“Merchantilism in the Early American Colonies”

Merchantilism in the Early American Colonies

Tori Nuariza Sutanto1


Merchantilism is the political and economic strategic used by the European nations states as a doctrine in the early capitalist era around 1500 to 1850. Merchantilism is economic nationalism for the purpose of building a wealthy and powerful state2. Adam Smith tells merchantile system as the system of political economy that sought to enrich the country by restraining imports and encouraging exports. The goal of this policies was to increase the wealth and power of the mother country by creating a balance between trade and domestic manufacturing. This paper aims to describe how the merchantile system shaped American early colonies in relation with the mother country Great Britain.

Politics of Merchantilism

   Concerning to the term of merchantilism, it was the theory of trade espoused by the major European powers. The theory that said for a nation should export more than it imported. Merchantilism was a reaction against the economic problems of earlier times when states were too weak to guide their economies3. In the modern age, Holland, France, Spain, Britain became the powerful nations. Those nations were frequently fighting in war. As a consequence, money was needed to support their expansion to the other land in terms of military (armies and navies). So, the merchantilism concept developed through the necessity of wealth. To grow richer, those nations needed the other nations to be exploited. In this sense, Great Britain needed American colonies with the land to provide them raw materials and Britain provided their colonies with goods by selling to them.

Mercantilism as a historical period has been associated with the rise of a particular form of European capitalism often referred to as merchant capitalism. Mercantilism was also a doctrine advanced by various economic writers of the period, who tended to call for a powerful alliance between merchants and the monarchial system4.

The most important economic rationale for mercantilism in the sixteenth century was the consolidation of the regional power centers of the feudal era by competitive nation-states, the growth of European commerce and industry relative to agriculture, the increase in the volume and breadth of trade,  and the increase in the use of metallic monetary systems, particularly gold and silver, relative to barter transactions5

The Austrian lawyer and scholar Philipp Wilhelm von Hornick, in his Austria Over All, If She Only Will of 1684, detailed a nine-point program of what he deemed effective national economy, which sums up the principle theory of mercantilism comprehensively : 6

  • That every inch of a country’s soil be utilized for agriculture, mining or manufacturing.
  • That all raw materials found in a country be used in domestic manufacture, since finished goods have a higher value than raw materials.
  • That a large, working population be encouraged.
  • That all export of gold and silver be prohibited and all domestic money be kept in circulation.
  • That all imports of foreign goods be discouraged as much as possible.
  • That where certain imports are indispensable they be obtained at first hand, in exchange for other domestic goods instead of gold and silver.
  • That as much as possible, imports be confined to raw materials that can be finished [in the home country].
  • That opportunities be constantly sought for selling a country’s surplus manufactures to foreigners, so far as necessary, for gold and silver.
  • That no importation be allowed if such goods are sufficiently and suitably supplied at home.

The objective of these policies was to maximize the nation’s wealth. Wealth was defined in terms of gold.  Gold could be acquired  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 economy7.

Merchantile system implicated economic oppression of the working population. The goal of merchantile economic activity was to maximize production not consumption.  Extra money, free time, or education for the lower class was seen to inevitably lead to bad habit and laziness, and would result in harm to the economy8. Merchantilist believes, the wealth of the nation was not defined in terms of the sum of individual wealth9. They supported the idea of increasing nation’s wealth by encouraging production, increasing exports, and holding down domestic consumption. With high levels of production along low domestic consumption would permit increased exports that make the nations wealthier and have more power.

The Colonial Economy : Merchantilism

During the mercantilist period, military conflict between nation-states was both more frequent and more extensive than at any other time in history. In order to increase a country’s wealth for paying military outcomes, they needed to explore, expand and conquer  other territorial expansion for getting wealth through conquest. By colonializing America meant that Great Britain increased its base of wealth.

Britain, 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 specialization10. Self-sufficiencyreduced 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.

