bulls, bears, boom, & bust (j. m. dobson) {s-b}

BULLS, BEARS, BOOM, AND BUST

BULLS, BEARS, BOOM, AND BUST
A Historical Encyclopedia of
American Business Concepts
John Dobson
Santa Barbara, California Denver, Colorado Oxford, England
Copyright 2007 by ABC-CLIO, Inc.
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or
transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or other-
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from the publishers.
Library of Congress Cataloging-in-Publication Data
Dobson, John M.
Bulls, bears, boom, and bust : a historical encyclopedia of American business concepts /
John Dobson.
p. cm.
Includes bibliographical references and index.
ISBN 1-85109-553-5 (hard cover : alk. paper) 1. United States—Commerce—History—
Encyclopedias. 2. Business enterprises—United States—History—Encyclopedias. 3.
Industries—United States—History—Encyclopedias. 4. Businesspeople—United States—
Biography. 5. Businesspeople—United States—History—Encyclopedias. I. Title. II.
Title: Historical encyclopedia of American business concepts.
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2006027499
1110090807 10987654321
ISBN-13: 978-1-85109-553-7 (ebook) 978-1-85109-558-2
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∞∞
Preface, xv
Section 1 Colonial America, 1607–1760 1
Key Concepts, 2
Apprenticeship, 2
Book Credit, 3
Bubble, 4
Charter, Royal, 6
Commodity Money, 8
Dollar, 9
Enclosure, 10
Factor, 10
Fisheries, 11
Fur Trade, 12
Guilds, 13
Head Rights, 14
Indenture, 16
Joint-Stock Company, 18
Lottery, 19
Manufacturing Acts, 20

Mercantilism, 21
Molasses Act, 23
Naval Stores, 23
Navigation Acts, 24
Paper Currency, 25
Pine Tree Shilling, 26
Plantation, 27
Proprietary Colonies, 28
Shipbuilding, 32
Slavery, 33
Staples, 35
Tobacco, 36
Trade Balance, 37
Triangular Trade, 39
Wage Codes, 39
Wall Street, 40
v
CONTENTS
vi CONTENTS
Biographies, 40
Byrd, William, II, 40
Calvert, George, 41
Franklin, Benjamin, 41
Penn, William, 42
Raleigh, Sir Walter, 42
Rolfe, John, 42
Section 2 The New Nation, 1760–1860 45
Key Concepts, 47
Abominations, Tariff of, 47
American System, 48

Bank of the United States, 49
Bank War, 52
Banknotes, 53
Canal Era, 55
Carrying Trade, 57
Charter, State, 59
Checks, 61
China Market, 62
Clipper Ships, 63
Continental Currency, 64
Corn Law, 65
Corporations, 66
Cotton, 68
Cotton Factorage, 71
Cotton Gin, 72
Dealership, 73
Division of Labor, 74
Dollar, American, 75
Embargo, 77
Free Banking, 79
Gold Rush, 80
Industrial Revolution, 82
Integrated Mill, 84
Interchangeable Parts, 85
Interstate Commerce Clause, 87
Japan, Opening of, 89
Labor Unions, Early, 90
Laissez-Faire, 91
Land Companies, 93
McCulloch v. Maryland, 95

Monopoly, 96
New York Stock and Exchange Board, 98
Nonimportation, 99
Packet Ships, 101
CONTENTS vii
Panic of 1819, 102
Patent Pool, 103
Patents, 105
Privateering, 106
Protective Tariff, 107
Public Credit, Report on the, 108
Railroads, 110
Soft Money, 113
Specie Circular, 114
Stamp Act, 116
Steamboats, 118
Sugar Act, 120
Biographies, 121
Adams, Samuel, 121
Astor, John Jacob, 121
Belmont, August, 122
Biddle, Nicholas, 122
Borden, Gail, 122
Clay, Henry, 123
Colt, Samuel, 123
Corning, Erastus, 123
Deere, John, 124
du Pont de Nemours, Éleuthère Irénée, 124
Duer, William, 125
Evans, Oliver, 125

Fulton, Robert, 125
Girard, Stephen, 126
Goodyear, Charles, 126
Hamilton, Alexander, 126
Hancock, John, 127
Howe, Elias, 127
Jackson, Andrew, 128
Lowell, Francis Cabot, 128
McCormick, Cyrus Hall, 129
Morse, Samuel Finley Breese, 129
Otis, Elisha Graves, 129
Remington, Philo, 130
Singer, Isaac Merritt, 130
Slater, Samuel, 130
Smith, Adam, 131
Strauss, Levi, 131
Symmes, John Cleves, 131
Thomas, Seth, 132
Vanderbilt, Cornelius, 132
Whitney, Eli, 133
Winchester, Oliver Fisher, 134
viii CONTENTS
Section 3 Industrializing America, 1860–1900 135
Key Concepts, 137
American Federation of Labor, 137
Antitrust Laws, 138
Bonanza Farms, 140
Boycott, 140
Bulls and Bears, 141
Catalog Sales, 142

Chain Stores, 144
Credit Mobilier, 146
Crop Lien, 147
Department Store, 148
E. C. Knight and Co. Case, 150
Electric Car, 151
Electric Power, 152
Free List, 155
Free Silver, 156
General Incorporation Laws, 158
Gold Corner, 160
Greenbacks, 161
Horizontal Integration, 163
Interstate Commerce Commission, 166
Knights of Labor, 168
Land Grant Railroads, 169
National Bank Notes, 172
National Labor Union, 174
Office Appliances, 175
Oligopoly, 176
Panic of 1873, 178
Panic of 1893, 181
Pool, 182
Pullman Strike, 183
Railroad Consolidation, 185
Rebates, 187
Sharecropping, 188
Shinplasters, 189
Shopping, 190
Single Tax, 191

