Mercantilism (Issue)

MERCANTILISM (ISSUE)

Mercantilism was a set of economic ideas followed by many northern and western European countries from the sixteenth to the nineteenth century. These included Portugal, Spain, France, the Netherlands, and England. By the nineteenth century, however, mercantilism was considered discredited as an economic theory. Although it began as a rather vague collection of economic ideas, it was continually refined, elaborated, and modified over time. By the eighteenth century it had shifted from a loosely enforced set of commercial laws to a tightly regulated imperial policy, especially throughout the British Empire.

At the core of mercantilism was the belief that foreign trade could be made to serve the interests of the government and vice versa. The prime objective was the acquisition and retention of as much money (gold and silver) as possible. The state needed gold and silver to wage war. Mercantilism was a form of economic warfare between competing nations. European monarchs realized that in order to secure their political positions and compete with their rival monarchs in other nations they could no longer rely solely on an increase in tax rates. They had to increase their tax base. To do so, many nation-states turned to increased trade and the establishment of colonies.

In the mercantilist system colonies were expected to help the mother country achieve a favorable balance of trade, favorable specie inflow, economic self-sufficiency and an export surplus. Colonies were expected to supply products which would otherwise have to be obtained from non-imperial sources, generate exports by the production and sale of products in high demand outside the empire, and provide a market for the mother country's exports. The mother country would provide the colonies with centralized governmental control of the economy, as well as naval and military protection.

The English laws that systematized these developments for North America were enacted over a century and were built around a series of Navigation Acts beginning in 1651. They were given a comprehensive form in 1696. They confined the transport trade within the Empire to British or colonial ships, required all exports from Europe to the colonies to be shipped via England (and vice versa), and specified a list of goods that could not be shipped to European ports (other than England). These included sugar, cotton, tobacco, indigo, wool, naval stores, rice, furs, and copper. By the mid-seventeenth century, the colonies were prosperous and were encouraged in their prosperity by credits from home. The plantation colonies especially fitted nicely into the mercantilist system because the economies of the South and Britain naturally complemented one another. Britain carried the burden of colonial defense and gave colonial goods and ships protection abroad. From the early eighteenth century until 1763 the colonial policy was on the back burner, as England concentrated on a series of wars with France. The casualness of imperial administration and enforcement soothed points of disagreement and where discord continued, laws were tacitly evaded. Systematic smuggling was confined mainly to tea and molasses. For the most part the mercantile system provided easy credit, assured commercial markets, and brought economic prosperity to colonies and mother countries alike.

English intervention in the economy in order to serve national interests produced financial and strategic advantages to the colonies. By giving the colonies the bulk of the shipping rights on trade with England, British mercantilism benefited the colonies. Mercantilism inevitably brought trade disputes with other countries, which in turn often degenerated into military struggles.

Mercantilism had its critics. In 1776 economist Adam Smith (1723–1790) in his Wealth of Nations defined a country's wealth in terms of labor and not money. Smith advocated the free play of individual enterprise and free trade. Historians such as George Bancroft (1800–1891) condemned mercantilism as the source of foreign policy. He concluded that the Navigation Acts and mercantilism in general were the basic causes of the American Revolution (1775–1783).

Many colonists realized that England looked on them purely for their economic role under mercantilism. They also realized that their own prosperity was largely the result of mercantilist policies. As British statesman and political philospher Edmund Burke (1729–1797) declared, "the Act of Navigation attended the colonies from their infancy, grew with their growth and strengthened with their strength. They were confirmed in obedience to it even more by usage than by law."

Twentieth century historians such as Lawrence A. Harper and O. M. Dickerson disagreed with Bancroft that the Navigation Acts presented a great impediment to colonial trade. They argued that the real bitterness among American colonists after 1763 was aimed at British customs and revenue collectors, stamp officials, and enforcement agents. They had a distaste not for mercantilism but for their role in a reorganized empire that emerged after the end of the French and Indian Wars (1754–1763) in 1763. In particular, they objected to the taxation policy. Overzealous officers, racketeering practices, seizures, and new bonding regulations among other things were what brought hostility from colonists.

See also: Navigation Acts, Adam Smith

FURTHER READING

Barrow, Thomas C. Trade and Empire; The British Customs Services in Colonial America: 1660–1775. New York: Excel, 1999.

Ekelund, Jr. Robert B., and Robert D. Tollison. Politicized Economies: Monarchy, Monopoly, and Mercantilism. Texas A&M University Economics Series, No. 14. College Station: Texas A&M University Press, 1997.

Johns, R.A. Colonial Trade and International Exchange: The Transitions From Autarky to International Trade. London: Pinter Pub. Ltd., 1989.

Sen, Sudipta. Empire of Free Trade: The East India Company and the Making of the Colonial Marketplace. Philadelphia: University of Pennsylvania Press, 1998.

Wallerstein, Immanuel. Modern World System II: Mercantilism and the Consolidation of the European World-Economy, 175600–1750. New York: Academic Press, 1980.