Market Revolution

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In the decades following the American Revolution, the American economy underwent many changes. As the agricultural frontier expanded westward, farmers were more eager to participate in the market than ever before. They lobbied for greater availability of money both to facilitate trade and to invest in production. Legislatures controlled by Democratic Republicans chartered companies to build roads and dig canals to connect the seaport towns with the countryside. Manufactures, once an item solely of household production, began to move into mills where producers could divide labor among wageworkers and utilize machines to produce goods in greater quantity and at lower cost than before. These changes comprise what historians have called the market revolution.

The market revolution did not occur uniformly across the United States, nor did it equally engage all its people. It was acutely felt in the North and the trans-Appalachian West, and it specifically excluded Native Americans, many of whom had participated in localized exchange economies on the frontier. In the South, plantation owners increasingly invested capital and ideological energy in a slave labor force rather than in the transportation and credit networks developed in the North and the West, leaving penurious farmers at a comparative disadvantage to their counterparts in the North.

Still, there was a genuine change in the behavior and goals of a large number of Americans by 1829. The first and second generation of Americans born after the Revolution largely accepted the idea that agriculture should be produced for profit rather than solely to guarantee the subsistence of their families. They were more likely to use their savings (or obtain loans) to buy land or improve their tools to increase their yield. They were more willing than their ancestors to buy goods manufactured outside the home. This transformation in their economic mindset, realized in the extensive economic changes in banking, transportation, and manufacturing in the early Republic, produced a market revolution.

democracy and economy

Although the American Revolution was not fought principally on economic grounds, independence unleashed tremendous commercial-capitalist energy. Farmers and speculators had long wanted to settle the trans-Appalachian West, which the British Proclamation of 1763 had prohibited, at least by law. The Ohio Indians also resisted this settlement, but their defeat at the Battle of Fallen Timbers (1794) cleared the path for concerted migration. Between 1800 and 1820 nearly two million European Americans crossed the Appalachians to settle in the Old Northwest.

Demographic expansion and migration cannot by themselves explain why agricultural output in the North and trans-Appalachian West increased in the early Republic. To achieve more output per capita, farmers had to undertake to change their economic practice from subsistence to market production. Several factors aided this change. There was a large demand in the West Indies for a variety of foodstuffs that American farms could easily produce. The consistently rising price of grain on the Atlantic market between 1772 and 1819 provided further incentive for farmers to adopt crop rotation to improve yield, and in some cases partially specialize in a cash crop to maximize profits.

Although marketing agricultural surpluses became more attractive, the lack of an adequate money supply made investment and marketing difficult, and the poor quality of the transportation network isolated much of the hinterland. Both these issues would become intertwined with democratic politics in the early Republic. In the 1790s Alexander Hamilton and Thomas Jefferson articulated two very different economic visions for the future. Hamilton sought to develop manufacture in the seaport towns and prevent capital from dispersing across the western frontier. His plan for the first Bank of the United States fulfilled these goals by creating an attractive and secure investment opportunity that would make capital available only to large industrial projects.

Jefferson and the Democratic Republican Party opposed Hamilton's program of centralization and worked to dismantle it after Jefferson assumed the presidency in 1801. Jefferson appointed Albert Gallatin secretary of the Treasury, a post he would hold under both Jefferson and Madison until 1814. Gallatin sold the government interest in the Bank of the United States, repealed direct taxes, and relied on import duties to reduce the national debt.

The effect of Gallatin's program was to decentralize capital. In 1798 there were only twenty-one banks in addition to the first Bank of the United States, most serving the mercantile elite of the seaports. Eager to obtain capital for agricultural and small-scale manufacturing enterprises on the frontier, Democratic Republican legislatures in Vermont and Kentucky chartered banks in 1806 expressly to provide money and loans to its citizens. Other states quickly followed suit, and many citizens formed insurance companies and other depositories that extended credit. By 1810 there were over one hundred banks across the United States. By 1820 there were over three hundred, and by 1830 over two thousand.

transportation improvements

One use to which Americans put this new capital was improvements in transportation systems, often demanded by farmers who wanted better access to the seaports so as to sell their surplus agricultural products. In the 1790s and 1800s, mid-Atlantic and New England legislatures appropriated money to build turnpikes that would connect seaport towns to each other and to the hinterland. They built roads of plank wood and stone overlaid with gravel, complete with drainage ditches to protect roads during inclement weather.

Turnpikes improved communication between seaport towns, but hauling grain and other goods overland to market was expensive. The preferred method was by water. Small canals connected some farming communities with major waterways and seaport towns, and several small projects were carried out in the 1790s and 1800s. The longest canal in this period, the 27.25-mile Middlesex Canal, was built between 1795 and 1803 to connect New Hampshire with Boston Harbor via the Merrimack River.

