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. 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,. 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'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 — and Alexander Hamilton — 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. Share Flipboard Email.
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. The British government also demanded trade in gold and silver bullion , ever seeking a positive balance of trade.
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The colonies often had insufficient bullion left over to circulate in their own markets; so, they took to issuing paper currency instead. Mismanagement of printed currency resulted in periods of inflation.
How Mercantilism Affected Great Britain Colonies
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. Business Essentials. Monetary Policy.
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Login Newsletters. Key Takeaways Mercantilism in Great Britain consisted of the economic position that, to increase wealth, its colonies would be the supplier of raw materials and exporter of finished products. Mercantilism brought about many acts against humanity, including slavery and an imbalanced system of trade. During Great Britain's mercantilist period, colonies faced periods of inflation and excessive taxation, which caused great distress.
What is mercantilism?
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