Quotation of the Day…

Tweet

… is from pages 69-70 of the 1983 Third Edition of Douglass C. North’s, Terry L. Anderson’s, and Peter J. Hill’s Growth & Welfare in the American Past: A New Economic History:

With the embargo [of 1807], prosperity came to an end, and 1808 was characterized by a depression and unemployment that reached the seacoast and market-oriented sectors of the American economy. Despite some relaxation of the embargo, with subsequent acts designed to stimulate trade with one or another of the belligerents, the United States never completely recovered in the years 1808-1812, and much of the capital that businessmen had invested in shipping was channeled into manufacturing. The embargo meant not only that we did not sell to belligerents; we could not buy from them either. As a result, the prices of manufactured goods rose dramatically, encouraging businessmen to put their capital where the profits were. Consequently, where before 1808 only fifteen cotton mills had been built in the United States, by the end of 1809 there were eighty-seven additional mills; and this expansion continued right up through the War of 1812. Similar activity in manufacturing increased domestic production of formerly imported goods.

[DBx: We interrupt this quotation for a special editorial announcement: At this point, protectionists and advocates of industrial policy will proclaim “See! Look what benefits are created by restricting fellow citizens’ access to imported goods! Protectionism works!” But such a proclamation would be premature.

We return now to the regularly scheduled quotation.]

It is clear that American capital at that time would have been more profitably employed if it could have been used in shipping, with the earning from that shipping used to buy British manufactures. The British, with their relatively cheaper capital and skilled labor, could produce goods more inexpensively than we could. By the same token, we enjoyed advantages in shipping. But the embargo had forced us to take an inefficient course. American manufacturing developed prematurely, thriving only under the artificial protection of the embargo and war.