Mercantilism was the main economic system of trade utilized from the 16th to 18th century. Mercantilist theorists believed that the amount of wealth in the world was static. Thus, European nations took several strides to ensure their nations accumulated as much of this wealth as possible. The goal was to increase a nation’s wealth by imposing government regulation that oversaw all of the nation’s commercial interests. It was believed national strength could be maximized by limiting imports via tariffs and maximizing exports.

BREAKING DOWN ‘Mercantilism’

Mercantilism was popularized in Europe during the 1500s. The system was based on the understanding that a nation’s wealth and power were best served by increasing exports and collecting precious metals, such as gold and silver. Mercantilism replaced the older, feudal economic system in Western Europe, leading to one of the first occurrences of political oversight and control over an economy. At the time, England, the center of the British Empire, was small and contained relatively few natural resources. Thus, to grow its wealth, England introduced fiscal policies, including the Sugar Act and Navigation Acts, to move colonists away from foreign products and create another incentive for buying British goods.The resulting favorable balance of trade was thought to increase national wealth.

The Sugar Act of 1764 introduced high customs for sugar and molasses imported from outside of England and the British colonies. Similarly, the Navigation Act of 1651 was implemented to ensure foreign vessels would not be able to engage in trade along its coast, and also required colonial exports to first pass through British control before being redistributed throughout Europe. Great Britain was not alone in this line of thinking. The French, Spanish and Portuguese competed with the British for wealth and colonies; it was thought no great nation could exist and be self-sufficient without colonial resources.

The Underlying Principles of Mercantilism

Mercantilism is based on the idea that strong nation-states had the opportunity to create a world economy by using a state’s military power to ensure local markets and supply sources were protected. Advocates of mercantilism believed the prosperity of a nation was reliant on its supply of capital, and global volume of trade was static. The result was a system of economics that required a positive balance of trade, with surplus exports. However, since it is impossible for every country or nation-state to have a surplus of exports, with many needing increased imports to fuel growth, the basis of mercantilism ensured it was doomed for eventual failure.

One notion behind mercantilism is the economic health of a nation could be assessed by the amount of precious metal, gold or silver it owned. The system advocated for each nation to strive to be economically self-sufficient, which meant the nation would have to increase domestic production and build new homes and industries.

Advocates of mercantilism also saw that agriculture was important and should be promoted so a nation could reduce the need to import foods. They suggested a strong nation-state needed colonies and a merchant fleet, both of which could provide additional markets for goods and raw materials. Mercantilists also believed a large population was integral to the domestic labor force of a nation.

How Were the British Colonies Affected by Mercantilism?

Controlled production and trade: Mercantilism led to the adoption of enormous trade restrictions, though, which stunted the growth and freedom of colonial business.

The expansion of the slave trade: Trade became triangulated between the British Empire, its colonies and foreign markets. This fostered the development of the slave trade in many colonies, including America. The colonies provided rum, cotton and other products heavily demanded by imperialists in Africa. In turn, slaves were returned to America or the West Indies and traded for sugar and molasses.

Inflation and taxation: The British government demanded trades were conducted using gold and silver bullion, ever seeking a positive balance of trade. The colonies often had insufficient bullion left over to circulate in their markets, so they took to issuing paper currency instead. Mismanagement of printed currency resulted in periods of inflation. Additionally, Great Britain was in a near-constant state of war. Taxation was needed to prop up the army and navy. The combination of taxes and inflation caused great colonial discontent.