Social Darwinism, 192
Tabulating, 193
Trademarks, 195
Trust, 196
Vertical Integration, 197
Watered Stock, 199
Biographies, 200
Armour, Philip Danforth, 200
Ayer, Francis Wayland, 200
CONTENTS ix
Bell, Alexander Graham, 200
Burroughs, William Seward, 201
Busch, Adolphus, 201
Carnegie, Andrew, 202
Cooke, Jay, 202
Coors, Adolph, 202
Depew, Chauncey Mitchell, 203
Dodd, Samuel Calvin Tate, 203
Duke, James Buchanan, 204
Eastman, George, 204
Edison, Thomas Alva, 204
Frick, Henry Clay, 205
Gompers, Samuel, 205
Gould, Jay, 206
Grace, William Russell, 206
Harriman, Edward Henry, 207
Hearst, William Randolph, 207
Heinz, Henry John, 208
Hollerith, Herman, 208
Macy, Rowland Hussey (R. H.), 208

Patterson, John Henry, 209
Penney, James Cash (J. C.), 209
Pillsbury, Charles Alfred, 210
Pulitzer, Joseph, 210
Pullman, George Mortimore, 211
Rockefeller, John Davison, 211
Scott, Thomas Alexander, 211
Sears, Richard Warren (R. W.), 212
Sherman, John, 212
Sprague, Frank Julian, 213
Stanford, Leland, 213
Stewart, Alexander Turney (A. T.), 213
Swift, Gustavus Franklin, 214
Thompson, James Walter, 214
Wanamaker, John, 215
Ward, Aaron Montgomery, 215
Westinghouse, George, 215
Whitney, William Collins, 216
Woolworth, Frank Winfield (F. W.), 216
Section 4 Boom and Bust, 1900–1940 219
Key Concepts, 221
Agricultural Adjustment Acts, 221
Associationalism, 223
Autarky, 225
Bank Holiday, 226
Billion Dollar Corporation, 228
Bracketing the Market, 230
xCONTENTS
Brand Management, 231
Brokers’ Loans, 232

Built-in Obsolescence, 234
Bull Market, 234
Business Cycles, 238
Call Loans, 240
Clayton Antitrust Act, 241
Commercial Aviation, 242
Commodity Dollar, 243
Consumer Credit, 244
Crash, 245
Creditor Nation, 249
Dawes Plan, 250
Deficit Spending, 251
Federal Reserve System, Creation of, 253
Federal Reserve System, Reform of, 256
Federal Trade Commission, 258
Florida Land Bubble, 260
Great Depression, Causes of, 261
Great Depression, Character of, 264
Holding Company, 267
Induced Scarcity, 269
Interstate Commerce Commission, Reform of, 270
Just Price, 272
Keynesian Economics, 273
Leveraged Investment Trust, 275
Money Supply, 276
Movies, 277
Moving Assembly Line, 279
Muckrakers, 280
Northern Securities Co. Case, 282
Open Market Operations, 284

Parcel Delivery, 285
Parity, 285
Ponzi Scheme, 287
Preferred List, 287
Product Differentiation, 288
Pujo Committee (Money Trust), 288
Radio, 290
Reciprocity, 291
Reconstruction Finance Corporation, 293
Recovery, 294
Relief, 296
Rule of Reason, 298
Scientific Management, 299
Securities and Exchange Commission, 300
Selden Patent, 302
CONTENTS xi
Standardization, 303
Underconsumption, 304
War Industries Board, 305
Biographies, 307
Aldrich, Nelson Wilmarth, 307
Arden, Elizabeth, 307
Baruch, Bernard Mannes, 308
Birdseye, Clarence, 308
Boeing, William Edward, 309
Carrier, Willis Haviland, 309
Chrysler, Walter Percy, 309
Disney, Walter Elias, 310
Dodge, John Francis and Horace Elgin Dodge, 310
du Pont, Pierre Samuel, 311

Durant, William Crapo, 311
Firestone, Harvey Samuel, 312
Ford, Henry, 312
Gary, Elbert Henry, 313
Giannini, Amadeo Peter (A. P.), 314
Hershey, Milton Snavely, 314
Hill, James Jerome (J. J.), 314
Hilton, Conrad Nicholson, 315
Hughes, Howard Robard, 315
Insull, Samuel, 316
Johnson, Howard Deering, 316
Johnson, Hugh, 316
Kellogg, John Harvey, 317
Knox, Rose, 317
Land, Edwin Herbert, 317
Mayer, Louis Burt, 318
Maytag, Frederick, 318
Mellon, Andrew William, 318
Mitchell, Wesley Clair, 319
Morgan, John Pierpont (J. P.), 319
Olds, Ransom Eli, 320
Paley, William Samuel, 320
Phillips, Frank, 321
Reynolds, Richard Joshua (R. J.), 321
Rubinstein, Helena, 321
Rudkin, Margaret, 322
Sarnoff, David, 322
Sinclair, Harry Ford, 323
Sloan, Alfred Pritchard, Jr., 324
Taylor, Frederick Winslow, 324

Trippe, Juan, 324
Vail, Theodore Newton, 325
Wallace, Henry Agard, 325
xii CONTENTS
Watson, Thomas J., 326
Section 5 Recent America, 1940 to the Present 327
Key Concepts, 328
Adjustable Rate Mortgages, 328
Arbitrage, 329
Computers, 330
Conglomerates, 332
Credit Cards, 334
Deregulation, 336
Electronic Fund Transfers, 337
Franchises, 338
GATT, 340
Golden Parachute, 341
Greenmail, 342
Hostile Takeovers, 343
Junk Bonds, 345
Leveraged Buyout, 346
Malls, 348
Marketing Concept, 349
Microchips, 350
Military Aviation, 352
Military-Industrial Complex, 353
Monetarism, 355
Personal Computers, 356
Poison Pill, 358
Rationing, 359

