The Colonial Economy

Start Free Trial

How did America benefit from mercantilism?

Expert Answers

An illustration of the letter 'A' in a speech bubbles

Mercantilism is the name given to an economic policy designed to maximize a nation's exports. In the context of the American colonies, such a policy was pursued for the benefit of Great Britain. British advocates of mercantilism believed that the country should import as little as possible in order to maintain a healthy balance of payments.

In practical terms, this meant that the British increasingly came to rely on the American colonies for many of its raw materials such as rum and cotton, which would then be used to manufacture products in Britain, which in turn would be exported back to the colonies.

The main benefit to the American colonists of such an arrangement was that they could count on a steady market for their raw materials. The downside, however, was that the British insisted on payment in gold and silver bullion, which was thought essential to maintaining a trade balance but which was in chronically short supply in the colonies.

The consequences for the colonial economy were damaging. The Americans had to print paper money to make up the shortfall in gold and silver, which had the inevitable knock-on effect of generating inflation. Without a sufficient quantity of precious metal to back up the value of paper currency, it naturally became devalued, leading to significant price increases for consumers and businesses alike.

See eNotes Ad-Free

Start your 48-hour free trial to get access to more than 30,000 additional guides and more than 350,000 Homework Help questions answered by our experts.

Get 48 Hours Free Access
Approved by eNotes Editorial Team