Section 3: Making Capitalism American

Section 3: Making Capitalism American

“The Haitian Revolution and the War of 1812 … Slavery and Industrial Demand … The Birth of the American Factory … American Finance … Cash Consumption … American Capitalisms and Regional Development”
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  • Making Capitalism American > The Haitian Revolution and the War of 1812 > The End of the First System of Slavery
  • Making Capitalism American > Slavery and Industrial Demand > Incentives and Slavery
  • Making Capitalism American > The Birth of the American Factory > The Industrial Revolution
  • Making Capitalism American > The Birth of the American Factory > The Implications of Wage Labor
  • Making Capitalism American > The Birth of the American Factory > Early Labor Unions and Strikes
  • Making Capitalism American > American Finance > The American System: Transportation, Bonds and the State
  • Making Capitalism American > American Finance > Wall Street & New York Finance
  • Making Capitalism American > Cash Consumption > The Murder of Helen Jewett
  • Railroads and Western Development: Shifting Regional Investment

Making Capitalism American > The Haitian Revolution and the War of 1812 > The End of the First System of Slavery

  • The development of state policies that would make and expand markets.
  • What we also needed was the development of machines and techniques and systems of production that could increase the efficiency of production and perhaps continue to add more increases to the efficiency of production.
  • This would all collectively potentially allow the West- particularly England and maybe the United States as well, the new United States- would allow them to break out of that Malthusian trap of the agricultural world, a world in which the supply of goods and the use of resources could only expand so far without pushing up against the natural and technological limits to production and consumption.
  • Now, the first place we’re going to start might seem like an ironic place to start, because we’re going to start by talking about the end of one system of slavery and the beginning of another.
  • Now, it’s been traditional for students of capitalism from Adam Smith to Karl Marx on into the 20th century to talk about slavery as something distinct from capitalism.
  • So far we’ve been talking about sugar slavery in particular as one of the engines of growth in the pre-capitalist Atlantic system- England, its colonies, the United States, et cetera.
  • What actually happened in the 1790s and early 1800s was the end of that early system of slavery but then the beginning of a new one, a new kind of slavery that would add dramatically to the pace of growth in industrial capitalism.
  • We had a first system of slavery, the sugar slavery that was so prevalent in the islands of the Caribbean, and also it had a variant in the United States as well with tobacco and rice.
  • Now, what do I mean by the first slavery? I mean the system of sugar slavery, the system of repeating islands in the Caribbean which had been so important to British and European and North American economic growth in the 1600s and the 1700s.

Making Capitalism American > Slavery and Industrial Demand > Incentives and Slavery

  • As soon as Simon started working, Charles realized he was going to have to work very hard to keep up with Simon, because Simon was working very, very quickly.
  • He also realized why Simon was working so quickly.
  • Each of those captains was working as fast as they could.
  • Each of them had 10 people trying to work as fast as that captain.
  • These might be cruel and immoral incentives, what Charles Ball was experiencing on that first day of labor, but they were incentives that worked in terms of producing more cotton.
  • In 1790, 470 million pounds of cotton are made and traded in the world.
  • Their work was being incentivized, and incentivized very successfully, but not incentivized in the ways that most economists, and certainly some of the biggest proponents of capitalism as a system that’s based on free wage labor, would have said is essential to the system of capitalism.
  • Usually when people contrast slavery and capitalism, or slavery and wage labor, they go to Adam Smith, one of the great economists, who argues that wage labor has built-in incentives that slavery simply doesn’t, and it’s not possible to improve the quality of labor or improve the quality of the product much with slavery.
  • The slave is not going to get anything out of the labor.
  • They’re certainly not going to get any money out of the labor.
  • So there’s not much incentive for them to work hard work or to work well.
  • There’s so much truth that figuring out incentives was one of the most difficult tasks of overseers and slave owners in the 18th century North American South, in the slave colonies, particularly, of South Carolina and Virginia.
  • If somebody wasn’t working hard enough, or if somebody wasn’t working at all, then they would be threatened and perhaps punished.
  • Increasingly, slave owners relied on African-American slave drivers, many of whom were also enslaved themselves, to direct labor in individual tobacco patches.
  • So when the white overseer or the white enslaver weren’t around, often the pace of labor would slow with the consent of the driver.
  • This was very common in the rice belt along the coast of South Carolina and Georgia, not the cotton part that was inland where Charles Ball found himself, but in the older section.
  • In the task system, an individual laborer had a specific amount of work they were supposed to finish in a particular day.
  • People who worked very, very hard could often finish by 3:00 or 4 o’clock in the afternoon.
  • This allowed them space to have a different kind of life from people who have to work from sunup to sundown.
  • Even though productivity did not increase with the task, the cost of supervision was very low for the enslaver.
  • So the gang system and the task system were the primary systems in use before early 1800.

