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Saturday, January 1, 1972

The Founding of the American Republic: 6. The Mercantile Impasse

Dr. Carson lives in Florida. He is a noted lecturer and author, his latest book entitled Throttling the Railroads.

What provoked the American colonists to resist British acts, to rebel against restrictions placed upon them, and eventually to declare and effect their independence? To put the matter in more conventional terms: What caused the American revolution?

Men who have spent years studying the questions propound different answers. Some hold that the British mercantile system provided the provocation to revolt. Others have held that the American colonists benefited from mercantilism and that, this being so, mercantilism was hardly at the root of the difficulty. Another thesis that has been argued, most persuasively by Lawrence Henry Gipson, is that the American colonies had attained a level of maturity that made them no longer dependent upon Britain and no longer desirous of the connection. Some historians have gone so far as to charge that American debtors with the desire to rid them selves of pressing British creditors stirred up resistance and brought off a revolution. Those looking for a class struggle explanation of the conflict have tried to make the revolt against Britain a part of an internal struggle between the haves and have-nots. In short, almost every interpretation that could be imagined has been offered, and many of these have been buttressed by impressive arguments and such evidence as fitted them.

One thing is about as clear as such things can ever be: mercantilist acts did not provoke the initial resistance in the mid-1760′s. The Stamp Act of 1765 was not a mercantilist act, nor was the Sugar Act of 1764 primarily mercantilistic. Indeed, the Sugar Act altered some of the original mercantilist features of the Molasses Act of an earlier date. Moreover, there had been mercantilist restrictions on the American colonists for more than a century, and none of these had provoked violent resistance. There can be no doubt that colonists were long since used to mercantilist restrictions, and peoples are unlikely to revolt against that to which they have become accustomed. The fact is that when representatives of the colonists gathered at the Stamp Act Congress to air their grievances, they announced that what they fundamentally opposed was “taxation without representation” a thing contrary to the British constitution. They readily granted — at first — that Britain had the right to regulate their commerce. It follows, then, that the immediate provocation to resistance was not mercantilist measures.

But this is only to look at things from the surface and to wrench them out of a much broader historical context where they belong. Suppose that instead of asking why and what the colonists resisted we ask why the British persisted in passing measures which provoked the colonists. More directly, why did Parliament attempt to raise revenues from the colonies in ways that departed from custom and long established policy? Why did they lay direct and indirect taxes on the colonies?

For Revenue Only

The answers to these questions are not far to seek. The British government was in dire need of new sources of revenue. The wars of the eighteenth century had been highly expensive, and the indebtedness of the government was mounting. The debt in 1755 — just prior to the Seven Year’s War (or French and Indian War as it was known in America) — stood at about £75,000,000. By 1766 it had mounted to £133,000,000.1 The British people were heavily taxed, and new taxes were being added. The reaction in the mother country to an added tax on domestic cider is instructive. “The news of the passing of the cider act was the signal for ‘tumults and riots’ in the apple growing countries of England, and many producers of cider threatened to cut down their orchards if the excise were collected.”` In short, the heavily taxed British were in no mood to accept additional burdens.

By contrast, American colonists were generally lightly taxed, and several colonies had no government debt to speak of. For example, one historian describes the situation in Pennsylvania in this way: “Not only were the inhabitants relieved of all ordinary charges of government during the years 176063 but, aside from a revived excise tax on liquors, they also enjoyed such relief during the remainder of the period down to the Revolution. Moreover, the personal and estate taxes… represented a per capita levy of less than one shilling…” by 1775.³ A report from Maryland in 1767 indicated that “all levies for the support of the provincial government — in contrast to those for the support of the clergy, the schools, and other county and parish charges — amounted to less than £ 5,500, an annual per capita tax of about a shilling.”4 Though not all the colonies had such a pleasant tax situation, neither was it generally unpleasant. On top of this, colonial governments had been reimbursed for their military outlays during the French and Indian War.

