Mercantilism

Posted by PITHOCRATES - May 14th, 2012

Economics 101

Wealth is the Stuff we use our Talent and Ability to Make

Mercantilism gave us the United States.  For it was because of these policies that the British established colonies in North America.  And it was those same policies that led to American Independence.  Because those polices pissed off the Americans. 

The mercantile system came into being as nation states arose from feudal estates.  Kings arose and consolidated these estates into larger kingdoms.  Then one king arose to consolidate the kingdoms into a nation.  Creating Spain, France, the Netherlands, England, etc.  Enlightened thinking and better technology created food surpluses.  With food surpluses a middle class of artisans arose.  And manufactured goods.  People met in markets to trade their food and goods.   These markets grew into cities.  All of this economic activity created wealth.  Food.  And manufactured goods.  That we bought with money.  Often silver and gold. 

There was wealth.  And there was money.  Two different things.  Wealth is the stuff we use our talent and ability to make.  Food and manufactured goods, for example.  And the more food and manufactured goods a nation has the wealthier that nation is.  This is a critical point.  And the mercantile policies ultimately failed because those policies mistook money for wealth.  But money is not wealth.  It’s a temporary storage of wealth.  To make our trading of food and manufactured goods easier.  By reducing the search costs to find people to trade with.  Which is why the barter system failed in a complex economy.  It just took too long to find people to trade with.  Money solved that problem.  Because you could trade what you had for money.  Then trade your money for what you wanted.

England used the Positive Flow of Bullion to Finance the Building of the Royal Navy

Mercantilism focused on the money.  And used wealth to accumulate it.  Instead of the other way around.  The way most advanced nations do today.  These European nations accumulated money with international trade.  Beginning in the 15th century they started looking at the balance of trade between nations.  And did everything they could to maintain a positive balance of trade.  Meaning they tried to export more than they imported.  Why?  Well, nations often did trade with each other.  So they owed each other money.  And when you settled your account if other nations owed you more than you owed them there was a net flow of money to you.  Bullion.  Silver and gold.  Which is what they wanted.

To maintain a positive balance of trade the government actively intervened into the economy.  It set up monopolies.  It provided subsidies for manufacturers who exported their goods for bullion.  It placed tariffs on imports.  Or simply blocked the importation of any goods that they produced domestically.  They set up colonies to harvest raw materials to ship back to the mother country.  Which would use those raw materials in their factories to produced higher valued finished goods.  That they would export.  Especially to their colonies.  Which were convenient captive markets for their finished goods.  On the mother country’s ships.  Through the mother country’s ports.  Where they, of course taxed it.  Guaranteeing that at every step of the way they added to the positive bullion flow back to the mother country.

And it worked.  To a certain extent.  England used that positive flow of bullion to finance the building of the Royal Navy.  Which proved invaluable in the wars that followed in the mercantile world.  For mercantilism is a zero-sum game.  For every winner there had to be a loser.  Which is why this era was an era of world war.  To wrest control of those colonies.  And those sea lanes.  Great Britain came out the victor.  Thanks to their Royal Navy.  But it wasn’t all good.  For Spain found gold in the New World.  And they took it.  Shipped it back to the Old World.  Just like a good mercantilist would.  Which caused problems in the Old World.  Because money is not wealth.  It’s a temporary storage of wealth.  And when they inflated their money supply it took more of it to hold the same amount of value it once did.  Because there was so much of it in circulation.  And what happens during inflation?  Prices rise.  Because the money is worth less it takes more of it to buy the same things as it did before.  So by hording bullion to create wealth they actually destroyed wealth.  With wealth-destroying inflation.

With the Boston Tea Party the Americans Renounced Mercantilism and Demanded Free Trade

Spain was one of the greatest mercantile nations of the era.  But they quickly became a shadow of their former self.  Even though they had more bullion than their European neighbors.  For it turned out that those mercantile policies hindered economic growth.  Which is the true source of wealth.  Economic growth.  Where people use their talent and ability to create things.  That’s where the true value lay.  Not the money that held that value temporarily.  All those mercantilist policies did was raise domestic prices.  And allocated scarce resources poorly. 

