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Thomas Jefferson believed that only an economy made up largely of small farmers would be compatible with democracy. Small farmers did not owe their livelihoods to anyone and so no one could dominate them or tell them how to vote. Such independent people were the only people who could be trusted with the vote because they could not be coerced by the people who employed them or to whom they owed money.
In the passage you cite, Jefferson is saying that Europeans think that good economies must have manufacturing. But that is simply because they don't understand the differences between Europe and America. In Europe all the arable land was taken. Therefore, they couldn't expand their agriculture and so they needed to have manufacturing. Here is the relevant passage:
The political oeconomists of Europe have established it as a principle that every state should endeavour to manufacture for itself: and this principle, like many others, we transfer to America, without calculating the difference of circumstance which should often produce a difference of result. In Europe the lands are either cultivated, or locked up against the cultivator. Manufacture must therefore be resorted to of necessity not of choice, to support the surplus of their people.
So, what Jefferson is saying is that Europeans do manufacture, but it's only because they have no choice, not because manufacturing is such a great thing.
Here's the link to the quotation.
That's great! I get it now. Thank you. Can you please help me to understand why Jefferson ended up changing his opinion about it?
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