If these conditions be accepted at face value, if there be no looking behind them, it would appear that the case for Britain’s taxing the colonists would certainly be understandable and probably justifiable. But the situation does warrant an examination of the background. British taxation of the colonists broke a long-term contract with them — so the colonists said — and heralded a major policy turn. Back of this policy shift were the mercantilistic policies and practices which had produced a domestic crisis for the British which their government tried to relieve by bringing pressure on the colonies.

Bitter Fruits of a Long History of Mercantilism

The contradictions of mercantilism had produced a long harvest of bitter fruit, some of which the British government and people were no longer willing to accept. No more, in justice, could the American colonists be expected to accept them. It is true that the debates of the 1760′s and 1770′s were not usually conducted in terms of mercantile policy. The contradictions were there, and policy changes should be viewed in the light of them. During this time, Adam Smith was putting together his monumental work, The Wealth of Nations, which laid bare the fallacies and contradictions of mercantilism. It may be accounted appropriate, too, that this work appeared in print in 1776, the same year as the Declaration of Independence. A little examination into British mercantilism will show its role in producing an impasse between Britain and America.

Mercantilism was a composite of ideas and practices which had grown helter-skelter over a couple of centuries before the revolt in the American colonies. Most of the ideas were formulated in the seventeenth and eighteenth centuries, but some of the practices associated with it are much older. The theory of mercantilism was the first faltering effort at devising a general theory of economics in the modern era. As some thinkers cut loose from a Christian framework and attempted to look at things naturally, they devised a crude economics to fit new preconceptions. The theory was weighted down with two assumptions, however, which were cultural in origin rather than natural.

Measured in Gold

The first of these assumptions was made up largely of what is commonly called the bullion theory. Bullionism is the notion that wealth consists of precious metals, particularly gold, and that the value of everything else derives from the fact that precious metals will be exchanged for it. It is understandable that men should have come to think in this way. Gold was the most universally acceptable medium of exchange in both East and West. It hardly deteriorates; it weighs little in proportion to its exchange value for other things; it has many practical uses; and it is malleable. Men ever and again mistake money, because it can be exchanged for goods, for the source of the value which their demand gives to the goods. Small wonder, then, they should make this confusion about gold when gold is valued as a commodity as well as a medium of exchange.

The second major assumption of mercantilism was nationalistic. That is, mercantilists thought exclusively about how a single nation might enhance its wealth by increasing its supply of gold. One nation’s wealth, as they saw it, was usually gained at the expense of another nation. Ordinarily, one nation gains gold from another nation which is losing its supply.

(It is interesting to speculate that mercantilistic theory and practice may well have been born out of the intense desire of many countries to separate the Spanish from the great hordes of gold they had found in the Americas.) According to the bullion theory, then, one nation’s wealth is increased by diminishing that of another.

Intergovernmental Affairs

The thrust of mercantilism was to make trade into a contest among the governments of nations. This was so because trade was now conceived of as a potential means for increasing the bullion holdings of a nation. This would be accomplished, according to mercantilists, by way of a favorable balance of trade. A favorable balance of trade is said to exist when the goods and services which one nation sold to another exceeded those bought from the other. In brief, a nation had a favorable balance of trade when exports exceeded imports. This was thought to be “favorable” because the difference would be made up in gold and the “wealth” of the nation thus favored would be augmented. A nation which imported more than it exported would, of course, have an unfavorable balance of trade.

Numerous practices which might help a nation to get a favorable balance of trade were contrived or justified by this theory. The practices were usually aimed at increasing exports and decreasing imports. Imports could be decreased if more of the goods consumed in a country were produced there. To that end governments encouraged manufacturing by special charters and encouraged the growing of certain crops by subsidies and bounties. Of course, imports were more directly discouraged by tariffs, quotas, and discriminatory charges levied against foreign suppliers. Similar practices also might help a country to increase its exports.