Saving and Loan Crisis, 360
Stagflation, 362
Stock Options, 363
Supply-Side Economics, 365
Television, 367
Transistors, 368
Universal Product Code, 369
Venture Capital, 370
White Knight, 372
Biographies, 373
Andersen, Arthur, 373
Ash, Mary Kay, 374
Boesky, Ivan, 374
Buffet, Warren Edward, 374
Claiborne, Elisabeth, 375
Douglas, Donald Wills, 375
Forbes, Malcolm Stevenson, 376
Gates, Bill, 376
Geneen, Harold, 377
Graham, Katharine, 377
CONTENTS xiii
Hewlett, William Redington, 378
Icahn, Carl, 379
Jobs, Steven Paul, 379
Johnson, John Harold, 380
Kaiser, Henry John, 380
Kilby, Jack, 381
Kravis, Henry, 381
Kresge, Sebastian Spering (S. S.), 382
Kroc, Ray, 382

Lauder, Estée, 382
Lauren, Ralph, 383
Levitt, William Jaird, 383
Ling, James J., 384
Milken, Michael Robert, 384
Noyce, Robert, 385
Olsen, Kenneth, 385
Packard, David, 385
Perdue, Frank, 386
Perot, Henry Ross, 386
Pickens, T. Boone, 387
Revson, Charles, 387
Schwab, Charles, 388
Simon, Norton, 388
Tandy, Charles, 389
Turner, Ted, 389
Wang, An, 389
Appendix 1: Key Concepts and Biographies by Section, 391
Appendix 2: Key Concepts by Section and Subject, 397
Appendix 3: Biographies by Section and Subject, 401
Index, 405

A
s with all major writing projects, the
scope of this book evolved and ex-
panded over time. Initially I intended to de-
fine and describe the origins of a relatively
limited set of concepts important to the his-
tory of American business. It quickly be-
came apparent that certain people played

vital roles in inventing or innovating de-
vices, mechanisms, or processes that pro-
foundly shaped how business was and is
conducted in the United States. That led me
to include biographical entries on key in-
ventors, entrepreneurs, and industrial and
business leaders. I have paid particular at-
tention to those like Goodyear, Woolworth,
Hilton, Maytag, and Westinghouse, whose
names remain actively associated with ma-
jor ongoing business ventures.
My understanding and appreciation of
what constituted important business-
related concepts expanded in other direc-
tions as well. For example, government re-
strictions, encouragement, and regulations
have exercised critical influence on business
activities throughout American history, so
government decisions and policies appear
among the topical entries. Similarly eco-
nomic theories, industrial organizational
structures, marketing and merchandising
strategies, and the availability of capital re-
sources including various types of money,
all helped mold the American business en-
vironment. Many other concepts also de-
manded attention as I explored the develop-
ment of business from the nation’s colonial
origins to the present day.
As a historian, I found a chronological ap-

proach appropriate and appealing. It al-
lowed me to distribute the 210 topical en-
tries and 160 biographical sketches into five
sections, each covering a relatively limited
span of years. A brief historical review in-
troduces each section, explaining where and
how each topical entry fits into the overall
picture. Each chronological section also in-
cludes biographical entries describing peo-
ple who played active roles in American
business during the appropriate frame of
years. A user interested in a particular pe-
riod will therefore find relevant associated
information in the entries assembled within
the same section.
Innovations and developments often
have long-term consequences, however,
and the influence of some of the topics and
people extended well beyond the chrono-
logical limits of the individual sections. To
assist readers in pursuing connections and
consequences, most of the entries contain
references to related topics or people in-
cluded elsewhere in the book.
REFERENCE AIDS
In addition to a standard index, the book
contains three appendixes. The first pro-
vides an alphabetical listing of all the entries
included in the book and notes the section
in which each can be found.

The second sorts the topical entries into the
following groupings: agriculture, antitrust,
banking, business cycles, capital, electronics,
xv
PREFACE
xvi PREFACE
entertainment, government, industry, intel-
lectual property, international, labor, mer-
chandising, money, organization, railroads,
regulation, speculation, strategy, theory, and
transportation.
The third identifies common characteristics
or fields of endeavor of the individuals in-
cluded in the biographical entries. These
groupings include: agriculture, aircraft, auto-
mobiles, banking, business, clothing, con-
glomerates, cosmetics, electronics, entertain-
ment, food, government, industry, inventions,
merchandising, publishing, railroads, service,
speculation, and theory.
As some of the people discussed obviously
have direct links with one or more of the top-
ics discussed in the general entries, readers in-
terested in information on a particular subject
may find it useful to compare one list with the
other to identify these commonalities.
ACKNOWLEDGMENTS
No project of this type could have been
completed without extensive support and
encouragement. I owe a debt of gratitude to

