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Colbert also increased the size of the French navy, on the belief that France had to control its trade routes to increase its wealth. Although his practices ultimately proved unsuccessful, his ideas were hugely popular, until they were overshadowed by the theory of free market economics. The British colonies were subject to the direct and indirect effects of mercantilist policy at home. Below are several examples:. Additionally, since Great Britain was in a near-constant state of war, heavy taxation was needed to prop up its army and navy.

Defenders of mercantilism argued that the economic system created stronger economies by marrying the concerns of colonies with those of their founding countries. In theory, when colonists create their own products and obtain others in the trade from their founding nation, they remain independent from the influence of hostile nations. This radically spiked the costs of goods for the colonists, who believed the disadvantages of this system outweighed the benefits of affiliating with Great Britain.


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After a costly war with France, the British Empire, hungry to replenish revenue, raised taxes on colonists, who rebelled by boycotting British products, consequently slashing imports by a full one-third. This was followed by the Boston Tea Party in , where Boston colonists disguised themselves as Indians, raided three British ships, and threw the contents of several hundred chests of tea into the harbor, to protest British taxes on tea and the monopoly granted to the East India Company. To reinforce its mercantilist control, Great Britain pushed harder against the colonies, ultimately resulting in the Revolutionary War.

Citizens could invest money in mercantilist corporations, in exchange for ownership and limited liability in their royal charters. These citizens were granted "shares" of the company profit, which were, in essence, the first traded corporate stocks. Mercantilism is considered by some scholars to be a precursor to capitalism since it rationalized economic activity such as profits and losses.

Where mercantilist governments manipulate a nation's economy to create favorable trade balances, imperialism uses a combination of military force and mass immigration to foist mercantilism on less-developed regions, in campaigns to make inhabitants follow the dominant countries' laws. One of the most powerful examples of the relationship between mercantilism and imperialism is Britain's establishment of the American colonies.

In a free trade system, individuals benefit from a greater choice of affordable goods, while mercantilism restricts imports and reduces the choices available to consumers. Fewer imports mean less competition and higher prices.

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While mercantilist countries were almost constantly engaged in warfare, battling over resources, nations operating under a free-trade system can prosper by engaging in mutually beneficial trade relations. Today, mercantilism is deemed outdated. However, barriers to trade still exist to protect locally entrenched industries.

For example, post World War II, the United States adopted a protectionist trade policy toward Japan and negotiated voluntary export restrictions with the Japanese government, which limited Japanese exports to the United States. The statute also acted to restrict the growth of the woolen textile industry; this benefited two groups: the landlords, who would no longer lose laborers to industry and suffer the pressure of paying higher wage rates, and the textile industry itself, which received the privilege of keeping out the competition of new firms or new craftsmen.

The coerced immobility of labor, however, led to suffering for all workers, including textile craftsmen; and to remedy the latter, Queen Elizabeth imposed a minimum wage law for textile craftsmen, thundering all the while that the wicked clothing manufacturers were responsible for the craftsmen's plight.

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Fortunately, textile employers and workers persisted in agreeing on terms of employment below the artificially set wage rate, and heavy textile unemployment did not yet arise. The programs of wage controls could not cause undue dislocations until they were stringently enforced, and this came to pass under King James I, the first Stuart king of England. Upon assuming the throne in , James decided to enforce the Elizabethan control program with great stringency, including extremely heavy penalties against employers.

Rigorous enforcement was imposed on minimum-wage controls for textile craftsmen, and on maximum-wage decrees for agricultural laborers and servants. The consequences were the inevitable result of tampering with the laws of the market: chronic severe unemployment throughout the textile industry, coupled with a chronic severe shortage of agricultural labor.

The Political Economy of Mercantilism

Misery and discontent spread throughout the land. Citizens were fined for paying their servants more than ceiling wages, and servants fined for accepting the pay. James, and his son Charles I, decided to stem the tide of unemployment in textiles by compelling employers to remain in business even when they were losing money. But even though many employers were jailed for infractions, such Draconian measures could not keep the textile industry from depression, stagnation, and unemployment.

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Certainly the consequences of the policy of wage controls were one of the reasons for the overthrow of the Stuart tyranny in the midth century. The young colony of Massachusetts engaged in a great many mercantilist ventures, with invariably unfortunate results. One attempt was a comprehensive program of wage and price controls, which had to be abandoned by the s. Another was a series of subsidies to try to create industries in the colony before they were economically viable, and therefore before they would be created on the free market.

