History Of Mercantilism
Baldomero Prado
Mercantilism is a nationalist economic policy that is designed to maximize the exports and minimize the imports for an economy. In other words, it seeks to maximize the accumulation of resources within the country and use those resources for one-sided trade.
The policy aims to reduce a possible current account deficit or reach a current account surplus, and it includes measures aimed at accumulating monetary reserves by a positive balance of trade, especially of finished goods. Historically, such policies might have contributed to war and motivated colonial expansion.[1] Mercantilist theory varies in sophistication from one writer to another and has evolved over time.
Mercantilism promotes government regulation of a nation's economy for the purpose of augmenting and bolstering state power at the expense of rival national powers. High tariffs, especially on manufactured goods, were almost universally a feature of mercantilist policy.[2] Before it fell into decline, mercantilism was dominant in modernized parts of Europe and some areas in Africa from the 16th to the 19th centuries, a period of proto-industrialization.[3] Some commentators argue that it is still practised in the economies of industrializing countries,[4] in the form of economic interventionism.[5][6][7][8][9]
Mercantilism became the dominant school of economic thought in Europe throughout the late Renaissance and the early-modern period (from the 15th to the 18th centuries). Evidence of mercantilistic practices appeared in early-modern Venice, Genoa, and Pisa regarding control of the Mediterranean trade in bullion. However, the empiricism of the Renaissance, which first began to quantify large-scale trade accurately, marked mercantilism's birth as a codified school of economic theories.[2] The Italian economist and mercantilist Antonio Serra is considered to have written one of the first treatises on political economy with his 1613 work, A Short Treatise on the Wealth and Poverty of Nations.[10]
Mercantilism in its simplest form is bullionism, yet mercantilist writers emphasize the circulation of money and reject hoarding. Their emphasis on monetary metals accords with current[when?] ideas regarding the money supply, such as the stimulative effect of a growing money-supply. Fiat money and floating exchange rates have since rendered specie concerns irrelevant. In time, industrial policy supplanted the heavy emphasis on money, accompanied by a shift in focus from the capacity to carry on wars to promoting general prosperity.
Most of the European economists who wrote between 1500 and 1750 are today generally described as mercantilists; this term was initially used solely by critics, such as Mirabeau and Smith, but historians proved quick to adopt it. Originally the standard English term was "mercantile system". The word "mercantilism" came into English from German in the early-19th century.
The Austrian lawyer and scholar Philipp Wilhelm von Hornick, one of the pioneers of Cameralism, detailed a nine-point program of what he deemed effective national economy in his Austria Over All, If She Only Will of 1684, which comprehensively sums up the tenets of mercantilism:[20]
Other than Von Hornick, there were no mercantilist writers presenting an overarching scheme for the ideal economy, as Adam Smith would later do for classical economics. Rather, each mercantilist writer tended to focus on a single area of the economy.[21] Only later did non-mercantilist scholars integrate these "diverse" ideas into what they called mercantilism. Some scholars thus reject the idea of mercantilism completely, arguing that it gives "a false unity to disparate events". Smith saw the mercantile system as an enormous conspiracy by manufacturers and merchants against consumers, a view that has led some authors, especially Robert E. Ekelund and Robert D. Tollison, to call mercantilism "a rent-seeking society". To a certain extent, mercantilist doctrine itself made a general theory of economics impossible.[22] Mercantilists viewed the economic system as a zero-sum game, in which any gain by one party required a loss by another.[23] Thus, any system of policies that benefited one group would by definition harm the other, and there was no possibility of economics being used to maximize the commonwealth, or common good.[24] Mercantilists' writings were also generally created to rationalize particular practices rather than as investigations into the best policies.[25]
Mercantilist domestic policy was more fragmented than its trade policy. While Adam Smith portrayed mercantilism as supportive of strict controls over the economy, many mercantilists disagreed. The early modern era was one of letters patent and government-imposed monopolies; some mercantilists supported these, but others acknowledged the corruption and inefficiency of such systems. Many mercantilists also realized that the inevitable results of quotas and price ceilings were black markets. One notion that mercantilists widely agreed upon was the need for economic oppression of the working population; laborers and farmers were to live at the "margins of subsistence". The goal was to maximize production, with no concern for consumption. Extra money, free time, and education for the lower classes were seen to inevitably lead to vice and laziness, and would result in harm to the economy.[26]
The mercantilists saw a large population as a form of wealth that made possible the development of bigger markets and armies. Opposite to mercantilism was the doctrine of physiocracy, which predicted that mankind would outgrow its resources. The idea of mercantilism was to protect the markets as well as maintain agriculture and those who were dependent upon it.
