The economic history of the United States spans the colonial era through the 21st century. The initial settlements depended on agriculture and hunting/trapping, later adding international trade, manufacturing, and finally, services, to the point where agriculture represented less than 2% of GDP. Until the end of the Civil War, slavery was a significant factor in the agricultural economy of the southern states, and the South entered the second industrial revolution more slowly than the North. The US has been the world's largest economy since about 1900.
Pre-colonial economy Prior to the European settlement and conquest of North America, Indigenous communities led a variety of economic lifestyles. Some were primarily agrarian whereas others prioritized hunting, gathering and foraging. While some early scholarship characterized these communities as non-market, more recent scholarship has made note of substantial and wide-ranging trade networks.
In particular, much of the Mississippian drainage basin was characterized by settled agriculture and large towns in the pre-colonial period. According to a 2023 study, the plains were dominated by "organized, complex agricultural communities with settled populations that had opened and cleared land, domesticated plants, crafted irrigation systems, and determined the best rotation and fallow practices for a given region." These economies were devastated by pandemics spread through trade, experiencing massive population loss even in communities without direct contact with Europeans Native American disease and epidemics.
Colonial economy
The colonial economy of what would become the United States was pre-industrial, primarily characterized by subsistence farming. Farm households also were engaged in handicraft production, mostly for home consumption, but with some goods sold. The colonial economy had an abundance of land and natural resources, and a severe scarcity of labor. This was the opposite of Europe and attracted immigrants despite the high death rate caused by New World diseases. From 1700 to 1774, the output of the thirteen colonies increased 12-fold, giving the colonies an economy about 30% the size of Britain's at the time of independence.
Population growth was responsible for over three-quarters of the economic growth of the British American colonies. The free white population had the highest standard of living in the world. There was little change in productivity and little in the way of introduction of new goods and services. Under the mercantilist system, Britain restricted the products that could be made in the colonies, and imposed high protective tariffs and other restrictions on trade outside the British Empire.
The market economy was based on extracting and processing natural resources and agricultural products for local consumption, such as mining, gristmills and sawmills, and the export of agricultural products. The most important agricultural exports were raw and processed feed grains (wheat, Indian corn, rice, bread and flour) and tobacco. Tobacco was a major crop in the Chesapeake Colonies and rice a major crop in South Carolina. Dried and salted fish was also a significant export. North Carolina was the leading producer of naval stores, which included turpentine (used for lamps), rosin (candles and soap), tar (rope and wood preservative) and pitch (ships' hulls). Another export was potash, which was derived from hardwood ashes and was used as a fertilizer and for making soap and glass.
The colonies depended on Britain for a number of finished goods, partly because laws such as the Navigation Act 1660 prohibited making many types of finished goods in the colonies. These laws achieved the intended purpose of creating a trade surplus for Britain. The colonial balance of trade in goods heavily favored Britain; however, American shippers offset roughly half of the goods trade deficit with revenues earned by shipping between ports within the British Empire.
The largest non-agricultural segment was ship building, which was from 5 to 20% of total employment. About 45% of American made ships were sold to foreigners.
Exports and related services accounted for about one-sixth of income in the decade before revolution. Just before the revolution, tobacco was about a quarter of the value of exports. Also at the time of the revolution the colonies produced about 15% of world iron, although the value of exported iron was small compared to grains and tobacco. The mined American iron ores at that time were not large deposits and were not all of high quality; however, the huge forests provided adequate wood for making charcoal. Wood in Britain was becoming scarce and coke was beginning to be substituted for charcoal; however, coke made inferior iron. Britain encouraged colonial production of pig and bar iron, but banned construction of new colonial iron fabrication shops in 1750; however, the ban was mostly ignored by the colonists.
Settlement was sparse during the colonial period and transportation was severely limited by lack of improved roads. Towns were located on or near the coasts or navigable inland waterways. Even on improved roads, which were rare during the colonial period, wagon transport was expensive. Economical distance for transporting low value agricultural commodities to navigable waterways varied but was limited to something on the order of less than 25 miles. In the few small cities and among the larger plantations of South Carolina, and Virginia, some necessities and virtually all luxuries were imported in return for tobacco, rice, and indigo exports.