my extraordinarily congenial colleagues in
the Department of History at Oklahoma
State University where most of the research
and writing took place. No matter how ob-
scure or detailed the information I sought,
the university’s library collection unfail-
ingly provided me with appropriate refer-
ences and in-depth sources. I was also for-
tunate in being invited to teach at the
University of Glasgow while working on
major aspects of this book. Here again, the
history faculty proved to be an agreeable
group who welcomed me with respect and
friendship. I was equally pleased to dis-
cover a quite comprehensive library collec-
tion on campus. As one of Britain’s “an-
cient” institutions, the University of
Glasgow appears to have retained every
book it acquired since its founding in 1451,
providing a historian with a delightful
treasure trove of sources to explore.
I am also indebted to the capable staff at
ABC-CLIO, beginning with Alicia Merritt,
whose enthusiasm for my work proved es-
pecially encouraging. Three others who
made major contributions in helping refine
the final text are Alex Mikaberidze, Kristine
Swift, and Anne Friedman. Last but cer-
tainly in no way the least, I wish to thank
my wife Cindy for her support. She not only

helped me conceive of this project, but
showed remarkable tolerance as I became
distracted by and absorbed in the research
and writing it involved.
JMD
SECTION 1
COLONIAL AMERICA, 1607–1760
1
T
he first permanent English settlement in
North America began in 1607 with the
founding of Jamestown in Virginia. Over the
next century and a half, the population of
British North America grew to over 3 million
people living in thirteen distinct colonies.
Many economic and business developments
that emerged in this period set precedents
that still affect current events.
Conditions and ambitions in England
stimulated colonial expansion. The enclosure
movement forced farm families into cities
long before an industrial revolution provided
jobs for them. Trading opportunities and in-
ternational rivalries attracted financial in-
vestment and fueled imperial ambitions. The
royal government remained strapped for
funding and was absorbed in internal contro-
versies and conflicts. The shaky hold exer-
cised by Stuart kings broke down in the mid-
1600s, only to be restored after an eleven-year

experiment with the Puritan Common-
wealth. Twenty-five years later, the Glorious
Revolution of 1688 brought William and
Mary over to England from Holland. The in-
ternal political situation finally became more
stable under the Georges in the eighteenth
century.
In the early years the distracted monarchy
relied almost exclusively on private enter-
prise to plant its colonies. To initiate such a
grand endeavor, however, royal permission
was needed in the form of either a charter or
a proprietary grant. While a few wealthy in-
dividuals could finance their own expedi-
tions, a joint-stock company of investors
and adventurers established the first suc-
cessful colony. When its initial capital dried
up, the Virginia Company supplemented its
finances with national lotteries. Occasion-
ally, optimism got out of hand, creating a
speculative bubble that soon collapsed, in-
flicting devastating costs on the unwary.
Disappointed in their search for gold and
other quick riches, English investors and
proprietors realized that land and its prod-
ucts offered alternative pathways to wealth.
While many proprietors retained substantial
land holdings, they also handed off or sold
tracts to others. To encourage immigration,
many colonies offered head rights, grants of

fifty acres or more to anyone who would set-
tle in America.
The colonies exploited a number of meth-
ods to meet their constant need for labor in a
hand-built world. Young people routinely
signed apprenticeship contracts hoping to
learn a trade that would improve their
chances of employment. Penniless people in
the British Isles signed similar labor agree-
ments called indentures in return for trans-
port to opportunities in the New World.
When the supply of indentured servants
waned in the late 1600s, landowners increas-
ingly relied on slave labor to work their
fields.
Agriculture was consistently the most im-
portant economic activity in the land-rich
colonies. Staples like tobacco, sugar, naval
stores, and grain were shipped all over the
world. The bounty of American fields cre-
ated periodic gluts of some commodities
2SECTION 1
and depressed prices. To lower production
costs, farmers sought to expand their opera-
tions into large-scale plantations capable of
exploiting economies of scale. Factors acted
as purchasing and supply agents for the
larger plantation owners.
In the Northeast, where farming was less
rewarding, alternatives like fishing and

shipbuilding became major industries. A
lively and expanding fur trade thrived
throughout the colonies as well. In urban
centers, wage workers and artisans experi-
mented with primitive organizational efforts
in the form of guilds. Although colonial gov-
ernments repeatedly attempted to impose
wage codes to control costs and maintain so-
cial control, the persistent labor shortage in
North America undermined such regulatory
efforts. Meanwhile, speculators in the busy
port of New York laid the groundwork for its
future prominence by congregating along
Wall Street to conduct their business.
As the colonial population expanded, the
British government took greater interest in
controlling commerce among the colonies,
and between them and the rest of the world.
The conceptual basis for these moves be-
came known as mercantilism. Beginning
with the restoration of the monarchy in
1660, a series of navigation acts attempted
to channel colonial trade. Parliament subse-
quently passed manufacturing acts de-
signed to protect industrial activities in the
home islands by discouraging manufactur-
ing in the colonies.
Many Americans viewed these rules and
restrictions as detrimental to their develop-
ment. They also suffered from a lack of

sound currency. Barter was the most com-
mon method for exchanging goods and
services in the early days, and it continued
to prevail right through the colonial period.
As merchants became more prosperous and
influential, however, they took bartering to
a higher level by recording debts and assets
in ledgers and thereby creating book credit
for their clients and customers. Hoping to
provide a sounder basis for trade, the Mass-
achusetts Colony issued silver coins called
pine tree shillings until the royal govern-
ment shut down the mint in 1684. But up to
the eve of the American Revolution, British
coins remained so scarce that many Ameri-
cans were often more familiar with foreign
dollars than with pounds sterling.
As these factors suggest, tension between
the royal government and the colonists
waxed and waned over the years. In general
the colonists thought of themselves as En-
glish people and of the colonies as overseas
extensions of the home islands. British au-
thorities increasingly tried to rationalize the
structure and improve the overall efficien-
cies of their expanding empire. But the im-
perial connection also drew American set-
tlers into a series of international wars that
often seemed to have no relevance or bene-
fit to their lives and livelihoods. Their posi-

