Why Did North America Make It, and Not South America?

We can see this difference right away when we put ourselves back into the Americas around 1700. Then the smart money would have gone on Mexico or Peru, where silver was to be found, or in Barbados, or Jamaica, which were growing sugar, destined to be the world’s first global commodity and even more valuable than silver. Over the course of the eighteenth and nineteenth centuries, demand for sugar skyrocketed. What had been a rare exotic became an item of everyday life. Insatiable demand for sweetness made Caribbean sugar planters wealthy, and sugar became a major source of business profits for Europe’s merchant classes. Governments taxed the commodity to strengthen their fiscal budgets and build strong militaries. Sugar also drew people out of Africa, in the form of the horrific slave trade. Together, sugar plantations and the slave trade formed by the eighteenth century probably the largest industry in the world. By contrast, profits from the North American colonies were hardly registering in the minds, and on the ledgers of English, French, and Spanish monarchs and merchants. The northern colonies were minor backwaters with small populations producing some useful raw materials, but not places that made nations (and investors) rich.

Even within North America, the center of wealth lay not with the cold climate colonies, but in the warm South. Like much of South America and the Caribbean, the southern colonies grew plantation crops: Tobacco in Virginia; rice in the Carolinas. Later, these same areas would turn land over to cotton, the next great commodity crop from the New World, eventually rivaling sugar for supremacy. The southern colonies also used slave labor, which was abolished or would soon be in most of the northern colonies. These southern colonies were, up to the American Revolution, the wealthiest and most valuable lands of the northern section of the New World. Yet plantation crops and slavery made the few wealthy and did not lead the transformation to an innovative society. For all the wealth and profits plantation economies generated, in the long run the dynamic and innovative parts of the New World grew up outside of those regions, in those places that had been regarded as the least profitable and least likely to succeed.

The North had only one great advantage, an advantage that would become more and more significant over time. It gave opportunity to those who settled there and was a far more egalitarian society. Slave societies of course are by definition unequal, with those enslaved owning nothing, not even their own bodies. In the Caribbean and parts of South America, a relatively small handful of landowners and plantation masters lorded it over vast numbers of enslaved people, creating a society of tremendous inequality. Even the parts of Latin America that did not have slavery were much less egalitarian than North America. In places that retained a large indigenous population, such as Mexico and the Andes, Spanish policy permitted powerful and well-connected aristocrats or successful conquistadors to control large numbers of Indians, up to twenty thousand or more, who had to work for them on giant estates. This feudal-serf type arrangement meant that a tiny landowning elite had most of the land and mineral wealth and a lot of coerced labor to extract value from these resources. Even after this encomienda system was abolished and replaced with private property ownership, the original Spanish grandees became owners of large haciendas. Land ownership remained concentrated and most people worked as landless peasant labor.

By contrast, in North America, many people owned their own land and were able to participate in the market as free individuals. In this still agrarian world, the goal of most families was land and a family farm they could work and manage independent of any lord or overseer. That was one reason for moving to America from Europe. In the Old World most land remained in the hands of lords and aristocrats and most people were tenants or serfs. There was plenty of land and not enough labor to work it in the Americas. The Caribbean, Brazil, and other parts of South America solved this “labor problem” with slavery or with the coercion of the native population. The northern regions, which did have slavery for a time, soon abolished it and instead peopled their land with immigrants from Europe.

At first the immigrants who came to what would be the United States were not exactly free. Many, the majority in fact, came as indentured servants. A financier paid their passage in exchange for a contract that bound their labor for seven years, sometimes more. The financier generally sold the labor contract (indenture) to a landowner who needed labor. Other arrivals from Europe came as convicts or were banished as punishment for some crime, often rebellion against the government as was the case for many who came from Ireland. And still others came completely voluntarily because they had few good options in the Old World. This influx of labor provided the energy and muscle to develop the lands and wealth of the North.

In a sense indentured servants are like slaves in that they have to work for others, compelled by law and under the supervision of another. But there was one big difference. While a slave was enslaved for life, as were his or her children, a servant was freed after seven years and his children were never enslaved. Slaves were considered chattel, property, and the owner could largely do what he pleased with them. He could move them to new lands, sell off family members, and use whipping, brutality, even death as a threat and means of control. Indentured servants by contrast had some protections, some limits on what a master could do. Now it might still seem a society where an elite owns most of the land and extracts labor from a much larger group that owns nothing and is compelled to work will become an unequal society, much like the slave plantations. But that is not what happened in North America, because landowners had to offer decent, even favorable terms to get the labor they needed. Seven years of work might seem harsh, but it was a far cry from what slaves endured. Life wasn’t easy or luxurious of course, but in one famous incident a group of indentured servants in New England rebelled against what they considered the poor diet offered by their masters. So, a new law specified that servants could not be fed lobster more than three times per week.

The most important consequence of the bargaining position of the servants was that upon end of the contract they were given land, tools, clothes, and other necessities to start a life of freedom. Land soon became widely distributed in the North. Colonies used the headright system. Anyone who immigrated received a grant of land upon arrival, and often those who promoted immigration of others received additional land too. The result was that in North America, in contrast to South America and even to a large extent the southern colonies of North America, land was more widely distributed and wealth much more equal. And that distinction, between equal and unequal, slave and free, set North America on a course that would build the institutions of innovation.