It turned out free trade was the secret to wealth.  For free trade can increase wealth.  For both nations.  Thanks to something we call comparative advantage.  Instead of both nations manufacturing all of their goods they should only manufacture those goods that they can manufacture best.  And trade for the goods they can’t manufacture best.  This more efficiently allocates those scarce resources.  And produces a greater total amount of wealth.  By allowing people to buy lower cost imports they have more money left over to buy other stuff.  Increasing the overall amount of economic activity.  Which is why when Great Britain adopted free trade in the 19th century the British Empire went on to rule the world for a century or so.  And led the Industrial Revolution.  By creating wealth.  Goods and services people created with their talent and ability.  That changed the world.  And ushered in the modern era.  Something no amount of bullion could do.

But before Britain adopted free trade they were struggling with one of their belligerent colonies.  Their British American colonies.  Who were unhappy over taxation without representation in Parliament.  And the mother country forcing them to buy only British tea shipped on British ships at higher prices than they could get from the Dutch.  The British thought they found a solution to their problem.  By permitting their British East India Company monopoly to ship their tea directly to America without passing through an English port.  The tea was cheaper because of this.  But it also would set a precedent for taxation without representation.  Something the Americans weren’t about to accept.  So they threw that tea into Boston Harbor.  What we affectionately call the Boston Tea Party.  Renouncing mercantilism.  And demanding the right to engage in free trade.  Which they got after winning their independence.  And the mother country would follow suit in a few decades.  Because they, too, would learn that free trade was better than mercantilism.

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Treason, Benjamin Franklin, William Franklin, Reconciliation, Hutchinson Letters, Boston Tea Party, The Cockpit, Patriot and Loyalist

Posted by PITHOCRATES - May 10th, 2012

Politics 101

The Hutchinson Letters and the Tea Act put the Americans firmly on the Path to Independence

There’s a fine line between treason and loyalty.  Some people cross that line.  Some people don’t.  Some people wait to see which side of the line their best interests lay.  Some like to straddle the line.  Either unable to commit.  Unwilling to commit.  Or unwilling to give up profiting from both sides of that line.  Such it was during the American Revolutionary War.  A very unique conflict.  That pitted colony against mother country.  New World against Old World.  American against Brit.  Brit against Brit.  And American against American.

The American Revolutionary War was a smorgasbord of antagonism.  What started out as a dispute over taxation escalated into world war.  And into civil war.  To settle old scores.  And to settle new ones.  Upon the signing of the Declaration of Independence the American colonies were in open rebellion against their sovereign.  The ultimate act of treason.  Yet they committed this act of treason to live a more British life.  For Britain’s constitutional monarchy gave unprecedented rights to British subjects.  And the highest standard of living then known to a middle class.  Most knew what the rest of the world was like.  And they wouldn’t trade their British way of life for any other.  So rebellion undoubtedly made a great many nervous.  For many were happy and comfortable living under the British sovereign.  Benjamin Franklin, for one.

Franklin was a Loyalist.  At first.  He knew how to work the system.  And did.  Even achieving the post of American postmaster.  And he made it profitable.  Very profitable.  Even his son, William Franklin, was governor general in New Jersey.  So he was very connected to the British Empire.  And saw it as the best system of government ever developed.  Which is why he sought reconciliation.  He was in England when tensions were increasing between the colonies and the mother country.  He then came into the possession of some private correspondence that he passed along to his contacts in Massachusetts.  The Hutchinson letters.  As in governor general of Massachusetts Thomas Hutchinson.  Which basically said that the way to subdue the unrest over recent Parliament actions (i.e., taxation without representation) was to deprive the colonists of some of their English liberties.  Franklin asked that they not publish these letters.  His intent was to calm the more radical in America.  Proving that these misguided policies were the result of some bad advice from a few people.  There was no general animosity towards the American colonies in Great Britain.  And that reconciliation was possible.  Which is what Franklin wanted.  But they published the Hutchinson letters.  And the Americans were not pleased.  Then one thing led to another.  After Parliament passed the Tea Act Franklin was anxious of the American response.  Hoping for calm.  But the response was anything but calm.  And did nothing to aid reconciliation. 

The Humiliation in the Cockpit helped Push Franklin from Reconciliation to Independence

When the first tea arrived following the Tea Act the Patriots threw it in Boston Harbor.  Forever known thereafter as the Boston Tea Party (1763).  This destruction of private property shocked Franklin.  For this was not an act against Parliament.  But an act against a private company.  The East India Company.  This did not go over well in England.  Which was pretty agitated over the publication of those private Hutchinson letters.  People accused each other of being the source of the leak.  It got so bad that two men dueled in Hyde Park.  Each blaming the other for the dishonorable act of leaking those private letters.  Not being a very good duel both men survived.  When they were going to have at it again Franklin publically stated that he was the leak.  Explaining his intentions. 

Though Franklin sought reconciliation he had his enemies in England.  Who thought he was more of rabble rouser on the other side of the pond.  And pounced on this opportunity to disgrace him.   They summoned him to appear before the Privy Council.  On the pretense to hear testimony on the petition from the Massachusetts Assembly to remove Hutchinson as governor general.  But when Franklin arrived in the ‘Cockpit’ he found that he was on trial.  For leaking the Hutchinson letters.  News of the Boston Tea Party had by then reached England.  And the newspapers attacked Franklin without mercy.  All of England was turning against the man who wanted reconciliation more than any American.  It even looked like Franklin could end up in an English jail. 

It was an all out assault on Franklin in the Cockpit.  Where his enemies packed the room.  While few of his friends sat in.  Such as Edmund Burke.  Lord Le Despencer.  And Joseph Priestly.  One after another his enemies took their turn lambasting Franklin.  Blaming him for the agitation in the American colonies against British rule.  They attacked him personally.  And besmirched his honor.  Humiliated him.  During it all Franklin stood silent.  Refusing to partake in this farce.  When Wedderburn called Franklin as a witness his counsel stated that his client declined to subject himself to examination.  In the end they rejected the Massachusetts petition.  And his friend Lord Le Despencer had no choice but to relieve Franklin from his post as American postmaster.  He wrote his son William and urged him to quit his post as governor general of New Jersey in order to pursue more honorable work.  He would not, though.  And thus began the breach between father and son.

Franklin and William were no longer Father and Son but Patriot and Loyalist

William would stay loyal to the crown.  While Franklin was moving closer to the side of the Patriots.  In response to the Boston Tea Party Britain planned a blockade of Boston Harbor.  In response the colonies united behind Boston and formed the First Continental Congress.  Which William said was a mistake.  And that Boston should make good on the tea they destroyed.  Which would be the best way to calm the situation.  And reopen Boston Harbor.  Exactly what Franklin had earlier suggested.  But after the Cockpit and the loss of his post as postmaster Franklin was losing his love for the British Empire.  But he still tried while he remained in England with no official duties.  He even played chess with Caroline Howe.  Sister of Admiral Richard Howe and General William Howe.  Who would later command the British naval and military forces in the opening of the Revolutionary War.  But at the time they were both sympathetic to the American cause.  Despite of his shameful treatment in the Cockpit she and other friends urged him to put pen to paper.  And try to mediate a peaceful solution to the breach between the American colonies and Great Britain.  He tried. 

But all efforts came to naught.  He worked on a bill with Lord Chatham.  Which Lord Sandwich attacked with a fury when introduced into the House of Lords.  And they publicly attacked Franklin again.  They rejected the bill.  And Franklin booked passage home.  He met with Edmund Burke before leaving.  Discussed with him one last plea for reconciliation.  He spent his last day in London with his friend Joseph Priestly.  And discussed the future.  The coming war.  Reading the papers.  Priestly later wrote that the thought of that dismal future brought Franklin to tears.  After Franklin was on a ship sailing west Burke rose in Parliament and gave his famous speech On Conciliation with America. Where he said, “A great empire and little minds go ill together.”

The move to independence accelerated after arriving home.  Thomas Paine, who Franklin helped to bring to America, wrote Common Sense.  Which Franklin read before it was published.  Even offered a few revisions.  As he would offer later to Thomas Jefferson’s Declaration of Independence.  Then the Continental Congress scheduled a vote for independence.  General Washington was preparing to fight General William Howe on Long Island.  Supported by his brother Admiral Lord Richard Howe.  Who made one last attempt at conciliation with Franklin.  But things had already progressed too far.  Franklin had crossed that fine line.  The time for peace had passed.  On June 15, 1776, the new American provincial government in New Jersey ordered the arrest of William Franklin.  On the day of his trial Benjamin Franklin wrote General Washington.  He did not mention William.  Nor did he say anything when the Continental Congress voted to imprison him in Connecticut.  The breach between father and son was complete.  No longer father and son.  But Patriot and Loyalist.  As families throughout the colonies similarly tore asunder.  Setting the stage for the civil war within the world war that was the American Revolution.