tions within the imperial system thus be-
came less comfortable by the end of the
French and Indian War in 1763. In the next
few years disaffection with imperial rules,
taxes, and perceived arrogance would lead
to the American Revolution.
KEY CONCEPTS
Apprenticeship
To learn a craft or trade in colonial America,
children served apprenticeships with mas-
ter craftsmen. An apprentice signed an in-
denture, or labor contract, that included an
obligation to work for a set period of years.
In return the master agreed to provide shel-
ter, food, and clothing, as well as training
and experience in his craft or profession.
Apprenticeships were common through-
out medieval Europe. Skilled craftsmen and
artisans usually enjoyed higher social and
economic standing than did unskilled labor-
ers or peasants. Consequently, parents were
eager to apprentice out their children, some-
times even paying the potential master to
do so. In other cases, a master might pay a
small sum to a potential apprentice’s family
to obtain a good worker.
COLONIAL AMERICA, 1607–1760 3
In the British North American colonies,
apprenticeships were less common in the
early years in part because so few skilled

masters were in residence. As the New En-
gland economy developed, however, with
its poor farmlands and growing cities, the
prospect of learning a trade was increas-
ingly attractive. Common schooling was
scarce throughout the colonies, and higher
education scarcer still. Children therefore
entered apprenticeships at early ages, stay-
ing on with a master for six to eight years.
Masters charged from £2 to £6 to take on a
new trainee.
As in any system, the quality of appren-
tices’ experiences varied widely, depending
on the relative wealth, skill, and personality
of their masters. Some apprentices were con-
signed to heavy labor and failed to develop
skills, while others who had more benevo-
lent masters were taught how to read and
write and some basic business skills along
with training in a craft or profession. Car-
penters, shipwrights, tailors, and black-
smiths were typical products of craft ap-
prenticeships, while other young people
learned from merchants and ship captains.
At the conclusion of an apprenticeship,
the master was expected to provide “free-
dom dues” in the form of clothing and
money to help the new craftsman become
established. Many who had completed their
apprenticeships spent several years in tran-

sition as journeymen. The expression came
from the French word jour, or day, signify-
ing that these people worked on a day-to-
day basis for others. The ultimate goal was
to be recognized as a master craftsman who
could establish an independent, profitable
shop or business and, in due course, train a
new generation of apprentices.
Apprenticeships enabled energetic and
resourceful young people to greatly im-
prove their prospects. Probably the most fa-
mous early American apprentice was Ben-
jamin Franklin. He was fortunate enough to
have obtained some grammar school educa-
tion in his native Boston before being ap-
prenticed at the age of twelve to his older
brother, a printer. Five years later, young
Benjamin abandoned his apprenticeship
and moved to Philadelphia, where he estab-
lished himself as a successful newspaper
publisher on the basis of the skills he had
learned as an apprentice.
Formal or informal apprenticeships con-
tinued to train young people well into the
nineteenth century. They remained an at-
tractive option for children who might oth-
erwise never have learned a trade or been
able to become independent businessmen.
See also Franklin, Benjamin; Indenture.
References and Further Reading

Barck, Oscar Theodore Jr., and Hugh Talmage
Lefler. Colonial America. New York:
Macmillan, 1968.
Boorstin, Daniel J. Americans: The Colonial
Experience. New York: Random House, 1958.
Book Credit
Colonial merchants who dealt with a num-
ber of buyers and sellers often kept track of
their accounts with bookkeeping tech-
niques. Book credit became an essential sub-
stitute for other financial instruments in a
cash-poor economy.
During the seventeenth and eighteenth
centuries, the British colonists in North
America continually experienced an unfavor-
able balance of trade, always importing more
than they were able to export. As a result,
very little specie or other European currency
remained in circulation in the colonies. In-
stead, it was quickly sent back to England to
pay for new imports. The colonists therefore
had to rely on barter, commodity money, or
book credit to conduct business in America.
Merchants could keep track of exchanges
of goods and services without cash simply
by recording the value of the items or activ-
ities in their ledgers. An individual cus-
tomer might be ahead or behind at any
given time. For example, a farmer might
“borrow” tools to produce a crop and then

“pay” the merchant back with the grain he
4SECTION 1
harvested. The merchant would record the
value of the tools in the spring and then off-
set that indebtedness in his books with the
value of the commodities he received in
the fall.
An individual merchant might have simi-
lar arrangements with dozens of clients,
some of whom would be in debt while oth-
ers maintained positive balances. In addi-
tion to recording the ebb and flow of trans-
actions for an individual, the merchant
could transfer book credit from one cus-
tomer to another. In this way, the merchant
was essentially operating as a banker for his
clients but often without ever handling any
currency or coins at all.
Many merchants also relied on book credit
to handle transactions with and among
clients in other colonies and even with con-
tacts in the home country. The book credit
system provided considerable flexibility in
the valuation of goods and services and al-
lowed people with limited financial re-
sources to trade whatever they had for items
they needed. Of course, a merchant often
had to be creative in disposing of some of
the items that people presented for payment,
such as chickens, beaver pelts, firewood,

grain, whiskey, and homespun cloth.
Book credit continued to facilitate trade in
America long after the Revolution because
specie continued to be scarce and the ques-
tionable value of paper currency issued by
private banks, state governments, and, from
time to time, even the U.S. Treasury.
See also Commodity Money; Dollar; Trade
Balance.
References and Further Reading
Bailyn, Bernard. The New England Merchants in
the Seventeenth Century. New York: Harper
and Row, 1955.
Bruchey, Stuart. The Colonial Merchant. New
York: Harcourt, Brace and World, 1966.
Bubble
When prices for a commodity rise far be-
yond the intrinsic value of that commodity, a
bubble can occur. Speculators continue bid-
ding the price up until, quite abruptly, de-
mand or interest in the commodity evapo-
rates. When the bubble bursts, overextended
speculators can lose significant sums.
Although it had only marginal impact on
the recently founded British American
colonies, a bubble in tulip prices in the early
1630s rocked the international trading com-
munity in Holland and other European
countries. Over several centuries, tulip culti-
vation migrated from Central Asia to West-

