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Early Republic Economic Development
Most economic developers today probably attend the “church of what’s happening now.” History, however, preaches its own version of “old-time religion.” The idea that whatever happened before the Civil War can’t possibly affect me today is one this history challenges. True, the 1800–65 “context” seems vastly different from today. This is the period described of great population movements into the nation’s interior: displacing Native Americans; forcibly compelling African-Americans into the new “cotton belt”; approving state constitutions and municipal incorporation charters; and building cities from scratch. Industrialization and the industrial city developed during his period, but Early Republic values, structures, processes, forms of government and institutions persisted, sometimes with increasing irrelevance and dysfunctionality. In many ways, pre-Civil War Early Republic institutions, politics and governance reflected a teenage-like transition to something else.
Despite this context, a whole lot of economic development (ED) was going on. In particular, pre-Civil War ED employed ED tools—important tools like tax abatement, loans to business and eminent domain— that we still use today. These classic tools were instrumental in forming early jurisdictional economic bases, enhancing viability of newly created cities and preserving hinterland hegemony so vital for urban growth. Their widespread use since the founding of the Republic strongly hints that, despite incessant controversy and criticism, such tools possess a durability that must frustrate their critics.
Even more surprising is that cities and states were involved in a vigorous debate concerning vital questions such as the role of the federal government in state/sub-state economic development and if, and how, government could “partner” with the private sector to achieve economic development goals. At the end of this period, a state court decision (see Dillon’s Law below) cemented, perhaps forever, the place, role and inherent power of sub-state cities, towns and villages in our federal system. That decision did more to shape America’s sub-state policy process than any other court decision since.
The rise of new cities and what seemed at the time a life-and-death competition among older coastal cities demonstrated the importance of a Chapter 1 driver of ED policy/strategy: the competitive urban hierarchy. In this era competition among cities was so instinctual one can be forgiven for believing competition is a gene in the urban DNA. Inland city-building simply crushed the older and previously isolated Eastern seaboard hierarchy. A new one slowly emerged, and the fledgling and volatile new hierarchy begat even more urban competition. Access and trade were prerequisites for urban growth, and that required transportation infrastructure. Municipalities (and states) needed to connect their city to the adjacent city, routing trade and people through their community, not somebody else’s. Using the transportation mode du jour, cities competed to develop continental-scale hinterlands.
Such infrastructure, however, was light years beyond the bureaucratic capacity, political consensus and tax base of municipal/state government. Frankly, the tools that were available (government bonds, eminent domain, tax abatement) and the almost complete lack of economic development structures (EDOs) that could make it happen meant that ED strategies, tools—and structures—had to be fabricated. Either government itself would have to do it—and it could not—or the private sector logically would have to be involved. How? Experimentation, innovation and corruption followed. If transportation infrastructure was to “happen,” a partnership with the private sector was essential. This partnership necessarily meant some structural vehicle had to be devised that linked private expertise, risk-taking entrepreneurship and financing with public powers such as bonding, tax abatement and eminent domain. In the Early Republic that was the infamous corporate charter, which created a hybrid public–private EDO that financed, constructed and operated the infrastructure. The problem was the corporate charter worked, to a point—and then it didn’t. That is a major element of this chapter—and of economic development.
ED functions as the bridge between government and the private economy. That the corporate charter delivered a decidedly mixed bag—a decent transportation infrastructure was installed, but charter corporations were prone to conflicts of interest and outright corruption, and demanded governmental fiscal sophistication. Many went bankrupt in the first major depression that occurred in the late 1830s and early 1840s: Après le Panic of 1837, le corporate charter Deluge. The reaction to the corporate charter affected greatly the subsequent evolution of most state and local ED.
STICKING THE FEDERAL NOSE INTO SUB-STATE POLICY-MAKING
By Washington’s second administration (1794) the so-called Hamilton Plan (strong executive-led federal government, a pro-manufacturing finance system, a national bank) assumed center stage. By 1796, however, the Washington “unity” administration splintered into a Jefferson-led, legislative-focused, agrarian and state-rights Democratic-Republican Party (D-Rs) that directly challenged Hamilton/Washington Federalists. The Federalists struggled under Adams and lost control of the federal government (forever) to Jefferson in 1800—leaving the federal government in the hands of Tidewater/Deep South-based Jeffersonian D-Rs. Perhaps, Jefferson’s most important economic development action was the 1803 Louisiana Purchase from which 15 states emerged.1
After the war of 1812, and a weak attempt at New England secession from the federal Union (Hartford Convention), the dominant Federalist Party collapsed and merged into a unstable two-wing Democratic-Republican Party which presided over a short-lived “era of good feelings (1816–28). And then Andrew Jackson was elected President in 1828—and no one had good feelings after that. Jackson, a complex character—Deep South slave-owner/planter with Greater Appalachian values, a strong believer in state rights, cheap money, anti-bank but an equally strong proponent of the Constitution and the Republic—was his own paradigm and enigma. His effect on contemporary economic development, however, was profound: his concept of urban governance, the weak mayor system, limited governmental capacity and policy effectiveness for nearly 100 years. The reaction to his economic failings created a wave of state legislation that continues to affect economic development to this very day.
