The Colonial Economy

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How did mercantilism affect the colonial economy?

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Mercantilism played a critical role in shaping the colonial economy—and perhaps even in shaping the entire history of colonization.

Mercantilism's core assumption is that economics is a zero sum game. (This was the key criticism that Enlightenment-era capitalists would raise against the mercantilists: the capitalists held that wealth could be...

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Mercantilism played a critical role in shaping the colonial economy—and perhaps even in shaping the entire history of colonization.

Mercantilism's core assumption is that economics is a zero sum game. (This was the key criticism that Enlightenment-era capitalists would raise against the mercantilists: the capitalists held that wealth could be actively created, and that by lowering state controls, greater prosperity could be achieved by all.)

The Early Modern Era was a time of fierce competition between the countries of Europe, and mercantilism reflected this deeply tumultuous time period. Early Modern States largely understood economic strength in terms of wealth that could then be used to further invest in state-building or military projects. Resources and treasure were understood as finite: to be hoarded and used by the State and denied to its political rivals.

Here, we come to the history of colonization, because the history and experience of colonization in this time period was largely shaped by this mercantilist vision (much as later nineteenth-century imperialism was shaped heavily by the context of industrial capitalism). The colonial economies were expected to contribute to the economic well-being of its mother country and to exist first and foremost as extensions of that country—to further its own economic interest and well being. While the challenges of distance and personal self interest meant that, practically speaking, this vision was not entirely realized, mercantilist principles remained heavily embedded within the colonial experience.

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Mercantilism is a form of economy that relies on merchants, trading, and shipping. Essentially, merchants—the sellers and distributors of the day—acted on behalf of the the Royal government. Because of this, they were relatively free to buy, sell, and transport goods to and from the colonies. At the same time, the government had a pretty tight grip on them and could enforce their will as need be. Initially, there was little need for this; the colonies were in line, the government didn't need too much extra funding, and the merchants were happy. However, the power that the government exercised over their merchants led to trouble.

As soon as the government found itself needing extra finances, they increased prices at will and levied taxes through their products on the colonies. Because the merchants held monopolies over the goods sold in the colonies, there was little recourse but to buy from it. This led to unrest and eventual rebellion. When that occurred, the government used further taxes to punish them for what they had done. In the end, mercantilism gave the government extreme power over the colonies, and this indirectly resulted in the Revolutionary war.

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Mercantilism was a theory that allowed England to control the colonial economy from a distance. Mercantilism meant that the raw products from the colonies went completely to colonists' home country. Silver, gold, raw materials, and other goods went to England first. England would use these raw materials to create finished products, which would then be sold back to the colonists, resulting in a favorable balance of trade for the British

The British kept a tight hold on the colonial economy to control what raw materials they could retain, export, and trade—even the types of goods the colonists could produce. These policies prevented the colonies from creating products that might compete with their home nation.

In the beginning, the British didn't strictly enforce these rules, largely due to the distance between Europe and the colonies. The cost of maintaining ships or a military presence in the colonies wasn't considered cost-effective. Until the 1760s, the British government passed laws and regulations from a distance and didn't interfere in colonial affairs—a policy referred to as "salutary neglect."

Change came when England began enacting and enforcing new rules, such as the Currency Act of 1764, which had a direct effect on the colonial economy. Colonies were required to trade with the mother country in gold and silver, leaving little currency for the colonists in their day-to-day trading. As a result, colonies printed monetary notes on paper. The passage of the Currency Act took away the paper money and caused a shortage of funds, nearly collapsing the southern economies.

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Mercantilism, in which the colonial governments pushed to maximize the exports of the colonies, certainly had a large effect on the manner in which the colonies operated. The colonies, such as the English colonies in North America, stole and enslaved African people in order to maximize their export economy. For instance, the colony used brutal plantation slave labor to produce tobacco that was exported to European markets. The colonial governments sought to maximize their profits of exporting tobacco through using slave labor in which they (of course) did not pay any wages to the enslaved African people who were forced to toil in the tobacco fields for the mercantile economy. The colonies experienced an economic boom from tobacco sales on the European markets, and as such, further expanded the slave trade as well as further expanded their colonizing of indigenous people and land as they stole more land for tobacco production.

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