Economic Development

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Mercantilism

Around the 15th century, mercantilism was the current economic policy of most European countries. With mercantilism, countries strive to increase their wealth, mainly by creating a favorable balance of trade to ensure more wealth come in than out. Countries that understand the favorable balance of trade under Mercantilism may get gold and silver were the main measure of wealth during that time.

Mercantilist or Mercantilism policy favored the establishment of a balance of trade favorable to the control country at the expense of a colony.

Businesses were strictly controlled under the mercantilism policy, producing the goods that each government wanted and can only export goods approved for export. Normally it was illegal to export gold, silver, and other valuable metals. Imports were also controlled, typically through high tariffs, to protect domestic industries.

At the time there were aggressive exploration and colonization because it was the essential part of mercantilism. New colonies were needed to supply the authority country with resources, wealth and raw materials. Colonies also provided a market for excess goods, available to purchase what the authority country wanted to sell at prices controlled by the authority country. For instance, American colonies, provided England with tobacco, cotton and the American colonies were forced to buy English tea and sugar. To protect the enslaved market, colonies were often prohibited from trading with other countries.

While mercantilism lasted well into the 18th century, it in the same year when the American colonies’ became independence from Great Britain. Adam Smith (1723-1790), a British economist, advocated an economic system far different from mercantilism. Adam Smith felt that a highly directed economy, with most of the profit going to national treasuries, provided little incentive for individual businesspersons. He advocated a free economy in where businesses would be allow to produce at will and to sell goods wherever they could at the best price. Smith emphasized the meaning of personal ownership of capital to allow individuals to use better control over their business destiny.

Smith’s doctrine of free trade, which businessmen act in their own best interests and constrained only by competitive forces, in the long run, this benefited more to the society than the highly controlled businesses under mercantilism. Smith’s laissez faire philosophy eventually became the cornerstone of U.S. economic policy after the Revolutionary War.

The New World Colonization

Religious drove for new colonization of the New World was well documented. Similarly significant, however, they were mostly for economic reasons. Policy of colonization was developed while under mercantilism which lead to the settling of America. Independent investors seeking profit financed one of the earliest settlements of Massachusetts Bay and Jamestown, Plymouth.

While mercantilism did provide the early foundation for American business, it became the main single reason leading to England’s control over America.

Following the French and Indian War (1754-1763), England’s relationship with the colonies became damage with England tightened economic restrictions that affected American business. Even though there was considerable commercial regulation proceeding to the French and Indian War, the restrictions were not strongly imposed and the colonists normally pay no attention. For example, the smuggling of molasses to support American rum production is a violation of the Molasses Act of 1733, which was common, and little was done by the British to stop this practice.

Following the war, the position of the English government altered drastically. The cost of the war was high and the expenses of administering the newly acquired colonies were great. During the mid-1760’s, the British national debt was approximately 140 million pounds. The English felt that the war had benefited the colonists more than the taxpayers at home, who had financed it. This resulted in the Sugar Act (1764), the Stamp Act (1765), and the Townshend Revenue Act (1767) for the English to tax the colonies as a source of tax revenues to help balance expenses.

American independence

The English’s mercantilism policies and taxing was the main result in the American Revolution. During the time of the war, most Englishmen did not think the colonies of American was that important and because England was experiencing difficulty somewhere else and did not place a major amount of resources to fight off the Americans.

Major factors in American development were the enormous amount of arable land and the existence of extensive natural resources, mainly iron ore and timber. Fertile farmland had made the new America agriculturally independent more than before the Revolutionary War by freeing labor for other uses, such as factory work during the 1800’s.

As well as many immigrants to the New World brought their skills and assets along with them. Most of these immigrants were merchants with business and had entrepreneurial skills. To the South, a common slavery system provided a large free work force, with more than 500,000 slaves by the start of the Revolutionary War.

The new American economy

As the framers of the new government met to write the Constitution, a more favorable business regulation was the main concern. Even though at the time, Adam Smith was unknown by most people, the new republic embraced many of the free enterprise principles. For example, Article Five of the Bill of Rights, guarantees the right of private ownership of property. This same right was later strengthening by the adding of the 14th Amendment that guarantees no individual may be deprived of property without the appropriate process of law.

The colonies were united Constitution into a single economic body, consequently eliminating the trade tariffs that had existed between colonies before the revolution set by the British.

The Assembly Line (left), revolutionized the mass production of manufactured of goods developed in 1798 by Eli Whitney.