The Founding Years: 1790-1811

In 1787, the United States adopted the U.S Constitution which established a unified nation with a common market with no internal tariffs or taxes on interstate commerce. The national culture was dominated by three primary trends including the development of government institutions, western expansion and early industrialization marked by growth of small cities. Early in the republic a debate arose between those who wanted a strong federal government led by the first secretary of the treasury, Alexander Hamilton, and those that preferred a weak central government, led by Thomas Jefferson and James Madison, the third and fourth U.S. Presidents. Hamilton, however held immense power and influence in Washington and envisioned a national economy built on diversified shipping, manufacturing and banking. He succeeded in building the nation’s credit based on a national debt held by the wealthy and political classes and funded by tariffs on imported goods along with a tax on whiskey. In addition, he spearheaded the creation of the First Bank of the United States (1791-1811).

In 1801, Thomas Jefferson was elected president. He promoted a more decentralized, agrarian democracy based on his philosophy that government policy should protect the common man from political and economic tyranny. He repealed a number of taxes imposed by his predecessors and despite misgivings, signed the Louisiana Purchase, which doubled the size of the United States in 1803, setting the stage for continental expansion (“Continentalism”). President Madison continued Jefferson’s decentralized policies letting the National Bank charter expire in 1811. However, Madison reversed his stance in reaction to the War of 1812 and supported the Second Bank of the United States (1816-1836).

In the South, cotton became the primary cash crop following the invention of the cotton gin in 1793 and large plantations based on slave labor expanded in the Carolinas westward to Texas. Great Britain became the United States’ largest trading partner, receiving 80% of all U.S. cotton and 50% of all other U.S. exports. Despite growing commerce, the British public and press became increasingly resentful of the growing mercantile and commercial competition. Furthermore, Great Britain was at war with France and instituted a number of trade restrictions which began to impede America’s ability to trade. The United States’ view was that Britain was in violation of a neutral nation’s right to trade with any nation it saw fit and contested these restrictions as illegal under international law.

Generally speaking, the economy performed at a Good level prior to the War of 1812. Despite high inflation rates in 1794-1795 and considerable deflation in 1802, prices rose only 2% on average. Deficits were virtually non-existent as the budget was in balance or ran a surplus 17 out of 21 years between 1790 and 1811. Growth in GDP averaged 3.9%.