The Native American Economy

And Encounters with Europeans


Mancall, P. C., J. L. Rosenbloom, et al. (2002). The Economic Activity of Native Americans in British North America. XIIIth World Congress in Economic History, Buenos Aires. (39 pages)

(Comments:  Reads fast due to large number of footnotes and end tables.)


America was populated for thousands of years before Europeans began to explore and settle.  We are interested in the interaction between the two radically different cultures and technologies.  The Mancall et al. article highlights the historical background of Native Americans and their economic mode of production before and after the encounter with European traders and the rise of commercial relations.  As you read this article, ask “why did the authors write this paper?”  and reflect on their statement that, “the economic world that Native Americans had created in the centuries leading up to 1492 could not survived unchanged once European diseases—and Europeans themselves—arrived” (p.14)  Why?  Do you agree? How did the ideas of trade, wealth and values of Europeans and pre-contact Indians compare?

            The other excerpts on this guide from Carlos and Lewis and Hardin reflect a very different perspective.  These concern the impact of economic and legal structures on a trading relationship.  Clearly different rules will have different results.  These are an interesting example of how economic historians have approached a problem.  You should consider the following questions:

 Reading excerpts:

Table 1:

Indian Population , 1500-1800





















Source:  Mancall, Rosenbloom, et al (2002)


Carlos, Ann and Frank D. Lewis. 2001. "Trade, Consumption, and the Native Economy: Lessons from York Factory, Hudson Bay." The Journal of Economic History, Vol. 61, No. 4 (December 2001): 1037-1064. (read abstract only)

Like Europeans and colonists, eighteenth-century Native Americans were purchasing a greatly expanded variety of goods. As fur prices rose from 1716 to 1770, there was a shift in expenditures from producer and household goods to tobacco, alcohol, and other luxuries by Indians who traded furs at the Hudson's Bay Company's York Factory post. A consumer behavior model, using company accounts, shows that Indians bought more European goods in response to higher fur prices and, perhaps more importantly, increased their effort in the fur trade. These findings contradict much that has been written about  Indians as producers and consumers.


Carlos, A. M. and F. D. Lewis (1999). "Property Rights, Competition and Depletion in the Eighteenth-Century Fur Trade: The Role of the European Market." Cambridge Journal of Economics 32: 705-728.   Read excerpted conclusion (below), entire article (optional) available at:

The trade in Canadian beaver was based on European demand. Furs were shipped from Hudson Bay or down the St Lawrence and across the Atlantic eventually to be transformed into the high-fashion beaver hats that remained popular in England and the Continent for almost two centuries. What happened in the European market, moreover, played back into the primary market, shaping Native American responses and determining the level of extraction of the resource.”

Historians have long been aware that it was the actions of Indians that directly led to depletion, but recently the question has become: Why did Native peoples not conserve the fur-bearing animals on which their livelihood was based?”

In this paper we explore the forces that discouraged conservation by Native peoples and European trading companies. An important influence was the rising demand for furs in Europe.4 We interpret the impact of this European demand by deriving the Hudson's Bay Company's long-run, profit-maximizing, strategies, where the company is treated as a price taker in the European market. Our theoretical results argue that at trading posts, where the company was a monopsonist, its optimal strategy was to set prices roughly consistent with a maximum sustained

yield beaver population. The European market would thus have little impact on the North American price. But in the presence of French traders, which we treat as a competitive fringe to the dominant Hudson's Bay Company, the relationship between the European and the North American price was different. For the same European price, the profit-maximizing price at the company post was higher than in the pure monopsony case, and the beaver stock was lower. In addition, the North American price should have been more sensitive to the European market.”

“In a now famous paper, Harold Demsetz (1967) argued that formal property rights would emerge if the benefits of such rights exceeded the costs. Citing the work of Eleanor Leacock (1954), Demsetz pointed out that some Indian groups established well-defined property rights when the commercial fur trade was introduced and thus

controlled their level of resource extraction. He noted, in particular, the actions of the Montagnais in Labrador and tribes on the northwest coast to illustrate the emergence of new land tenure arrangements in the face of increasing resource values.”

“Central to our story of depletion is evidence that Indians responded with increased harvests when they received a higher price for furs, regardless of the effect on the beaver population. But why did the Indians not take a longer-run perspective and control their activities? A variety of factors seem have been at play. Indian custom regarding the right to hunt for food and other aspects of their `Good Samaritan' principle mitigated against the emergence of strong trespass laws and property rights in fur-bearing animals; conflict in the areas around the Hudson Bay hinterland contributed to an environment that was not conducive to secure tenure, and attitudes towards generosity and even a belief in reincarnation may have played a role. For these reasons the Indians apparently perceived the beaver as an open access resource, and, as a result, high prices led to high harvesting rates. In the regions served by Fort Albany and York Factory, competition between the French and the Hudson's Bay Company and a strong fur market in Europe thus combined to produce the depletion that has been a major theme of the fur trade literature.”  (Carlos and Lewis 1999, 725-726)

Pelt Prices over time


Text Box: Churchill:  Monopsonist

population over time
Hardin, Garrett, 1968.  'The Tragedy of the Commons,' Science, 162, 1243-1248.  Available online at various locations, including:


 “The tragedy of the commons develops in this way. Picture a pasture open to all. It is to be expected that each herdsman will try to keep as many cattle as possible on the commons. Such an arrangement may work reasonably satisfactorily for centuries because tribal wars, poaching, and disease keep the numbers of both man and beast well below the carrying capacity of the land. Finally, however, comes the day of reckoning, that is, the day when the long-desired goal of social stability becomes a reality. At this point, the inherent logic of the commons remorselessly generates tragedy.

As a rational being, each herdsman seeks to maximize his gain. Explicitly or implicitly, more or less consciously, he asks, "What is the utility to me of adding one more animal to my herd?" This utility has one negative and one positive component.

1. The positive component is a function of the increment of one animal. Since the herdsman receives all the proceeds from the sale of the additional animal, the positive utility is nearly + 1.

2. The negative component is a function of the additional overgrazing created by one more animal. Since, however, the effects of overgrazing are shared by all the herdsmen, the negative utility for any particular decision­making herdsman is only a fraction of - 1.

Adding together the component partial utilities, the rational herdsman concludes that the only sensible course for him to pursue is to add another animal to his herd. And another.... But this is the conclusion reached by each and every rational herdsman sharing a commons. Therein is the tragedy. Each man is locked into a system that compels him to increase his herd without limit -- in a world that is limited. Ruin is the destination toward which all men rush, each pursuing his own best interest in a society that believes in the freedom of the commons. Freedom in a commons brings ruin to all.”  Hardin, Garrett, 1968.  'The Tragedy of the Commons,' Science, 162, 1243-1248.  Available online at various locations, including:


Optional Suggested Readings:


Barrington, L., Ed. (1999). The other side of the frontier:  economic explorations in Native American history. American and European Economic History. Boulder, CO, Westview Press.


Cronon, W. (1983). Changes in the Land:  Indians, Colonists and the Ecology of New England. New York, Hill and Wang.


Salisbury, N. (1996). The History of Native Americans from Before the Arrival of the Europeans and Africans until the American Civil War. In S. L. Engerman and R. E. Gallman (eds.) The Cambridge Economic History of the United StatesNew York, Cambridge University Press. I:  The Colonial Era: 1-52.


Articles addressing general economic principles of property rights issues:


Demsetz, Harold, 1967. 'Towards a Theory of Property Rights,' American Economic Review, vol. 57,

no. 2, 1967, pp. 347-359.