Colonies were conceived of as being particularly valuable in enhancing the wealth of a nation. Frequently wanted were raw materials for manufacturing as well as produce which could not be grown economically at home. If such exotic products could he acquired from colonies they need not be imported from some other country. In addition to this, a colony might have an unfavorable balance of trade with the mother country and thus be a source of the precious metals it would send to make up the trade deficit.

The American continental colonies were part of a British empire which had been shaped in the seventeenth and eighteenth centuries as a result of the mercantile policies of England. Initially, the kings of England had attempted to plant and benefit from colonies by granting them as monopolies to private companies and proprietors. These companies and individuals were empowered to regulate the activities of those who came over so that the undertakings would benefit the owners and, perchance, enhance the wealth and power of England. Things did not work out that way very consistently. Colonists frequently cared little enough about whether they benefited the original charter holders or not; instead, they concentrated their efforts on doing what was to their own benefit. Moreover, as colonists gained some measure of control over their governments, they often enacted their own mercantile policies with the intent of making a colony self-sufficient.5 Such action ran counter to British aims, of course.

Acts of Intervention

By the mid seventeenth century, then, Britain was ready to begin to impose a general system of mercantile restrictions on the colonists.

The most general of the mercantile acts are those known as the Navigation Acts. A series of these acts was passed over the years from 1651 through 1663. The number of acts passed was increased because legislation passed in the 1650′s was considered invalid after the restoration of monarchy in 1660. This being the case, the later acts are the only ones that need concern us here. The Navigation Act of 1660 — reenacted in 1661 — required that all trade with the colonies be carried in English built ships which were manned predominantly by Englishmen. “English” was defined for this purpose to include the inhabitants of the colonies. All foreign merchants were excluded from the commerce of the English colonies, and certain enumerated articles, e. g., tobacco, could only be exported from the colonies to Britain or British possessions. The Staple Act of 1663 provided that goods to be exported from European countries to English colonies must first be shipped to England.

“These acts intended to give England a monopoly of the trade of her colonies,” one historian notes:

— not a monopoly to particular persons, but a national monopoly in which all English merchants should share. The Staple Act meant not only that English merchants would get the business of selling to the colonies but also that English manufacturers might dispose of their wares at an advantage in that the foreign goods which had to pass through England en route to the colonies might be taxed, thereby raising their prices and enabling English goods to undersell them. Similarly, the enumerated article principle assured that most of the colonial staples important to England would be exported by English merchants, who were also guaranteed employment for their vessels through the exclusion of foreign vessels from the English colonies.6

Parliament passed another Navigation Act in 1696, but it was only an effort to tighten the administration of existing law rather than to add new features?

British legislation also attempted to prevent certain kinds of manufacturing and trade from developing in the colonies. The Woolens Act of 1699 prohibited the export of wool or woolen goods from a colony either to other colonies or to other countries. The Hat Act of 1732 prohibited the exportation of hats from the colony in which they were made and limited the number of apprentices a hatmaker might have. The Molasses Act of 1733 placed high duties on molasses, sugar, and rum imported into the colonies from any source other than British colonies. This was an attempt to give the British West Indies a virtual monopoly of the trade. It may also have been intended to increase income from the tariff or to reduce the shipping activities of New Englanders. The Iron Act of 1750 permitted pig iron to be exported from the colonies to England duty free but prohibited the erection of new iron mills for the finishing of products in the colonies.

There were other types of mercantile regulations than those above. Over the years, it was usually illegal for specie (gold coins) to be exported from England to the colonies. The British tried to encourage production of wanted goods in the colonies by paying bounties. For example, the British government paid these premiums to importers of colonial naval stores: “£4 a ton for pitch and tar; £3 a ton for resin and turpentine; £6 a ton for hemp; and £1 a ton for masts, yards, and bowsprits.”8

The purpose of all these regulations and restrictions was to make the colonies profitable to Britain, of course. To that end, the colonists were encouraged to produce goods which could not be competitively produced in England, discouraged to compete with the mother country, encouraged to send specie to England, discouraged from receiving specie from that country, and discouraged from developing markets in America which could serve either England or other countries. There were, however, many unwanted side effects of these policies. They are commonly referred to as the inner contradictions of mercantilism.

