A body of economic doctrines and policies in the seventeenth
and eighteenth centuries advocating government intervention to achieve a trade surplus.
Mercantilism—the “mercantile system” of political economy (named in 1776 by its opponent, the classical economist
Adam Smith)—shaped European colonial policy in the seventeenth and eighteenth centuries. Its goal was to increase the
power and wealth of the nation-state, notably through an inflow of gold and silver—the “sinews of war” designed to pay
for armies and fleets. Nations sought colonies with gold and
silver deposits in imitation of Spanish conquests in Mexico
and Peru, and governments employed tariffs, embargoes,
quotas, export bounties, and grants of monopolies to chartered companies to try to achieve trade surpluses (exports
greater than imports). Such policies contributed to conflict
between nations, because a country can have a trade surplus
only if some other country has a trade deficit. Colonies provided raw materials for manufacturing in the home country
and acted as captive markets for manufactures from the
home countries. Thus, in the 1750s, Britain banned the manufacture of iron goods in its American colonies while admitting colonial pig and bar iron into England duty free since it
was not a finished manufactured product. England restricted
all such manufacturing within the Empire to the mother
country to promote its industrial base.
The Molasses Act of 1733 attempted to protect planters in
the British West Indies by imposing high tariffs on foreign
sugar, molasses, and rum, but American colonial merchants
who were importing the sugar largely ignored it. The Sugar
Act of 1764, which raised the duty on sugar but lowered it on
molasses in an effort to stop the smuggling, was enforced
more effectively. However, it provoked resistance from the
colonials, who vehemently opposed a provision that allowed
smugglers to be tried in a military court instead of by a jury
of their peers. England’s Navigation Acts of 1651, 1660, and
1663 (extended to all of Britain after England’s 1707 union
with Scotland) provided that commodities originating in the
British Empire, shipped between ports within the empire, or
imported from Asia, Africa, or the Americas be shipped on
British (including colonial) ships with a British captain and
three-quarters of the crew made up of British subjects. One
aim of the Navigation Acts, approved even by Adam Smith,
focused on the maintenance of a naval reserve of ships and
experienced sailors. The Navigation Acts raised the cost of
shipping, benefiting colonial shipowners, shipbuilders,
sailors, and producers of naval timber and tar, but burdening
colonial trade in general, motivating some colonists to political activity in protest. But this form of control allowed the
British to maintain their mercantile system, which benefited
the mother country at the expense of the colonies.
Classical economists such as David Hume and Adam
Smith argued that mercantilist policies, if they succeeded in
increasing the stock of gold and silver in a country, would
raise prices, eliminating the trade surplus, and that mercantilist interference with free trade would misallocate resources.
In the twentieth century, John Maynard Keynes argued for
the justified use of mercantilist policies to stimulate employment in an underemployed economy.
—Robert Dimand
References
Coleman, D. C., ed. Revisions in Mercantilism. London:
Methuen, 1969.
McCusker, John J. Mercantilism and the Economic History of
the Early Modern Atlantic World. Cambridge: Cambridge
University Press, 2001.