Mercantilism: theory held that each nation’s power was measured by its wealth, especially gold.

Mercantilism New Economic Policy Intense Competition Founding of colonies, new goods in Europe led to significant changes 1500s, Europeans developed new economic policy, mercantilism Nation’s strength depended on its wealth Wealthy nation had power for military and expanded influence New Economic Policy Wealth measured by amount of gold, silver possessed by nation Mercantilists believed there was fixed amount of wealth in world For one nation to become wealthier, more powerful—had to take wealth, power away from another nation Mercantilism led to intense competition between nations Intense Competition

Balance of Trade Imports Exports Mercantilists built wealth two ways—extract gold, silver from mines at home, in colonies; sell more goods than it bought from foreign countries, creating favorable balance of trade With favorable balance of trade, country received more gold, silver from other nations than it paid to them Increased its power; weakened foreign competitors To achieve favorable balance of trade, could reduce amount of imports by placing tariffs on imported goods Importer paid tariff, added cost to price of good Imported goods more expensive, discouraged people from buying Imports Encourage exports that could sell for higher prices than raw materials Countries encouraged manufacturing and export of manufactured goods Governments provided subsidies to help start new industries Exports

Mercantilism Advantages Disadvantages Great Britain Great Britain Created favorable balance of trade for England Colonies produced raw materials England needed England had a growing, stable market for its finished goods Finished goods sold back to the colonies for LARGE profit England became wealthy at expense of colonies Goods from other countries came through England to colonies Taxes paid were paid on these goods by the colonies with gold and silver, adding to England’s wealth. Great Britain Naval supplies (pitch, wooden masts, etc) were paid for with a “bounty” or very high price.

Mercantilism Advantages Disadvantages British Colonies Colonists could obtain goods from other countries with permission from England (i.e. wine from France and tea from India) Naval supplies were paid for with a “bounty” or very high price from England British citizens in the colonies who owned ships benefited because all ships who traded with the colonies had to be owned by British citizens British Colonies Colonists could only trade with one country which limited competition for its goods resulting in lower prices paid by England for raw materials The Advantages for Great Britain.

1660: Navigation Acts British Action: Colonial Response: Designed to keep trade in England and support mercantilism Colonists could only trade goods with England All colonial ships must stop in a British harbor before going to another country Ignored them (profitable to trade with other countries) Salutary Neglect (relaxed enforcement for continued loyalty)

The circular flow model The colonists supplied raw materials to England for either manufacture or re-export and they provided additional markets for the finished products produced from those resources (England also sold them in European markets). The colonies played a large role in England’s becoming self-sufficient. For this system to succeed, the Parliament needed to pass laws and regulations to protect wealthy British merchants and industrialists, even at the expense of its colonists (i.e. those laws were intended to benefit the English economy exclusively). A mercantilist economy is a managed economy, managed by the larger and stronger power (i.e. the home/mother country).

Colonies Building colonial empires essential to mercantilist system European powers wanted to establish colonies To control sources of raw materials To provide new markets for manufactured goods To mercantilist, colonies existed only to benefit home country Colonies Monarchs restricted economic activities in colonies Colonists could not sell raw materials to other countries Could not buy manufactured goods from other nations Strict laws forbade colonies from manufacturing goods Forced to buy only from home country Strict Laws

MERCANTILISM COLONIES ENGLAND $$$ RESOURCES TIMBER IRON FISH MANUFACTURED GOODS ENGLAND INDIGO RICE COTTON

Mercantilist policies As its colonies in North America became more successful and profitable, the home government began to increase its control over them. Between 1651 and 1673, the Parliament passed four Navigation Acts intended to ensure a favorable balance of trade.

The purpose of the various navigation acts was to protect the wealth that the colonies brought to England. By the late 17th century England had a trade policy for the colonies that went like this: 1. Any ship carrying goods to and from America or England had to be English built with primarily English crews (Remember the colonies were still part of England) 2. The colonists were required to buy certain manufactured goods (those enumerated) only from England. Exceptions were allowed with things England didn't produce. Non-English goods had to go to England first where a tax was assessed/levied before its shipment to the colonies (thus, the goods became either less profitable to sell or less affordable to buy). 3. Certain raw materials coming from the colonies (those enumerated) could only be sold back in England (later this included grown farm products). 4. Americans were forbidden to manufacture certain goods from their own raw materials (those enumerated). For example, tobacco could only be processed back in England where the English manufactures would receive the majority of the profit from selling the cured tobacco.

Only English or English colonial ships could carry cargo between imperial ports. (Some colonists got rich through shipping or shipbuilding) Certain enumerated goods (e.g. tobacco, rice, and furs) could not be shipped to foreign nations except through England or Scotland. (Added costs to colonial shipments of goods, 3-5% “tax”) The Parliament would pay “bounties” to colonists who produced certain raw goods, while raising protectionist tariffs on the same goods produced in other nations. (helped diversify colonial economy) Colonists could not compete with English manufacturers in large-scale manufacturing. (kept colony agricultural, esp. South)