Essential Facts
- The Factory System was started in 1796 and lasted until 1822 (26 years).
- It was established to manage formal trade between Indians and the United States to help maintain peaceful relations.
- A series of Trading Posts were built on the Western Frontier.
- They were managed by “Factors” who were appointed by the President.
- The Indians traveled to the Trading Posts to trade furs and skins (bear, beaver, muskrat, and deer) for cloth, tools, and weapons.
- The government eventually issued credit, hoping to encourage Indians to adopt American agricultural and educational practices.
- Religious groups like the Moravians and Quakers helped teach farming, sewing, and Christianity.
- Private companies, led by businessmen like John Jacob Astor and politicians like Lewis Cass and Thomas Hart Benton, criticized the system.
- The Factory System was closed in 1822 after pressure from Astor, Cass, and others.
- Astor’s American Fur Company dominated the Fur Trade for more than a decade and is considered the first monopoly in American history.
- The Factory System was a significant part of the government bureaucracy established to oversee relations with the Indians, which eventually included Indian Removal, the Reservation System, and the Dawes Allotment Act.
Key Moments
- 1796 — The U.S. established the Factory System.
- 1803 — Thomas Jefferson informed William Henry Harrison of plans to use the Factory System to drive Indian leaders into debt and acquire land.
- 1808 — John Jacob Astor established the American Fur Company.
- 1811 — The American Fur Company established a Trading Post in the Oregon Territory, known as Astoria.
- 1812 — The War of 1812 started, partly due to failures in maintaining good relations with Indians under the Factory System.
- 1815 — After the War of 1812, Baptists and Presbyterians received government funds to start Indian schools in Kentucky, Missouri, and Kansas.
- 1820 — John Jacob Astor and others, including Lewis Cass and the Chouteau Family, pressured Congress to end the Factory System, criticizing its effectiveness and quality.
- 1822 — The Factory System officially ended in March, and was replaced in large part by the American Fur Company and other private enterprises.
- 1822 — William Henry Ashley and Andrew Henry entered the Western Fur Trade by organizing expeditions to the Rocky Mountain Region. This was the beginning of what became the Rocky Mountain Fur Company.
Factory System History and Overview
One of the important provisions of the United States Constitution is the “Commerce Clause,” which is found in Article I, Section 8, Clause 3. It says Congress shall have the power, “To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes.” Under this, the Factory System was established to regulate the Fur Trade between Indians living within the borders of the United States.
While President George Washington sought to establish peaceful relations with the Indians, he was focused on issues facing the United States under its new system of government, especially foreign affairs. In 1793, as tensions with the Indians increased in the Northwest Territory, Washington proposed the Factory System to Congress in his Fifth Annual Address, saying:
“Next to a rigorous execution of justice on the violators of peace, the establishment of commerce with the Indian nations, on behalf of the United States, is most likely to conciliate their attachment. But it ought to be conducted without fraud, without extortion, with constant and plentiful supplies, with a ready market for the commodities of the Indians, and a stated price for what they give in payment and receive in exchange. Individuals will not pursue such traffic unless they be allured by the hope of profit; but it will be enough for the United States to be reimbursed only.”
Congress failed to take action, but Washington referred to it again in his Sixth Annual Address (1794). At the time, the United States did not extend to the Mississippi River and was surrounded by territory controlled by the British, French, and Spanish. After a lengthy debate, Congress was finally convinced it was in the best interest of the United States to establish a system that would improve relations with the Indians and reduce the influence of foreign merchants and traders.
- In 1795, Congress approved $50,000 to build government-owned “trading houses” — Trading Posts that were the main component of the Factory System.
- Congress and President Washington formally authorized the Factory System in 1796 when “An act for Establishing Trading Houses with the Indian Tribes” was passed.
- The Factory System was part of the bureaucracy created to oversee relations with the Indians.
Government officials believed the Factory System would achieve the following:
- Ensure fair treatment for Indians
- Protect Indians from fraud.
