US Economic History 1 — How Mercantilism Started the American Revolution



in colonial America when we were part of the British Empire our trade with the rest of the world was governed by mercantilist policies what was mercantilism mercantilism was the conception widely held in the 18th century that there is a finite amount of wealth in the world and because of that countries had to compete to acquire as much of that wealth as possible now to achieve this goal it was felt that government policy should regulate trade in such a way that a country exported as much as possible and imported as little as possible such policies usually included tariffs and other taxes on imports in the 17th and 18th centuries there was an intensive global imperial rivalry in the new world this took the shape of the Spanish in Latin America mining gold and silver the British in North America planting tobacco and other staple commodities the French in Canada trapping furs and fishing and then the British and the French together in the Caribbean known as the West Indies planting and harvesting sugar colonies in the mercantilist era we're seen as a way of enriching the home country and their trade was regulated accordingly the mercantilist system functioned as follows colonies would sell raw materials to the home country where they would be manufactured and then sold back to the colonies as finished goods colonists were banned for competing with manufacturers in the home country the British colonists in what is now the United States exported a variety of raw materials such as tobacco rice and codfish to Great Britain in exchange for luxury items imported from London such as services for tea finer clothing eyeglasses and much else from the 1650s through the 1760s the British Parliament imposed a series of laws collectively called the navigation acts to regulate monopolize and max American trade the laws included provisions requiring colonists to trade only with English ships to trade only from a list of approved goods this was to prevent the development of a colonial market for goods Britain might not be able to supply regularly and pass all goods traded with other countries through English ports to be taxed for example in 1733 the molasses Act was passed due to political pressure from British sugar producers the acts ought to ban New England merchants from buying French sugar to make rum but the Americans routinely evaded the law by smuggling goods another issue was that Britain was often at war with other potential trading partners of the American colonists the biggest of these was the French and Indian War of 1754 to 1763 which left Britain 132 million pounds in debt now making payments on this – had consumed 60% of the annual budget in the 1760s and 1770s Parliament dealt with this crisis by passing another series of navigation acts that included the Sugar Act the Stamp Act in the Townsend acts all of these were new taxes and tariffs designed to help Britain collect the revenue it needed to pay the large cost of empire now aware that smuggling was becoming a colonial pastime Parliament sent Royal customs officials to America to ensure the taxes were being collected and to try to stamp out illegal imports the Americans became fiercely opposed to this round of new taxes and regulatory measures insisting upon no taxation without representation and arguing that their natural commercial rights were being violated Americans mounted a stern resistance against what they felt were burdensome imperial economic dictates Adam Smith wrote The Wealth of Nations in the same year 1776 that the Declaration of Independence was written Smith attacked mercantilism and promoted free trade and markets guided not by government regulation and policy but by what he called an invisible hand supply and demand these two works the Declaration of Independence and Adam Smith's The Wealth of Nations told the story of the onset of the American Revolution and foretold the creation of a republic with both economic and political freedom the imperial taxes on Commerce and trade had led the American colonies to fight the American Revolution and declare their independence




Comments
  1. I'm 3 units past the learning of mercantilism and I still use the word for fun. My teacher is also in on the joke. Whenever we have a kahoot, she always puts mercantilism as a choice just for my friend and I Davis.

  2. "Invisible hand" is probably the most sullied word in the US. I Wonder if one simple American knows what Smith meant….

  3. Good info here, but there's a really important omission which can result in a serious misunderstanding. Adam Smith was an acquaintance of Charles Townshend (President of the Board of Trade and also Chancellor of the Exchequer in the 1760s), and Smith wrote IN SUPPORT of taxing the Colonies to offset the tremendous expense of the French and Indian War (aka the Seven Years' War). Since Smith is cited here as a champion of Capitalism supplanting Mercantilism, I think it gives the opposite impression, that he also supported Colonial economic independence and opposed the Stamp Act, et al.

    Before crediting Capitalism for America's success, one should first acknowledge that the Colonies were annexed from natives, established at great expense by the English, and torn away in violation of the law of the times in a Revolution which saw acts of terror and guerrilla warfare, sometimes directed at Colonists who remained loyal to England. Other nations' vulnerabilities were leveraged to buy and annex via pretext additional territory. Cheap labor was obtained through slavery for centuries. Even after the Civil War, property was doled out by the government for many decades (into the 1930s). Much industry was paid for through taxes and ration-adjusted supply and demand during times of war. In summary, not exactly Capitalism, but partly Capitalism, and many other things.

