These Truths Blog
The American Revolution and the Birth of American Finance
The Revolutionary War not only achieved independence for the American colonies, it launched the financial and commercial institutions that would ultimately make the United States the world’s dominant economic power. The seeds of the American Industrial Revolution were planted during the Revolution, literally in the neighborhood of The Museum of the American Revolution (Third and Chestnut) in the heart of historic Philadelphia.
At the outset of the Revolution, the economies of the American colonies were based almost entirely on agriculture, with small farms in the New England and mid-Atlantic region, and larger plantations in the south. Many of the colonies were still being settled or were emerging from a period of near-subsistence during which farms and villages were carved out of wilderness, roads were first constructed, and homes and shops were built. But the agricultural character of the American economy was also a consequence of British mercantile policy, which sought to protect England’s new enterprises of milling, mining, and manufacturing and strictly limit the American colonies to the roles of supplier of raw materials and agricultural goods and consumers of England’s finished goods.
With an overall population of about 2.5 million (of which 500,000 were enslaved African Americans), the American colonies were an outpost of the British empire in 1775. Philadelphia was the largest city in the colonies, with a population of about 40,000, followed by New York with 25,000 and Boston with a population of 12,000. Hardly more than large villages, these cities existed because they were ports for the ships which carried trade between the colonies and England; as a consequence, they also attracted merchants who financed the trading ships and sold the goods, as well as tradesmen (blacksmiths, shoemakers, silversmiths, etc.) who provided a basic level of goods.
By the time of the Revolution, Philadelphia was already a leader in economic entrepreneurship and financial acumen. The London Coffee House, located at Front and Market Streets, was built in 1754 with funds contributed by Philadelphia merchants, in part so it would serve as a center of business and political life. In a similar fashion, City Tavern (Second and Walnut Streets) was financed by subscriptions and built in 1773 to provide larger and more gracious quarters for mercantile trading activity.
The protests against British authority of the 1760s and 1770s began to disrupt the established economic pattern, and the outbreak of war in 1775 utterly destroyed it. The first protests used widespread boycotts of British goods—voluntary bans (sometimes vigorously enforced by the Sons of Liberty) against purchasing the finished goods imported from England. These boycotts, followed by the termination of British commerce once fighting began, left a huge unsatisfied demand within the colonies that was heightened by wartime needs. Efforts were soon underway to launch manufacturing enterprises in America, especially textile manufacturing, and smuggling opened new trade avenues with other nations. American ministers abroad not only sought foreign alliances in the war against Britain, but also sought out foreign entrepreneurs and businessmen and encouraged them to relocate to America and bring with them plans and workmen to build factories and mills.
The Revolutionary War also created unprecedented financial demands within America. The cost of financing the Continental Army and establishing new state and federal governments overwhelmed existing financial practices, which consisted of hardly more than a small group of merchants each sharing in the costs of numerous trading ships as a means to spread risks. Noted financiers, led by Robert Morris and Haym Solomon tackled the challenges of American finances and on December 31, 1781 secured approval from the Confederation Congress to create the Bank of North America, essentially America’s first national bank. Located on Chestnut Street in Philadelphia, between Third and Fourth Street, the Bank held deposits of gold, silver, and bills of exchange from France and the Netherlands, and used these to provide a sound backing for a new continental currency.
These tentative beginnings of commerce and finance only accelerated after the 1783 Treaty of Paris that ended the American Revolution. In the following decade legislation first passed that recognized the legality of corporations, and immediately stock companies were launched to build bridges, form banks, dig canals (notable the 1784 Potowmack Canal Corporation, with George Washington as a chief shareholder), and establish mills and textile manufactories. In 1790, Secretary of Treasurer Alexander Hamilton issued his now-famous Report on Public Credit, which led to the federally chartered First Bank of the United States, originally housed in Philadelphia’s Carpenter’s Hall, until the First Bank was completed on Third Street in 1797 (which still stands opposite the future location of The Museum of the American Revolution). Commerce boomed as merchants began trading with nations across the globe, and port cities like Philadelphia soon experienced some of the most dramatic growth rates in their history, welcoming immigrants and becoming home to the beginnings of the Industrial Revolution.
The Museum of the American Revolution, located at the corner of Chestnut and Third, will literally be in the center of the place where America’s first financial institutions were conceived and which ultimately provided the capital and entrepreneurship to launch the American Industrial Revolution.