- Protect Indians from the harmful effects of alcohol.
- Gradually transition Indians away from their traditional lifestyle.
The Factory System intended to prepare them for the inevitable loss of their lands and traditional means of survival as the United States continued to expand. Government officials hoped the system would help them come to terms with this reality. It was meant to be a gradual transition, far different than the Indian Removal Policy that was implemented in 1830 by the Indian Removal Act.
Management of the Factory System
- The President had oversight of the Factory System, and it was assigned to the Department of War.
- The Secretary of War managed the Factory System through the Superintendents of Indian Affairs.
- They handled purchasing and transporting goods and overseeing fur sales.
- A supervisor was appointed to oversee trade at the Trading Posts. This supervisor was called a “Factor.” The President had the power to appoint the Factors.
- Factors traded goods for furs with Indians living around the Trading Post.
- Factors were prohibited from “engaging in trade in their own interest.”
The Factory System encountered problems when the Factors were permitted to issue licenses to private merchants. These licenses allowed the merchants to conduct trade with the Indians. Although these merchants were supposed to operate within the government’s guidelines, they essentially became competitors with the government.
Setup of the Factory System
- President Washington assigned oversight of the Factory System to Timothy Pickering, the Secretary of War.
- Pickering decided to build the first Factories in the South, in regions where the United States had a strong military presence.
- Oversight of the Factory System was often disorganized and communication was difficult.
- The Factories were on the frontier and it took time for messages to be carried between the Factors and the Secretary of War.
- The Secretary of War was often involved in more pressing matters, such as the Northwest Indian War, the Quasi-War, and the Barbary Wars.
Office of Indian Trade
In 1806, Congress established the Office of Indian Trade as part of the War Department to help separate Indian affairs from military affairs. The position of Superintendant of Indian Trade was established, which later became the Commissioner of Indian Affairs.
John Mason served as Indian Superintendent from 1807 to 1816. He was the son of George Mason, a Founding Father.
Thomas McKenney served as Indian Superintendent from 1816 to 1822. He was a merchant from Georgetown, Maryland who ran a store. One of his customers was President James Madison. McKenney maintained his position through various administrations and was known as a leading expert on Indian affairs
John C. Calhoun established the Bureau of Indian Affairs in 1824. He went on to serve as Vice President under Andrew Jackson. However, he broke with Jackson over the Tariff of 1832, which led to the Nullification Crisis.
Prominent Secretaries of War Who Oversaw the Factory System
- Timothy Pickering (1795–1796)
- James McHenry (1796–1800)
- Henry Dearborn (1801–1809)
- John Armstrong Jr. (1813–1814)
- James Monroe (1814–1815)
- John C. Calhoun (1817–1822)
Historical Context of Trade Regulations
- During the Colonial Era, European powers established trading rules with Indians.
- The Iroquois Confederacy, the French, and the English were involved in the Fur Trade in the Great Lakes Region, Canada, and the English Colonies.
- Conflict over the Fur Trade drove the Beaver Wars.
- After the French and Indian War, control of the Fur Trade shifted to Great Britain.
- The American government started regulating trade with Indians after the American Revolution.
- British traders continued trading in the western regions, even though it was considered American territory.
- The Jay Treaty of 1795 required all British traders to stop operating in the U.S. and its territories after the Northwest Indian Wars.
Construction and Operation of Factory Trade Houses
- The U.S. Army often built garrisons near the Factory Trading Posts.
- Soldiers usually built the Trading Posts, with additional support from carpenters and other workers.
- Buildings were constructed from local materials, mainly logs.
- Trading Posts included a trade room similar to a store with trade goods.
- The Factory Building often served as the Factor’s residence; a separate house was built for the Factor’s family if needed.
- Additional buildings included storage for extra goods, a residence for the interpreter, and storage for furs that were collected.
- The furs in storage required cleaning and treatment to protect them from worms, depending on the climate and season.