New England
The New England region's economy grew steadily over the entire colonial era, despite the lack of a staple crop that could be exported. All the provinces and a number of towns as well, tried to foster economic growth by subsidizing projects that improved the infrastructure, such as roads, bridges, inns and ferries. They gave bounties and subsidies or monopolies to sawmills, grist mills, iron mills, pulling mills (which treated cloth), salt works and glassworks. Most importantly, colonial legislatures set up a legal system that was conducive to business enterprise by resolving disputes, enforcing contracts, and protecting property rights. Hard work and entrepreneurship characterized the region, as the Puritans and Yankees endorsed the "Protestant Ethic", which enjoined men to work hard as part of their divine calling.
The benefits of growth were widely distributed in New England, reaching from merchants to farmers to hired laborers. The rapidly growing population led to shortages of good farm land on which young families could establish themselves; one result was to delay marriage, and another was to move to new lands farther west. In the towns and cities, there was strong entrepreneurship, and a steady increase in the specialization of labor. Wages for men went up steadily before 1775; new occupations were opening for women, including weaving, teaching, and tailoring. The region bordered New France, and in the numerous wars the British poured money in to purchase supplies, build roads and pay colonial soldiers. The coastal ports began to specialize in fishing, international trade and shipbuilding—and after 1780 in whaling. Combined with growing urban markets for farm products, these factors allowed the economy to flourish despite the lack of technological innovation.
The Connecticut economy began with subsistence farming in the 17th century, and developed with greater diversity and an increased focus on production for distant markets, especially the British colonies in the Caribbean. The American Revolution cut off imports from Britain, and stimulated a manufacturing sector that made heavy use of the entrepreneurship and mechanical skills of the people. In the second half of the 18th century, difficulties arose from the shortage of good farmland, periodic money problems, and downward price pressures in the export market. The colonial government from time to time attempted to promote various commodities such as hemp, potash, and lumber as export items to bolster its economy and improve its balance of trade with Great Britain.
Urban centers Historian Carl Bridenbaugh examined in depth five key cities: Boston (population 16,000 in 1760), Newport Rhode Island (population 7500), New York City (population 18,000), Philadelphia (population 23,000), and Charles Town (Charlestown, South Carolina), (population 8000). He argues they grew from small villages to take major leadership roles in promoting trade, land speculation, immigration, and prosperity, and in disseminating the ideas of the Enlightenment, and new methods in medicine and technology. Furthermore, they sponsored a consumer taste for English amenities, developed a distinctly American educational system, and began systems for care of people in need.
On the eve of the Revolution, 95 percent of the American population lived outside the cities—much to the frustration of the British, who captured the cities with their Royal Navy, but lacked the manpower to occupy and subdue the countryside. In explaining the importance of the cities in shaping the American Revolution, Benjamin Carp compares the important role of waterfront workers, taverns, churches, kinship networks, and local politics. Historian Gary B. Nash emphasizes the role of the working class, and their distrust of their social superiors in northern ports. He argues that working class artisans and skilled craftsmen made up a radical element in Philadelphia that took control of the city starting about 1770 and promoted a radical Democratic form of government during the revolution. They held power for a while, and used their control of the local militia to disseminate their ideology to the working class, and to stay in power until the businessmen staged a conservative counterrevolution. The first edition of 1979 was entitled Urban Crucible: Social Change, Political Consciousness, and the Origins of the American Revolution
Political environment
The colonial economies of the world operated under the economic philosophy of mercantilism, a policy by which countries attempted to run a trade surplus, with their own colonies or other countries, to accumulate gold reserves. Colonies were used as suppliers of raw materials and as markets for manufactured goods while being prohibited from engaging in most types of manufacturing. The colonial powers of England, France, Spain and the Dutch Republic tried to protect their investments in colonial ventures by limiting trade between each other's colonies.
The Spanish Empire clung to old style mercantilism, primarily concerned with enriching the Spanish government by accumulating gold and silver, mainly from mines in their colonies. The Dutch and particularly the British approach was more conducive to private business.
The Navigation Acts, passed by the British Parliament between 1651 and 1673, affected the British American colonies. Important features of the Navigation Acts included: Foreign vessels were excluded from carrying trade between ports within the British Empire Manufactured goods from Europe to the colonies had to pass through England Enumerated items, which included furs, ship masts, rice, indigo and tobacco, were only allowed to be exported to Great Britain.
Although the Navigation Acts were enforced, they had a negligible effect on commerce and profitability of trade. In 1770 illegal exports and smuggling to the West Indies and Europe were about equal to exports to Britain.
The domestic economy of the British American colonies enjoyed a great deal of freedom, although some of their freedom was due to lack of enforcement of British regulations on commerce and industry. Adam Smith used the colonies as an example of the benefits of free enterprise. Colonists paid minimal taxes.