ern Europe. Dutch gardeners became partic-
ularly intrigued with tulips, cross-breeding
various strains and producing more colorful
varieties.
Early in the seventeenth century, Holland
began to profit handsomely from its interna-
tional trade, causing a corresponding rise in
the standard of living in the Netherlands. At
first only the wealthiest individuals could
dabble in the tulip trade, bidding up the
prices for rare bulbs with desirable or fash-
ionable characteristics. And, for a time, the
resulting inflation in prices affected only
small circles of knowledgeable growers, gar-
deners, and buyers.
By the 1630s, however, the number of
Dutchmen with funds available for discre-
tionary investment had grown quite large.
People with little or no knowledge of horti-
culture began speculating on individual
bulbs or one-pound batches, often putting
down only minimal deposits in the range of
10 percent of the bid price. Their goal was to
resell their options quickly at higher prices.
These speculators were essentially working
within an early sort of futures trading sys-
tem. The lure of quick profits encouraged
the spread of buying and selling throughout
Holland. Some buying and selling occurred
in more structured exchanges, but much of

it occured in unregulated saloons.
By late 1636, a full-scale boom was evi-
dent, with prices advancing weekly or more
often, even for the most mundane bulbs. An
exponential frenzy of buying activity peaked
in December 1636 and spilled over into Janu-
COLONIAL AMERICA, 1607–1760 5
ary 1637. In early February, the boom ran out
of buyers. No one seemed willing to bid at
any price, leaving thousands of speculators
holding bulbs or paper receipts they could
not sell. As the boom collapsed, aggrieved
parties sought legal remedies. After review-
ing the tangled financial mess for two
months, the Court of Holland at the Hague
suggested a temporary moratorium on all
tulip buy-and-sell contracts. This measure
evolved into a more permanent resolution,
leaving individuals to work out solutions on
a one-to-one basis. The Tulip Bubble had
burst.
This tulip-buying fiasco occurred in one
of the most stable, well-educated, and pros-
perous countries in the world, demonstrat-
ing that a bubble could occur anywhere,
anytime. Great Britain experienced an even
more pervasive and destructive financial ca-
tastrophe eighty years later when the infa-
mous South Sea Bubble developed.
The legitimate, if unrealistic, premise for

founding the South Sea Company was the
prospect of profitable British trade with
Spain’s South American colonies. The com-
pany obtained a royal charter in 1711 grant-
ing it a monopoly of this trade, even though
England and Spain were at war. The Treaty
of Utrecht in 1713 ended that phase of the
conflict, but it authorized only very limited
British commerce with South America.
Other than a restricted and ultimately un-
profitable trade in African slaves, Spain per-
mitted just one British ship to enter its colo-
nial ports. To make matters worse, the two
rivals again went to war in 1718.
The company had meanwhile offered to
assume Great Britain’s war-swollen national
debt. After winning out over a similar offer
from the Bank of England, the South Sea
Company began exchanging company
shares for government loan notes. By 1720
the company had become almost exclusively
Frenzied speculators like these bought and sold shares in the South Sea Company, contributing to the bubble
that ruined many when it burst. (Library of Congress)
6SECTION 1
a financial and banking concern, managing
the enormous debt and issuing additional
lots of stock to attract new investors. Its as-
sociation with the government helped en-
courage sales and, through both legitimate
and fraudulent manipulation, its share

prices continued to rise.
The South Sea Company generated a
speculative frenzy that stimulated dozens of
other joint-stock ventures for all sorts of real
or imagined purposes. For example, one
company was founded ostensibly to import
walnut trees from Virginia; another an-
nounced its sole purpose to be importing
“pitch and tar, and other naval stores, from
north Britain and America.” Regardless of
the listed purpose, the real goal was to sell
shares to credulous buyers. These schemes
became so outrageous that Parliament
passed the Bubble Act in June 1720 requiring
any joint-stock enterprise to obtain a royal
charter.
Ironically, this legislation momentarily
boosted public confidence in the South Sea
Company because it had possessed a royal
charter for nearly a decade. The company’s
share price briefly topped £1,000 a share at
the end of the month. However, the bubble
expanded well beyond its ability to sustain
itself. By September, the asking price had
fallen to £135 and speculators, investors,
company officials, and government support-
ers of the company were all blamed. Thou-
sands lost life savings to speculation, others
lost everything to confiscation. But, as is of-
ten the case in business turmoil, a few of

those shrewd or lucky enough to have sold
out early gained substantial fortunes. The
South Sea Bubble so traumatized the British
people that for decades afterward even legit-
imate organizations seeking investment cap-
ital could not rely on public subscriptions.
A similar speculative binge took place in
France at about the same time. The architect
of the debacle was Scottish-born John Law,
an articulate and plausible exponent of novel
economic concepts. Law moved to Paris in
1715 and befriended the Duc D’Orleans who
was serving as the regent of France for the
five-year-old Louis XV. Law founded a bank
in 1716 and, a year later, used his political
connections to obtain control of the Missis-
sippi Company, which had exclusive rights
to trade in Louisiana, but had fallen on hard
times. Within a couple of years, Law had
used this company, renamed Compagnie
d’Occident, as a platform to obtain control of
all of France’s non-European trade.
Law simultaneously took on the task of
reorganizing the war-ravaged French finan-
cial system, using massive distributions of
paper currency as a major tool. Speculators
eagerly bid up the price of shares in the
Compagnie d’Occident, from an initial level
of 500 French livres to over 10,000. Unrealis-
tic expectations, countervailing moves by