Mercantilist ideas were the dominant economic ideology of all of Europe in the early modern period, and most states embraced it to a certain degree. Mercantilism was centred on England and France, and it was in these states that mercantilist policies were most often enacted.
Mercantilism arose in France in the early 16th century soon after the monarchy had become the dominant force in French politics. In 1539, an important decree banned the import of woolen goods from Spain and some parts of Flanders. The next year, a number of restrictions were imposed on the export of bullion.[27]
Over the rest of the 16th century, further protectionist measures were introduced. The height of French mercantilism is closely associated with Jean-Baptiste Colbert, finance minister for 22 years in the 17th century, to the extent that French mercantilism is sometimes called Colbertism. Under Colbert, the French government became deeply involved in the economy in order to increase exports. Protectionist policies were enacted that limited imports and favored exports. Industries were organized into guilds and monopolies, and production was regulated by the state through a series of more than one thousand directives outlining how different products should be produced.[28]
To encourage industry, foreign artisans and craftsmen were imported. Colbert also worked to decrease internal barriers to trade, reducing internal tariffs and building an extensive network of roads and canals. Colbert's policies were quite successful, and France's industrial output and the economy grew considerably during this period, as France became the dominant European power. He was less successful in turning France into a major trading power, and Britain and the Dutch Republic remained supreme in this field.[28]
France imposed its mercantilist philosophy on its colonies in North America, especially New France. It sought to derive the maximum material benefit from the colony, for the homeland, with a minimum of colonial investment in the colony itself. The ideology was embodied in New France through the establishment under Royal Charter of a number of corporate trading monopolies including La Compagnie des Marchands, which operated from 1613 to 1621, and the Compagnie de Montmorency, from that date until 1627. It was in turn replaced by La Compagnie des Cent-Associs, created in 1627 by King Louis XIII, and the Communaut des habitants in 1643. These were the first corporations to operate in what is now Canada.
British mercantilist writers were themselves divided on whether domestic controls were necessary. British mercantilism thus mainly took the form of efforts to control trade. A wide array of regulations were put in place to encourage exports and discourage imports. Tariffs were placed on imports and bounties given for exports, and the export of some raw materials was banned completely. The Navigation Acts removed foreign merchants from being involved England's domestic trade. British policies in their American colonies led to friction with the inhabitants of the Thirteen Colonies, and mercantilist policies (such as forbidding trade with other European powers and enforcing bans on smuggling) were a major irritant leading to the American Revolution.[32][33]
Mercantilism taught that trade was a zero-sum game, with one country's gain equivalent to a loss sustained by the trading partner. Overall, however, mercantilist policies had a positive impact on Britain, helping to transform the nation into the world's dominant trading power and a global hegemon.[33] One domestic policy that had a lasting impact was the conversion of "wastelands" to agricultural use. Mercantilists believed that to maximize a nation's power, all land and resources had to be used to their highest and best use, and this era thus saw projects like the draining of The Fens.[34]
The Habsburg Holy Roman Emperors had long been interested in mercantilist policies, but the vast and decentralized nature of their empire made implementing such notions difficult. Some constituent states of the empire did embrace mercantilism, most notably Prussia, which under Frederick the Great had perhaps the most rigidly controlled economy in Europe.
Spain benefited from mercantilism early on as it brought a large amount of precious metals such as gold and silver into their treasury by way of the new world. In the long run, Spain's economy collapsed as it was unable to adjust to the inflation that came with the large influx of bullion. Heavy intervention from the crown put crippling laws for the protection of Spanish goods and services. Mercantilist protectionist policy in Spain caused the long-run failure of the Castilian textile industry as the efficiency severely dropped off with each passing year due to the production being held at a specific level. Spain's heavily protected industries led to famines as much of its agricultural land was required to be used for sheep instead of grain. Much of their grain was imported from the Baltic region of Europe which caused a shortage of food in the inner regions of Spain. Spain limiting the trade of their colonies is one of the causes that led to the separation of the Dutch from the Spanish Empire. The culmination of all of these policies led to Spain defaulting in 1557, 1575, and 1596.[35]
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