The Road to War

The most dire result of mercantilism was war. Indeed, some believe that mercantilism did not so much lead to war as war led to mercantilism. One writer says that the “needs of constant warfare, especially its costs, had encouraged every power to develop and marshal its resources, attempting to become self-sufficient, especially in the sinews of war…. This economic nationalism, generally described as mercantilism, is less a theory than a weapon — the use of economic means to serve political ends.”9 There is no doubt that mercantilist methods were used sometimes in warfare, but the usual causal relation is the other way around. Mercantilism ranges government power behind the commercial activities of a nation, uses government power to support the merchants of a nation against those of other nations, prohibits trade activities of foreigners in order to give advantages to native tradesmen. In order to support or protect their tradesmen, other nations retaliated with similar restrictions and sought colonies which would be protected trade areas for their people. If trade is free, competition is peaceful, but mercantilism shifts the contest into the realm of governmental power. When governments contest for advantage in this way they are moving in the direction of the ultimate recourse — war.

Such were the results of mercantilism in the seventeenth and eighteenth centuries. War followed upon war with monotonous regularity as naval and colonial powers contested with one another for dominance and advantages. The wars between the British and Dutch in the mid seventeenth century were clearly mercantile in origin and character. Nettels notes that the Navigation Act of 1651 “precipitated the First Anglo-Dutch War of 165254.”10 Further, he says that the “acts of 166063 threatened to exclude the Dutch completely from the English colonies and consequently new fuel was added to the old rivalry. In 1664 occurred the Second Anglo‑Dutch War….”¹¹ It was not simply incidental, either, that during this conflict the English gained control of the Middle Colonies in America. A third war broke out in 1672. “Although a Dutch fleet recaptured New Amsterdam in August 1673 the treaty of peace in 1674 once more restored it to England — an act which marked the passing of the Dutch menace to England’s North American trade.”¹²

Impact on the Colonies

Unfortunately, it did not end the rivalry in North America nor the train of mercantilistic wars. France was now emerging in the latter part of the seventeenth century as a major power under the aggressive leadership of Louis XIV. Louis courted English monarchs so that they would allow him room to operate to fulfill his ambitions on the continent of Europe. The courtship may have been the undoing of Charles II and James II; at any rate, it came to an end with the Glorious Revolution in 1688. A Dutchman, William of Orange, became William III of England and joint ruler with his wife Mary during the rest of her lifetime. In very short order, Britain went to war with France (King William’s War) and by so doing began a series of conflicts with that nation which did not finally end until the Congress of Vienna in 1815. Since other nations and their possessions were usually involved in these conflicts between England and France, these wars may well be called world wars.

While King William’s War of the 1690′s was ostensibly fought to maintain a balance of power in Europe, the colonies were at stake, also, at least potentially. One history indicates that in issuing his declaration of war “William took cognizance of the offenses of Louis’ subjects in America against the English colonies there — in Newfoundland, in Hudson Bay, in the West Indies, in New York, and in Nova Scotia.”¹³ Though there was considerable fighting in America, there were no significant territorial changes as a result of that war.

Maps of North America showing territorial possessions of European powers and changes in them from 17001763 indicate something of the bearing of the colonial situation on the great wars of this period. In 1700, the English held only a relatively narrow strip of the eastern coast of North America from New England to Georgia, with claims running back to the Appalachian mountain chain generally. Most of the territory which is now Canada was then claimed by France, along with the vast hinterland region drained by the Mississippi River. South and west of these were the extensive Spanish possessions. The English hold on the continent was still precarious, and the colonies were surrounded except on the side of the Atlantic Ocean by territory claimed by other European powers. This situation would be dramatically altered by 1763 as a result of the wars.

