others. Some focused on production, but many also specialized in moving finished products from factories to warehouses, from wholesalers to retailers. The result was a marketoriented economy that only worked because of the changes in how people and information moved across the vast and growing country. And vitally, these innovations depended on a combination of factors—state and federal governments, municipal authorities, and private firms—all of which contributed to the infrastructure to make long-distance trade and industrial production possible. In the early 19th century, nearly all commercial goods traveled from their place of origin to their final destination by water. Inland roads were poorly maintained and dangerous, and their usefulness was limited by the speed and strength of horses. Beginning shortly after independence, private companies in New England and the mid-Atlantic states built and maintained roads, known as turnpikes, and charged tolls to travelers to recoup their expenses and turn a profit. Despite a boom in road construction, most of those businesses struggled to make money. Over the next several decades, state governments stepped in, promoting and financing road development. Even with this additional investment, however, road travel remained expensive and perilous, and not at all suitable to an expanding industrial economy.8 Unlike roads, waterways allowed merchants to move large quantities of textiles, iron, slaves, and foodstuffs over significant distances. According to one estimate, the amount of money it took to ship a ton of goods from Europe to an American port city would only get the same cargo about thirty miles inland pulled by a wagon.9 The rising levels of international trade in the early 1800s propelled a revolution in transportation technology. At the heart of these developments was steam power, captured by pouring water over heated coals and using the rising steam to turn turbines. That essential technology had developed generations earlier in Britain, where early steam engines, while inefficient, competed with animals, wind, and water as the preferred power source for the growing textile industry. In 1807, two Americans—inventor Robert Fulton and financier Robert Livingston—applied steam technology to power riverboats. By the 1820s, steam routes crisscrossed the country.10 This new ability to move goods swiftly from the interior to the ports encouraged westward expansion by both farmers and entrepreneurial industrialists. Coalpowered iron mills developed in the mineral-rich lands of western Pennsylvania, and the small town of Pittsburgh grew into an important manufacturing center. Towns along major interior waterways prospered, specializing in the increasingly mechanized processing of agricultural products such as meat and grain. Steam power enabled ships to move goods and people more easily along existing waterways, but they were obviously restricted to where the rivers flowed. Man-made canals presented a promising workaround and marked a second critical development in the transportation revolution. These trenches—a few feet deep, a few dozen feet across, but sometimes hundreds of miles long—represented a tremendous engineering challenge. They were designed so that draft animals could walk parallel to the water, dragging nonmotorized barges laden with goods. As a result, the canals had to rise and fall with the landscape. The most famous, New York’s Erie Canal, employed eighty-three locks to adjust for changes in elevation and eighteen aqueducts to bypass other rivers and streams as it cut a 360-mile swath from Albany on the Hudson to Buffalo on Lake Erie. Completed in 1825, the Erie Canal brought vast quantities of wheat and timber from the Great Lakes region to New York City, and then up and down the Atlantic seaboard. Towns sprang up along the canal route as private businesspeople established distilleries, flour mills, and other processing outfits.11 At a cost of some $7 million (perhaps $2 billion in today’s money), the Erie Canal exceeded the scale or scope of earlier canal-building operations. It also signified a new era of publicly financed infrastructure. Before 1820, the few built canals had relied on privately raised capital. Starting with the Erie, however, canal building depended on money from state governments and municipalities. Large canals entailed tremendous up-front costs years before any tolls could be collected, so builders found that private financiers were loath to invest. Only local and state governments commanded sufficient public trust to sell bonds and invest in large sums of corporate stock, and thus raise money for the ventures. In most cases, municipal governments saw a positive return on their investments, not only in direct payments but also through the tremendous economic growth generated by the new system of canals—three thousand miles’ worth by the 1840s, linking the Atlantic seaboard with midwestern cities such as Terre Haute, Indiana, and Cincinnati, Ohio.12 In spite of historians’ tendency to label these changes in transportation a “revolution,” they didn’t take place all at once. The expansion of inland roads, steam power, and canals reshaped economic life in early America and contributed to both the rise of industrial manufacturing and the movement of white Americans into the interior. However, this “transportation revolution” was constrained by technical and economic limits for many decades. Even by the 1840s, steamboats were not technologically sophisticated enough to replace wind-powered ships on open sea, either crossing the ocean to Europe or sailing between eastern port cities. And while canals increased the ease with which large quantities of goods could be moved from the interior to the seaboard, ultimately those goods moved only as quickly as the oxen dragging the barges. But these innovations in transportation created new incentives for accelerating overland travel. The rise in trade and production, facilitated by canals and steamships, generated great profits. And by the mid-19th century, that newfound wealth laid the foundation for the development of a new type of overland vehicle— one that would really revolutionize transportation: the steam-powered railroad. Like many aspects of America’s industrial revolution, railroads originated in England. By the 1820s, British engineers had found ways to use the steam engine to power land-based mechanized locomotives, and early rail lines emerged to connect coal deposits to processing centers. The American foray into rail began in 1828, when the state of Maryland chartered the Baltimore and Ohio Railroad company, which laid tracks to the west to create an alternative to canal traffic. The first steampowered locomotive to travel those rails moved slower than a horse, but within two decades, the technology improved. The railroad boom took off in the late 1840s, and the number of miles of tracks multiplied. Americans laid more than twenty-one thousand miles of railroad track in the 1850s. By the eve of the Civil War, a New Yorker could reach Chicago in two days, a trip that would have taken three weeks in 1830.13 These phenomenal changes in the speed and efficiency of transportation also led to major developments in the speed of communication, with tremendous effects for business. Faster transport—whether on turnpike roads, canals, steamships, or railcars —increased the volume and speed of mail delivery between the 1810s and the 1840s. The U.S. Post Office, which was granted a special license and responsibility by the Constitution to deliver the country’s mail, expanded from seventy-five branches in 1790 to more than eighteen thousand by 1850. Just as important, private companies began to profit by delivering larger packages. In the 1840s, a group of investors formed a rapid-delivery service that charged customers high fees to move parcels by stagecoach westward from the East Coast. Within ten years, that original partnership broke up into several specialized companies, including Wells Fargo and American Express.14 But even more important than overland mail and package delivery was the advent of electronic telecommunications: the telegraph (from the Greek for “writing at a distance”). The first telegraph was created by the French government in the 1790s to allow communication from Paris to twenty-nine cities up to five hundred miles away. But those original telegraph networks were optical, not electronic. To make them work, trained operators staffed towers spaced ten to twenty miles apart, from which they sent coded signals by shifting the positions of specialized panels. Although nothing in the United States matched the complexity of the French system, smaller networks of optical telegraphs emerged along the Atlantic Coast in the first decade of the 1800s, and others connected New York and Boston to their outlying farming communities in the 1810s. Optical telegraphs created complex networks of nodes organized through a huband-spoke system. That infrastructure proved vital when technicians created ways to send signals electronically. In 1837, an American portrait artist named Samuel Morse became the first American to patent such a machine. Morse’s telegraph machine sent electromagnetic pulses through a cable and registered those pulses by clicking a mechanical device at the other end of the line. Morse took credit as the “inventor” of the telegraph, although controversy emerged over its true provenance. Nonetheless, Morse’s patent guaranteed him the right to develop and profit from the invention, and within a few years, he and some partners developed a code to convert the clicks into letters and numbers, based on their pattern and duration—the famous Morse Code. In 1844, they completed a forty-mile demonstration line between Baltimore and Washington, funded with a $30,000 grant fr...
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