Making Capitalism American > The Birth of the American Factory > The Industrial Revolution

  • Ed, what do you think’s important about the Industrial Revolution? Well, we talked about cotton textile factories and how those are kind of geared with the expansions in the cotton frontier of the south.
  • Expansions geographically, the expansions in the number of people there- which creates new markets for textile factories- but also the expanded ability to produce cotton more efficiently, and to produce cotton textiles more efficiently.
  • What happens, pretty soon after 1819, is that you start to see the emergence of the same sort of relationships happening- only, not happening in one industry, but in several kinds of manufacturing, and then several more.
  • Textiles and shoes and any kind of number of things- pin manufacturing- and it’s about bringing the people out of the countryside and into the cities.
  • How fast do you think things were going, Ed? So in the old agricultural economy, you were lucky if annual productivity, or annual economic growth, hit 1%. And you start to really, consistently get over 1%, except in those panic years, after 1815.
  • The very fact that workers could be replaced by machines, and then find other opportunities to use machines even more efficiently, is what is so surprising.
  • So when you have all of these new machines, like you do in the spinning and the weaving mills, you need to have somebody who understands how they work.
  • What you consistently find, if you look at this at a, sort of, a micro-level, is that those repairmen often then go on to start their own shops, and even their own industries, whether they’re in watch making, brass foundries, and things like that in Connecticut.
  • The early shops, which build some of the first locomotive engines in the United States, and then take those same sort of principles of using steam and mechanical force to drive production, and to drive movement, and turn that into a whole set of other industries.
  • So this most basic idea, that machines can make products more efficiently, is spreading, throughout the economy, from the small shops and factories, to the largest new kinds of areas of products.
  • So it spreads and transforms the entire economy, both as a way to produce things, but also a way- a place in which to invest money.
  • As more and more immigrants come in and keep labor costs a little bit lower than they would have, they’re able to help factories to expand even faster, they become that many more markets for goods, and many of them also find that there’s an opportunity for commercial agriculture.
  • So they get off the boat in New York, and they head straight for Illinois or they head straight for Missouri, Minnesota, and Wisconsin.

Making Capitalism American > The Birth of the American Factory > The Implications of Wage Labor

  • Although today we all work for wages, that is, somebody pays us in cash, this is a profoundly unnatural set of relationships in the early 19th century, in America.
  • As we’ve said before, most of the economy until 1800 was still barter-based, in the sense of transactions between people, based predominantly on credit and debt.
  • Whether you were a shoe cobbler, or a farmer, or any other kind of skilled worker- that in the 19th century were called mechanics, even though obviously they didn’t work on cars.
  • In wage work, like you had in the first factories, you were paid in cash.
  • Today we might want a really high salary, or at least a high wage per hour.
  • People marked themselves more by what they did than what they could buy with their wages.
  • The purpose of these wages was to participate in the consumer economy, whether that was buying land, or buying new kinds of fabric, buying all kinds of new things produced by these factories themselves, that became cheaper than making your own cloth at home.
  • The very notion of the wage was, in some sense, antithetical to that of virtuous, independent citizens.

Making Capitalism American > The Birth of the American Factory > Early Labor Unions and Strikes

  • The Lynn shoemaker strike of 1860 reveals the changing moral and economic order of the years directly before the Civil War.
  • By the 1850s, the putting out system of shoes, which centered in Lynn, Massachusetts, had now extended all the way to New Hampshire and Maine.
  • These households in the putting out system still thought of themselves as independent producers, taking in the shoes, sewing them together, and sending them back.
  • In Lynn, shoe merchants began to set up their own factories with their own sewing machines.
  • These shoe binders that were now centralized were known as machine girls.
  • In Lynn, there was a 40% drop in employment in the shoe industry.
  • As we come to 1860, there is a combination of the incredible productivity of the shoe industry with the new sewing machines and also the people left out of that economy.
  • It hearkens back to this older, artisinal system of production, a system where individual households are producers, and this is part of the appeal of the putting out system- that they are not dependent.
  • It’s also ironic, because the shoes that they’re producing are actually for the slave markets of the Caribbean and the American South.
  • So it’s about affirming a position away from the people who consume the shoes that they are producing.
  • These shoemakers made demands on the manufacturers, the ones who own these small shoe factories.
  • This is the naked truth of 1860- That that older, artisinal order is finally and completely gone, that workers are now wage workers, and there’s no recourse to any kind of social contract.
  • With the advent of the McKay Stitcher in 1862, the final step of shoe production is fully mechanized.
  • Everything is deskilled, and there is very few places left to make money in the shoe industry.
  • The time it took to make one pair of shoes before, a worker can now make 80 pairs of shoes.
  • It’s automation and production at a scale that had never seen been seen before in the shoe industry or nearly any other kind of soft good.
  • So workers are working harder, producing more, and earning less.

