Economic Development

by Gregg Camfield, PhD, University of California-Merced


 

There is probably no State in the whole Union, not even excepting Ohio, that has advanced so rapidly in population, and in the amount of her agricultural produce and export, as Illinois. Little more than forty years ago it was a howling wilderness, her vast prairies only inhabited by wandering tribes of Indians, and the ever watchful wolf; but in that short space of time, it has sprung up, as if by impulse, to be one of the most fertile and productive in the West. . . . Accessible by means of her extensive railroad system, the chain of lakes, and the Mississippi, Ohio, and Illinois Rivers, it invites immigration from all parts of the world; and the unrivalled advantages which it offers in the general salubrity of its climate, the fertility of its soil, and more than all, the ready market which may be said to be found on almost every square mile of its surface, all conduce to make Illinois one of the most desirable fields for the labour of the immigrant, and especially of the farmer. . . . The productive industry of Illinois is chiefly employed in agriculture. The cereal staples are wheat, oats, and Indian corn; tobacco, hemp, and flax, are also raised. An excellent quality of potato is raised throughout the State. It is also a great stock raising State; and Illinois beef and pork are known all the world over.

Edward Kepple Hall, Ho! for the West! London: 1858, pp 18-19. Emphasis added.

Even though the Mississippi Valley's economy is still known substantially for agriculture, mid-western agricultural development was never, primarily, the simple consequence of homesteading for the sake of subsistence farming. The rapid settlement and economic development of the Mississippi Valley in the mid-nineteenth century was driven by America's development of a large-scale, market-based, industrial economy. While the term “Industrial Revolution” usually brings to mind the development of great factories that supplanted artisanal home production with machine production, the Industrial Revolution was in fact a three-fold revolution that included transportation and finance as well as manufacturing. America's Western expansion was fueled by all of these changes, as new farmers moving west expected not simply to engage in subsistence farming, but to enter the market from the outset. Not that there weren't experiments countering that tendency, for example the New Harmony and Amana colonies, and ultimately the Mormon migration to Utah was a temporary withdrawal from the market, but the broad trends were clear: Americans moved west not, as our mythology often suggests, to find elbow room and glorious independence, but to build wealth by entering new, large-scale markets that depended on this three-fold revolution.

Transportation: The market in America depended on state-of-the-art transportation well before Mark Twain's day, and the state of the art prior to the widespread use of steam power was fairly primitive, depending on animal powered locomotion on land or canal, and wind or oar power on natural water-ways. That meant that for the great inland expanses where roads were few and poor, people shipped freight on rivers or on adjacent canals whenever possible. This explains, in part, why the Mississippi is the central human feature of the middle of the country. The great inland waterway of the Mississippi and its tributaries enabled farmers from the immediate trans-Appalachian region to ship their goods via flatboat to New Orleans, and thence throughout the world by sailing ship. The efforts of New York State to built the Erie canal can be explained as a challenge to this natural waterway, enabling New York City to be a port of departure for Western goods, connecting it to national markets as no other Eastern Seaboard city could be. But the reach of the canal into the West was limited, really, to the Northernmost tier of states. The vast reaches of the middle west were best accessed via the Mississippi and its tributaries.

With the water flowing from North to South, that meant that the flow of goods was fairly restricted to the same direction once beyond the easy water of the deep south. Thus, economic development was limited in the early part of the 1800s. Sugar plantations near New Orleans were economically viable, though not so readily as to be fully competitive with the Carribean Islands that had been the center of the sugar trade throughout the 1700s. As for the great northeastern reaches of the valley, trade was restricted, substantially, to raw materials and easily preserved foodstuffs, such as grain, pork, and whiskey. The great raft trade depended on lumber, with the rafts themselves usually made out of the lumber that was intended for sale. On arrival, a raft's cargo would be removed and the raft itself broken up for sale as lumber. The raft trade, while short-lived, spawned a unique lifestyle, one known for its population of transient and coarse laborers. The folk art that sprang from this group deeply influenced the traditions of the country, through its music, its rich slang, and its folklore. All figure prominently in “Old Times on the Mississippi,” Life on the Mississippi, and Adventures of Huckleberry Finn. The spread of steamboats to western rivers in the 1820s changed everything. Established industries benefitted immediately. Sugar, for example, became easier to move to market, and the reach of plantations along bayous and tributaries increased. By the time Mark Twain came to know the lower reaches of the river at the end of the 1850s, sugar was a major industry in Louisiana. Cotton, too, was moved by steamboat. Other commodities, such as chickens and eggs moved by steamboat, though bulky cargo still was more cheaply moved, if it was moved by raft or barge. Perhaps the most lucrative cargo was people, and the hugely lucrative internal trade in slaves was greatly facilitated by boats. Not surprisingly, then, the most lucrative steamboat trade for much of the period was on the lower Mississippi River between St. Louis and New Orleans.