Contextually, in terms of Great Britain merchantile system, in order  to keep the profits, Britain tried to keep a greater number of exports than imports. The most important thing for Britain to do was keep its money and not trade with other countries to get necessary items. The colonists role was to provide many of these items such as raw materials to the Britain.

Beginning around 1650, the British government pursued a policy of mercantilism in international trade11. To achieve this favorable balance of trade, the British passed regulatory laws exclusively benefiting the Britain economy. These laws created a trade system whereby Americans provided raw goods to Britain, and Britain used the raw goods to produce manufactured goods that were sold in European markets and back to the colonies.

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 species through the selling of shipping services12.

Between 1651 and 1673, the British Parliament passed four Navigation Acts13 meant to ensure the proper mercantilist trade balance. The acts declared the following:

  • Only British or British colonial ships could carry cargo between imperial ports.
  • Certain goods, including tobacco, rice, and furs, could not be shipped to foreign nations except through Great Britain or  British North America.
  • The British Parliament would pay “bounties” to Americans who produced certain raw goods, while raising protectionist tariffs on the same goods produced in other nations.
  • Americans could not compete with British manufacturers in large-scale manufacturing.

The Navigation Acts severely restricted colonial trade, to the benefit of England. The colonists complained about these strictures on trade. In New England in particular, many colonists evaded the restrictions of the Navigation Acts by smuggling.

Effects on Britain

This Acts had the advantage to British shippers of severely limiting the ability of Dutch ships to participate in the carrying trade to England. The Navigation Acts, by reserving British colonial trade to British shipping, may have significantly assisted in the growth of London as a major entrepôt for American colonial wares at the expense of Dutch cities14.

The maintenance of a certain level of merchant shipping and of trade generally also facilitated a rapid increase in the size and quality of the Royal Navy, which eventually (after the Anglo-Dutch Alliance of 1689 limited the Dutch navy to three-fifths of the size of the British one) led to Britain becoming a global superpower until the mid-20th century 15. That naval never was sufficient to limit Dutch trading power.


Effects on American Colonies

The Navigation Acts enriches Britain But it  caused  big angers in the colonies and later on contributed to the American Revolution. The Navigation Acts required all of a colony’s imports to be either bought from England or resold by British merchants in England, no matter what price could be obtained elsewhere. 16

Historian Robert Thomas (1965) argues that the impact of the acts on the economies of the 13 American colonies was minimal; the cost was about ₤4 per ₤1000 of income per year. The average personal income was about ₤100 per year17.

However Ransom (1968) says that the magnitude of the net burden imposed by the Acts was small, yet their overall impact on the shape and growth rate economy was significant. That was because the Acts differentially affected different groups, helping some and hurting others.18

Walton concludes that the political friction caused by the Acts was more serious than the negative economic impact, especially since the merchants most affected were politically most active.19

Sawers (1992) points out that the political issue is what would have been the future impact of the Acts after 1776 as the colonial economy matured and was blocked by the Acts from serious competition with British manufacturers.20

After Navigation acts there are some act produces by Parliment such as Sugar act of 1764, the Stamp and Quartering Acts of 1765, the Townshend Acts of 1767, the Tea Act of 1773. It leads and contributed to the American Revolution. 

Triangular Trade

The form of Triangular trade was the manifestation of British merchantile system. This Trade routes linked the  American Colonies, West Indies, Africa, and Britain. Each port provided shippers with a payoff and a new cargo.

There were two main patterns of triangular trade. The first was a voyage from Britain to Africa, then from Africa to the West Indies, and then from the West Indies back to Britain. For example, a slave ship would leave Liverpool, England with a cargo of manufactured goods and then proceed to West Africa where these items were exchanged for slaves. The slaves were then transported to and sold in the West Indies, and the profits were used to purchase a cargo of sugar (or other produce) which was shipped back to Liverpool.

