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Mercantilism
Mercantilism was the predominant economic system of the 16th, 17th, and 18th centuries. It centered on the belief that international power and influence depended on a nation’s wealth and economic self-sufficiency, and that trade was the best way to increase that wealth.
Characteristics of mercantilism included ideas that: a nation can gain wealth only at the expense of another nation; the government regulates all economic activities; exports should exceed imports, which promotes domestic manufacture through subsidies and monopolies; and colonies are only valuable as sources of raw materials and as markets for finished goods from the mother country.
The Navigation Acts
In England, mercantilist assumptions showed themselves in the Navigation Acts, a series of laws that were first created in the 1650s, that laid out the legal expectations for the economic behaviors of the American colonies. (There were numerous Navigation Acts, but you don’t need to know each one individually—collectively they illustrated the core ideas of mercantilism.) One early Navigation Act stated that all trade in the colonies must be carried in English ships with a crew of at least three-fourths of Englishmen and that certain items could be shipped only to England or other English colonies. Any other goods an American colony wanted to import from Spain or France (or other non-British nations) had to be shipped to England, unloaded, have an English tax added to their price, and then shipped to the colonies. All of these requirements benefited the mother country (England) at the expense of the colonies. However, the Navigation Acts were infrequently enforced, leading to widespread smuggling along the Atlantic Coast.
Economy of New England Colonies
The economies of the New England colonies (Massachusetts, Connecticut, Rhode Island, and New Hampshire) were based on subsistence farming and industry. New England colonists were unlikely to get huge tracts of land; more often townships were awarded to organized groups. The climate and terrain were unsuited for growing staple crops or cash crops due to rocky soil. Those who did farm did so mostly in small family plots that grew just the produce needed for an individual family—like wheat, barley, oats—in addition to cattle, pigs, and sheep. The broader economy in the New England colonies was based on industries that were geographically profitable in that region, including fishing, whaling, shipbuilding, logging, and fur trading.
Economy of Middle Colonies
The middle colonies (Pennsylvania, New York, New Jersey, and Delaware) had a better climate and geographical factors for growing large fields of crops. This created a surplus of food that colonists could export to the West Indies (Caribbean) and the South. Sometimes the middle colonies are called “breadbasket colonies” because so many grains, such as wheat, barley, and oats, grew well there. Networks of large, navigable rivers also gave access to the interior and trade with Native Americans. Where those rivers met the Atlantic Ocean, it was possible to build excellent ports that resulted in bustling commerce, similar to that of New England.
Economy of Chesapeake/Southern Colonies
The Southern colonies (Virginia, Maryland, the Carolinas, and Georgia) had warm weather and plentiful rainfall, which allowed them to develop an agricultural economy based entirely on export goods. Cash crops such as tobacco, rice, and indigo (a plant used to make expensive blue dye) grew well in the South. Because these crops are all plantation crops, which require huge plots of land and extensive labor, they also gave rise to an economy heavily reliant on labor—first from indentured servants, and then from enslaved Africans.
Transatlantic Economy
The trade among the colonies, Europe, and Africa is called the Triangular Trade, because the ocean routes between the countries roughly made a triangle shape. Colonists transported raw materials to England; England sent manufactured goods from Europe to Africa and the colonies, and Africa conveyed slaves to the colonies.
Because there was a shortage of hard currency in the colonies, some merchants and many families used bartering to exchange goods. Additionally, individual colonies used different kinds of paper money, which required the development of banks to help with exchanging paper money and monitoring rates. The limited supply of money benefited creditors because it increased the value of their capital.
