Rise of the Atlantic Economy

In addition to the agricultural revolution, population explosion and cottage industry development, eighteenth century Europe saw the growth of world trade. This trade was dominated by the Spanish, French, and Dutch, but most of all by Great Britain, which was formed by the Act of Union in 1707 by which England and Scotland became the United Kingdom of Great Britain and Ireland. Britain was able to build a lucrative shipping and maritime trade which benefited both itself and its colonies.

British economic policy was that of Mercantilism, as practiced by Colbert in France. Itís purpose was to increase a nationís cash flow and gold supply, thereby building up a sizeable treasury that could be drawn upon in time of war. Since wars were common in this violent age, the necessary funds to wage war were vital. British mercantilism differed from that practiced by other nations in that it espoused the idea that private individuals as well as the state could benefit from this practice. This idea was eloquently expressed by Josiah Child, a director of the British East India Company who said that in an ideal economy, "Profit and Power ought jointly to be considered." France and other mercantilist countries consistently put the needs of the state above those of private enterprise.

The Navigation Acts (which everyone remembers from APUSH) were enacted pursuant to British mercantilism. They required goods imported into England be carried on British ships manned by British crews and gave British merchants a virtual monopoly on trade with British colonies. The idea was that both merchants and workers would profit and the colonists would have a guaranteed market for their products. Additionally, the shipping industry would increase by providing more experienced seamen who could be drafted into the Royal Navy in time of war.

The Navigation Acts were a form of economic warfare aimed primarily at the Dutch, who were far ahead of the British in shipping and foreign trade in the mid seventeenth century. The Navigation Acts together with a series of Anglo-Dutch wars between 1652 and 1674 seriously damaged the Dutch shipping industry and commerce. In 1664, the Dutch were forced to surrender the colony of New Amsterdam to the British which was renamed New York. By the time the Dutch and English became allies to stop the expansion policies of Louis XIV, the Netherlands were far behind the British in shipping, trade, and colonies.

Spain was in a state of relative decline, and Britainís chief economic (and military) rival became the French. France had a population over three times that of Britain, and was Europeís leading military power and was building a powerful fleet and a colonial monopoly. A series of wars broke out between France and Britain between 1701 to 1763 in part based on the desire of each to dominate the Atlantic trade.

The first such war was the War of the Spanish Succession, previously discussed, when Louis XIV tried to place his grandson on the throne of Spain. Aside from problems in Europe, a union of the Spanish and French thrones would have surrounded the British colonies in America by a juggernaut of a Franco-Spanish empire stretching from French Canada to Florida and from the Ohio and Mississippi River Valleys to the Rocky Mountains. This war was fought in the American colonies as King Williamís War. It ended with the Peace of Utrecht (1713) by the terms of which France ceded Newfoundland, Nova Scotia and the Hudsonís Bay territory to Britain. Additionally, Spain surrendered to America the West African slave trade known as the asciento, and agreed that one British ship with merchandise could sail into the Spanish colonies annually.

The second war, the War of the Austrian Succession, begun when Frederick the Great seized Silesia, also developed into a war between France and Britain, fought in the colonies as Queen Anneís War. The war was virtually inconclusive, with each side returning to the status quo ante bellum. It set the stage for the Seven Years War, in which Maria Theresa of Austria tried to regain Silesia from Frederick the Great of Prussia. It soon also developed into a world war. Actual hostilities broke out first between the British and French when George Washington, a twenty one year old colonel in the British army led a small battalion of British soldiers to clear up French claims of disputed territory. When an Indian in Washingtonís group split open the skull of a Frenchman known as Jumonville and washed his hands in the manís brain, the battle was on. The war was inconclusive in Europe, but was decisive in North America. By the terms of the Peace of Paris of 1763, France virtually eliminated from the continent. It surrendered all French territory east of the Mississippi River to Britain, and Louisiana to Spain as compensation for the loss of Florida to Britain. France also gave up most of its holdings in India to Britain. Britain had thereby attained its goal of a massive trading and colonial empire.

The American colonies proved a valuable asset and receptacle for overflow population, drawn with the promise of free land. This was in stark contrast to Britain where most of the land was owned by the gentry or nobility. Whereas peasants in Britain were forced to pay high rents and taxes, American planters could keep most of what they produced. It is no small wonder that those who could not pay a passage came as Indentured Servants who worked for roughly seven years in exchange for a parcel of land they could call their own, a dream that was impossible in Britain. However, the availability of cheap (or free) land made labor very expensive. That, rather than the restrictions of the Navigation Acts, limited the growth of industry in the colonies. Those who came preferred to farm their own property rather than work in a factory or shipyard owned by another.

