Mercantilism and Global Markets

Mercantilism

Mercantilist Principles

• Economic nationalism for the purpose of building a wealthy and powerful state

  • Wealth is power

  • Key to wealth is to export more than what is imported

• Manufactured goods flow mother country → colonies

• Raw materials flow colonies →mother country

  • The colonies' role was in providing raw materials so the mother country does not have to import from other nations.

• Dominant economic theory from the 16th - 18th century

• Economics become increasingly important to statecraft/government

  • Promotes national wealth and power

  • Wealth is gold or “treasure”

• Importance of trade surpluses (take in less than you put out)

  • Leads to a net gold inflow, and thereby greater national wealth and power

• Analogy between nations and households

• Encourage domestic production and exports, discourage imports

• Exportation/importation sum must equal zero, if not positive

Colonial Impact

• Colonies only existed for the benefit of the mother country

  • Source of raw materials for cheap

  • Shipped to MC to manufacture finished goods

  • Finished goods were shipped back to the colony at expensive rates

  • Laws often prohibit colonies from producing their own goods or buying from other sources

  • Thus, MC profits

• Unbalanced system which exploits the colonies

• A large population is necessary to provide a domestic labor force and push the people to colonies

  • Led to encomienda systems in Spanish colonies

  • Led to other forms of slavery all throughout the New World

Common Mercantilist Practices

• Luxury items were avoided because they took money out of the economy unnecessarily (e.g. Spain wasted away a lot of their money on luxuries)

• State action was necessary to regulate and enforce all of these economic policies

  • E.g. EIC was sponsored and regulated by the state

• Mercantilist nations did not want to trade with rivals, as that would eat at their own wealth

  • However, the MC never possessed all the raw materials it needed, meaning trade was necessary

  • Nations also needed to trade their own goods to keep their citizens employed and keep the economy growing

Criticism

• “The Wealth of Nations” - Adam Smith

Global Markets in Brief

Colonies Mean Raw Materials

• From the first Spanish & Portuguese colonies along the African coast in the 1400s through 1900s, European powers kept expanding their power through the establishment of colonies

• Colonies → Trade

  • Source of metals, raw materials, agricultural products

  • Market for European finished products

• Very few places on Earth remained out of European control

  • Koreas

  • Japan 

    • locked foreigners out due to influence on Japanese society

    • 1860’s they westernize themselves

  • Thailand

  • Liberia

Economic Changes

• Before 18th Century

  • Poor roads

  • Weekly exchanges in urban markets

  • Trade concentrated in large port cities

• After 18th Century

  • Improved roads

  • Increased agricultural output

  • Increased industrial production

  • Routine trade routes

    • Maritime routes were established by navigators who figured out global currents

  • More trade in more cities

Commodities

• Sugar is the number one import

  • Others include: tobacco, cotton, and indigo

• Netherlands, Great Britain, and France benefit the most from New World Trade

• Largest number of English emigrants went to New England

  • Emigrated to places which were most similar to their homes

    • Scottish and Northern Irish moved to Appalachia, for example

    • Southern English moved to New England

Treaty of Utrecht 1713

• Philip V King of Spain, renounces all rights to France

• Belgium and Luxembourg no longer under Spanish control

  • Now under Austrian control

• Spain cedes to Austria → Napoli, Sicily, Milan, Sardinia

  • Nationalism will build in Italy

• England gains Gibraltar and Menorca

• England gains “El Navío de Permiso”

  • Right to trade in the Spanish Americas (including slaves)

  • Propelled Britain

Seven Years’ War

• First World War

• Battles took place in Europe, America, and India

• 1761 Carlos III, son of Philip V, signs third Pacto Familia with France

• Spain flips and allies with the English

  • Gains Louisiana

• British win the war

  • Ends with the Treaty of Paris in 1763

    • Britain gains Florida from Spain

    • Britain gains all French territories in North America

• Usage of new territories lays foundation for American Revolution of 1776

British Ascendancy

• Best navy, best industry, best banking

• Controls all trade routes

• Reinvest into their navy and economy, even when sitting at the top, laying a foundation for British excellence

France In Bad Shape

• Louis XVI is King in 1774

• Marie Antoinette, an Austrian princess, becomes Queen of France

  • Arranged marriage

  • Antoinette did not think highly of him

  • Has a couple things going against her

    • She’s Austrian, and the French dislike the Germanic

    • Spoke French with an Austrian accent

• Louis XVI lost wars, had an extravagant court expenses which drained financial resources

• People distanced themselves from the monarchy and blamed all debt on the king

  • People would spend their whole lives avoiding debt

• Forced to pay 10% interest on 2 billion livres

African Slave Trade

• From 1740-1810, a yearly average of 60,000 Africans were captured and sold yearly on the West African market

• At the time (17th to 18th century), the typical price of slaves in the Americas was $150 each

• Slave trade outlawed

  • 1807 Britain

  • 1808 US - banned import of slaves

  • 1831 France

  • 1834 Spain

• In the Southern US, the typical price of slaves in the 1850’s was $1,500 ($25,000 roughly in modern value)