Trade Goods and Regulations
- Goods traded to the Indians came from the United States, Great Britain, European nations, China, and other countries.
- Goods were sold to Indians at a small markup to keep prices low.
- Some items, like china teapots and parasols, were of little interest to the Indians.
- Although regulations banned Americans from purchasing factory goods, it was often allowed by the Factors.
- Soldiers and their families sometimes charged goods to future pay, similar to Indians trapping for trade.
- The absence of nearby sutlers — people who sold provisions and supplies — led soldiers to charge goods or trade furs.
- Soldiers frequently accumulated more credit than Indians.
Jefferson’s Scheme to Promote Agriculture
When the Factory System was established, Indians were not eligible for credit. Eventually, it became necessary so they could purchase goods and supplies before the winter hunting and trapping seasons. However, when Thomas Jefferson became President in 1801, he believed the path forward with the Indians was to encourage them to adopt American agricultural practices and leave behind their nomadic, hunter-gatherer lifestyle.
In February 1803, Jefferson wrote a letter to William Henry Harrison, Governor of the Indiana Territory. Jefferson laid out a scheme intended to push the Indians toward agriculture, but he also believed it was for their benefit. Jefferson said:
“When they withdraw themselves to the culture of a small piece of land, they will perceive how useless to them are their extensive forests, and will be willing to pare them off from time to time in exchange for necessaries for their farms and families. To promote this disposition to exchange lands, which they have to spare and we want, for necessaries, which we have to spare and they want, we shall push our trading houses, and be glad to see the good and influential individuals among them run in debt, because we observe that when these debts get beyond what the individuals can pay, they become willing to lop them off by a cession of lands.
At our trading houses, too, we mean to sell so low as merely to repay us cost and charges, so as neither to lessen nor enlarge our capital. This is what private traders cannot do, for they must gain; they will consequently retire from the competition, and we shall thus get clear of this pest without giving offence or umbrage to the Indians. In this way our settlements will gradually circumscribe and approach the Indians, and they will in time either incorporate with us as citizens of the United States, or remove beyond the Mississippi.”
The key points are:
- Jefferson believed if the Indians learned how to cultivate a small parcel of land they would abandon the forests.
- The Indians would be willing to sell “their extensive forests” in exchange for the necessities needed to operate their farms.
- He also felt if they had less land, they would be more willing to invest in agriculture.
- Jefferson wanted to use the Factory System to drive “good and influential” Indians into debt. This would make them willing to sell land to pay their debt.
- By keeping prices low, the government could maintain control of the Factory System and keep private businessmen out of the Fur Trade.
- Jefferson felt this would eventually convince the Indians to adopt agriculture and become citizens, or move west of the Mississippi River, which became a key piece of the Indian Removal Policy that was formalized in the early 19th Century and made into law with the 1830 Indian Removal Act.
Fur Trading and Goods Offered
- Indians hunted from late fall through winter and traded dressed furs in the spring.
- Types of furs traded included bear, mountain lion, beaver, and muskrat. Deerskin was also popular.
- Trade goods offered to Indians included various cloths: woolens (baize, blanket, and shroud), kinds of cotton (calico and homespun), linen, and silk ribbons.
- Other trade items included fishing equipment; knives, tomahawks, guns, gunpowder, and shot; brass, copper, and sheet iron kettles; sewing tools; snuff boxes; bridles; saddles; mirrors; silk stockings; hats; and more.
- Furs were shipped to the East at least once a year and then auctioned to manufacturers.
- Manufacturers used furs to make items such as hats (beaver), breeches (deerskin), and hat coverings (bear fur) for the U.S. Army.
- Furs were also shipped to Europe and China. As the demand for furs increased in foreign markets, merchants like John Jacob Astor became more involved in the Fur Trade.
Agricultural and Educational Efforts
The Federal Government intended to promote agriculture and education among Indians through the Factory System.
