Topic 1. Part 1. The Colonial Economy

A. The Mercantilist System: 16 th to 18 th Centuries– A set of generally held beliefs: 1. Exports are better than imports 2. National wealthdepends on GOLD and SILVER 3. The larger your human population the better 4. Colonies existed to supply the Mother country with precious metals (gold and silver) and raw materials (supply depots)

Role of the Colonies in this International Mercantilist System England did not allow export of bullion to the North American Colonies!!! The whole idea was exports to the Mother Country. This was untenable and lead to major problems that significantly contributed to the Revolution.

The Problem of Money – Shortage of Specie. Continual source of complaints but how serious was the problem? 1. Commodity Exports only accounted for approximately 12% of total colonial output. 2. Tremendous population growth prior to the Revolution –1700, 251,000 population, 1750, 1,200,000 people, 1775, 2,500, YOU NEED A MEDIUM OF EXCHANGE WITH A COMPLEX ECONOMY!!! 4.Tried a Number of Fixes: Commodity money; Paper Money. 5.There was a shortage of coin in England as well.

DEBITSCREDITS Commodities Deficit 1,121, ,000Ship Sales Slave Purchases 200, ,000Shipping Earnings Indentured Servant Purchases 80, ,000 British Military Spending 70,000 British Naval Spending 40,000Miscellaneous TOTALS1,401,0001,360,000

Income c. 1775: With population of 2,500,000 and a Per Capita Wealth of approximately £76 (From Probate Records) and a Capital/Output ratio of anywhere from 3:1 to 5:1 implies £25 to £15 per capita income! Hence, total Colonial income using £20 per capita would yield a total income of £50,000,000!!!! Hence, if deficit is £40,000 then this is about 0.08% of yearly income!!! Economic growth was at least 0.5% per annum so deficit did not affect economic development. It was (and must have been) made up in mercantile credits given Americans.