From Mercantilism to Capitalism

COLONIZATION AND ECONOMIC EXPANSION HIST 1301 | History From Mercantilism to Capitalism A group of French businessmen led by a man by the name of Thomas Le Gendre were asked in 1681 by Jean-Baptiste Colbert, the finance minister of France, how the government might assist them. Le Gendre allegedly said to Colbert, "Laissez nous faire," which translates to "let's do it." The emergence of the notion of laissez-faire economics posits that the economy ought to be driven solely by market forces, with governments abstaining from direct intervention or moderation of the economic system. Laissez-faire economics made sense given the practicalities of world empire logistics. European politicians could not realistically control economic activities taking place across an ocean. As a result, the transition to a laissez-faire economic model may have been motivated by ideological considerations as much as by practical considerations. The book An Inquiry into the Nature and Causes of the Wealth of Nations (1776), also known by its abbreviated title The Wealth of Nations, is the work that made Scottish political economist and philosopher Adam Smith famous. Although other academics had written on different facets of economics, Smith was the first to give a thorough philosophical analysis of how countries ought to run their economies with this work. Smith maintained in The Wealth of Nations that individuals were directed in their economic decisions by the "invisible hand" of the market. He said that people unintentionally inclined to provide the commodities and services that society required most because they were performing the labour that would yield the highest profit. Smith favoured lowering tariffs and the majority of governmental regulations in order to facilitate the operation of the invisible hand. The rational choice theory, which holds that individuals comprehend their alternatives and make logical decisions that would enable them to accomplish acceptable goals, served as the foundation for his work. This kind of selfishness, in Smith's opinion, is frequently advantageous to both the person and society. Smith and his supporters promoted the concept later known as capitalism, an economic system in which private individuals and companies typically own the means of production, such as factories and farms, and free (unregulated) markets set the value of most goods and services based on supply and demand. Smith did not use the term, preferring to refer to his system as commercial society. Slavery was criticised by Smith. He thought that if markets were genuinely free, slavery would be condemned to fail since it was inefficient. Smith also highlighted that commodities created employing enslaved labour were more costly since the expense of housing, feeding, and clothing enslaved people—however poorly—was passed on to customers. Free labour allowed for more cost-effective production because the employer did not have to cover the maintenance of his workers. Smith did, however, also downplay the atrocities of slavery by using rational choice theory. The British Caribbean slaves were "in a worse condition than the poorest people either in Scotland or Ireland," he admitted in The Wealth of Nations. However, he rationalised their suffering by arguing that "it is the master's interest that they should be fed well and kept in good heart in the same manner that it is his interest that his working cattle should be so." Historians disagree as to whether the sugar plantations that employed slaves were capitalist businesses in and of themselves. On the one hand, all parties involved in an economic transaction must be free in order for capitalism to exist. Customers are free to accept the established price or to decline to purchase the goods, and merchants are free to sell anything they want at whatever prices they want. Employees are allegedly free to accept the conditions of their employers or to demand better terms. Employers are allowed to establish the hours and compensation for their workforce. However, the labour force on sugar plantations was made up of enslaved individuals who could lawfully be forced to perform any kind of labour for whatever amount of money that their owners deemed appropriate (typically the bare minimum of clothes, food, and shelter necessary to ensure the labourers' survival). However, plantation owners operated their businesses much like owners of other industrial businesses, such as by establishing output targets. Numerous individuals have brought attention to the similarities between the highly regulated labour structure on sugar plantations and capitalist businesses such as textile mills. The discussion is still going on. There's no denying that the proceeds from the selling of sugar and other goods cultivated on plantations by enslaved individuals were frequently used to finance capitalist ventures, such as the factories that were starting to emerge in the eighteenth century. Adam Smith's theories drew criticism and upended the preexisting mercantilist economic system. It seems sense that some government officials were reluctant to cede control to the free market. They questioned the rationality of reformers who disagreed with mercantilism's emphasis on a favourable balance, such as Smith. Even while mercantilism wasn't flawless, conservative detractors noted that it had brought great riches to Europe—or at least to the governing elites there. Smith's theories, which promised more potential liberties and earnings for the nation's wealthiest residents, were welcomed by other international leaders, most notably in Great Britain, who turned away conservative opposition and went on to become the dominating force in British economic changes. Charles James Fox, the rich leader of the House of Commons, applauded Smith's views in Parliament, although he subsequently acknowledged he had not read The Wealth of Nations and felt it was much too long. Drawing from Smith's research, Prime Minister Fredrick North presented an updated tax law in 1777. Smith's work was hailed as "the best solution to every question connected with the history of commerce, or with the systems of political economy" by Prime Minister William Pitt in 1792. After Smith's theories crossed the Atlantic, President Thomas Jefferson declared in 1807 that "Smith's Wealth of Nations is the best book to be read." As Smith's theories gained traction, governments lowered tariffs, scaled back economic laws, and oversaw the shift in their countries from the pursuit of advantageous trade balances to the pursuit of individual wealth. Although Smith's theories are still relevant today, several academics have critiqued them. They contend that individuals don't always act rationally or choose the optimal course of action, in opposition to his dependence on rational choice theory. Others criticise the moral shortcomings of the invisible hand, which compromised the lives and well-being of colonial subjects, low-wage workers, and slaves in order to enrich elites.