The Market Revolution
Summary & Analysis
The "Market Revolution"
Historians have described the economic expansion that occurred in America between 1815 and 1840 as a "market revolution." It is a bold term that conjures up images of radical transformation within the American economy. But what exactly does it mean? What was and was not different about the American economy after 1815? Did new technologies, new resources, and new methods of production transform the American economy? And why do historians couple "revolution" with "market?" To what sort of market do historians refer and how did it change?
What Was Not New in 1815—the Cotton Gin
We can begin by identifying what was not new or revolutionary in 1815—that is, we can begin by identifying the critical pieces of the American economy that were already in place by this date. And this list begins with the development of the cotton gin.
When Eli Whitney invented the cotton gin in 1793, the South desperately needed a new crop. Tobacco profits were thin, sugar and indigo faced heavy competition from the West Indies, and rice, although lucrative, was labor intensive and not well-suited to the small farmer. Cotton was also profitable. Britain's emerging textile industry demanded more cotton than Americans produced. But the long-staple cotton that could be efficiently processed could grow only along the coast. Short-staple cotton, on the other hand, could be planted throughout the South. But this variety was so densely packed with seeds that it could not be processed efficiently.
Whitney's cotton gin changed all this. By introducing a technology capable of efficiently removing the seeds from short-staple cotton, Whitney enabled farmers, large and small, to plant cotton throughout the South. In 1790, Americans produced 3 million pounds of cotton; in 1815, they produced 93 million pounds.10
What Was Not New in 1815—Banks
A second critical piece of the American economy already in place by 1815 was the banking system.
The Bank of the United States (BUS), chartered in 1791, was only America's fourth bank. Many Americans feared the economic power acquired by concentrating capital in these sorts of institutions. Others argued that the government did not have the constitutional authority to charter banks. But after 1801, state governments began chartering banks, and by 1811, there were 88 state chartered banks in the United States.
State banks generally operated differently than the BUS. They tended to favor increasing the money supply through more generous lending practices. And when Congress refused to re-charter the BUS in 1811 (partially because of its tight money policies), states chartered more banks that issued more currency than ever. By 1815, there were 246 state chartered banks and almost $70 million in their bank notes in circulation. In contrast, only $6 million in BUS notes circulated in 1809.11
Congress re-chartered the Bank of the United States in 1816, but the national bank succeeded only partially in reining in the nation's money supply. By 1821, the value of bank notes issued by state banks was reduced to $45 million.12 But the proliferation of state chartered banks remained a critical contribution to the American economy. They put more money into circulation and made capital available to a much larger collection of borrowers than ever before.
What Was Not New in 1815—A Manufacturing Sector
The United States had a small manufacturing sector before 1815, but it paled alongside both agriculture and international commerce as a source of national income. More than a decade of international tensions, however, encouraged American mercantile families to look for safer investments.
Between 1792 and 1808, American merchants reaped huge profits in the "carrying trade"—that is, carrying the cargoes of European nations at war with one another. It was a risky form of commerce. American claims that, as neutrals, American ships should be allowed to trade unmolested with all belligerent nations were not unchallenged. The British and French harassed American shippers in an effort to bend American commercial policy to their military ambitions. Yet, even though international waters could be unsafe, American merchants made enormous profits during these years carrying the cargoes of the two warring nations.
This risky but lucrative business came to an end when President Thomas Jefferson signed an embargo act in December 1807 that banned American ships from international trade. The American government followed this embargo with a series of commercial maneuvers designed to pressure the British and French into recognition of American commercial rights. But instead, these maneuvers led to war with Britain in 1812.
The interruption to American overseas commerce, from the imposition of Jefferson's embargo in December 1807 to the end of the War of 1812 in 1815, forced American merchants to reconsider their investments. New England shippers, in particular, began shifting family resources into the small but safer manufacturing sector of the economy.
Overall, by 1815, several pieces of America's economy were already in place. Cotton, which would remain America's leading export until the Civil War, already represented 40% of all American exports. America's banking infrastructure was similarly well established. And northeastern investors had already started to shift financial resources from commerce to manufacturing. What then was new after 1815? What sorts of economic developments did occur after this date?
What Was New after 1815—A Much Larger Manufacturing Sector
One of the most dramatic changes in the economy after 1815 was the expansion of American manufacturing. Between 1810 and 1830, the percentage of the national wealth generated by manufacturing doubled.13 Between 1810 and 1840, the percentage of the national workforce employed in manufacturing also doubled.14 But there were some significant differences within the industries that made up this expanding manufacturing sector. While some built factories that utilized new technologies and consolidated production of a product on a single site, others incorporated no new technologies but re-organized the production through "putting-out" systems that were, in effect, decentralized assembly lines.