A Struggle for Control

The War of the Spanish Succession (170213, known in England as Queen Anne’s War) was fought over issues which were tied to the question of who would dominate the Americas. Louis XIV was determined that his grandson should become king of Spain immediately and should eventually succeed him to the throne of France. This would not only bring under one person two great powers in Europe but would also link two massive empires in America. This was an intolerable prospect for England. As one history puts the matter: “For Holland and England, it was a war over colonies and trade. These two countries were determined to prevent a union of the French and Spanish crowns; but they were above all determined to prevent France from getting into a position to block their own commercial and territorial ambitions in America.”14 At the conclusion of the war, provisions were made for perpetual separation of the French and Spanish crowns, and Britain gained new territory in America: Newfoundland, Acadia, and the Hudson Bay territory.

England got involved in war with Spain in 1739, known as the War of Jenkin’s Ear, and a part of the struggle was over possession of Georgia. There was some fighting in America, but it was very limited, for the conflict shifted to Europe and the more general convulsion known as the War of the Austrian Succession (1740-48). This war did not result in any territorial changes, though there were changes in alliances on the continent of Europe which affected future events.

The peace that followed this second of world wars in the eighteenth century was unusually brief. The French and Indian War broke out in America, 1754; it involved most basically a contest over territory in what is now western Pennsylvania between the French and Indians on the one hand and the British and English Americans on the other. As an extension of this conflict, a general war broke out in Europe in 1756, known as the Seven Year’s War. A major conflict continued in America, reaching its climax with the Battle of Quebec in 1759. There the British forces decisively defeated the French. By the Treaty of Paris of 1763, the British got all the French Canadian holdings and French and Spanish territory east of the Mississippi.

Triumphant, and Broke

The British had apparently emerged triumphant in these wars against France. The American colonies now had an extensive domain to be opened up and exploited; it was a long way to the frontiers of any other European colonial power. A vast British empire had been acquired and was ready for the shaping.

So it may have looked to an imperialist, but the British Parliament and people were confronted with grave difficulties in the wake of the apparent triumph. There was, as earlier told, a huge debt in England in 1763 as a result of the wars. It was a debt of a size that would most likely dwarf all the profits gained thus far from mercantilist policies. But even if the balance books had stood otherwise, the contradictions of mercantilism would still, most likely, have produced an impasse.

One of the fallacies of mercantilism is that the wealth within a nation constitutes the wealth of a nation. Wealth in Britain was not distributed among the inhabitants equally but individually possessed. Undoubtedly, some merchants, manufacturers, shippers, and tradesmen extracted great wealth as a result of special favors within the mercantile system. But this need not have increased the wealth of the populace in general. Indeed, when it is understood that mercantile policies restricted the entry of goods from other lands and raised their prices, it becomes clear that the populace in general frequently suffered rather than benefited from mercantilism. When the burden of taxes to pay for mercantile wars was added to this — taxes levied on the populace in general — it is easy to understand why there was widespread dissatisfaction in Britain.

Of course, the British government did not proclaim mercantilism a failure. Even if this had been clearly understood at the time, it is doubtful that those in power would have reversed their policies. At any rate, they did not do so. Instead, they laid the blame for difficulties on American evasion of mercantile restrictions, determined to enforce them more vigorously, and declared that the Americans must be taxed to help pay for the wars, a portion of which had been fought in their defense.

This course of action seemed eminently fair to many Englishmen. After all, the colonists had been prime beneficiaries of British protection. Moreover, many Americans were reported to be living well if not luxuriously. Not only that, but to make matters worse, these colonists paid very little by way of taxes. Such expenses as they had incurred in the recent French and Indian War had been reimbursed from the British treasury. Surely, there could be no reasonable objection to mild taxation of the colonists. As a matter of fact, there could and would be, but we have not yet come to that part of the story.

Victims or Beneficiaries?

