1. Mercantilism is an economic theory that holds the prosperity of a nation depends upon its supply of capital, and that the global volume of trade is "unchangeable."
2. Capitalism is an economic system in which the means of production are all or mostly privately owned and operated for profit, and in which investments, distribution, income, production and pricing of goods and services are determined through the operation of a market economy.
Basically the difference is.... in mercantilism, the country can only trade with one country.
- An example, Great Britain is the mother country of the American Colonies.
- The Colonies could only trade with Great Britain and no one else.
- Great Britain (mother country) was benefitted by an unlimited supply of raw materials, it reduced the need for imported goods, exports only came to the mother country, and porfits were made.
- The colonies were affected by less profits, exporting more than they import, couldn't trade with anyone else, and limited importing.
- Capitalism, however, is usually considered to involve the right of individuals and groups of individuals acting as "legal persons" or corporations to trade capital goods, labor, land and money.
- Mercantilism is the economic theory that colonies exist solely for the benefit of the mother country (back in the day of colonial rule). Trade with only one place/country. They make small profits.
- Capitalism is all privately owned companies trading with whomever they choose. They usually make huge profits.
In the 17th and 18th century, before industrial capitalism really takes hold. Mercantilism contains the idea that wealth is finite, so control over specie, or bullion, is the primary goal of all early imperial economies. This means that countries want to sell as much as possible, rather than release bullion through buying products.
- This is the driving force behind possessing colonies during this period.
- Colonies are seen as the places where the imperial powers gain raw materials.
- They then transform the raw materials and sell them back to the colonies.
- This is a great way to secure trade and to block the influence of competition.
- Actually, it’s an attempt to eliminate competition altogether, though it doesn’t always work.
Nevertheless, the British government formally authorizes the Board of Trade to oversee trade with the American colonies in 1699. What the board came up with over the next several decades was of a series of acts or laws known collectively as the Navigation Acts.
The Navigation Acts
- In order to fully eliminate competition, this means that the British can’t allow the colonial subjects to produce their own finished products.
- We see this in 1699, when the British ban colonial Americans from producing finished textiles.
- Remember that the idea is that the Americans grow the cotton or shear the wool; then the textiles are made in Britain, to be sold back to the Americans at the rate desired by imperial trade authorities.
- In 1732, the British also ban the American hat-making industry, though they do ultimately ease some of the restrictions there.
- In 1750, the British ban any iron manufacturing in the Americas as well.
While the British perspective is understandable given the economic theory of the period, we also see how frustrating this may be for colonials.
People who were perfectly capable of making their own clothes, their own ploughs, or their own hat had to purchase British goods, which were likely more expensive. There’s also the loss of local business and industry activity that could stimulate growth in a given area.
The Lure of French Molasses
- These restrictions however didn’t always discourage the colonists from trade with outsiders.
- In fact, the restrictions probably prompted it much of the time.
- One area where the American colonists had significant freedoms early on was in shipping, where they were allowed not only to possess vessels, but to transfer or carry product aboard them.
- So American traders were always seeking good deals where they could find them. French molasses was a particularly good deal, and the Americans started buying it often.
- As the British wanted the Americans to trade principally with them, the American lust for French molasses didn’t make the British Board of Trade extremely happy.
- So the British government passed the Molasses Act (1733) which placed a duty, or special tax, on all barrels of French molasses that entered American ports.
- Rather than act as a discouragement, the act prompted many ship captains, particularly in New England, to start smuggling the molasses in, and this became very big business for many men.
- The British policy of colonialism in and its other political and economic policies in America sparked the change of attitude towards the 'mother country' and a struggle for independence by the colonists and settlers.
- The colonists were made to feel like second-class citizens and their views and wishes ignored by the mother country.
- The American colonists resented their exploitation by the 'mother country'.
- American colonists had taken huge risks by emigrating to America, leaving their homes and country for an unknown and dangerous new life in the colonies.
- Colonists were looking for religious freedom and new opportunities devoid of the class systems they had left in their 'mother country'.
- Their loyalty and ties to the 'mother country' decreased leading to a quest for equality which led to the American War of Independence in 1775 and the establishment of the United States of America.