Colonial America The Sign Of Mercantilism And Capitalism History Essay

Colonial America was the first sign of mercantilism and capitalism. Capitalism replaced the older economics system feudalism. In the feudalism system, warrior-lords provided protection to inhabitants of smaller areas. This relationship was formed from hereditary allegiance on both sides. Feudalism was more dominate in early Europe and disappeared as the colonists ventured to long distance trading and more entrepreneurial business ventures. Protection was hard to enforce at long distances, so the system faded out. This paved the way for new business systems to evolve.

Mercantilism bridged the gap from feudalism to capitalism. Mercantilism strengthened the power of the central government. It also blended old feudal customs with new business attitudes which provided a transition into a more modern age of business.

There were five main types of business in colonial period. They were the family farm, the merchant, skilled artisans, peddlers, and the planter. Merchants conducted overseas wholesale trade. Skilled artisans were manufacturers of the numerous different products of that time period, such as blacksmiths, carpenters, bricklayers, cabinetmakers, and shoemakers. Peddlers went from town to town buying and selling goods. Peddlers of the colonial period were our modern day door to door salesmen. Planters were the owners of the big plantations. Their business was mostly agrarian, with tobacco being a profitable crop. Two well known planters were Thomas Jefferson and George Washington, who became famous presidents in later history. Family farm is pretty much self explanatory. The farm was run by the family and maybe a few close and trusted friends helped out. This was the norm for most businesses in this time period. Most

businesses had a sole proprietor and relied on mostly family to run the operations. There were no management layers.

Adam Smith published the “Wealth of Nations” in 1776. This revolutionized the way people thought about economics and the relationship between government and business. While mercantilism ideas were to enhance the power of the state, Adam smith rejected these ideas and believed in a hands off government, and that the proper goal of the economy was the material well being of the citizens. This publication also influenced Thomas Jefferson and Alexander Hamilton, who had different ideas about government control. These ideas, laissez faire and mercantilism would be topics of discussion well into the future. These different views were the beginnings of what would become our present day political parties.

Also in this time period was the signing of the Declaration of Independence and the constitution was ratified. These documents brought freedom from Britain and also a new government. The new constitution granted congress the power to impose import duties and raise revenues. A promise of funds for naval and military protection, tariffs that allowed American business to penetrate foreign markets, and allowed for the creation of coin currency. Established the postal system and founded the frame work for the creation of a national market and also established copy rights and patents to protect new technology.

This time period led to freedom from Britain, which led to innovation, also an early government that led to capitalism, big opportunities for entrepreneurs, and an agrarian economy, the creation of the national bank, and the first look at profit versus service to society.

The period between 1790 and 1850 brought immense changes to the business world. There was the transportation revolution which brought on the agrarian revolution, and the product of these two revolutions was the industrial revolution. The transportation revolution was brought about, because a better infrastructure was needed to deliver goods. The roads were rutted and had lots of obstacles and tolls were charged to travel the roads. With the invention of the steamboat came the end of the one way trip. People could now travel up and down the river. This made for a more profitable business as the steamboats could take products to a location and also return with received from that location. This was a limited way to travel though, because of the rivers freezing in cold weather. Canals were constructed during this period to shorten travel distances to deliver products. The construction of railroads also came in this time period. Railroads were the fastest way to travel and more reliable in the sense that they could travel in all seasons. They could also be built more places than waterways. They were costly to build though due to the length of the tracks to be put in place.

The agrarian revolution was brought on by the transportation revolution and the huge growth in agriculture specialization in producing. Ely Whitney’s invention of the cotton gin made mass production of cotton possible in the south. This gave the south duel economies with the large cotton plantations and the small farm. The north also had a duel economy with the invention of the reaper by Cyrus McCormick. This paved the way for mass wheat harvesting. Lumber became the second largest industry. Not only was Cyrus McCormick an inventory, but he was also a business man. He set up a plant to produce reapers and also set up a franchise of dealers to sell and the repair the machines.

The previous two revolutions paved the way for the industrial revolution. The industrial revolution changed the way goods were produced. Machines replaced human labor, and unlike the previous era where the worker did the work at his home, they now concentrated in factories. Machines were precise and fast and more economical. With increased output and decreased labor and better ways to transport finished goods, a larger market could be reached. Two machines invented at this time also contributed to the revolution. They were the spinning jenny that spun thread, and the power loom, which wove thread into cloth.

Specialization was also a product of this era. Merchants shifted from trade of goods to financing services such as banking and insurance. They also became the middleman between those with excess capital and those in need of it. Business environment shifted from family oriented to capital funded entrepreneur. Business started to evolve and a switch to service industries helped to fuel the transportation and industrial revolutions. This was aided by an increase in communication efficiency with the invention of the telegraph by Samuel Morse.

