Mercantilism and the American Revolution
by Carole E. Scott
In its day, mercantilism was explained by its proponents, says economic historian Gerald Gunderson, as "a
philosophy of nation building, a series of economic controls intended to strengthen a country and its colonies
against other antagonistic empires. A major tenant of this view was self-sufficiency: sources of supply--raw
materials, agriculture, and industry--should be developed domestically, or in colonies, to prevent interruptions by
hostile foreigners. A large merchant marine was also deemed important. Cargo vessels of that era were designed
to repel pirates and thus could be easily adapted to military roles during wars. Finally, the mercantilists were
preoccupied with specie (gold and silver), then a universal foundation of money. Short of possessing gold mines, as
Spain did, specie could be acquired with a 'favorable' balance of trade, that is, through earning foreign exchange
by selling exports that brought in more money than was paid out for imports."
Some economic historians, such as Jonathan Hughes, claim that there is nothing extraordinary about mercantilism,
as the "use of subsidies, tax rebates, tariffs, and quotas to attempt to protect and encourage American industries
at the expense of the rest of the world is standard modern practice. If every member of Congress and every
president had the economic background and viewpoints of Adam Smith and David Ricardo (the great theorists of
classical economics), we would not pursue such policies. But they do not, and we do pursue them, as do all other
governments in the world today and as they did throughout the seventeenth and eighteenth centuries."
Even in medieval times in Europe local governments levied tolls (tariffs) on goods entering and leaving their
territory. Local guilds formed by merchants and artisans fixed wages, prices, and other working conditions.
Subsequently, these functions were transferred to the government, which sought to use its powers to promote
economic growth and enrich the nation. Thus was born mercantilism, which added to existing economic
nationalism to the already existing antagonism engendered by religious differences and rivalry among the kings of
the various nations. Mercantilism lasted from the creation of strong central governments in the 15th century until
the 19th century, however, mercantilist policies continue to be followed today. Some believe that the American
revolution was an outgrowth of conflict between the colonies and England brought about by England's
mercantilist policies.
Mercantilism was at its height in the 17th and 18th centuries. Although the economic policies adopted in the
nations of Europe were not identical, they shared sufficient common characteristics to consider each country's
economic system as being of the same type. The objective of these policies was to maximize the nation's wealth.
Wealth was defined in terms of gold; not the way Adam Smith defined it, which is the nation's ability to produce.
Gold could be acquired either through a trade surplus or the obtaining of gold-bearing territory. Mercantilism
involved the using the power of the state throughout the economy to enrich the state. Therefore, a mercantilist
economy is a managed economy.
England, France, Holland, and Spain all restricted their colonies' foreign trade. Subsidies and other assistance was
employed to encourage the colonies to produce raw materials; while their right to produce manufactured goods
that would compete with those produced by the mother country was restricted. The reason for doing this was to
make the nation self-sufficient while enjoying the benefits of specialization. (Most colonial manufacturing took
place in the Middle Colonies.)
Colonies, by providing raw materials not found in the mother country and increasing the size of the domestic
market made both substantial self sufficiency and specialization possible. Self-sufficiency reduced imports; thus
making possible or making larger a trade surplus, which would add to the nation's gold stock. Specialization
increased the nation's productivity.
Navigation laws were common in mercantilist nations. These limited to native (citizens of mother country and its
colonies) ships the right to bring goods into (imports) or take goods from (exports). This was expected to increase
the size of the nation's merchant marine and earn additional specie through the selling of shipping services.
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Mercantilist regulation in the thirteen colonies began in the 1620s, when steps were taken to prevent the
importation into Britain of tobacco from Spanish and Dutch colonies. In the 1650s and 1660s the British Parliament
passes a set of Navigation Acts.
 Foreign built or owned ships were forbidden to trade with the colonies, and ships that did engage in this
trade must have crews, 3/4ths of whose members were British (from Great Britain or British North
America).
 Various colonial exports were enumerated, that is, these goods had to be shipped to Britain, from which,
if they were destined for other nations, they would be re-exported. This profited shippers and merchants
in Great Britain.
 Colonial imports had to shipped through Great Britain. This made it easier for the British to collect import
duties.
In addition to benefiting Great Britain, these Acts were designed to injure the Dutch. In 1651, Holland declared war
on Great Britain in order to get a 1651 Navigation Act repealed. It failed. Nonetheless, the Dutch maintained their
maritime and commercial supremacy until well into the 18th century. Although the Navigation Acts did lead to a
larger British merchant marine and increased its maritime trade, as Adam Smith pointed out, they imposed a cost
on British consumers.