    A lot of Economic History seems slanted (often unwittingly) in one way or another — Communists want to emphasize class struggle over life-improving technical advances, Capitalists want to emphasize industrial progress and ignore the lives plowed under, etc. I find it most useful to sample many sources (including Smith and Marx and guys like Milton Friedman and Howard Zinn, plus fringier guys like the Austrians), and then you can try to apply critical thinking to come up with your own view. I think that they all make important and valid points.

  4. Great Video. The key here is that you don't need "Government" regulation if you have "invisible hand" regulation. For Adam Smith and Conservatives and Libertarians today, the "invisible hand" is synonymous for "Christian God." This is why religion plays so heavily in Conservative economics.

    In other words, when Smith used the term "invisible hand" he was thinking God would use his power to ensure people did the right thing. And the right thing was to do things as a "Christian" would.

  5. So basically we've swapped state-controlled markets backed by corporations to corporate-controlled markets backed by State interests. Yay freedom! Now we can oppress and enslave people without pesky government interference! Just ignore the fact that capitalism exists to serve investor and State interests and not the interests of working people, and ignore the fact that the growth in State power is only sustained by capitalism – again, at the expense of working people.

    Let's also ignore the fact that the "invisible hand" was used by Adam to refer to a "home bias" that investors would have for the home country, not to refer to the idea of some magically self-correcting mechanism of the so-called "free market" that libertarians cream their pants over. Smith also thought that a certain degree of government intervention was necessary in markets.

    Obviously, reality doesn't bear out Smith's version of the invisible hand, as corporations have no incentive to prefer their home country if if they can make a greater profit elsewhere, and if another country can better protect their interests, which is why the U.S. military is so freaking huge and why we love the so-called "free market" that lets large corporations do what they want.

    If you are really happy with the system we live under, then you must be perfectly OK with big government and corporate collusion, since this is the end result of the "free market" that you are told is perfect and awesome, not to mention the fact that the market is never actually free and will never be so long as the State exists.

    You can't get a powerful unaccountable State without the wealth of powerful corporations and you can't have powerful corporations without State power and violence to protect accumulated wealth. "Economic freedom" sounds great in principle, but it doesn't exist in reality. It only exists within our capitalist system to the extent a slave is "free" to be someone's slave or starve to death, and to the extent that the master is "free" to make them a slave.

    Economic freedom clearly needs to be balanced with economic equality and human well-being, but this can never be achieved under capitalism since economic relations are fundamentally unequal and hierarchical. Corporations are anti-democratic and anti-humanitarian structures which coerce people into wage slavery by wielding a ridiculous amount of power over markets and by influencing government policies which end up eroding democracy – you know, that thing Americans are supposed to care about.

    So yeah, basically capitalism is poison, and no amount of regulation is going to stop it from killing us. Systemic change is needed. The State is no better, but at least it represents us on paper.

  6. The UK has gone from big government to small governemnt throughtout its history. The USA has (as far as i know) always been trending towards bigger government. The monarchy is what saves us, as we dont need an ever more powerful president every 8 years

  7. I have not seen Learn Liberty made nice videos in a while that are not like some sort of news broadcast from the Rubin Report.

  8. At a meeting of our neighborhood association, and one guy stood up and said we should only hire people who live in our neighborhood, and that we should only work at businesses located in our neighborhood, and that we should only buy products manufactured in our neighborhood. He said if we all agree to do this, our neighborhood will be richer and better off because of it.

    Really? By putting artificial constraints into place, people would be forced into taking lower-paying jobs, hiring less productive employees, and they would be forced into paying higher prices for manufactured products.

    The whole point of being rich is that it makes it easier for you to buy quality products and services. But placing artificial constraints on the economic choices that you make would take people in the other direction, making it harder for them to be able to afford products and services.

    The economy doesn't grow because of a circular flow of trade. It grows from productivity, period. Being productive by generating profit. Instead of watching the flow of money, which is just a conversion tool, you need to watch the flow of productivity.

    People grow the economy because they found the most productive jobs, hired the most productive workers, and bought the most productive products. Each little tweak of efficiency adds a little more value to the economy. That's where it grows. Through making efficient CHOICES.

  9. HAAAHAHAHAHA!

    Adam Smith thought that an invisible hand should regulate? This video doesn't even know about his second book "Theory of Moral Sentiments" along with how Britain was kicked out of the slave trade, ultimately causing America to take up the slave trade itself.

    The mercantilism was promoted for their wars at the behest of the colonists but they rebelled. All this to ignore the realities of 1776 being the time that the Constitution was created for the colonies to keep slavery going.

    Oh man, this stuff is laughable.

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