American Elections and Economics, Part II

Last week, we traced part of the history of the beginning of capitalism and how it played a role in Europe and the United States in different time periods. One idea of capitalism is best understood as “laissez-faire.” This is a French term meaning the absence of government getting involved in economic affairs. The idea is that individuals will better make decisions for themselves and their families than someone in government. At the end of the Medieval Ages and the beginning of the Early Modern Ages, many European kingdoms followed the economic policy of mercantilism. Mercantilism is very different than capitalism. Under mercantilism, kings established colonies to acquire gold and natural resources. Colonies existed to enrich the kings and the mother country. Because mercantilism always favored the kings at the expense of the colonies, colonists eventually demanded freedom.

In the 1600s and 1700s, there are many examples of mercantilism.  Led by the “Sun King” Louis XIV, France established her empire in North America. Spain had already built a huge empire in the 1500s, conquering most of South America and large parts of North America. The 1600s was known as the “Golden Age of Spain” in part because of all the gold Spain took from the Incas and the Aztecs. Great Britain had colonies all around the globe, in North America, South America, and Asia. The Dutch and the Portuguese also had colonies. Each colonial power sought to reap benefits of having cheap raw materials to take back to the home country. And, each kingdom had economic control over its colonists, making laws that restricted the economic freedoms of the colonists. This means that the central government, not the individuals, controlled the colonists.

The American Revolution (1775-1783) was the first of many where colonists overthrew the royal powers and established republics with much greater economic freedom. After founding a republic in 1776, the United States of America implemented a laissez –faire economy, and individual Americans had great freedom over their economic decisions. The U.S.A. was an experiment for capitalism. This freedom over their economic lives continued at least until 1913, when the United States passed the 16th amendment, which allowed for federal taxation of income. In the 1800s, America was the immigration destination for most of the world. In 1776, the United States of America was the newest county in the world, with no navy and no standing army. By the time of World War I, the country was perhaps the mightiest. Economic freedom was one of the main factors that led to the rapid growth of the American economy in the 1800s.

History provides us with two examples of the effects of an economic system run by a central government, and one run by individuals in society. In the mercantilism that Europe’s kings practiced in the 1600s, 1700s, and 1800s, colonists eventually objected to the tight control kings placed on them and eventually revolted, like the Americans in the American Revolution. In the late 1700s and 1800s, American benefitted from capitalism. Under this economic system, Americans became the wealthiest and freest people of the world, and the poor had the greatest opportunities to better their own lives.

Questions:

1. What is mercantilism?
2. What is capitalism?
3. What does laissez faire mean?
4. Name one example of a country using mercantilism as its economic policy.
5. Name one example of a country and time period where capitalism was the main economic policy.