European Powers Adopted Mercantilist Economic Systems
Europeans adopted mercantilist economic policies that required colonies to trade with their European mother countries. Colonists in the Americas resisted these restrictive policies.
Some European rulers used mercantilism to grow their economies and expand their control over foreign territories. Mercantilism remained the primary economic system among European colonizing powers between the 15th and 19th centuries.
What is mercantilism?
Mercantilism is an economic system that believes a state gains wealth by maximizing exports (what you sell to the world) and minimizing imports (what you buy from the world).
European mercantilists also believed that
Financial wealth was finite (limited)
Wealth consisted of gaining more precious metals like silver and gold
Selling goods abroad brings precious metals into the country, and buying goods from abroad sends precious metals outside the economy
Increasing exports and limiting imports made a country richer
For those reasons, mercantilists’ goal was to try and increase exports and limit imports into their economies. The following were a few laws used by European mercantilist governments to meet that goal.
Types of mercantilist laws
Rational for laws
High import tariffs (taxes) on imported goods, especially manufactured goods
made foreign goods more expensive and domestic goods cheaper
Requirements that colonies only trade with their mother countries
Provided cheap raw materials to a mother country’s economy and a market to sell their finished goods
Limits on the amount of silver and gold that could be used to buy foreign goods
Prevented precious metals from leaving their economies
The role of mercantilism in colonization
Colonies were important pieces of Europeans’ mercantilist economies. They were sources of cheap raw materials and a market to sell more expensive finished goods. And because a colony’s economy was an extension of its European colonizer economy, precious metals did not leave the mother country’s economy when trading with colonies.
Closed-loop trading: Colonial economies worked as a closed-loop economic system. The European mother country controlled the colonies’ trade as much as possible. Colonies were only allowed to export raw materials to the mother country. European mother countries then forced colonies to import the mother country’s manufactured goods. This limited competition and ensured high prices for mother countries’ manufactured goods and cheap supplies of raw materials to make those finished goods.
- The Navigation Acts: The British created their closed-loop trading system with the American colonies by passing a series of laws called the Navigation Acts during the second half of the 17th century and early 18th These laws (1) required that only British ships be used to ship goods into England, (2) that the British American colonies could only export commodities like sugar and tobacco to England, and (3) that the colonies had to buy their manufactured goods from Britain.
The Navigation Acts and later trade restrictions on the American colonists were primary causes of the American Revolution.
Trading Companies Funded Overseas Trade and Conquest
European trading companies were early corporations that colonized areas and managed trade between the colony and Europe. The most successful companies governed over significant territories and large populations of people.
Funding for early European explorations and conquests came from monarchs. By the 17th century, private investors and trading companies funded most missions of trade and conquest. The Dutch and English used these companies most successfully in Asia to finance their expansion into Asian trading networks.
Joint-stock trading companies
While trading missions could be highly profitable, they were also expensive and risky—a boat could sink or have its cargo stolen, leading to a complete loss of investment. Joint-stock companies helped solve this problem.
How they worked: Joint stock companies are companies where multiple investors buy portions of the company (shares). While this is common today, trading companies were the earliest stock companies. These companies sold shares to investors who gave money to merchants and merchant companies to finance explorations. Selling shares increased the number of trading missions by decreasing investors’ risk, which made more people willing to invest. If a trading mission made money, the investors made money—or lost money if the mission failed.
Joint-stock companies became very powerful: Monarchs granted trading companies a monopoly over trade between colonies and the mother country for a specific period to increase their profitability. In addition to commerce, companies helped colonize the Americas and Asia by establishing trading bases and colonies from which to do business.
To help the companies develop trade bases and territories, European monarchs also granted trading companies powers usually held by governments.
These powers included:
Choosing colonies leaders
Controlling their own militaries
Important trading companies: The following three companies had the most significant long-term historical impacts.
- King James I established the Virginia Company (1606 – 1624) to develop settlements and trade along the Atlantic coast of North America. The Company introduced new Caribbean tobacco varieties to Virginia that were more pleasant to smoke. An increase in demand for American tobacco resulted.
- The Dutch East India Company (1602 – 1799) initially managed Dutch trade with Mughal India. The Dutch monarchy later granted the Company a monopoly on the spice trade between the Netherlands and Southeast Asia.
- The British East India Company (1600 – 1874) was established in 1600 when the British government gave 218 London investors a monopoly over trade in Asia in all areas east of Southern Africa. The Company later took control of India after defeating various native Indian rulers, including the Mughal Empire. The East India Company was history’s most successful joint-stock trading company.
Warfare Was Used to Gain Control Over Maritime Trade Routes
As various European powers’ muscled their way into maritime trade networks, conflicts over control of trade routes increased.
European expansion into global maritime commerce led to new rivalries and conflicts between states competing for access and control over trade routes.
By the mid- 17th century, the Dutch had replaced the Portuguese and Spanish as the dominant European maritime power, and England wanted to snatch the title. Their rivalry broke into an open conflict known as the Anglo-Dutch wars from the mid-17th to late 18th century. The British won the first and the fourth, while the Dutch won the second and the third.
Results: British victories resulted in their gaining the Dutch colonies in North America and South Africa, which they incorporated into their empire.
Muslim-European rivalry in the Indian Ocean
Muslim traders had traditionally dominated trade across large portions of the Indian Ocean. European trading post empires in the region challenged that dominance.
The Omani Empire: In the 18th and 19th centuries, the Muslim Omanis successfully challenged European power in the Western Indian Ocean.
- By the mid-17th century, Omani tribes had removed Portuguese influence from the coastal city of Muscat in the Omani homeland.
- In 1696, the Omani fleet attacked Portuguese Mombasa in Swahili along Africa’s east coast. They lay siege to Fort Jesus. After 33 months, the Portuguese garrison inside died of hunger.
- From 1696 to 1856, the Omani Empire became a dominant non-European trading power along the East African and the Arabian Sea coasts.
The decline of Omani influence: Omani power declined when rivalries developed within the ruling family, leading to competing groups claiming different territories. Europeans took control of the Omani regions during the Scramble for Africa in the late 19th century.