The Early Years of the Modern American Economy

A Brief History of the United States Economy From Discovery to Colonization

William Penn and colonial leaders meeting with Native Americans
William Penn and colonial leaders meeting with Native Americans. Getty Images/Peter Gridley/Photodisc

The modern United States economy traces its roots to the quest of European settlers for economic gain in the 16th, 17th, and 18th centuries. The New World then progressed from a marginally successful colonial economy to a small, independent farming economy and, eventually, to a highly complex industrial economy. During this evolution, the United States developed ever more complex institutions to match its growth.

And while government involvement in the economy has been a consistent theme, the extent of that involvement generally has increased.

The Indigenous American Economy

North America's first inhabitants were Native Americans, indigenous peoples who are believed to have traveled to America about 20,000 years earlier across a land bridge from Asia, where the Bering Strait is today. This indigenous group was mistakenly called "Indians" by European explorers, who thought they had reached India when first landing in the Americas. These native peoples were organized in tribes and, in some cases, confederations of tribes. Prior to contact with European explorers and settlers, Native Americans traded among themselves and had little contact with peoples on other continents including other native peoples in South America. What economic systems they did develop were eventually destroyed by the Europeans who settled their lands.

European Explorers Discover America

Vikings were the first Europeans to "discover" America. But the event, which occurred around the year 1000, went largely unnoticed. At the time, most of European society was still firmly based on agriculture and land ownership. Commerce  and colonization had not yet assumed the importance that would provide an impetus to the further exploration and settlement of North America.

But in 1492, Christopher Columbus, an Italian sailing under the Spanish flag, set out to find a southwest passage to Asia and discovered a "New World." For the next 100 years, English, Spanish, Portuguese, Dutch, and French explorers sailed from Europe for the New World, looking for gold, riches, honor, and glory.

The North American wilderness offered early explorers little glory and even less gold, so most did not stay but rather returned home. The people who eventually did settle North America and drove the American early economy arrived later. In 1607, a band of Englishmen built the first permanent settlement in what was to become the United States. The settlement, Jamestown, was located in the present-day state of Virginia and marked the beginning of European colonization of North America.

The Early Colonial American Economy

The early colonial American economy differed greatly from the economies of the European nations from which the settlers came. Land and natural resources were abundant, but labor was scarce. Throughout the early colony settlement, households relied on self-sufficiency on small agricultural farms. This would eventually change as more and more settlers joined the colonies and the economy would begin to grow.