That is not to say that the upper reaches of the river system did not have a thriving river traffic. In fact, by the 1830s, all navigable American rivers had developed steamboat trades, and the entirely of the Mississippi River system had a robust trade. Hannibal, Missouri, grew into Missouri's second largest town substantially because it was on the river, serving as a transhipment point for various commodities from Northern Missouri into the Southern market and for various finished goods into the developing farm country of the northern half of the state. While the southern reaches of the river were the first to develop a major steamboat commerce, the success of the boats made it easier to settle the river's northern reaches. And the consequence in part became a more regionally divided agriculture, with northern farmers providing greater amounts of grain, pork, and poultry and southerners concentrating on sugar and cotton, which could not be grown up north. The regions were thus profoundly integrated economically, despite equally profound differences in attitudes toward labor. Though steamboats were dominant from 1830 to 1860, it is rare for a technology to completely supplant its predecessor; the raft trade outlived the arrival of steamboats, as it was still an excellent and inexpensive way to move bulky goods from up-river to down. In fact, with steamboats able to move passengers back up, they enabled raftsmen to return upstream to find new boats much more efficiently. Still, steamboats radically reduced the economic viability of rafts by speeding delivery times and by being able to use the waterway as a two-way street. Twain describes the conflicts that inevitably arose between the old and the new in “Old Times,” and in Huck. But, of course, the steamboats themselves were to lose the lucrative and glamorous passenger trade and much of the cargo trade, too, when railroads began to lace the Midwest as early as the 1850s. Railroads could go anywhere, and they could do it faster than boats restricted to a meandering river. Hannibal continued to thrive in part because it became a railway terminus linking Kansas to the East coast by a succession of rail lines. In fact, a map of principal railroads by 1860 shows that most major lines moved on east-West axes. This mirrored the movement of population and the demand for an exchange of goods between the east and west. Direct shipment was faster than the water route from, say, Ohio, down the river system then by sea to New York. And even though the river route was inexpensive and relatively fast, there was still, by 1860, a collection of rail lines from Chicago to New Orleans. This meant a diminution of the steamboat industry at the hands of the railroads much as the steamboats diminished the raft trade. While in “Old Times on the Mississippi,” Twain describes the death of the steamboat trade against the competition of railroads as happening “in the twinkling of an eye,” the growth of railroads was in fact a process of two decades. The radical change came with the Civil War, which closed the Mississippi trade completely from 1861 to 1863. Northern farmers came to rely less on water transit and more on the railroads, construction of which boomed during the War. By War's end, the Mississippi steamboat trade was reduced primarily to pulling barges, supplanting the raft trade entirely, and mirroring its demise by playing second fiddle to rail. So the very physical feature that defined the human uses of the valley for a half century became less significant as the nineteenth century passed. Still, from Mark Twain's pont of view, and from the point of view of the mythology that he both used and immortalized, the river was the central physical feature because it was the central human feature, the great highway that made the basin economically viable in the first place. Without the human population that the river allowed, it would have taken substantially longer for the railroads to have penetrated the Midwest, transforming the whole into an industrial economy.