New England's textile industry introduced the centralized method of production. Its founder, Francis Cabot Lowell, traveled to England in 1810 to find safer investments for his mercantile family. He returned with the technical details of Britain's power looms memorized. Soon convincing other wealthy merchants and bankers that manufacturing offered a lucrative and far safer future, Lowell founded the Boston Manufacturing Company and opened a textile factory in Waltham, Massachusetts in 1814. (This story can be found here.)
At Waltham, Lowell's state of the art factory employed British-developed but American-improved looms powered by water. Raw cotton was turned into finished cloth on a single site. Adopting innovative financing and labor strategies, the Boston Manufacturing Company prospered, and over the next decade, it expanded throughout the region. During the 1820s, the company built an entire community of factories at the aptly-named town of Lowell.
Other manufacturers similarly employed water-driven technologies to run flour mills and iron foundries, and still others turned this technology to the production of mass-produced, standardized consumer goods. This manufacturing process, which employed water driven machinery, continuous production, and precision-cut standardized components, was soon labeled the "American system." Within a few decades, this process was producing a wide-range of goods including carpet, glass, clocks, furniture, shotguns, carriages, and wagons.
While these technology-intensive production processes represented the most dramatic change in American manufacturing, far more common was the re-organization of traditional technologies into larger, decentralized "putting-out" systems. Within industries like shoemaking and men's clothing, the small craftsman was challenged during these years by a new type of entrepreneur. Often these entrepreneurs, or "merchant capitalists," did not have any experience in a craft but had access to the capital needed to operate on a large scale and knew how to organize production and broadly distribute goods. These merchant capitalists did not build factories or centralize production. Instead, they broke the production process into subparts and hired semi-skilled workers in small shops and homes to produce individual components of the product. For example, in the shoemaking industry, the heels might be cut by one person, the uppers by another, while a third sewed them together. These laborers were usually located in different places, but carriers formed a human assembly line transferring components from one station to the next.
The Philosophical Revolution
The re-organization of production and the incorporation of new technologies did radically change American manufacturing. But these structural changes only hint at equally important changes within this sector of the economy. For example, in order to protect the investors of the Boston Manufacturing Company, Lowell obtained a corporate charter from the state of Massachusetts. In the past, corporate charters, and the benefits attached to this form of business organization, had been made available only to businesses that served some public function. Capital-intensive and public-serving projects such as roads and bridges were among those typically granted charters in earlier decades. But this conservative attitude surrounding the corporation was replaced during this period by a more business-friendly philosophy. Business development was seen as a good in itself; the accumulation of capital made possible by corporate charters was viewed as socially beneficial largely regardless of the enterprise being assisted. The result was that charters were issued more liberally, and more purely-private, profit-seeking ventures secured the benefits of incorporation.
This reconsideration of the corporation was echoed in the elaboration of a whole new body of pro-business law. Court rulings and state legislation articulated a set of legal principles that maximized owners' control over the use and transfer of their property. Formerly, property had been viewed as a source of social stability; state laws inhibited its transfer. But within the changing legal culture, property was seen as a wealth-generating asset, and laws were redrafted to facilitate its transfer, thereby unlocking its value.
This significant change within American legal culture was reflected perhaps most clearly in the day-to-day business of the courts. Before the American Revolution, the courts spent the bulk of their time prosecuting morals violations, but after 1800, these sorts of cases quickly faded from the court docket. Instead, the majority of the courts' time was spent on cases involving property. Court rulings from the period speak loudly of the law's pro-business orientation in these cases. When a community complained that the new railroad running through their town was a noisy and stinking nuisance, the court proclaimed, "agents of transportation in a populous and prospering country," were essential, and therefore "private injury and personal damage . . . must be expected."15
In other words, it was more than new technology and processes that made this period "revolutionary"; it was the shifting beliefs about business and trade, a legal culture that promoted commercial exchange and development, and a broader philosophy that encouraged financial experimentation and the assumption of risk. In fact, without this corresponding re-orientation of values, it is doubtful that America's economic transformation would have been so great. Had American laws and values not tilted toward an acceptance, even celebration, of the pursuit of profit, all of the technological and organizational changes would have amounted to little.