the government, and disappointing returns
from the company’s overseas trading ven-
tures combined to undermine the stock’s
value. In a matter of months it fell back to its
original level, dragging down or completely
destroying the wealth of countless investors
and speculators. The stunning rise and col-
lapse of the Mississippi Company Bubble
proved so traumatic that the French govern-
ment avoided issuing paper currency for
more than half a century.
The United States has experienced bub-
bles of its own. The most famous was the
Florida Land Bubble in the 1920s. More re-
cently, the frenzy of speculation in high-tech
or “dot.com” stocks in the 1990s had many
similarities to the earlier historical bubbles.
See also Charter, Royal; Florida Land Bubble;
Joint-Stock Company.
References and Further Reading
Dash, Mike. Tulipomania. New York: Crown,
1999.
Garber, Peter M. Famous First Bubbles: The
Fundamentals of Early Manias. Cambridge,
MA: MIT Press, 2000.
Charter, Royal
In colonial America, ultimate authority
resided with the royal government in Lon-
COLONIAL AMERICA, 1607–1760 7
don. One way it exercised its authority was

through issuing charters to various individ-
uals, groups, or enterprises that legitimated
their business activities.
Royal charters were essential elements in
the British settlement of North America.
Both the Virginia Company of London and
its rival, the Virginia Company of Ply-
mouth, obtained charters from the govern-
ment of King James I authorizing them to
establish plantations or colonies in America.
Considerable politicking and influence ped-
dling were involved in obtaining a royal
charter. Only by obtaining charters could
the investors and adventurers begin operat-
ing their companies as recognized business
entities.
Official permission to do business was
only part of the benefit the Virginia compa-
nies gained with their charters. The royal
government maintained claims to lands ad-
jacent to the northeast coast of North Amer-
ica dating back to John Cabot’s exploratory
voyages in the late 1490s. A royal charter
transferred ownership of such lands to com-
panies and proprietors, thus providing the
essential real estate for a colonizing effort.
The charters for the Virginia companies
contained overlapping land grants, desig-
nating the area between 40º and 48º north
latitude in both documents. The Plymouth

group’s claims stretched well north of the
overlapping area, however, so it rushed
ahead with plans to send over a colonizing
group in 1607. The goal was a permanent
settlement along the Kennebec River in what
is present-day Maine. This area proved in-
hospitable, so the potential settlers quickly
abandoned the effort. The London company
was therefore able to mount its more suc-
cessful Jamestown Plantation on the Chesa-
peake Bay without competition from the
Plymouth company.
A royal council exercised considerable in-
fluence under the Virginia Company of
London’s original charter. To insulate itself
from direct royal oversight, the company
negotiated a new charter in 1609 that estab-
lished it as a joint-stock company. The com-
pany never managed to generate the antici-
pated financial returns, and that, combined
with organizational problems and strife in
Virginia, led to its collapse in 1624. The
charter privileges reverted to the govern-
ment at that point, and Virginia remained a
“royal colony” directly answerable to the
monarchy until the American Revolution.
Meanwhile the Council for New England
had inherited the Plymouth company’s
claims to the northern coastal area. The
council encouraged the formation of the

Massachusetts Bay Colony. The Puritan
leaders who formed a company to settle in
that area obtained their own royal charter
that allowed the whole organization, in-
cluding its charter, to move to the New
World. The theocracy that subsequently
ruled Massachusetts thus did so with royal
authorization. In the late seventeenth cen-
tury, the British government withdrew this
favorable charter, and the colony was man-
aged like most of the other royal colonies in
the eighteenth century.
Many other colonizing efforts involved
royal charters, but two colonies operated
quite differently than the rest. Connecticut
and Rhode Island were settled by discon-
tented or ambitious people who moved
south and west from the rigidly controlled
society in Massachusetts. The leaders of
these offshoots worked with agents in Lon-
don to obtain independent charters from the
royal government. When King Charles II
was restored to the throne after the English
Civil War in 1660, he wanted to reward these
two colonies for their expressions of loyalty
to him. He did so by issuing each of them a
very liberal charter. They were allowed to
elect their own governors and otherwise
function as semi-independent republics.
While many provisions of the royal char-

ters dealt with political issues and organiza-
tion, these documents were also crucial to
business and economic development. They
granted royal permission for individuals
and groups to create and operate a broad
8SECTION 1
variety of enterprises. The latter aspect of
the royal charters remained important after
the Revolution. The governments that suc-
ceeded the colonial administrations contin-
ued the process of issuing charters to pro-
mote and regulate business activities. In this
way state charters took the place of the royal
charters that had encouraged enterprise in
the earlier period.
See also Calvert, George; Charter, State; Joint-
Stock Company; Proprietary Colonies.
References and Further Reading
Andrews, Charles M. Our Earliest Colonial
Settlements. New York: New York University
Press, 1933.
Barbour, Philip. The Three Worlds of Captain John
Smith. Boston: Houghton Mifflin, 1964.
Vaughn, Alden T. Captain John Smith and the
Founding of Virginia. Boston: Little, Brown,
1975.
Commodity Money
A chronic shortage of coins and specie forced
American colonists to find alternatives to
hard currency. Commodity money served