The American colonies grew at a dizzying rate, fueled by free land. In 75 years, the population of the colonies multiplied ten fold; but no one was reduced to poverty. Relatively high standards of living resulted, and by European standards an unusually high degree of equality also. Few people were extremely rich, and few were extremely poor. By the end of the American Revolution, American men and women most likely had the highest standard of living anywhere in the world.

The combination of cheap land and scarce labor was a key factor in the growth of slavery in America. Large amounts of labor were needed on sugar plantations in the Caribbean which produced a huge profit. Black slaves eventually replaced indentured servants, and by 1730, large plantations were worked entirely by black slaves. Slave labor led to a 1000% increase in tobacco production between 1700 and 1774, and created a wealthy aristocratic planter class. Tremendous numbers of slaves were constantly imported. By 1790, when the U.S. population was near four million, roughly twenty percent were in bondage.

The Growth of Foreign Trade: Even after the loss of the American colonies, British mercantilism continued to profit the country. Rising demand for manufactured goods in North America as well as in the West Indies, Africa, and Latin America allowed English cottage industry to continue to grow and diversify. One of the most important British exports had been woolen cloth, over ninety per cent of which had been sold to Europeans; however by the eighteenth century, other European states were attempting to develop their own cottage industries in an effort to combat unemployment and overpopulation. The adopted protectionist mercantilist policies and tried by means of tariffs and other measures to exclude goods from abroad from competing with domestic production. France had closed its markets to English goods in the seventeenth century, and in the eighteenth century, the German states purchased much less woolen cloth from England, such that by 1773, Britain was selling only two thirds as much woolen cloth to northern and Western Europe as it had in 1700. The need for new markets was evident.

The British economy was saved by the development of protected colonial markets, not only in the Americas (prior to the Revolution) but also to the West Indian sugar Islands, West Africa, and Latin America. Sales of manufactured products rose from £500,000 to £4.0 million in overseas markets rather than European markets. Exports also became more diversified. Axes, firearms, chains (for binding slaves) and other metal works found a ready market in America and Africa. By 1750, half the nails made in Britain were sold in America. Also, musical instruments, china, furniture, clocks, saddles, etc. were sold.

The Revival of Spanish America: With the death of Charles II, the last Spanish Hapsburg in 1700, Spain and its empire were in decline. It was widely expected that the empire would soon disintegrate. However, it underwent a remarkable rejuvenation, primarily under King Philip V, the Grandson of Louis XIV who had been allowed to become King of Spain by the Peace of Utrecht with the understanding that the two kingdoms would never be ruled by a single monarch. In the new world, Spain resisted attacks by the British, and gained Louisiana from France in 1763. Missionaries and ranchers extended Spanish influence as far as Northern California.

The Spanish economy in America also was rejuvenated. Silver mining, which had been on the decline, recovered remarkably. By 1800, half of the worldís silver was mined in Spanish America. The silver mining encouraged food production for mining camps and gave the people of Spanish blood born in America, known as Creoles, the funds to purchase more and more European luxuries and manufactured goods. A substantial amount of this trade was smuggled goods from Britain. In time, a Creole aristocracy developed who owned large estates and believed that work in the fields was the proper occupation for the poor, primarily Indians. Over time, a system of debt peonage developed whereby the planter would advance the cost of food, shelter, etc. in exchange for future labor. The debt was so substantial that workers, usually Indians had no hope of repaying it. The system was virtually a system of serfdom.

A middle class of mestizos, (part Indian, part Spanish) developed, many of whom hoped to one day join the Creole aristocracy, since a sufficient amount of money allowed one to be considered "white." Tremendous numbers of black slaves were also imported to work the sugar plantations, particularly in Brazil, which was a Portuguese colony. By the early nineteenth century, over half of Brazilís population was of African origin. They often intermingled sexually with Indians, Europeans, etc. by reason of which, the people of Brazil represented every possible combination of racial identity.

Adam Smith and Capitalism: Mercantilism had its detractors. Creole merchants in Spanish America resented regulations imposed from Spain, and small English merchants were often overwhelmed by the large monopolies such as the British East India Tea Company which had exclusive trading privileges. Many independent merchants began calling for system of "free" trade. The idea was developed into an economic philosophy by Adam Smith, a Scottish Professor of Philosophy who wrote An Inquiry into the Nature and Causes of the Wealth of Nations. (1776). Smith argued that mercantilism was a combination of unfair government regulation and privileges for state approved monopolies. He asserted that a system of free competition would prevent price gouging and give all citizens a fair and equal right to do what they did best. This so called "system of natural liberty" stated that government should limit itself to only three duties:

Smith believed that employers and workers were both motivated by narrow self interest; therefore there should not be more laws to force people to behave properly in economic affairs; rather the pursuit of self interest in a competitive market was the source of harmony that would result in gradual progress.

Smiths work, which went through eight editions, became the classic argument for modern day capitalism. Smithís work formed the basis for modern economics.