US Economic History 1 — How Mercantilism Started the American Revolution

Release Date
April 6, 2017


Economics History

The British Empire’s mercantilist plan backfired — and led to the American Revolution. Video created with the Bill of Rights Institute to help students  ace their exams.  
This is the first video in a series of nine with Professor Brian Domitrovic, which aim to be a  resource for students  studying for US History exams and provide a survey of different (and sometimes opposing) viewpoints on key episodes in U.S. economic history. How do you think we did?

    1. Why the American Revolution Was Really an Economic Revolution (blog article): Dr. Robert Wright argues that the American Revolution was just as much caused by economic concerns as it was by political concerns. 
    2. What Motivated Adam Smith? (video): Why did Adam Smith attack mercantilism? Professor Jim Otteson explains what motivated Smith to write The Wealth of Nations.
    3. America’s Founding (video series): Looking to learn more about Colonial America? In this series, Professor Sarah Burns explains the philosophical ideas behind the American Revolution. 

Brian Domitrovic
In colonial America when we part of the British Empire, our trade with the rest of the world was governed by mercantilist policies. What was mercantilism? Mercantilism was the conception widely held in the eighteenth century that there is finite amount of wealth in the world. Because of that, countries had to compete to acquire as much of that wealth as possible. To achieve this goal, it was felt that government policy should regulate trade in such a way that a country exported as much as possible and imported as little as possible. Such policies usually included tariffs and other taxes on imports.
In the seventeenth and eighteenth centuries there was an intensive global imperial rivalry. In the new world, this took the shape of the Spanish and Latin America mining gold and silver, the British in North America planting tobacco and other staple commodities, the French and Canada trapping furs and fishing, and then the British and the French together in the Caribbean known as the West Indies planting and harvesting sugar. Colonies in the mercantilist era were seen as a way of enriching the home country, and their trade was regulated accordingly.
The mercantilist system functioned as follows. Colonies would sell raw materials to the home country where they would be manufactured, and then sold back to the colonies as finished goods. Colonists were banned for competing with manufacturers in the home country. The British colonists and what is now the United States exported a variety of raw materials such as tobacco, rice, and cod fish to Great Britain in exchange for luxury items imported from London such as services for tea, finer clothing, eye glasses, and much else. From the 1650s through the 1760s, the British Parliament imposed a series of laws collectively called the Navigation Acts to regulate, monopolize, and tax American trade. The laws included provisions requiring colonists to trade only with English ships, to trade only from a list of approved goods. This was to prevent the development of a colonial market for goods Britain might not be able to supply regularly, and to pass all goods traded with other countries through English ports to be taxed.
For example, in 1733 the Molasses Act was passed due to political pressure from British sugar producers. The act sought to ban New England merchants from buying French sugar to make rum, but the Americans routinely evaded the law by smuggling goods. Another issues was that Britain was often at war with other potential trading partners of the American colonists. The biggest of these was the French and Indian war of 1754 to 1763, which left Britain 132 million pounds in debt. Making payments on this debt consumed 60% of the annual budget in the 1760s and 1770s. Parliament dealt with this crisis by passing another series of navigation acts that included the Sugar Act, the Stamp Act, and the Townshend Acts. All of these were new taxes and tariffs designed to help Britain collect the revenue it needed to pay the large cost of Empire.
Aware the smuggling was becoming a colonial pastime, Parliament sent royal customs officials to America to ensure that taxes were being collected and to try to stamp out illegal imports. The Americans became fiercely opposed to this round of new taxes and regulatory measures, insisting upon no taxation without representation and arguing that their natural commercial rights were being violated. Americans mounted a stern resistance against what they felt were burdensome imperial economic dictates. Adam Smith wrote the The Wealth of Nations in the same year, 1776, that the Declaration of Independence was written. Smith attacked mercantilism and promoted free trade in markets, guided not by government regulation and policy, but by what he called an invisible hand of supply and demand.
These two works, the Declaration of Independence and Adam Smith’s The Wealth of Nations, told the story of the onset of the American Revolution and foretold the creation of a republic with both economic and political freedom. The imperial taxes on commerce and trade had led the American colonies to fight the American Revolution and declare their independence.