Making Capitalism American > American Finance > The American System: Transportation, Bonds and the State

  • When historians talk about the early 19th Century economy, we invariably talk about Henry Clay’s American System.
  • What is important about the American System is also that there were many different ways in which the economy was organized, especially financially.
  • How do you describe the American System to people? Well, I think the first thing to remember is that we talk about Henry Clay and his American System, first of all, because it’s so easy to do that.
  • Because he’s a great American story, he starts off relatively poor in Virginia, moves west to Kentucky to the frontier.
  • Now what he usually ends up doing is working for a wealthy investors and speculators who want to take a land claims away from poor farmers who don’t have the same kind of legal firepower to make their claims really stick.
  • Like Thomas Lincoln, the father of Abraham Lincoln, this is why he and moving from Kentucky for one thing.
  • To a large extent, he’s able to persuade the American political elite for a few years to go along with what he calls his American System.
  • Can you remember what some of the elements of the American System [INAUDIBLE]? I’m a terrible student, Ed, so why don’t you tell me.
  • Now remember Alexander Hamilton had convinced George Washington and the first Congress to establish the First National Bank way back in 1791.
  • Alright, so the second element is a tariff structure that will protect new US industries.
  • Exactly, exactly, all of those new factories which make relatively cheap cloth.
  • I think you can’t overestimate the importance of this transportation revolution in transforming American capitalism.
  • So even as we talk about the American System, we talk about these banks and things like that.
  • It’s not the easy way you can issue stocks and bonds today at some big New York investment firm.
  • Or New York bond houses which have deep connections with the southern plantation system and the slave system, as well as British banks.
  • So you see this time, experiments almost in different kinds of American finances.
  • That really connects the Great Lakes with New York City and makes New York City a really important transshipment point for all that grain of upstate New York which at this point is the bread basket of America.
  • Well as Lewis knows, in fact the Erie Canal was financed by the State of New York.
  • So if we read in the textbook that development was driven by Henry Clay’s American System and everybody agreed with that, well that’s incorrect.
  • We’re going to find out just how incorrect that was and how many people disagreed with that sort of program.
  • It’s also so important to drive home again just how varied the American financial system was.
  • That bonds and stocks, things that seem to be universal and ahistorical, were incredibly varied and shaped by their own particular social and political context, both within small cities, both in terms of regions and also by international changes.
  • At the same time even though there’s all of this diversity and there’s all of this entrepreneurship that drives forward the creation of what eventually becomes a much more coherent kind of American capitalism although there’s still going to be big divergences within it.
  • At the same time, one thing that virtually all of those plans and all those entrepreneurs have in common is that they envision the state as a source of resources for their programs.
  • Whether they’re looking at the state on the level of New York State or the federal government, they might not necessarily want some other entrepreneurs to get support from the state, to be able to use the state as a source of leverage.

Making Capitalism American > American Finance > Wall Street & New York Finance

  • If we don’t think of Wall Street, we think of New York.
  • So in the 1820s and 1830s, investors, especially from abroad, that look to invest in American bonds look to invest in public bonds.
  • We see in the 1830s and 1840s a transition, a transition towards a world of private finance and a world of railroads.
  • So one of the major targets for bond investment in the 1830s is, of course, the southern states, and European investors snap those bonds up.
  • So many enslaved people are brought to places like Louisiana and Mississippi that they produce so much cotton that they drive down the price of cotton, and then the debtors are not able to pay back the banks.
  • You’ve got four competitors really- New Orleans, Philadelphia, New York, and Boston- all struggling to be at the center of the American financial economy.
  • At the end of this process, we’ve got New York.
  • New York had a lot of things going for it, especially relative to Boston.
  • They’re not comfortable with public stock offerings in a way that New Yorkers and New York financiers were much more comfortable negotiating at a distance with people, whether in the South or in Britain.
  • So in the wake of 1837 and ’39, New York really takes up all of the free oxygen that’s available, if you will, with the collapse of New Orleans and Philadelphia banks.
  • New York has always been more open to outsiders than virtually any other city in the world, and certainly more open than 19th century Boston was.
  • The reason why this exists, why there’s so much demand for those New York stocks and New York bonds, is because of what’s called the revolutions of 1848.
  • So these Europeans are looking for new places to put their capital that’s safe.
  • Lo and behold, they can look to New York City to invest in bonds and invest in stocks.
  • It’s out of this new connection with New York City at the center, that European capital begins to move away from investing in southern production- in cotton, in slaves- and begins to be invested instead in railroads, especially western railroads.
  • It’s in this moment even that you can see that New York capitalists begin to turn their eyes away from the South to the West.
  • New York is still going to be connected to the South, and European investors and lenders will still be connected as well.
  • It’s a much more New York-focused kind of investment.
  • It’s still very valuable- but most of that cotton either passes from New Orleans directly through New York Harbor, or in financial form it passes through there and then passes back again as revenue being sent on towards its producers, with the New York lenders taking a nice cut off the top.
  • So we can see by the 1850s a convergence of American financial systems, a convergence of practices, a convergence of financial instruments, and a convergence, most importantly, of place in New York City.