- The government hired people from religious organizations, like the Moravians and Quakers, to teach farming, animal care, domestic sewing, and Christianity.
- The government provided tools and other supplies but covered the cost by taking it out of the annual payments to the Indians.
- Many Indians initially resisted farming because it was a female role in their culture.
- Fines were levied if Indians traded or sold government-issued farm tools. The fines were taken out of the annual payments.
- After the War of 1812, Baptists and Presbyterians received government funds to start schools for Indians in Kentucky, Missouri, and Kansas.
- Schools taught reading, writing, arithmetic, and gender-specific skills.
- Females learned spinning, weaving, and sewing.
- Males learned carpentry and farming.
- Students were also instructed in Christianity.
- At first, attendance was voluntary and required parental permission. After the Factory System ended, attendance was required.
Annual payments — or “annuities” — were negotiated in treaties between the United States and Indian groups.
Cass and Astor Undermine the Factory System
- Lewis Cass served as Governor of the Michigan Territory and negotiated several treaties with the Indians.
- Cass allowed the American Fur Company, which was owned by John Jacob Astor, to use liquor to gain an advantage over British traders, because the Indians were eager to trade for it.
- This helped expand the American Fur Company, and Astor eventually looked to control the entirety of the Fur Trade, from the East Coast to the Oregon Territory.
Difficulties for Indian Agents
- Local Indian Agents were responsible for making important decisions about maintaining order, protecting Americans, and ensuring trade was fairly conducted.
- Benjamin Hawkins, an Indian Agent, wrote, “I am surrounded with difficulties…I have some white women and children who have been robed and striped of their clothing now depending on me for aid, and I meet some Spanish imposition…I am surrounded with one hundred Indians daily; all of them with complaints, and my health is fast declining…”
- In the last year of operation, there were 17 Indian Agents, 25 Subagents, and 34 Interpreters on the payroll of the Factory System.
Prominent Indian Agents
- Benjamin Hawkins worked with tribes in the American Southeast from 1796 to 1816.
- Silas Dinsmore worked with the Cherokee and Choctaw from 1796 to 1813.
- Return Jonathan Meigs worked with the Cherokee from 1801 to 1823. Meigs was a signatory to the 1817 treaty with the Cherokee that legally established the Indian Removal Policy.
Criticism of the Factory System
- Private businessmen, including Astor, were critical of the Factory System.
- Astor and his allies lobbied politicians and influential people to shut down the system.
- By 1820, Astor, along with Lewis Cass (Governor of Michigan Territory) and the Chouteau Family (St. Louis fur traders led by René Auguste Chouteau and Jean Pierre Chouteau), pressured Congress to end government regulation of the Fur Trade.
- They argued the Factory System:
- Failed to maintain friendly relations with Indians, contributing to the War of 1812.
- Traded goods that were of poor quality.
- Limited the effectiveness of Factors, who were required to stay at the Factory Trading Post, instead of traveling to Indian villages.
- Increased illegal selling of alcohol to Indians by private traders.
Failure and Closure of the Factory System
Despite efforts by Factory System officials, private merchants ultimately undermined the system, leading to the closure of the Factory System. The last year of operation was 1822.
Private merchants were quick to offer credit to the Indians and were willing to trade liquor with them. They were also willing to travel to hunt with the Indians and travel to their villages. In essence, the private merchants made it easier for the Indians to trade and gave them access to liquor.
By hunting with the Indians, private merchants were able to learn more about Indian customs, including language. This gave them the upper hand against government agents, and they often exploited the Indians.
Over time, the Factory System fell out of favor with the Indians. Private merchants became vocal critics, led by Ramsay Crooks, who worked for Astor and the American Fur Company. Thomas Hart Benton, a Missouri Senator, supported ending the Factory System in Congress. All of this led to the eventual end of the Factory System in March 1822.
Factory System APUSH
The Factory System is part of the following units and chapters in the AP US History curriculum:
