By the 1700s, the British government controlled its colonies under mercantilism, a system that regulated the balance of trade in favor of Britain. Over time, colonists became frustrated with this unfair economic system and with Britain's administration of taxation of the colonies without any accompanying representation in Britain.
British Mercantilism of the 17th Century: An Overview
Compared to the United States, England is small and contains few natural resources. Mercantilism, an economic policy designed to increase a nation's wealth through exports, thrived in Great Britain between the 16th and 18th centuries.
Between 1640-1660, Great Britain enjoyed the greatest benefits of mercantilism. During this period, the prevailing economic wisdom suggested that the empire's colonies could supply raw materials and resources to the mother country and subsequently be used as export markets for the finished products. The resulting favorable balance of trade was thought to increase national wealth. Great Britain was not alone in this line of thinking. The French, Spanish, and Portuguese competed with the British for colonies; it was thought that no great nation could exist and be self-sufficient without colonial resources. Because of this heavy reliance on its colonies, Great Britain imposed restrictions on how its colonies could spend their money or distribute assets.
Mercantilism in Great Britain consisted of the economic position that, in order to increase wealth, its colonies would be the supplier of raw materials and exporter of finished products.
Mercantilism brought about many acts against humanity, including slavery and an imbalanced system of trade.
During Great Britain's mercantilist period, colonies faced periods of inflation and excessive taxation, which caused great distress.
British Mercantilism's Control of Production and Trade
During this time, there were many clear transgressions and human rights violations that were committed by imperial European empires on their colonies in Africa, Asia, and the Americas; although, not all of these were directly rationalized by mercantilism. Mercantilism did, however, lead to the adoption of enormous trade restrictions, which stunted the growth and freedom of colonial business.
In the 1660s, for example, England passed the Acts of Trade and Navigation (aka Navigation Acts), a series of laws designed to make American colonies more dependent on manufactured products from Great Britain. British authorities further enumerated a set of protected goods that could only be sold to British merchants, including sugar, tobacco, cotton, indigo, furs, and iron.
In "Wealth of Nations", father of modern economics Adam Smith argued that free trade -- not mercantilism -- promotes a flourishing economy.
Trade, during this period, became triangulated between the British Empire, its colonies, and foreign markets. This fostered the development of the slave trade in many colonies, including America. The colonies provided rum, cotton, and other products heavily demanded by imperialists in Africa. In turn, slaves were returned to America or the West Indies and traded for sugar and molasses.
Inflation and Taxation
The British government also demanded trade in gold and silver bullion, ever seeking a positive balance of trade. The colonies often had insufficient bullion left over to circulate in their own markets; so, they took to issuing paper currency instead. Mismanagement of printed currency resulted in periods of inflation. Additionally, Great Britain was in a near-constant state of war. Taxation was needed to prop up the army and navy. The combination of taxes and inflation caused great colonial discontent.