The Social and Economic Structure of the Old Regime 325created a Banque royale in 1717; the Prussians, a Bank
of Prussia in 1765.
Mercantilism encouraged manufacturing through
direct aid and state regulation of business. Direct aid
might include subsidies, interest-free loans, or bonuses
to manufacturers. Regulation took the form of explicit
legislation. The French monarchy, for example, regu-
lated mines, iron works, glass factories, and paper mills.
French law specified what type and quality of raw ma-
terials could be used, which equipment and manufac-
turing processes must be employed, and standards of
quality for the finished product. The French then sent
factory inspectors to visit manufacturing sites and guar-
antee compliance with the law. A decree of 1740 ex-
plained that this procedure would maintain the quality
of French manufactures and protect French trade from
“the negligence and bad faith of the manufacturers and
merchants.”
The most common mercantilist laws were tariffs
and Navigation Acts. Tariffs placed taxes on goods en-
tering a country to discourage imports (which pro-
duced an unfavorable balance of trade and drained gold
from a country) and to protect domestic manufactures
from foreign competition. Peter the Great of Russia, for
example, levied heavy taxes on imported goods in
1724, even though Russians relied upon European man-
ufactures and luxury goods. In 1767 Charles Town-
shend, the British chancellor of the exchequer (minister
of finance), drafted one of the most famous tariffs of
the Old Regime: a high tax on glass, lead, paints, paper,
and tea imported into Britain’s American colonies,
which led to the Boston Tea Party. While governments
imposed such restrictions upon imports, they simulta-
neously controlled trade through Navigation Acts re-
quiring that goods shipped into (or out of) a country be
carried only on ships of that country, or that goods
shipped into a country’s colonies must depart from a
port in the mother country.
Mercantilism was not unchallenged. Governments
in the early eighteenth century remained generally
pleased with the successes of mercantilism (Britain and
France both had very favorable balances of trade), but
by midcentury mercantilist policies were drawing in-
creasing criticism. A group of theorists called the Phys-
iocrats began to suggest major changes in economic
policy, and their ideas supplanted the mercantile system
with the basic doctrines of capitalism. The Physiocrats,
led by French theorist François Quesnay, believed in
limiting the powers of government, especially the
power to intervene in economic activities. Quesnay and
others proposed the abolition of monopolies and spe-
cial privileges, the replacement of these policies by
open competition in an unregulated marketplace, and
the substitution of free trade for tariffs. The physio-
cratic school did not win great influence with the
monarchical governments of the eighteenth century,
but it opened the debate that ended mercantilism.
Adam Smith employed many of the ideas of the phys-
iocrats in writing his Inquiry into the Nature and Causes of the
Wealth of Nations(1776), the cornerstone of the new po-
litical economy.Global Economies: Slavery and the
Triangular Trade
European world trade grew and changed significantly
during the Old Regime. In the seventeenth century,
global trade chiefly linked Europe to India and the Far
East, as the chartering of the great east Indies compa-
nies indicates. This trade had originally concentrated
upon the spice islands because great fortunes could be
made by bringing pepper and other aromatic spices
back to Europe, but the largest Asian trade evolved into
competition for mainland markets such as India. During
the seventeenth century, trade with the Indies might re-
ward shareholders with more than 100 percent profits
on their investment. By the eighteenth century, how-
ever, the focus of European global trade had turned to
Africa and the Americas, where the profits had become
larger.
The profits of eighteenth-century trade, and much
of Europe’s prosperity, depended upon slavery. The
most profitable exploitation of slavery was a system
called triangular trade, which began in the 1690s. The
corners of this triangle were in Europe, Africa, and the
Americas. British merchants were the most adept at the
triangular trade, but it was practiced by slave traders
from many countries. These slavers began their com-
merce by taking European manufactured goods (partic-
ularly textiles) to the western coast of Africa. These
goods were sold or bartered for African slaves who
were offered for sale by local African rulers, by rivals
who had taken them prisoner, or by Moslem slave
traders. In the second leg of the triangular trade, a ship
filled with slaves made the Atlantic crossing to Euro-
pean colonies in the Americas. The British, for exam-
ple, brought slaves to Caribbean colonies (where 85
percent of the population lived in slavery) such as Ja-
maica and Barbados or to the mainland colonies in
North America (where 20 percent of the population