The second pattern of triangular trade originated in New England. Slave ships sailed to West Africa with a cargo of rum, and they exchanged the rum for slaves. Then they sailed to the slave markets of the West Indies where the slaves were sold. The profits of the sale were used to purchase cargoes of molasses, which were brought back to New England and distilled into rum. Although the local ports-of-call often varied, a ship’s revolving cargo of slaves, rum, sugar, molasses, tobacco, and other crops were consistent and played vital roles in the trade.22

Mercantilism and the triangular trade proved quite profitable for New England tradesmen and ship builders. But in the Southern Colonies, where the Navigation Acts vastly lowered tobacco prices, economies suffered. The triangular trade also encouraged a rise in the slave population and increased the merchant population, forming a class of wealthy elites that dominated trade and politics throughout the colonies22.

The Pictures of Triangular Trade


                              Sources (http://www.nationalarchives.gov.uk/pathways/blackhistory/africa_caribbean/docs/trade_routes.htm)



The Effects of Triangular Trade to the African, American, European 23

  1. African
  2. Depopulation:
    1. For Males 15-25, who were the creative, productive, inventive & skilled segment of the population, were taken. They were less protection.
    2. This was the group most likely to have children.
    3. Wars and raiding caused death
    4. Africans started to migrate from their homelands and move from the coast to the interior
    5. Caused cultural damage
    1. Violence:
      1. Wars were started with the introduction of guns and the need to supply slaves to escape slavery themselves
      2. The violence and instability still exists today in Africa
      3. It caused a division between tribes
      4. Violence also caused economic problems, as trade stopped between certain groups.
      5. Africa was weakened by the slave trade; therefore, it was easier for Europeans to colonize it.
  1. Economic Problems:
    1. Businesses did not plan for the future, as the future was not sure.
    2. Business and trade development were hampered.  Sometimes cotton and iron were exchanged, between the Europeans & African Tribes.  This hurt local businesses, which provided the same products.
    3. Loss of workers for guns, alcohol and luxury goods, which did not help the continent’s economic development.
    4. Racism:
      1. Africans were thought of as the inferior race and only as commodities, not human beings
      2. The Europeans’ justification was that they were bringing them to a better place
      3. Racism stemming from the slave trade has been passed down through generations and still exists today.
  1. Sierra Leone (1787) & Liberia (1820s):
    1. These 2 African countries formed as settlements for ex-slaves.
    2. The Capital of Sierra Leone is Freetown

23 http://hrsbstaff.ednet.ns.ca/mskinner/2009-2010webinfo/acs/Enslavement/. The effects of triangular trade

II: Europeeans:

  1. Economically:
    1. They owned plantations in the Americas & mines in Africa, which = huge profit and depended on the slave trade
    2. Ports grew, which boosted the shipping industry (needed ships, crew, nets etc.)
    3. Money from the slave trade contributed to the Industrial Revolution (factories, urbanization etc.)
    4. They received new raw materials (Cotton, tobacco, sugar cane etc..), which were made into finished products.
    1. World Power:
      1. It helped the empires grow and remain world powers
      2. It allowed them to colonize Africa easier.
      3. Culture:
        1. Gained African culture:  Ideas, language, religion, views on government, music foods, art technology & creativity
        2. Politically:
          1. New laws created
          2.  Abolition Movement

III:  The Americans:

  1.  Culture
  2.     A.      Gained African culture:  Ideas, language, religion, views on government, music foods, art technology & creativity
    1.      B.      Famous Black People
    1. Economics:
    2.    A.      Provided plantation owners with skilled workers who could endure working in hot temperatures
    3.     B.      The slaves brought agriculture & mining skills learned in Africa to the Americas   C.      Created black carpenters, masons, mechanics, mining and inventors
      1.    D.      Made money from selling raw material to Europeans in exchange for slaves
      1. Politically:
        1.   A.      Cause of the American Civil War
        2.   B.      New laws created
        3.  C.      Abolition Movement


The merchantilism in terms of political and economic strategies was shaped American early Colonies. Even, It contributed to hundred years after the merchantile did not fit again, but the effect of the system simoultenously occurred.