Roads and Canals
This becomes further apparent when we examine another major structural change within the economy. During these years, America's transportation and communication infrastructure grew dramatically. Some of the most significant projects, such as the Erie Canal, were on the drawing board decades earlier. But a series of factors delayed their development until after 1815. Strict constructionists argued that the federal government did not have the authority to fund a program of internal improvements. State governments had fewer legal qualms but also fewer resources to draw upon in financing these sorts of projects. Foreign affairs dominated American politics for much of the period as well; from 1812 to 1815, moreover, the United States was at war.
But in many ways, it was the war that convinced many Americans that resources needed to be invested in building roads and canals. During the War of 1812, poor roads delayed the movement of troops and material. More subtly, policy-makers concluded that the nation's inadequate system of roads left Americans poorly connected, and therefore poorly united. Loyalties were often more local than national. Without better roads, bridges, and canals, some asked, would Americans ever cultivate a sense of national identity?
After the war, therefore, many who had earlier opposed federal spending on internal improvements softened their position. Presidents James Madison and James Monroe, for example, suggested that the federal government should at least make money available to the states for this purpose. In addition, state governments threw off their former reserve and invested heavily in internal improvements.
New York led the way in this effort. Long recognizing the commercial value of internal improvements, the state had already issued charters to private companies to build toll roads through the interior. By 1810, more than 1000 miles of these roads transported people and goods across the state. After the war, the state promoted this construction even more aggressively; by 1820, the state boasted more than 4000 miles of road. In addition, the state legislature agreed to underwrite the construction of a waterway linking Lake Erie to the Hudson River. When the Erie Canal was completed in 1825, New York's economy boomed. By 1830, the canal carried more than $15 million in goods annually. By 1850, the annual figure was more than $200 million.16
Other states followed New York's example. By 1845, they had spent almost $100 million on canal construction—roughly 75% of the total money, public and private, spent on canals during these years. Even local governments got into the act. They raised funds for canals and roads, and even though the era of the railroad was a bit in the future, some cities, like Cincinnati, underwrote railroad construction.17
The Market Revolution
The importance of all this to the expansion of the American economy cannot be understated. But the creation of this more extended market would have meant little if American producers and consumers had not embraced its opportunities with so much enthusiasm. In fact, the real key to the "market revolution" was the ideological and behavioral shift that accompanied the construction of the commercial infrastructure. Americans began thinking in more extended and elaborate ways about the markets for their goods. No longer limited to local markets, no longer bound by traditional patterns of exchange, Americans engaged in a new sort of calculus about costs and benefits. Where was the best price available? What were the transportation costs? If New York City was paying 27 cents a bushel more than Erie for wheat, was it worth it to haul the crop the additional 450 miles at 1.7 cents per ton per mile? Producers used these calculations to make other decisions about what to grow or make. If a farmer in Rochester could make the most money by selling corn in Albany, why waste land and time growing alfalfa for his stock animals—especially if alfalfa, grown near Syracuse, could be purchased at an affordable price?
The extension of the market thus altered the vary nature of certain occupations—it turned craftsmen and farmers into businessmen. People who had been raised within an economic culture tied to one type of market—local and familiar—were now participants in a much larger market with an entirely new set of conditions and rules.
New Markets, New Worries
Of course, not everybody enthusiastically participated in the new market economy. Many, in fact, found the new conditions unsettling. They knew and understood the old local networks of exchange, but these new markets were unfamiliar. Moreover, people worried over the rules, if any, governing this new marketplace. In the old market, people bought and sold goods among their neighbors and friends. Commercial exchanges could not be separated from a broader set of relationships and obligations. Your buyer might belong to your church. Your seller could be related to your son-in-law. And every exchange was accompanied by the understanding that you could not escape further contact with the person on the other end of the deal. But in the new market, a batch of unknown, faceless persons lay on the other side of the transaction. Could they be trusted? Could I trust myself?
The market revolution was therefore part structural and part philosophical and behavioral. It built upon new technologies and new production processes. It drew upon the resources of new financial institutions and was made possible by the construction of an extensive network of roads and canals. But the market revolution was also more than this. It was a new set of ideas about profit seeking and risk, and a new body of laws that encouraged development and exchange. It was a whole new approach to production, and a new set of calculations about costs and benefits. The market revolution turned "ways of life" into businesses, and farmers and craftsmen into entrepreneurs. Not everyone liked all these changes; not everyone benefitted from them. But like it or not, America's economy was permanently transformed; in this revolution there was no going back.