The Middle Colonies and the Rise of the Market Economy


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The Middle Colonies of North America were shaped by the philosophies and ideas of two British philosophers, John Locke and Adam Smith. Their economic philosophy, known as laissez-faire, or leave alone was the first step in developing the market economy, which allowed people to be self-governing and independent individuals who could make decisions for themselves about what to buy or sell, how much to work and how to spend their money. This would eventually lead to the greatest expansion of wealth in human history through industrialization and globalization, but not without its fair share of controversy…[continue reading]

What does market mean?

A market economy is a system where the government does not intervene in pricing or production. Prices are determined by supply and demand, which is why many students learn about this kind of economy in their microeconomics class. Markets function well because buyers and sellers have access to information about prices, products, and quality from other market participants. It’s also important to note that transactions don’t have to be made face-to-face; they can occur between people who live miles apart from each other. Without a market economy, it would be difficult for consumers to know what price they should pay for goods or services or how much those goods or services are worth. For example, if the government sets milk prices at $5 per gallon, nobody will buy milk because milk will cost more than its value. However, when the government allows milk producers to set prices according to supply and demand (i.e., free market), then the correct price becomes clear–people are willing to pay up to $5 per gallon for milk if they want it bad enough. In this way, markets ensure that everyone gets a fair deal when exchanging goods or services: both parties benefit so long as they agree on an appropriate price.

What is capitalism?

Capitalism is an economic system in which a country’s trade and industry are controlled by private owners for profit, with little or no regulation by the government. When capital (money) is invested to produce more money, it is called capitalism. This differs from feudalism, where power was invested in a hierarchy. The most significant difference between feudalism and capitalism is that under capitalism there are limited state protections for workers. This means that workers’ rights are not guaranteed by law as they would be under feudalism. In contrast to this, feudalism guarantees different types of rights for workers depending on their rank in society. Feudalism’s hierarchical order creates stability because people know what their place in society will be, so everyone is contented. There is also less conflict because those higher up have a duty to take care of those below them. It does not promote competition because wealth is transferred down through generations rather than through competition. As such, feudalism encourages vertical class distinctions while capitalism promotes horizontal ones.

What caused the Middle Colonies to pioneer capitalism?

When people think about capitalist society, they usually think about it as a system that has been around for centuries. In reality, capitalism as an economic system was only in its infancy when it first started to develop in the United States. The earliest form of capitalism was present during the colonial period in North America with the Middle Colonies providing many examples. With their close proximity to wealthy nations such as England, France, Holland and Spain and vibrant ports such as Philadelphia, New York City and Boston, they experienced greater trade opportunities than other colonies which allowed them to amass more wealth. This new-found wealth not only led to an increase in trade but also an expansion of agriculture which increased production on farms. As a result, prices for goods fell drastically leading to higher purchasing power for colonists.

How does this relate to American values?

One of the earliest articulations of American values can be found in The Declaration of Independence. In this document, it is written that all men are created equal. This statement was a radical departure from traditional European beliefs, which held that only nobles or royalty could be considered equals. A market economy is another example that illustrates how America’s founding fathers were trying to establish a new kind of society. Rather than being strictly subsistence-based, these new societies were based on trade, with goods flowing between countries rather than just within them. People participated in buying and selling, or the exchange of commodities. With this system came a whole new set of societal rules. People would have to protect themselves against unfair treatment by business people who tried to cheat them by not giving them their fair share for the work they did. There would also need to be standards for what constituted fair prices and wages; if an employer refused to pay his employees more than they had agreed upon, they could go elsewhere until they got what they wanted. Ultimately, such standards would provide an incentive for people to become entrepreneurs themselves; if they had some money saved up and were able to invest it into some raw materials, they too could make a profit off other people’s needs!

So what can we learn from the Middle Colonies?

In the 1700s, America’s founding fathers were trying to figure out how to create a new economic system that would eventually lead to a powerful United States. They looked at history, and came up with three models of economic systems: mercantilism, feudalism, and capitalism. The Mercantilist model was based on trade for goods (a closed market), feudalism was based on land ownership (an open market), but capitalism was based on free trade for goods and services (a free market). To decide which system would work best in America, they looked at what had happened in other countries over time.

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  • What was the economic situation in Europe during this time?
  • Why did settlers come to America?
  • What were some of the challenges faced by colonists?
  • How did the middle colonies develop differently from New England and Virginia?
  • How did Quakers influence colonial economies?

Settlers came to America seeking religious freedom, opportunity, and cheap land. They hoped they would make their fortunes by farming or trading goods with other colonies or European countries; others sought adventure and a new way of life. Land in the American colonies was plentiful and free for those willing to work it, but conditions were rough for early pioneers. Most settlers had little money when they arrived in North America, so their success depended on whether they could quickly establish themselves as successful farmers or entrepreneurs.


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