Mercantilism vs Free Trade in the 13 Colonies Illustration

Mercantilism
in the 13 Colonies

 
 

For Kids

Mercantilism is all about trade and how trade is conducted. Mercantilism is a system of government controlled trade. It is not a system of free trade. The different between mercantilism and free trade has everything to do with who controls the price and the destination of both imports and exports. In free trade or capitalism, control is mostly in the hands of the trader. In mercantilism, control is totally in the hands of the government.

FREE TRADE OR CAPITALISM: In a system of free trade or capitalism, there are laws that control trade. These laws are set by the government. But you, as the owner of the goods, can decide how much you are going to charge for your goods, and you can decide (for the most part) where you can sell your goods.

It took a while to develop good laws for free trade, but in modern times, no company can have a monopoly on a specific product. You must have a competitor. If you don't have a competitor, the government will step in and become your competitor. If you team up with other companies and agree that you will all sell the same product at the same price, that's also against the law - it's called price fixing. Price fixing creates in effect a monopoly. You might sell your goods at the same price, but you can't agree to do so in advance.

In a system of free trade or capitalism, you have to have at least one competitor, and you can't team up with other companies to control the price of an item. This system helps to keep prices in line.

THE MERCANTILE SYSTEM: In the mercantile system, what you can charge for goods and where you can sell goods is controlled by the government. It's a take it or leave it system that benefits the government but does not necessarily benefit you. You have no choice and no say in what you can charge or what you must pay for goods or where you can ship or how you ship. The entire system of trade is controlled by the government.

Mercantilism started in the Middle Ages in Europe with the rise of towns and guilds. Guilds set the price, and everyone who made that item, such a sword, had to charge the same amount. This system was carried to the colonies.

For a while, England controlled all trade in the colonies. The government in England decided what colonists would be paid for the goods they grew or made, and England decided where goods would be shipped. England also decided what goods were shipped to the colonies and how much those goods would cost when they got there. The colonists had no say.

The government in England benefited greatly. Merchants and farmers in the colonies did not.

The mercantile system and the cruel and unfair laws passed by England to continue their control of trade in the colonies is why some colonists revolted against English rule, and helped to start the Revolutionary War. After the war, when England was no longer in charge in the colonies, the mercantile system was replaced with capitalism or free trade, a system we use today for goods transported into the United States that consumers can buy (imports) and out of the United States that owners can sell (exports).

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