Manufacturing: On the whole, the economy of the Mississippi Valley depended on the sale of agricultural goods, so farming was the primary economic activity. But inasmuch as this farming was always market based, the need for machines was huge, both to make the farming more efficient and to move finished commodities to market. Of course, the entire Southern economy, based as it was on cotton, depended on two machines, invented early in the century: the cotton gin, for economically carding the cotton, and the screw-press, enabling farmers to bale the cotton for shipment. The northern economy did not grow to match until various other farm implements were modernized. McCormick's reaper, John Deere's and James Oliver's steel ploughshares, and Jerome Case's threshing machines all came into widespread use in the 1850s and 1860s. These not only opened the prairies west of the Mississippi to grain farming, they turned grain farming into big business, increasing the farm hand's efficiency by a factor of twenty. They also turned towns of the upper Midwest, most notably Chicago, into manufacturing centers. This difference alone helps explain the victory of the North over the South in the American Civil War; the North was able to feed its troops with ease on the agricultural productivity of the upper Mississippi valley. Steamboats and trains, of course, were required to move the goods, and so the demand for Western manufactory was large almost from the earliest days. While Eastern cities were the first to build modern factories, Western development did not lag far behind. The great manufacturing centers of western Pennsylvania, Ohio, Michigan, Indiana, and Illinois developed because transportation, raw materials, and the markets for the finished goods were all within easy reach. In fact, there were regional differences in manufacturing. Eastern rivers had steamboats, too, but from the beginning they tended to move goods short distances. The greater distances of the Western rivers demanded faster boats, which in turn made a demand for high-pressure steam-engines. The engines in these western boats were loud, vibrated intensely, and exploded with alarming frequency. The more wide-open, risk taking mentality of westerners, bent on settling a new land, accorded with boats made to last, on average, no more than five years before sinking from snag, explosion, fire, or simply falling apart under heavy use. Profits were so great as to offset the risks, and the manufacturing of such quickly obsolete machines was highly profitable, too.

Finance: These major changes in transportation and manufacturing integrated all of America into an international market, but the Government's approach to the money market did not keep pace with these changes. The Federal reserve system was not developed until the early twentieth century, and government coinage never kept pace with the needs for a growing economy. Banks were mostly chartered on a state level, and Western expansion depended on the ability of these state banks to issue their own notes in lieu of an inadequate federal currency. The currency issued by the banks went by the name of “wildcat,” and it was usually discounted because the boom and bust cycle of the economy was exaggerated at the edges of civilization, where wildcats were still found. The suggestion that the currency itself was dangerous was part of the meaning of the slang term. Such banks often went broke, making their notes worthless. “Wildcat” became one of Mark Twain's favorite metaphors for risk. People commonly felt that these western banks were underfunded, and compared to their needs, they probably were, but most of them in fact kept greater reserves than did eastern banks. Their propensity to fail was not simply a consequence of their positions at the edge of civilization, where busts were more extreme, but also was a consequence of the correspondent banking system. Without a central bank or a federal reserve system, the national government charged a few eastern banks to fill the role, and connected the rest through correspondence with these few mega-banks. Interbank loans were supposed to make the system a bit more flexible. Yet the terms of their correspondence linked them in a downward spiral when any one of them had extraordinary calls on its reserves. Furthermore, banks' loan policies were governed for the most part by agricultural cycles, with business notes by law restricted to one year. While such provisions might have worked for farmers, they did not satisfy the needs of manufacturing industry. In good times, commercial banks regularly rolled over these one year notes to non-agricultural borrowers, but, when panics hit, they had no choice but to call notes at precisely the moment when an expanded money supply would be required to prevent economic depression. Hence, throughout the nineteenth century, the economy was subjected to a violent cycle of boom and bust. A major depression began in the late 1830s and lasted well into the 1840s, another hit 1873 lasting for seven years, a short recession occurred in 1884-1885, a major one hit in 1893, lasting until 1897. Mark Twain's Mississippi, then, connected to national, and indeed, international capital, was an economic roller coaster. Twain's childhood was affected inasmuch as his father's business ventures failed during the depression of the late 1830s and 1840s, and all of his Mississippi writings are colored by that financial reality. This is not to say theat there were no innovations in finance that enabled western expansion to continue despite the disruptions of the business cycle. The great insurance industry, centered in Hartford, Connecticut (where Mark Twain moved in 1871 and which he called home until 1896), provided a secondary source of financing for the entire economy. Collecting money from businesses, unions, benevolent societies, and individuals, insurers invested that money in many corners of the economy, providing a relatively stable flow of funds into stocks and commercial bonds, none of which was as restricted as the flow of money through banks. Again, Twain's works frequently mention the power of the insurance companies. In “Old Times on the Mississippi,” he describes how the insurance companies bolstered the pilot's union when they discovered that union pilots had better safety records than non-union pilots. It's not part of the mythology of the west that industrial policy for a major Western industry would be set in Hartford, Connecticut, but the mythology of the independent West has always missed the reality of national interconnectedness.