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American Colonies, Freedom to Worship, East India Company, Tea Tax, Tea Act, Boston Tea Party, Intolerable Acts, Continental Army and an American Nation

Posted by PITHOCRATES - March 1st, 2012

Politics 101

As Parliament passed additional Revenue Acts Anger grew in the Colonies, especially in Boston

Prior to 1775 the American colonies were many things.  But there was one thing they were not.  United.  Many people went to America to escape religious persecution.  To live with people of their own faith.  To practice their faith without fear of reprisal or oppression.  And that’s exactly what they did.  Often oppressing fellow colonists who didn’t practice the established faith of the colony.  But they were united in one area.  Their hatred of Catholics.  Papists.  Those who lost their way and began to worship not Jesus Christ but the Pope.  That Whore of Babylon.  The seller of indulgences to buy your way out of purgatory.  And virtue.  So they had that to unite them.  But not much else.

Live and let live, they said.  As long as you worshipped Jesus Christ you were okay.  And weren’t a Jew.  Or a Catholic.  So the different denominations of the Protestant faith lived among their own.  In their own colony.  Their country.  The only sense of country they had.  Virginians weren’t American colonists.  They were Virginians.  Who didn’t much care what was going on up there in Massachusetts.  In fact, they didn’t much like what was happening up there in Massachusetts.  For Virginians were planters.  Yeoman farmers.  People who put their back into their living.  Not like those northern merchants.  And money handlers.  Who reeked just a little too much of the Old World they left.  Sitting on their backsides and making money just by buying and selling the products of other’s labors.

Life in the New World was good.  Yes, there was famine.  Disease.  And the occasional massacre.  But they could live with that.  As long as they had the freedom to worship as they pleased.  But then all that trouble started up there in Boston.  Over taxed and broke Parliament turned to their American colonies to raise some revenue.  Which angered the British Americans.  Because they didn’t sit in Parliament.  The Americans had no representation.  And according to British law taxpayers had to approve all new taxes.  Giving consent to those taxes in Parliament.  The problem with the Americans, apparently, was that they were on the ‘wrong’ side of the Atlantic.  For Britons living on the far side of the Atlantic had those rights.  They didn’t.  As Parliament passed additional revenue acts anger grew in the colonies. Especially in Boston.  Where Parliament installed British administrators to enforce these new revenue acts.  To protect their agents the British sent in the Red coats.  A peacetime occupying army.  Something very un-English that the British Americans did not like.

In Response to the Boston Tea Party Parliament passed the Intolerable Acts and closed the Port of Boston  

But the trouble didn’t end there.  The British made further attempts to raise revenue from the American colonists.  And from the British East India Company.  By taxing their tea.  Making it more expensive than the tea you could buy in the Netherlands.  Where there was no such tax.  So people did what people do with high taxes.  They didn’t pay them.  And smuggled Dutch tea into Great Britain.  And the American colonies.  Which left the East India Company with some warehouses full of tea.  So Parliament cut the tea tax due in Britain to help them.  And tried to make up for these lost revenues by taxing the Americans.  One of the new taxes included in the Townshend Revenue Act of 1767.  In response to the new tea tax the Americans boycotted tea.  Which didn’t help sell any of that warehoused tea.  So Parliament repealed the Townshend Revenue Act.  Well, all of it except the tea tax.  For they didn’t want to appear that they didn’t have the right to tax their subjects.  Represented or not.  And Parliament taxed the tea in Britain again.  This, of course, resulted in lower tea sales.  And the mighty East India Company, that made Britain so wealthy with its vast trade network, was in some serious financial peril.

