Why was the British system of mercantilism opposed by American colonists?

When the French and Indian War finally ended in 1763, no British subject on either side of the Atlantic could have foreseen the coming conflicts between the parent country and its North American colonies. Even so, the seeds of these conflicts were planted during, and as a result of, this war. Keep in mind that the French and Indian War (known in Europe as the Seven Years' War) was a global conflict. Even though Great Britian defeated France and its allies, the victory came at great cost. In January 1763, Great Britain's national debt was more than 122 million pounds [the British monetary unit], an enormous sum for the time. Interest on the debt was more than 4.4 million pounds a year. Figuring out how to pay the interest alone absorbed the attention of the King and his ministers.

Nor was the problem of the imperial debt the only one facing British leaders in the wake of the Seven Years' War. Maintaining order in America was a significant challenge. Even with Britain's acquisition of Canada from France, the prospects of peaceful relations with the Native America tribes were not good. As a result, the British decided to keep a standing army in America. This decision would lead to a variety of problems with the colonists. In addition, an uprising on the Ohio frontier - Pontiac's Rebellion - led to the Proclamation of 1763, which forbade colonial settlement west of the Allegany Mountains. This, too, would lead to conflicts with land-hungry settlers and land speculators like George Washington (see map above).

British leaders also felt the need to tighten control over their empire. To be sure, laws regulating imperial trade and navigation had been on the books for generations, but American colonists were notorious for evading these regulations. They were even known to have traded with the French during the recently ended war. From the British point of view, it was only right that American colonists should pay their fair share of the costs for their own defense. If additional revenue could also be realized through stricter control of navigation and trade, so much the better. Thus the British began their attempts to reform the imperial system.

In 1764, Parliament enacted the Sugar Act, an attempt to raise revenue in the colonies through a tax on molasses. Although this tax had been on the books since the 1730s, smuggling and laxity of enforcement had blunted its sting. Now, however, the tax was to be enforced. An outcry arose from those affected, and colonists implemented several effective protest measures that centered around boycotting British goods. Then in 1765, Parliament enacted the Stamp Act, which placed taxes on paper, playing cards, and every legal document created in the colonies. Since this tax affected virtually everyone and extended British taxes to domestically produced and consumed goods, the reaction in the colonies was pervasive. The Stamp Act crisis was the first of many that would occur over the next decade and a half.

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By the 1750s a distinct society had emerged in the colonies, united by intellectual currents like the Enlightenment and the Great Awakening. Although the colonies developed different religious, social, and demographic characteristics, they each had a primitive sense of unity that grew stronger through the coming economic and political upheaval.

Gold

During the early colonial years, Britain left most internal matters and governing to the colonials, controlling only trading strictly. The colonies were in a type of parent-child relationship with England. Britain recognized that each colony had its own internal government that dealt with matters of local concern, but the King believed that since they were all British citizens, the colonists must ultimately do what was best for Britain. This type of economic relationship was known as the Mercantile System or Mercantilism.

Adam Smith

The term mercantilism was coined by Marquis de Mirabeau in 1763 but was popularized by Adam Smith, a Scottish political economist, in 1776 in his book The Wealth of Nations.  The word is derived from the Latin words merx, meaning “commodity” and mercari, meaning “to run a trade.”  Mercantilists believed in bullionism, which is the belief that a country’s wealth was measured in their gold and silver reserves.

What was the Mercantile System? At the time, mercantilism was the operative economic system in Europe. It is the name given to the economic policy that developed in Europe that equated wealth with power. Governments attempted to export more than they imported, making their balance of trade more favorable, thus increasing their wealth.  A government that engaged in mercantilism advanced the goals of increasing their wealth by increasing their supply of gold, silver, and trade value by engaging in a protectionist role in the economy—promoting exports and discouraging imports, especially through the use of tariffs.

The Mercantile System

Raw imports

The Mercantile System represents a world of rivalries when power and wealth went hand and hand. For a country to be wealthy, it believed it needed large amounts of gold and silver. But at the time, Europe’s greatest countries (England, France, and Spain, especially) believed that there was a limited amount of gold and silver in the world. To get or to keep gold and silver, the country had to limit foreign imports and preserve a favorable balance of trade. But how does a country do that, especially a country like England that is a little island and might not have access to all the resources it needs?

