Mercantilism

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MERCANTILISM

MERCANTILISM is the name given to the economic doctrines and practices of major trading nations roughly from the fifteenth through the eighteenth centuries. Colonial empires such as those of England, France, and Spain were among those adhering to the mercantile system. Although specific practices regarding the doctrine varied from nation to nation, there were basic principles all mercantilists followed. Mercantilists practiced heavy state regulation of economic activity in order to boost national wealth. The wealth of the nation was based upon its stocks of gold and silver, rather than on its peoples' living conditions, for example. Thus the accumulation of national wealth was believed to be best achieved by creating as large an excess of exports over imports as possible, as the difference would be collected in gold from importing countries. Colonies in particular were seen as a valuable means of increasing exports and thereby enriching the mother country, as was the case with the British colonies.

One of the earliest navigation acts passed by the British Parliament to have a direct impact on the American colonies was in 1651. It is the modification of this law in 1660 that became known as the Navigation Act, which defined British colonial policy and its practice of mercantilism. Protecting its national interests, the law stated that trade within the British empire was to be conducted by English ships and English seamen. Those defined as English included residents of the colonies as well as England. This gave English ships a complete monopoly over trade within the British empire, greatly limited the trade of foreign vessels within England's ports, and excluded foreign vessels altogether from colonial ports.

Further revisions of the Act made British ports the hub for all trade within the empire. The revisions called for trade with foreign powers to be shipped from its point of production to England or a British colonial port before being shipped to its foreign destination. Conversely, foreign goods set for the colonies were required to stop first in England. This ensured England would be the center for all colonial trade and allowed for taxes to be levied as goods flowed through the country.

The next phase of the Navigation Acts specifically listed which products were to be shipped to ports within the British empire and which were to be shipped to foreign countries. They also regulated the manufacture and trade of colonial products. Those colonial products needed within the empire, like iron, lumber, and other raw materials, were highly supported by the British government. Direct bounties were used to promote the colonial production of hemp, tar, pitch, and other naval stores. Other colonial products benefited from bounties at various times, including raw silk, masts, lumber, and indigo. Large sums were paid for the production and trade of these items between 1705 and 1774, with payments averaging more than £15,000 a year in the decade preceding the Revolution alone. Other products, like tobacco, were given a monopoly of the market in England, as the government levied high tariffs on tobacco from Spain and other foreign markets. Sugar and molasses received similar treatment. When such products were not needed in the British market, the taxes were rolled back so that they could be exported to other markets with a minimum of British taxes.

As it actively supported some products, the British government also actively discouraged the production of colonial products that would compete with those produced at home. In 1699, prohibitive legislation was passed to restrict the transportation of raw wool from one colony to another because wool production and manufacturing would infringe upon the business practiced in England. Similar legislation restricting transportation between colonies was passed with regard to hats in 1732, as hat production was a valued craft in England. The Wrought Iron and Steel Bill of 1750 prohibited the creation within the colonies of new steel mills, slitting mills, and tilt hammers. In addition to these restrictions, taxes became the main issue of resentment of the American colonists living under the British mercantile system. With the Townshend Acts of 1767, Parliament levied duties on colonial imports of paper, glass, paint, and tea, to which one colonial response was the Boston Tea Party (1773).

It is widely asserted that among the causes of the American Revolution were these mercantilist laws. Revolutionary Americans resented the economic restrictions, finding them exploitative. They claimed the policy restricted colonial trade and industry and raised the cost of many consumer goods. In his 1774 pamphlet, "A Summary View of the Rights of British America, " Thomas Jefferson asserted the Navigation Acts had infringed upon the colonists' freedom in preventing the "exercise of free trade with all parts of the world, possessed by the American colonists, as of natural right." Yet, as O. M. Dickerson points out, it is difficult to find opposition to the mercantile system among the colonists when the measures were purely regulatory and did not levy a tax on them. The British mercantile system did after all allow for colonial monopoly over certain markets such as tobacco, and not only encouraged, but with its 1660 regulation was instrumental in, the development of colonial shipbuilding. Indeed, the mercantile system was specifically approved by the First Continental Congress in the Declaration of Rights of 14 October 1774.

Comprehensive intellectual criticism of mercantilism as an economic doctrine began to arise in the 1750s and continued through the end of the century. Many intellectuals during the Enlightenment explored new ideas in political economy; Adam Smith in his 1776 An Inquiry into the Nature and Causes of the Wealth of Nations was one of the most influential figures for the Americans. Smith admitted the mercantile system worked, yet criticized its principles. Expounding a doctrine of individualism, Smith was one of many voices stating that the economy, like the individual, should be free from detailed regulation from the state. Economic, as well as individual, self-interest and its outcome in the market should be allowed to function without state regulation. Although it was indeed approved by the First Continental Congress, the practice of mercantilism was replaced with a Smith-oriented form of liberalism in post-Revolutionary America.