These and other mercantilist policies provided some benefits to the colonies. Protection from foreign competition
helped New England's ship building industry. South Carolina benefited from an indigo subsidy. North Carolina
benefited from bounties on tar, pitch, turpentine, and lumber. Various colonial exporters benefited when they
exported to Britain because competing goods from foreign nations were subject to tariffs theirs were not.
On the other hand, colonists paid more than they otherwise would have for imports from foreign countries
because they had to be shipped through Great Britain. (Tariffs levied on foreign goods, but not colonial goods,
meant that British citizens paid more for imports than they otherwise would.) They paid more, too, for imported
manufactured goods because they had to come through Britain.
Southern planters, particularly rice and tobacco planters, bore much of the burden imposed by the requirement
that the colonies' goods be exported to foreign nations via Great Britain, because most Southern exports went
there, while smaller shares of the other two regions' exports went there. .New Englanders often evaded this cost
through trading with foreign countries illegally.
Enforcement of the Navigation Acts was not very effective until 1763, and it was after enforcement tightened that
interest in gaining independence heightened. Some economic historians do not believe restrictions on colonial
manufacturing imposed much of a burden on the colonies because they were in no position to establish much of a
manufacturing sector due to the high cost of labor and capital; the small size of the colonial market, which
precluded producing on a large enough scale to gain economies of scale; and the lack of necessary knowledge and
skills.
According to one historian, 1763 marked a turning point in the relationship between Britain and the colonies. Until
then, the perceived benefits of Empire membership exceeded perceived costs. After 1763, both the colonists and
the English became increasingly dissatisfied with the relationship. England had just emerged victorious in a long
war with France. However, the war left Britain with a huge public debt and a growing conviction that the colonies
must bear a greater share of the cost of maintaining the Empire. Because effective rates of taxation in England
were many times higher than tax rates in the colonies, the English believed it was appropriate to raise revenues via
a series of new taxes on the colonies and reformed colonial administrative practices to better enforce new and
existing taxes.
There were a series of revenue-raising measures passed by Parliament: the Sugar act of 1764, the Stamp and
Quartering Acts of 1765, the Townshend Acts of 1767, the Tea Act of 1773, and others. "Before 1763," says a
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historian, "only southerners had much reason to chafe under Empire regulations. But enforcement of the Sugar Act
restrictions on trade with the West Indies alienated articulate northern merchants, as well, while the highly visible
Stamp Act tax on documents irritated just about everyone in business."
The Sugar Act sparked a boycott of imports from Great Britain. A boycott aimed at the Townsend Acts levied
import duties on various colonial imports led to imports falling by one-third and Parliament repealing them.
Opposition to the Stamp Act led to it be repealed. Therefore, the colonists learned that resistance worked. The
British responded by increasing the legal authority of colonial administrators and by sending troops to back that
authority.
The objective of Parliament in passing the Sugar Act was to protect West Indian interests by placing taxes on
foreign sugar and molasses. The Stamp Act was a way to collect a minor amount of revenue from the issuance of
legal documents. The Currency Act (1764) was designed to make self limiting colonial issuance of paper money by
establishing reserves for its redemption.
The 1773 Tea Act ran into very strong resistance, including the Boston Tea Party. Outrage was generated in the
colonies in 1774 by the passage of the Quebec Act, which limited the expansion of the colonies to the West.
Various objectives have been put forth for this Act having been passed, including to stop the colonists from further
encroaching on Indian lands and, as a result, initiating hostilities and protecting the trade of Hudson Bay Company.
It infuriated colonists wanting to settle in the West and land speculators.
It wasn't paying taxes or the amount they had to pay, which was relatively low, that seems to have angered the
colonists most; instead, it was having no say in how much and in what way they would be taxed. Having a say was
a right they felt entitled to as Englishmen.
One economic historian (Jonathan Hughes) describes government then and today in this way: "Eighteenth-century
government, like most governments now, was one of organized special interests gaining advantages for
themselves at the expense of the unorganized. Subsidies here, taxes there, prohibitions, special grants of privilege,
year after year, decade after decade, had produced the 'British government'."
Questions:
1.
According to the article, what are the three things that a country should strive for under mercantilism?
2.
What are the origins of mercantilism? What was the lifespan of mercantilist policy?
3.
According to Mercantilist philosophy, wealth is measure by what? How does this differ from Adam
Smith’s definition of wealth?
4.
Why is balance of trade important under the mercantilist system?
5.
What were the three components of the English Navigation Acts?
6.
Do you believe that the Navigation Acts represented a net loss or gain to the greater British Empire?
Support your contention with a passage from the reading.
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