that purpose throughout the colonies, rang-
ing from tobacco in the Tidewater area to
wampum in New England. In several in-
stances, colonial governments officially sanc-
tioned the use of such commodities for taxes
and trade.
The perennial trade deficit that plagued
Britain’s North American colonies caused
most hard currency to be exported to Eng-
land to buy items not available locally. As in
most primitive agrarian societies, barter
was the most common means of exchange.
A desire for more predictable valuation of
basic commodities quickly developed, how-
ever, and local authorities enacted various
laws to do so.
The predominance of tobacco cultivation
in the Tidewater Colonies of Virginia and
Maryland made tobacco a natural choice as
commodity money. Taxes, rent, wages, and
even clergymen’s salaries were often con-
tracted in pounds of tobacco. Cured and
rolled tobacco was far less perishable than
other farm produce, so it could be trans-
ferred and stored appropriately. Those who
did not want to contend with bulk goods
could accept receipts for up to 90 percent of
the value of the tobacco they owned and use
these receipts like paper currency. As with
all types of commodity money, quality con-

trol was virtually impossible to enforce, and
debtors often tried to pass off their worst
produce to pay their obligations.
European settlers in the northeast used the
Native American practice of stringing shells
or glass beads into strands called wampum.
New Netherlands accepted wampum as le-
gal tender as early as 1634; Massachusetts
followed suit six years later. Some of the legal
definitions were quite explicit. A 1664 New
York law, for example, decreed that a string
of eight white and four black beads had the
value of a penny.
Many other commodities served as money.
At one point, North Carolina laws recog-
nized twenty different items as legal tender.
Sometimes referred to as “country pay,” ten-
der included products as diverse as corn,
hides, rum, sheep, and whale oil. Leonard
Hoar, a future president of Harvard College,
paid his student tuition bill in 1649 with
what he described as “an old cow.” As late as
the Revolutionary period, Paul Revere was
accepting chickens and other produce in ex-
change for his fine silver pieces.
Commodity money was never a good
means of exchange due to its fluctuating
quality and price, perishability, bulk, and
the need for appropriate storage. A number
of alternatives appeared including book

credit, foreign coins, promissory notes, and
other paper pledges. But throughout the
colonial period, governments arbitrarily set
commodity values in pounds, shillings, and
pence. Ironically, in 1933, the United States
government used the opposite strategy, ar-
bitrarily defining the dollar’s value in com-
parison to set measures of agricultural and
COLONIAL AMERICA, 1607–1760 9
other products, a technique that was called
the “commodity dollar.”
See also Book Credit; Commodity Dollar; Trade
Balance.
References and Further Reading
Moore, Carl H., and Alvin E. Russell. Money: Its
Origin, Development and Modern Use.
Jefferson, NC: McFarland, 1987.
Weatherford, Jack. The History of Money. New
York: Crown, 1997.
Dollar
Relatively few British coins either reached or
stayed in the colonies, so American colonists
became far more familiar with other kinds of
currency. Silver coins minted in the Spanish
colony of Mexico circulated so widely that
the “Spanish dollar” became a commonly
recognized coin. When the colonies refor-
mulated themselves into the United States,
they adopted the dollar as the basis for the
new nation’s currency.

The word dollar originated in a Bohemian
valley that is located in the present day
Czech Republic. Early in the sixteenth cen-
tury, the Holy Roman Empire extended its
control over Bohemia. Shortly afterward in
1516, extensive silver deposits were discov-
ered in the nearby mountains, and the local
count began minting it into silver coins
called groschen. The German name for the
valley was Joachimsthal, so the coins pro-
duced there were called joachimsthaler-
groschen. This awkward name was quickly
shortened to thalergroschen and, later, simply
to thalers. During the succeeding hundred
years, this region put over 12 million thalers
into circulation, and they became so common
that the word thaler came to be applied to any
large silver coin.
The name found its way to Scotland in the
1560s. King James VI minted a coin valued
at thirty shillings similar in size to the Ger-
man thalers. The Scots transliterated the
name into dollar, a term they stubbornly ad-
hered to even after their monarch became
James I of England in 1603. Dollars re-
mained symbolic of Scottish nationalism,
and Scotch-Irish immigrants brought the
term with them when they traveled by the
thousands to the American colonies in the
early 1700s.

These immigrants did not, however,
bring very much cash with them. Through-
out the colonial period, American settlers
maintained an unfavorable trade balance
with the mother country. Far more wealth
was transported from the British Isles to the
New World than was transported from the
New World to the British Isles, so the
colonies generally remained deeply in debt.
That meant that any British coins that some-
how made the transatlantic passage were al-
most immediately shipped back across the
ocean to offset new purchases of goods and
services. Moreover, in 1695 the British gov-
ernment passed legislation that forbid the
export of specie to the colonies. Conse-
quently, few average Americans ever pos-
sessed or even saw British coins.
Trade relationships with other regions
tended to be less one-sided. The Spanish au-
thorities in Mexico had access to very rich
silver mines, so they minted silver peso
coins that quickly began to circulate all over
the world. The British colonies ended up
collecting rather substantial numbers of
these coins, which the Americans usually re-
ferred to as Spanish dollars. In the Mexican
system, eight reals made up one peso, but the
Americans referred to these minor divisions
as bits with a dollar being worth eight bits.

Even though merchants kept their books
and recorded prices in the official British sys-
tems of pounds, shillings, and pence, cash-
paying customers often bought their wares
with dollar coins. By the time of the Revolu-
tion, Americans had become quite used to
figuring their wealth in dollars rather than
pounds. Like the nationalistic Scots, the
American revolutionaries adopted the dollar
in part to distinguish their new nation from
the British Empire.