Lord North, British Prime Minister, didn’t much like this uppity attitude of the Americans.  The East India Company desperately wanted to see those tea taxes cut.  But Lord North did not want to give the Americans that victory.  It was a matter of principle.  At least for him and his fellow Tories in Parliament.  As well as the Crown.  For King George III and Lord North were pretty close.  The Whig opposition was much more sympathetic to their British Brethren on the other side of the Atlantic.  But Lord North was adamant.  They had the right to tax the Americans.  And tax they would.  Besides, cutting the taxes in the Townshend Act caused other problems.  It would also eliminate the revenue it raised to pay the salaries of the colonial officials enforcing these new acts.  And it was important to keep them loyal to the Crown.  No.  The taxes in America would remain.  So their answer was, instead, the Tea Act of 1773.  Which removed the taxes due in Britain.  And allowed the East India Company to ship directly to the America colonies.  Cutting out the middleman.  And bringing the price of British tea below that of the smuggled Dutch tea.  Problem solved.

Well, not exactly.  Because the one thing they did share on both sides of the Atlantic was principle.  And even though British tea was cheaper they didn’t want anything to do with it.  On principle.  Because those Townshend tea taxes were still in force.  And paying them was a tacit admission that Parliament had the right to tax the Americans.  Despite not having any representation in that esteemed assembly.  And this they could not do.  Then came the day three little ships came to Boston harbor in 1773.  Their holds full of that detested British tea.  And a mob in the guise of Mohawk Indians descended to the docks.  Boarded these ships.  And tossed the tea overboard.  In what we call the Boston Tea Party.  Infuriating Lord North, Parliament and King George III.  Who all agreed it was time to act against these uppity Americans.  And act they did.  Passing the punitive Intolerable Acts of 1774.  That closed the Port of Boston.  Replaced the Colonial government in Massachusetts with representatives of the Crown.  Royal officials accused of committing a crime against any American would receive a ‘fair’ trial…in Great Britain (pretty much giving them a license to kill).  Forced the Americans to find room and board for the British Army occupying their cities.  And gave large swaths of land around the Great Lakes and Ohio River Valley to the Province of Quebec.  Recently added to the British Empire during the Seven Years’ War.  After they defeated their most hated and foul enemy.  The French.  Who were very, very Catholic.  As were their colonists who remained in these once French lands that were now British lands.  So to keep them from causing trouble the Quebec Act made things very comfortable for Catholics.  Right in the backyard of Protestant British North America. 

It was in the Continental Army the Country united and fulfilled the Words of the Declaration of Independence

In April of 1775 General Gage heard that there were some arms stored in Concord, Massachusetts.  So he sent some Red coats to go capture or destroy these arms.  Things did not go well for the British.  Militia gathered and stood their ground.  Shots rang out.  No one is sure who fired first.  But whoever did fired the shot heard ’round the world.  On the march back to Boston the British were harassed and picked off by sharpshooters.  Until they limped back into the safety of their Boston garrison.  Where the militia fell upon them and laid siege.  These uppity Americans for all intents and purposes had just declared war against the world’s greatest superpower.  And there was no going back.

In response to the British actions in Boston the colonies assembled in congress.  The Continental Congress.  To discuss what they as a united people should do.  For if these outrages could happen in Boston they could happen in any of the colonies.  And now that they spilled blood they needed someone to lead the American forces in their fight against the Crown.  They selected George Washington.  Who left the Congress to take charge in Boston.  And as he walked the lines at Boston he saw Americans.  And when his army marched to Quebec (to get the now British French-Canadians to join in the good fight) he saw Americans.  It was in the Continental Army the country united.  Fighting alongside in the ranks Washington saw Virginians.  Massachusetts men.  Farmers.  Merchants.  Puritans.  Baptists.  Catholics.  Jews.  Even free blacks.

There was nothing a British American enjoyed more than burning an effigy of the Pope.  That would change in the Army.  And the Army would change the country.  Especially the men who served in the Army.  Men like Washington.  Who first glimpsed a new nation.  A united nation.  That transcended religion.  The states.  Even race.  Which really brought home the words of the Declaration of Independence.  That all men are created equal.  And there’s nothing that makes men more equal than suffering the privations and horrors of war.  Sadly, after the war when the common enemy was no more the spirit of these words became a little more symbolic for some.  But these army veterans would leave their mark.  And their vision would eventually become reality for everyone.

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