One example was iron manufacture. Early iron mines in America were small and located in coastal swamps "bog iron" ; and primarily manufactured, or "wrought," iron was made cheaply in local bloomeries, at an open hearth. The Massachusetts government decided, however, to force the creation of the more imposing — and far more expensive — indirect process of wrought iron manufacture at a blast furnace and forge.

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The Massachusetts legislature therefore decreed that any new iron mine must have a furnace and forge constructed near it within ten years of its discovery. Not content with this measure, the legislature in granted a new Company of Undertakers for an Iron Works in New England, a year monopoly of all iron making in the colony. In addition, the legislature granted the company generous subsidies of timberland. But despite these subsidies and privileges, as well as additional large grants of timberland from the town governments of Boston and Dorchester, the Company's venture failed dismally and almost immediately.

The Company did its best to salvage its operations, but to no avail. A few years later, John Winthrop, Jr. From the governments of New Haven colony and New Haven township, Winthrop was granted a whole host of special subsidies: land grants, payment of all costs of building the furnace, a dam on the river, and the transportation of fuel. One of Winthrop's partners in the venture was the deputy governor of the colony, Stephen Goodyear, who was thus able to use the power of government to grant himself substantial privileges.

But again, economic law was not to be denied, and the ironworks proved to be another rapidly failing concern. One of the most vigorously held tenets of the dominant neo-Marxist historians of America has been the view that inflation and debtors' relief were always measures of the "lower classes," the poor farmer-debtors and sometimes urban workers, engaging in a Marxian class struggle against conservative merchant-creditors. But a glance at the origins of debtors' relief and paper money in America easily shows the fallacy of this approach; inflation and debtors' relief were mercantilist measures, pursued for familiar mercantilist ends.


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Debtors' relief began in the colonies, in Massachusetts in Massachusetts had experienced a sharp economic crisis in , and the debtors turned immediately to special privilege from the government. Obediently, the legislature of Massachusetts passed the first of a series of debtors' relief laws in October, including a minimum-appraisal law to force creditors to accept insolvent debtors' property at an arbitrarily inflated assessment, and a legal-tender provision to compel creditors to accept payment in an inflated, fixed rate in the monetary media of the day: corn, cattle, or fish.

Further privileges to debtors were passed in and , the latter permitting a debtor to escape foreclosure simply by leaving the colony. The most drastic proposal went to the amazing length of providing that the Massachusetts government assume all private debts that could not be paid! This plan was passed by the upper house, but defeated in the house of deputies.

The fact that this astounding bill was passed by the upper house — the council of magistrates — is evidence enough that this was not a proto-Marxian eruption of poor debtors. For this council was the ruling group of the colony, consisting of the wealthiest merchants and landowners. If not for historical myths, it should occasion no surprise that the biggest debtors were the wealthiest men of the colony, and that in the mercantilist era a drive for special privilege should have had typically mercantilist aims.

On the other hand, it is also instructive that the more democratic and popularly responsible lower house was the one far more resistant to the debt relief program. Massachusetts has the dubious distinction of having promulgated the first governmental paper money in the history of the Western world — indeed, in the history of the entire world outside of China. The fateful issue was made in , to pay for a plunder expedition against French Canada that had failed drastically. But even before this, the leading men of the colony were busy proposing paper-money schemes. The Rev.

John Woodbridge, greatly influenced by William Potter's proposals for an inflationary land bank, proposed one of his own, as did Governor John Winthrop, Jr. Captain John Blackwell proposed a land bank in , the notes of which would be legal tender in the colony, and such wealthy leaders of the colony as Joseph Dudley, William Stoughton, and Wait Winthrop were prominently associated with the plan.

It divided scholars between those who, following in the footsteps of Adam Smith, favored a liberal interpretation that saw in mercantilism a setback in the development of economic thought, and those who ascribed to mercantilism some logic and rationality by replacing it within a broader political and economic context.

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More recent scholarship has instead focused on the implementation of mercantilist ideas and the political economy of mercantilism, in particular the interaction between mercantilist systems and interest groups. The relevance of mercantilism to Atlantic history is twofold. First, mercantilist ideas influenced both European foreign trade and colonial strategies in America.

Mercantilism explained

This perspective shifts the debate away from the definition of mercantilism to the study of overseas trade and the economic and political impact of mercantilism on the development of American colonies. It also allows for works with a broader European scope, and for a comparison of the different mercantilist regimes in place.

A by-product debate has concentrated on the importance of Atlantic trade and the American colonies to European nations. In addition, historians of the American Revolution have paid attention to the influence of mercantilism on the commercial and political formation of the early American Republic. By contrast, smuggling and the limits of mercantilist systems remain the least studied aspect of the workings of mercantilism in the Atlantic.