Infrastructure improvements became a matter of national politics after the War of 1812. Henry Clay (1777–1852), Speaker of the House of Representatives, advanced a plan for building a national economy that included a tariff on manufactured goods to encourage native industry, a national bank to stabilize currency for a national money market, and infrastructure improvements. Some Jeffersonian Republicans balked at this ambitious national program, including Presidents James Madison and James Monroe. Although Madison approved the second Bank of the United States in 1816, he vetoed a bill to devote federal funds to transportation improvements in 1817. Madison could accept that the second U.S. bank served the public good by creating a kind of national currency, but he drew the line at funding transportation improvements, which he believed should be left to the states. Monroe vetoed a similar bill in 1822. Andrew Jackson would veto a bill to devote federal funds to help finance the Maysville Road in 1830. It would be up to the states to build the nation's infrastructure.

The most ambitious project began in 1817, when Governor DeWitt Clinton of New York signed a bill appropriating seven million dollars in bonds for construction of a canal that would connect Albany with Lake Erie. Portions of the Erie Canal were open for use as early as 1819; the entire canal, 363 miles long, 40 feet wide and 4 feet deep, was opened on 26 October 1825. Tolls collected on the canal quickly paid off the debt New York had contracted to build it. The Erie Canal, connecting with the Hudson River in Albany, opened up the Great Lakes and their tributaries to New York City and cut the cost of transportation by over 90 percent. Encouraged by the success of the Erie Canal, other states jumped to build their own, resulting in a boom. By 1840 there were over 3,300 miles of canals in the United States.

The South lagged in building canals and turnpikes. Large plantation owners held a major share of the South's wealth and invested in slave labor to maximize production of the cotton and rice cash crops, leaving little in the way of available capital to develop a transportation network. With 40 percent of the South's population enslaved, there was a conspicuous absence of a local consumption market for agricultural or manufactured products. Small farmers in the South maintained a traditional subsistence economy, marketing small surpluses to large, cotton-exporting plantations.


Improved transportation did more than just bring the raw materials of the hinterland to the port cities; it took manufactured goods from the Northeast into the hinterland. Most manufactures during this period were small-scale family operations that served local markets, although after the Revolution manufacturers responded to increased internal demand for high-quality finished products by expanding operations. In New England, mills became profitable investments because cheap manufactured goods could pay for inexpensive grain from the mid-Atlantic and the West. In 1791 Samuel Slater assisted a mercantile partnership in Providence, Rhode Island, in establishing a yarn mill at Pawtucket. His small mills were replicated and established in numerous New England towns by 1815.

Industry expanded across the Northwest at a time when labor was still a scarce commodity in most of the United States. New England's intensifying person-to-land ratio, however, left part of its workforce idle. To supplement family income, family farms sent women and children—their reserve labor—to earn wages in the mills. Industry also grew up in Philadelphia, where immigrants arriving from Europe looked to wages in order to survive. Although family agriculture would continue to dominate the economy, wage labor became important to cost-conscious industry.

In 1813 Francis Cabot Lowell and his Boston Manufacturing Company started a textile mill in Waltham, Massachusetts, that introduced the power loom to North America and the mass production of cotton cloth. Lowell's mills integrated the economic processes of spinning, weaving, bleaching, and dyeing (and in some cases printing) and mechanized the labor process. Lowell also built dormitories to house young female laborers.

Large factories were rare in the early Republic, as most industry was small-scale, relied on labor expertise rather than mechanization, and could not afford to integrate different aspects of the production process under one roof. But owners of small manufactories consciously worked to increase profits by investing capital and streamlining the productive process, particularly through more efficient divisions of labor. By dividing up tasks, manufacturers could increase output and reduce costs

All of these changes were indicative of and fueled by a new entrepreneurial spirit in the early Republic. Although elements of the traditional, subsistencebased economy survived into the early Republic, noticeably in the South, the country as a whole was remarkably different by 1829. Farmers, tradesmen, merchants, and manufacturers increasingly devoted more resources to investment in their productive processes. They clamored for easy credit to expand operations and built roads and canals to integrate seaports and the hinterland. All this signaled a widespread acceptance of the aggressive pursuit of profit, making the market revolution a reality for the people of the early Republic.

See alsoAgriculture: Agricultural Improvement; Agriculture: Agricultural Technology; Bank of the United States; Class: Development of the Working Class; Cotton; Cotton Gin; Currency and Coinage; Democratic Republicans; Economic Development; Economic Theory; Election of 1800; Erie Canal; Expansion; Fallen Timbers, Battle of; Farm Making; Federalists; Hamilton's Economic Plan; Jackson, Andrew; Manufacturing; Manufacturing, in the Home; Material Culture; Plantation, The; Presidency, The: James Madison; Presidency, The: James Monroe; Presidency, The: Thomas Jefferson; Proclamation of 1763; Revolution: Impact on the Economy; Transportation: Canals and Waterways; Transportation: Roads and Turnpikes; War of 1812; Work: Agricultural Labor; Work: Factory Labor; Work: Women's Work .


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H. Robert Baker

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Market Revolution

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