What is most relevant here is the impact of mercantilism on the American colonies. The question has been raised by some historians as to whether the colonists were not really the beneficiaries of British mercantilism rather than the victims. The fact that many Americans prospered under the system is submitted as evidence that they benefited from the system. There is also negative evidence that Americans had rough going economically after the break from England. The reasoning underlying this argument confuses because of with in spite of. The thrust of mercantilism is not such that it would produce prosperity in general for those on whom it is imposed. Its thrust is to siphon resources from the colonies (and other countries) into the mother country. To restrict manufacturing, to deny the development of local markets, to constrict intercolonial trade, and to make the mother country the port of entry for many goods could hardly benefit the colonists generally.

Perhaps the most fundamental flaw of mercantilism is the view that a nation’s wealth can be increased by exporting more in goods and services than is imported. This policy was quite harmful to colonies without providing corresponding benefits to Britain. The British succeeded in a “favorable” balance of trade with the American mainland colonies. The most immediate effect was the gold drain from the colonies to Britain. This tendency was augmented by prohibiting the export of gold from Britain. Moreover, many of the ways by which the colonists might have made up the difference were denied to them by mercantile restrictions.

In consequence, the colonists suffered a shortage of specie. The practical effect was that colonists paid higher prices for goods coming from England than they would have had to do if a free market in gold had existed, because gold was more plentiful in Britain than in America. It is even doubtful that British merchants benefited from this situation as much as might be supposed, for they usually made loans to Americans to enable them to buy their goods. Americans also had their credit in England augmented by such payments as reimbursement for participation in wars (an augmentation at the expense of British taxpayers).

Much of the economic activity within the colonies was an uphill effort to overcome the ill effects of mercantile policies. Probably, the fixing of slavery so extensively can be ascribed in the main to mercantilism. (British policy was opposed to the emancipation of slaves because slaves were frequently collateral for loans.) Planters were driven to expand their production — to the acquisition of more and more slaves — in the often vain hope of balancing their trade. The Triangular Trade by New Englanders, which included the slave trade, was an extended effort to get specie. The paper money emissions which became so common toward the close of the period were efforts to deal with the monetary crisis. Of course, many of the efforts of colonists to find ways to deal with the situation were prohibited before they were well established.

In sum, the break from England was preceded by an impasse attributable to mercantilism. More than a century of wars had been fought in the pursuit of mercantile aims by Britain. These had left a heavy burden of debt which the British people found hard to bear. Thus, the government turned to the colonies as a new source of revenue. But the colonies were hardly in a position to take on the burden. They were already drained of specie, and many colonists were deeply and perpetually in debt to British merchants. To say that they were lightly taxed at home answers nothing as to what the effect of British taxation would be. Mercantile restrictions imposed barriers between Britain and the colonies. An imbalance of trade already existed, with the colonies on the “unfavorable” end of that. Tax payments to Britain could only be made by reducing imports or going deeper in debt to British lenders. When the time came for resisting, colonists made their justifications along different lines than those above, but what they were resisting had been brought on by the mercantile impasse.

Next: The First American Crisis: 1763-66



1 Lawrence H. Gipson, The Coming of the Revolution (New York: Harper Torchbooks, 1962), pp. 5556.

2 Ibid., p. 58.

3 Ibid., p. 136.

4 Ibid., p. 138.

5 See E. A. J. Johnson, American Economic Thought in the Seventeenth Century (New York: Russell and Russell, 1961), pp. 829.

 6 Curtis P. Nettels, The Roots of American Civilization (New York: AppletonCenturyCrofts, 1963, 2nd ed.), p. 283.

7 Ibid., p. 375.

8 Ibid., p. 434.

9 Eugen Weber, A Modern History of Europe (New York: Norton, 1971), pp. 14546.

10  op. cit., p. 281.

11 Ibid., p. 283.

¹³2 Ibid., p. 284.

13 Max Savelle and Robert Middlekauff, A History of Colonial America (New York: Holt, Rinehart and Winston, 1964, rev. ed.), p. 261.

14 Ibid., p. 265.

  • Clarence Carson (1926-2003) was a historian who taught at Eaton College, Grove City College, and Hillsdale College. His primary publication venue was the Foundation for Economic Education. Among his many works is the six-volume A Basic History of the United States.