In general, mercantilism is the belief in the idea that a nation's wealth can be increased by the control of trade: expanding exports and limiting imports. In the context of the European colonization of North America, mercantilism refers to the idea that colonies existed for the benefit of the Mother Country. In other words, the British saw the American colonists as tenants who 'paid rent' by providing materials for Britain to use.
According to the beliefs at the time, the wealth of the world was fixed. To increase a country's wealth, leaders needed to either explore and expand or conquer wealth through conquest. Colonizing America meant that Britain greatly increased its base of wealth. To keep the profits, Britain tried to keep a greater number of exports than imports. The most important thing for Britain to do, under the theory of mercantilism, was keep its money and not trade with other countries to get necessary items. The colonists' role was to provide many of these items to the British.
However, mercantilism was not the only idea of how nations built wealth at the time of the American colonies' search for independence, and most acutely as they sought solid and equitable economic foundations for the new American state.
Adam Smith and The Wealth of Nations
The idea of a fixed amount of wealth existing in the world was the target of Scottish philosopher Adam Smith (1723–1790), in his 1776 treatise, TheWealth of Nations. Smith argued that the wealth of a nation is not determined by how much money it holds, and he argued that the use of tariffs to halt international trade resulted in less—not more—wealth. Instead, if governments allowed individuals to act in their own "self interest," producing and purchasing goods as they wished, the resulting open markets and competition would lead to more wealth for all. As he said,
Every individual… neither intends to promote the public interest, nor knows how much he is promoting it… he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.
Smith argued that the main roles of government were to provide for common defense, punish criminal acts, protect civil rights, and provide for universal education. This along with a solid currency and free markets would mean that individuals acting in their own interest would make profits, thereby enriching the nation as a whole.
Smith and the Founding Fathers
Smith's work had a profound effect on the American founding fathers and the nascent nation's economic system. Instead of founding America on the idea of mercantilism and creating a culture of high tariffs to protect local interests, many key leaders including James Madison (1751–1836) and Alexander Hamilton (1755–1804) espoused the ideas of free trade and limited government intervention.
In fact, in Hamilton's "Report on Manufacturers," he espoused a number of theories first stated by Smith. These included the importance of the need to cultivate the extensive land that is in America to create a wealth of capital through labor; distrust of inherited titles and nobility; and the need for a military to protect the land against foreign intrusions.
Sources and Further Reading
- Hamilton, Alexander. "Report on the Subject of Manufactures." Original Reports of the Secretary of the Treasury RG 233. Washington DC: National Archives, 1791.
- Smith, Roy C. "Adam Smith and the Origins of American Enterprise: How the Founding Fathers Turned to a Great Economist's Writings and Created the American Economy." New York: St. Martin's Press, 2002.
- Jonsson, Fredrik Albritton. "Rival Ecologies of Global Commerce: Adam Smith and the Natural Historians." The American Historical Review 115.5 (2010): 1342–63. Print.
As an economic historian and scholar deeply immersed in the study of mercantilism, Adam Smith's economic philosophy, and the economic foundations of early America, allow me to provide a comprehensive analysis of the concepts presented in the article.
Mercantilism:
Mercantilism, as outlined in the article, is an economic theory emphasizing the belief that a nation's wealth can be augmented through the control of trade. It involves expanding exports and restricting imports to accumulate precious metals and resources. In the context of European colonization of North America, mercantilism dictated that colonies existed primarily for the benefit of the Mother Country. The British viewed American colonists as providers of materials, akin to tenants paying rent for the privilege of residing in the colonies.
Under mercantilist principles, nations believed in a fixed sum of wealth in the world. To enhance a country's wealth, leaders sought to explore, expand, or conquer territories to increase their wealth base. In the case of British colonization in America, the objective was to amass wealth through exports while limiting imports. The colonists played a crucial role in supplying the necessary materials to Britain to ensure a favorable balance of trade.
Adam Smith and The Wealth of Nations:
Contrary to the mercantilist ideas prevalent during the time of American colonization, the Scottish philosopher Adam Smith presented a groundbreaking perspective in his 1776 treatise, "The Wealth of Nations." Smith contested the notion of a fixed global wealth, arguing that a nation's wealth is not solely determined by the amount of money it possesses. Instead, he proposed that allowing individuals to pursue their self-interest in open markets and competition would lead to collective prosperity.
Smith advocated for limited government intervention, asserting that governments should focus on common defense, law enforcement, protection of civil rights, and universal education. He famously described the concept of the "invisible hand," wherein individuals, while pursuing their self-interest, unintentionally contribute to the public good.
Smith and the Founding Fathers:
The economic ideas put forth by Adam Smith had a profound impact on the founding fathers of the United States. Rather than adhering to the mercantilist model, key figures like James Madison and Alexander Hamilton embraced the principles of free trade and advocated for minimal government interference. Hamilton's "Report on Manufacturers" echoed Smith's ideas, emphasizing the importance of cultivating land for capital, skepticism towards inherited titles, and the necessity of a military for national defense.
In summary, the article explores the dichotomy between mercantilism and the ideas espoused by Adam Smith, shedding light on how these contrasting economic philosophies influenced the economic foundations of the early American state. The shift towards free trade and limited government intervention, inspired by Smith's theories, played a crucial role in shaping the economic principles of the nascent nation.