Most of the infrastructure-related events described below occurred after the war of 1812 and were generated by D-R factions led by Henry Clay. Federal involvement in local ED largely ceased with the Jackson Administration (1828–36) and the Panic (Depression) of 1837. Not until Abraham Lincoln did the feds resume an activist role in state/sub-state ED. In the interim states assumed a greater role, producing a decidedly mixed bag of policy outputs. The Whig Party formed after 1840 as an alternative to the dominant Jacksonian Democrats. The history briefly describes these federal infrastructure initiatives. The nature of these initiatives and reaction to them reveal a lack of consensus regarding the role of the federal government in matters of sub-state economic development during the pre-Civil War years. Importantly, post-1861 federal ED-related initiatives bridged that now infamous ED public/private chasm by using, instead of the corporate charter, the modern private business corporation as its primary EDO.
EARLY REPUBLIC FEDERAL GOVERNMENT AND “INTERNAL IMPROVEMENTS”
A predominantly agricultural economic base ensured that most of America remained rural hinterland, pockmarked by remarkably small urban centers (by today’s standards). In 1790 only 5 percent of Americans lived in urban areas (defined as 2500).2 By 1860, however, the urban share of the population increased to a whopping 20 percent. Despite emerging industrialization, America in this era is best thought of as a developing nation, without a land-based transportation infrastructure, dependent on water-borne commercial trade. We lacked a meaningful financial/investment system and, consequently, were deeply reliant on foreign direct investment (FDI). Each of these factors affected sub-state economic development activities, and also generated a federal attempt to overcome the isolation of rural America by making it more accessible for trade and population mobility. The man most associated with these initiatives was Henry Clay.
Democratic-Republican Henry Clay was arguably the most prominent national “economic developer” in the pre-Civil War period, if only because of his longevity on the national political scene. A transplanted Virginia slave-owning planter, Clay moved to Kentucky and in 1811 was elected to the House of Representatives at 34. On the first day of his first term on the Hill (1812), he was elected Speaker. Reelected as Speaker for the next four terms, he remained in either House or Senate until 1852; he also ran unsuccessfully for President six times. Relevant to us was Clay’s “American System” federal policy platform.
The American System was a three-pronged federal ED program which included:
- a protective tariff intended to nurture the emerging manufacturing sector startups and shield them from British dumping and low-cost imports;
- a (second) national bank that would inhibit inflation, establish a strong national currency, provide lending to firms, and foster interstate commerce; and
- providing federal subsidies to roads, canals and other internal improvements to strengthen access to rural cities/towns which dotted the American landscape.
The American System was controversial and, while in office, Jackson sparred and fussed with Clay over much of it—refusing to charter the National Bank and denying funds to the National Road. The bank’s demise contributed mightily to the Panic of 1837.
The tariff, however, equaled slavery in is divisive political effects on the body politic. Tariff debate exposed stresses among competing industry sectors and the contrasting North/South economic bases. The southern export-based agricultural economy required as close to free trade as could be wrung from the North, which wanted a tariff to protect its fragile new manufacturing sectors. Free trade or tariff protectionism considerably impacted industry sectors/life cycles, and has consistently created the potential for zero-sum decision-making among the nation’s regions and states/cities. The various tariffs associated with Clay’s American System were not the first, and would not be the last, example of polarizing regional economic development conflict triggered by tariffs. On balance, by the way, the North came out the better.
The National Road anticipated the Eisenhower interstate highway system by more than150 years. The Road (Route 40) commenced in Washington DC; by 1818 it had reached Wheeling (West) Virginia, and eventually got as far as Vandalia, Illinois. The feds provided subsidies, off and on, through 1835 when the states took over: “So many towns sprang up along it that it became known as the Main Street of America” (Reynolds, 2008, p. 12). The National Road opened up the central Midwest as the railroad would for the American West some 40–60 years later.
Ron W. Coan 