Making Capitalism American > Cash Consumption > The Murder of Helen Jewett

  • The story of Helen Jewett tells us pretty much everything we need to know about this world of cash, gender, the sporting life, and prostitution in the middle of the 19th century.
  • In New York, she went to the theater to solicit men, to bring back to a brothel run by a Madam named Rosina Townsend.
  • One of the regular visitors to this brothel, which was just like any other brothel in New York City, was a young clerk named Richard Robinson.
  • So this is exactly part of this world we’re talking about, of clothing and of cash.
  • Across the country there are debates over how this woman of Native American stock- one of these good girls that had been so- people had been so concerned about in the transition to factory life had actually ended up as a prostitute in New York City.
  • ” It presents the obvious question, what did it mean to buy somebody? What did it mean to buy a woman and have sex with her? Where did your rights begin and end? And of course, in a society in which slavery was still legal, the boundaries over this in terms of race- between a white woman and of course black men and black women- was necessarily part of the conversation.
  • Did this Robinson have a right to her body to the extent that he could kill her? It opened a discussion, a moral panic on clerks and merchants and these young women of the city, of all these people in the sporting life run amok- whether murder was the natural result of a society that commercialized sex without social control.
  • It’s not possible to have brothels and anonymity in sex like this in a society that doesn’t have cash relationships- in which young men are still part of the household.
  • He was a new, young, single male in New York City with money, and no one in charge of him- no control.
  • The possibility of where he would go was limited only by the cash in his pocket.
  • At the trial, the room was packed with young men, who dressed and looked like the real Richard Robinson or the fake Frank Rivers.
  • Trading cash for clothes, cash for sex, liberated from these old moral orders.
  • Railing against the family, this sporting life of clothing, and sex, and violence and drinking was everything that middle class genteel life was not.

Railroads and Western Development: Shifting Regional Investment

  • Ed, what are some of the ways in which these railroads come about in the 1840s and ’50s? And how do they differ from earlier kinds of railroads? So railroads actually become one of the drivers of American history in this period, one of the real forces that are pushing political and economic change.
  • If you looked at who was building railroads in the 1830s, the South, the slave economy, the cotton economy was building just as many railroads- however you want to measure it, miles of track, whatever, number of locomotives- as the North was.
  • The economic climate is really bad, and so the South essentially doesn’t build railroads in the 1840s.
  • Because New York City and American finance, which had before then really looked at the South and the cotton trade at the center of American finance and trade, begins to look west for the very first time, begins to look west along these new rails, not only as a place to invest but also ways in which to move those western commodities to the east.
  • This brings all of the products of the upper Midwest and Illinois and states like that into Chicago and then ships it east to New York.
  • In the process of creating these long trunk line railroads, some other new things happen.
  • So new kinds of corporate entities ultimately are what develop to govern and regulate and organize these railroads.
  • Railroads are so big that one person can’t be in charge, and responsibility to be distributed over many different functions and an enormous amount of space.
  • So these new corporations, most importantly the Pennsylvania Railroad, develop new kinds of top-down managerial control.
  • Of course, ultimately, it’s going to be the CEO and his henchmen who are going to actually run things, and the engineers and experts and the laborers and so on are all going to be subservient to that centralized structure.
  • Is the railroad just the story of the rise of a more efficient form of organizing capital? Well, I don’t know if the corporation is more efficient in all times and places, but it is the rise of a new kind of finance, as increasingly railroads need to have a constant flow of investment.
  • New York becomes an entrepot for European capital to flow into America and finance this Western development.
  • You’ve have the struggle between Philadelphia and New York City and New Orleans for control of the sort of high ground of the American financial economy.
  • So the railroad is driving changes, and we’ll continue to see it driving changes as the 19th century rolls on.

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