What type of economic system was used in Colonial America?

Lesson Plan

Rhode Island Colonists led by John Brown burn the British revenue cutter Gaspee

The British had an empire to run. The way that they kept their economy healthy was through a system called mercantilism. Mercantilism was a popular economic philosophy in the 17th and 18th centuries. In this system, the British colonies were moneymakers for the mother country. The British put restrictions on how their colonies spent their money so that they could control their economies. They put limits on what goods the colonies could produce, whose ships they could use, and most importantly, with whom they could trade. The British even put taxes called duties on imported goods to discourage this practice. This pushed the colonists to buy only British goods, instead of goods from other European countries.

The distance from Britain and the size of the British Empire was an advantage for the colonies. It was expensive to send British troops to the colonies. For many years, the British government’s philosophy was one of “salutary neglect.” This meant that they would pass laws to regulate trade in the colonies, but they did not do much to enforce them. The British knew that the colonies were benefiting from goods from the Dutch, French, and Spanish, however. Eventually, in 1763, they began to enforce many of the trade restrictions and even passed new ones.

The Navigation Acts and the Sugar Act were two of the laws enacted to restrict colonial trade. Acts like these led to rebellion and corruption in the colonies. Colonists, particularly in New England, rebelled against these acts by illegally smuggling goods in and out of the colonies. Ships from the colonies often loaded their holds with illegal goods from the French, Dutch, and Spanish West Indies. The smugglers would pay bribes to British customs officials who were hired to regulate trade in the colonies. These officials also made a modest salary from the British, so they were benefitting from all sides. The American juries that tried smugglers, in times when they were actually caught, rarely found them guilty. Because they were gaining so much power, smugglers increased their secret trade to almost every port in the colonies. It is estimated that over 700,000 British pounds were brought into the American colonies each year at this time.

Trade and Taxation

Boston Harbor, circa 1746, was home to a successful colonial merchant fleet.

England continued to tax the colonies. But since trade and taxation were difficult to control from far away, England made an agreement with the colonies. They would continue to regulate trade but allow colonists the right to levy their own taxes.

You are marching in protest against having to buy goods imported only from Britain, regardless of where they originated. What does your poster say?

The French and Indian War put this delicate agreement to the test. Because the war was expensive, the British believed that colonists should help pay for it. They argued that they had protected the colonists from French and Indian threats. As a result, new taxes were levied by the British, which horrified the colonists.

Between the taxes they imposed and the measures the British Navy took to arrest smugglers, colonists were becoming increasingly angry. American shippers became more and more rebellious against trade restrictions with other countries. All of these actions served as stepping stones to the Revolution.

1. What is the concept of mercantilism?
2. Why were the Navigation Acts so important to the British and why did they generally alienate the colonists?
3. What is meant by the term “salutary neglect” and what did it mean for the colonies?

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8.12(D)^ analyze the causes and effects of economic differences among different regions of the United States at selected times in U.S. history 

Life in colonial America was based largely on agriculture. Most colonists farmed or made their livings from related activities such as milling flour. Geography played an important role in the colonies' economic development. Colonists learned to adapt to the climate and terrain of the region where they lived.

New England - Subsistence Farming - producing enough to meet the needs of their families, with little left over to sell or trade

Middle - Grew lots of cash crops (crops that could be sold easily in markets in the colonies and overseas" such as grain, wheat, and barley. Hence the nickname "Breadbasket colonies"

Southern  - Another region heavily involved in cash crops such as cotton, tobacco, and indigo. Most settlers made their living from farming and a few had large plantations which had slaves to farms the crops. 

8.4(A) analyze causes of the American Revolution, including the Proclamation of 1763, the Intolerable Acts, the Stamp Act, mercantilism, lack of representation in Parliament, and British economic policies following the French and Indian War 

Mercantilism became popular in Europe in the 1500s and was the primary reason behind Europe’s desire to colonize new lands.

The theory of mercantilism states that there is a certain amount of wealth and riches in the world and that it is in a nation’s best interest to accumulate it.  Through wealth, a nation can achieve power.  A country achieves wealth by producing and exporting more goods than it imports (having a favorable balance of trade).  These manufactured goods must be sold at a profit for wealth to accumulate.

Profits are made when a country spends a small amount of money on raw materials needed to create a product and sells the manufactured goods for a high price. It is easy to see how a new colony in North America would be the perfect place for Europeans to find a steady supply of new raw materials. Here's an example. England would buy New England lumber for a very low price. They would take that lumber to England, build a ship, and then sell it back to the colonists for a high price.

Mercantilism was meant to serve the interests of the empire, not the colony. Colonies existed for the benefit of the mother country. Colonies could not sell their raw materials to anyone but the mother country England, and they were not allowed to manufacture anything to export.

Rules of MercantilismBetween 1651 and 1673, the English Parliament passed four Navigation Acts meant to ensure the proper mercantilist trade balance. The acts declared the following:

• Only English or English colonial ships could carry cargo between imperial ports.
• Certain goods, including tobacco, rice, and furs, could not be shipped to foreign nations except through England or Scotland.
• The English Parliament would pay “bounties” to Americans who produced certain raw goods, while raising protectionist tariffs on the same goods produced in other nations.
• Americans could not compete with English manufacturers in large-scale manufacturing.
• The mother country (England) must have a favorable balance of trade.

8.12(B) explain reasons for the development of the plantation system, the transatlantic slave trade, and the spread of slavery