The system was like a cycle of need and interest even a damage by nations to colonies to the Indian and the african slaves. The background of competition among Britain, France, Dutch, and Spain in terms of political and economic reasons force the big impact of the merchantilism. It directly affected to the rapid changes in the development of American early colonies whether it was positive or negative.

In Britain,  the application of mercantilist theory led to the development of a skilled labor force at home and the creation of a large navy and merchant marine. However, mercantilism also led to inflation and alienation in the colonies

The laws that manifested from the principle theory of merchantilism later on contributed and led into the American Revolution. Also, the development of Indutrial later on played a role to the Industrial Revolution. The problems made by Triangular trade later on contributed politically to the conflict of American civil war.

This system exploited and gave economic oppression to the working population. The triangular trade also encouraged a rise in the slave population and increased the merchant population, forming a class of wealthy elites that dominated trade and politics throughout the colonies. It enlarged the disparity between poor and rich, merchant and workers, boss and slaves etc. This system was the earlier model of capitalism which we as the scholars should learn and take it as a lesson.

Notes :

1 Tori Nuariza Sutanto, a ninth semester of english department student of Sebelas Maret University,  Concentrates on American Studies.

2 Laura LaHayye, The Concise of Encyclopedia of Economics: Merchantilism. http://www.econlib.org/library/Enc/Mercantilism.html

3     http://www.u-s-history.com/pages/h622.html , “Merchantilism

4       John A Sarich, Merchantilism. http://www.enotes.com/mercantilism-reference/mercantilism

5                        Laura LaHayye, The Concise of Encyclopedia of Economics: Merchantilism. http://www.econlib.org/library/Enc/Mercantilism.html

6                     Ekelund, Robert B., Jr.; Hébert, Robert F. (1997),  A History of Economic Theory and Method (4th ed.), Long Grove, Illinois: Waveland Press, Page 40-41

7  Carole. E Scott. Merchantilism and The American Revolution.   http://freepages.history.rootsweb.ancestry.com/~cescott/mercan.html

8     Ekelund, Robert B.; Hébert, Robert F. (1975), A History of Economic Theory and Method,  New York: McGraw–Hill, page  46

9    Landreth, H and Colander DC (2002) History of Economic Thought (4e), Boston: Houghton Mifflin. Page 45

10   Ops Cit. Scott, E Carole. Merchantilism and The American Revolution

11      http://www.sparknotes.com/testprep/books/sat2/history/chapter5section4.rhtml. The Colonial Economy :Merchantilism.

12    Ops Cit. Scott, E Carole. Merchantilism and The American Revolution

13     Ops Cit,. The Colonial Economy : Merchantilism. Spark Notes

14  Israel, J.I., “England’s Mercantilist Response to Dutch World Trade Primacy, 1647–74,” in: Conflicts of Empires. Spain, the Low Countries and the struggle for world supremacy 1585–1713. Hambledon Press, (1997).  Page 317-318

17   Robert P. Thomas, “A Quantitative Approach to the Study of the Effects of British Imperial Policy of Colonial Welfare: Some Preliminary Findings,” Journal of Economic History 1964 25(4): 615–638.

18      Roger L. Ransom, “British Policy and Colonial Growth: Some Implications of the Burden from the Navigation Acts,” Journal of Economic History, September 1968, Vol. 28 Issue 3, pp 427–35

19    Gary M. Walton, “The New Economic History and the Burdens of the Navigation Acts,” Economic History Review, November 1971, Vol. 24 Issue 4, pp 533–542

20    Larry Sawers, “The Navigation Acts revisited,” Economic History Review, May 1992, Vol. 45 Issue 2, pp 262–284

21 http://www.sitesalive.com/hl/tg/private/hltgTriangle.pdf The Triangular Trade

22  http://www.sparknotes.com/testprep/books/sat2/history/chapter5section4.rhtml. The Colonial Economy :Merchantilism.


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