Economics through History

England’s mercantilist economic policy led to the American Revolution. Under mercantilist policy, colonists were banned from competing with manufacturers in the mother country. In addition, the policy included taxes and tariffs on imports. One of the goals of a tariff is to entice consumers to buy more goods and services produced in their own country by making imported products more expensive.

The Navigation Acts, enforced from the 1650s to the 1760s, regulated and taxed trade with the colonies. These laws required colonists to trade only with English ships and only from a list of approved goods. The laws also forbade the colonies from exporting goods directly to other countries. The Sugar Act (1764), the Stamp Act (1765), and the Townshend Acts (1767) were new taxes and tariffs imposed on the colonies that were designed to help England pay its debts.

Colonists were vehemently opposed to this new taxation. Their slogan was “No taxation without representation.” They argued that these dictates violated their natural commercial rights. The Boston Tea Party was a political and mercantile protest that occurred in 1773. This protest against taxation of tea escalated into the American Revolution.

Scotland’s Adam Smith wrote Wealth of Nations in 1776, the same year that the Declaration of Independence was written. Smith promoted free trade and attacked mercantilism. He condemned trade guided by government regulation and policy. He said that an “invisible hand” of supply and demand should guide markets. He championed a new economic system of capitalism.

These two documents supported the creation of a republic with both economic and political freedom. Restrictions on trade and industry ended after the 13 colonies declared independence as the United States of America. However, after the war, debt was enormous, and Continental currency had a huge inflation rate, with purchasing power that had depreciated dramatically.

The first federal government had to deal with a bad economy throughout the 1780s. Motivation to create a robust central government under the new Constitution was strong because of the difficult economic times. Alexander Hamilton was chosen to direct federal economic policy as the Treasury secretary. His economic philosophies became standards of the current American capitalist economy.