• The country could war against competing countries
• The country could encourage local manufacturers, through subsidies and monopolies, to produce as many goods internally as possible.
• The country could develop and then protect its own shipping.
• The country could acquire colonies as a source of raw material
• After the country had colonies, it could make use of the colonials themselves as consumers of the manufactured goods being produced.

Under mercantilism, colonies were important because they produced raw materials for the mother country, goods that the country would have to import otherwise (things like grain, sugar, or tobacco). The colonies also gave the mother country an outlet for exports, which increased jobs and industrial development at home. But none of this would happen if the colonies traded with countries other than their mother, which is why Britain took legal steps to force its colonists to buy and trade only with England. The British began regulating colonial trade to maximize profits under the mercantilist system in the 1660s. The King forbade direct exportations to rival markets. For example, tobacco from Jamestown had to be shipped to England first, where it could be taxed, before it could be sent on and sold elsewhere.

Colonial Trade

England’s rise to power during the late 1600s was due largely to the production of tobacco in Virginia and sugar in the West Indies.  As time passed, though, the North American colonies began trading with the West Indies directly, supplying the colonials with horses, food, lumber, and agricultural products.  The West Indians paid for their goods with specie, gold, silver, or credit notes, which the North Americans passed on to England to pay for purchased manufactured goods.  The dependency between the West Indies and North America increased over the years, but England did not attempt to limit trade and the Dutch began trading heavily in the Caribbean and North America, undercutting much of England’s potential trade dominance.  Any undercutting of trade meant that the full mercantilist potential of the colonies was being decreased and wealth was flowing into Danish countries and not into England. 

Navigation Acts

The Navigation Act of 1651 marked England’s first real attempt at strictly enforcing mercantilist policy in the New World. The Navigation Act declared that all goods exported from the colonies had to be carried on English ships—ships that were built, owned, and manned by Englishmen or English colonists. The Act also listed “enumerated goods,” raw materials that the colonials could only trade with England or another one of the British colonies and with no one else, especially England’s main rivals, the Spanish or the Dutch. These goods included items like sugar, cotton, tobacco, wood, pitch, and tar. The first Navigation Act was followed by the Staple Act of 1663, which required that colonial ships unload their cargo once they were docked in England so that each item could be taxed. The taxes represented quick and easy money for England.

The Restraining Acts forbade the sale of processed or manufactured goods because there is far more money in selling processed goods than in selling raw materials. It was economically more viable for the King to keep all manufacturing in England then to allow the colonials to engage in the lucrative industrial trade. Colonies existed to harvest raw materials that the mother country could not produce.

Restraining Acts

The Restraining Acts of 1699 followed the Navigation Acts, protecting manufacturers in England and restricting manufacturing in the colonies. Colonial industry was undeveloped at this point, but the King did not want colonial manufacturers to compete with manufacturing industries in England in the future. The Restraining Act banned the export of woolen products out of the colonies, even banning it from being sold from one colony to the next. By 1750 the Restraining Acts had been expanded to forbid the export of beaver hats (very fashionable in London at the time) and processed iron.

Colonist Response to the Restraining Acts

How did the colonists respond to the Restraining Acts? Most colonials complied with the system without much complaint and it proved an efficient system immediately. The colonists had achieved a high standard of living in a short amount of time, which seemed to buy their happiness. More importantly the restrictions on manufacturing affected few Americans. There was so little industrialization in the colonies at the time that it was not a hardship for most colonials. And there were benefits to the mercantile system. Although the Navigation Acts imposed taxes upon the colonists, it also protected their goods from foreign competition, which kept prices high and created a monopolistic stronghold on the market. The British paid subsidies on some goods, especially on shipbuilding and tobacco, and rice exporters received rebates to help offset the imposed taxes.

Colonial merchant ship

Molasses Act

Despite the benefits, colonials began to complain about the system by the 1730s. The colonists hardest hit were those who traded in the West Indies, where real money could be made in the triangular slave trade. The British enacted the Molasses Act of 1733, trying to cut down on colonial trade in the West Indies by imposing a huge tax on the sugar and molasses imported into the colonies. The act would have seriously disrupted colonial trade and while it was made legal, the crown never enforced it. Instead government agents allowed colonials to smuggle in molasses and sugar as contraband, making shippers believe that it was alright to break British law. But allowing shippers to break the law had other repercussions—it made the colonials distrustful of British intentions. Why would the King enact a law and not enforce it?