Even though the newly freed colonies seemed to off to a good start there were still some disagreements to be ironed out. The tariff wars, which are still in debate today started with the north and the south. This laid the groundwork for the two different political parties in place today. The north was more industrialized than the south and wanted tariffs to protect against foreign competition. The south wanted revenue only due to a lot of foreign trade.

At this point in time the government is still young and weak but the relationship with businesses is growing. They concentrated on internal improvements to help businesses thrive. Laws were very pro-business, but very little government regulations.

In the period of 1850 to 1920 we see the development of mass production and mass distribution, vertical integration and horizontal integration. Mass distribution made it easier to get products to a larger market. Created by improved transportation and communication and a national market, more products could be sold. There was the creation of department stores, mail order catalogs and chain stores. These are still in use today.

Vertical integration lets the manufacturer have control over its sources of raw materials and /or making and sales of finished product. This gives the company control off supply and demand and a wider variety of finished products. Manufacturing was linked with sales and merchants were less important. This was done for cost control.

Horizontal integration was a number of companies banning together to control one aspect of production. This controlled costs and decreased competition. This was the creation of holding companies.

Laissez Faire became more of a topic during the gilded age. This allowed for the free interplay of natural economic laws, unimpeded by state interference. Business Socialist Theorists advocated laissez faire to avoid unionization. The Laissez-faire theorists preached that the free market should set wages, hours and working conditions. This laissez faire also permeated judicial decisions.

The anti-trust movement started in this era. Congress created the Federal Trade Commission. The FTC passed the Clayton Act which revised anti-trust laws. This law stated that companies could not own stock in another company if the effect was to stop competition. They were also empowered to regulate and enforce anti-trust laws. Congress appointed five members for seven year staggered terms. This insured that long running policies remained in effect across different administrations.

This period also showed us labor trouble with the first strike with the Pullman Company. The company wanted to lower labor costs to preserve profits. Workers rebelled to try and weaken executive control. The strike ended with the intervention of the U.S. army. This conflict would lead to a search for common interests between business and labor. This search would lead into the twentieth century, where reforms and new policies would be put into place.

The years between 1920 and 1945 would usher in some changes in business practices. There is a change to more professionalism. This is divorce of ownership. Managers are taking the place of owners to run the company. There is higher education in the manager and the businesses are more complex. The managers are not just profit seekers; they want to run the company to benefit all Americans and to serve society. There is also a rise in professional ethics and corporate philanthropy. There is also the development of advertising and marketing. This is so companies could differentiate their product from the competitor. This led to research and development of products. Businesses created marketing strategies to promote consumer values in American society.

With the change of owners to managers comes the decentralized management. This is a change in the organizational operations of the company. There are more layers of management to oversee day to day operations. This gives management more flexibility to react to change more quickly and to advantage of new markets.

This time period also introduces the “New Deal”. This was legislation proposed by Franklin Roosevelt to ease the pain of the depression. Federal programs eased the suffering of unemployment, reduced the number of unemployed workers and restored the confidence of the American business system. Keynes introduced his economic theory at about this same time. His beliefs were that the federal government should step in and help the economy if it got too bad and could not recover on its own. He introduced three steps to follow. First the government should control interest rates. Then tax the wealthy and give to the poor so they could prosper more. Last step if the interest rate control failed the government should augment private investments with public investments.

World War II was also going on during this time. This promoted dramatic economic expansion, which affected the structure of the American business system. The labor force gained strength due to men fighting the war.

The last of the five major periods is 1945 to the mid 1990’s. This period brought about revised anti-trust laws, growth of franchising, a decline in mergers and acquisitions and more attention to consumer protection. The revised anti-trust laws prevented firms growing larger through mergers. Also mergers that restrained trade or created monopolies that were anti-competitive and are illegal. The Cellar-Kefauver Act allowed government to examine market share. Government regulatory authority grew.

Since the rest of the world was recovering from the war American business enjoyed distinct advantages. There were more skilled workers, leaders in technology and identified as the world’s best education system. There was the expansion of services industries. There was little competition from foreign firms, and the production of consumer durables increased. With the Employment and Production Act the government gained economic authority, and the creation of the Council of Economic advisor to watch the economy, also expansion of the executive branch to provide oversight and to focus on regulation. Ralph Nader, an attorney and free lance journalist calls attention to consumer safety. He believed that consumers should be protected from any injuries that might be caused by products that were manufactutred without safety standards. His attacks on GM brought about the creation of the National Highway Traffic Safety Administarion and the Center for Study of Responsive Law.

During this time the emergence of the military-industrial complex was termed. The system was abused by officer relationships with firms. Defense department had close relations with private firms for funding weapons. The cold war caused the escalation of stock piling weapons. Researches found that the fifty largest corporations in thee country always received more than half of all prime military contracts, while small business never received as much as twenty percent. President Eisenhower termed these relationships, but this was not a competitive system for small businesses.

Reference Page

Blackford, M.G. & Kerr, K. A. (1994) Business Enterprise in American History (3rd ed.).

Boston: Houghton Mifflin Company