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[MERCANTIL(E) + –ISM.]
mercantilist mer'can·til·ist adj. & n.The main economic system used during the sixteenth to eighteenth centuries. The main goal was to increase a nation's wealth by imposing government regulation concerning all of the nation's commercial interests. It was believed that national strength could be maximized by limiting imports via tariffs and maximizing exports.
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This approach assumes the wealth of a nation depends primarily on the possession of precious metals such as gold and silver. This type of system cannot be maintained forever, because the global economy would become stagnant if every country wanted to export and no one wanted to import. After a period of time, many people began to revolt against the idea of mercantilism and stressed the need for free trade. The continued pressure resulted in the implementation of laissez faire economics in the nineteenth century.
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1. Seventeenth and eighteenth century economic policy under which trading nations generated wealth and power by exporting manufactured goods in exchange for gold.
2. In modern times, second-rate status of nations having a heavy dependence on imported manufactured goods.
n.belief in the benefits of profitable trading; commercialism.
mercantilist n. & adj. mercantilistic adj.
See the Introduction, Abbreviations and Pronunciation for further details.
The view, current in early modern Europe, that one nation's gain is only achieved by another nation's loss; that trade between states is a ‘zero sum game’. According to this view, a trading nation can only prosper if it encourages the export of manufactures and the import of raw materials, but discourages the import of manufactures and the export of domestically produced raw materials, through the erection of tariff barriers. Adam Smith (1723-90) countered this view, arguing that an increase in prosperity for all was possible by, as it were, increasing the size of the economic cake.
The system of relations between state and economy prevailing throughout Western Europe and its dependencies up to the nineteenth century under which those trades and industries were most encouraged that secured the accumulation of bullion, a national fleet and trained mariners, secure sources of strategic materials, and strong armaments production. Mercantilism was opposed by liberals like Adam Smith from the eighteenth century onwards, because of its reliance on the granting of exclusive privileges to corporations such as the British and Dutch East India Companies to the detriment of free trade and a rational division of labour at home. Subsequently used in an exclusively pejorative sense, neomercantilism became in the 1930s and 1970s a convenient synonym for economic nationalism.
— Charles Jones
For more information on mercantilism, visit Britannica.com.
This general term, coined in 1763 by Mirabeau, is usually applied to the system of economic policy which flourished between the 16th and 18th cents. Mercantilists were concerned to increase the power of the nation state by competition with hostile rival nations. Most characteristic were their ideas about trade and gold. Wealth was defined exclusively in terms of gold bullion reserves, so that a positive trade balance became a prime aim of policy to increase the currency reserves. Such notions supported the acquisition of colonies to provide necessary imports which, otherwise, would have to be bought from rivals in exchange for bullion. The Navigation Acts introduced in the 17th cent. by the English government represented a typically mercantilist attempt to manipulate the costs of trade by stipulating that goods in the colonial trade must be carried in English ships.
Modern economic thought gives little support to the basic ideas of mercantilism. Current theory regards the restriction of trade as damaging to economic growth. Similarly monopolistic control and the regulation of economic activity are perceived as sources of inefficiency.
Mercantilism is the name given to the economic doctrines and practices of major trading nations roughly from the fifteenth through the eighteenth centuries. Colonial empires such as those of England, France, and Spain were among those adhering to the mercantile system. Although specific practices regarding the doctrine varied from nation to nation, there were basic principles all mercantilists followed. Mercantilists practiced heavy state regulation of economic activity in order to boost national wealth. The wealth of the nation was based upon its stocks of gold and silver, rather than on its peoples' living conditions, for example. Thus the accumulation of national wealth was believed to be best achieved by creating as large an excess of exports over imports as possible, as the difference would be collected in gold from importing countries. Colonies in particular were seen as a valuable means of increasing exports and thereby enriching the mother country, as was the case with the British colonies.
One of the earliest navigation acts passed by the British Parliament to have a direct impact on the American colonies was in 1651. It is the modification of this law in 1660 that became known as the Navigation Act, which defined British colonial policy and its practice of mercantilism. Protecting its national interests, the law stated that trade within the British empire was to be conducted by English ships and English seamen. Those defined as English included residents of the colonies as well as England. This gave English ships a complete monopoly over trade within the British empire, greatly limited the trade of foreign vessels within England's ports, and excluded foreign vessels altogether from colonial ports.
Further revisions of the Act made British ports the hub for all trade within the empire. The revisions called for trade with foreign powers to be shipped from its point of production to England or a British colonial port before being shipped to its foreign destination. Conversely, foreign goods set for the colonies were required to stop first in England. This ensured England would be the center for all colonial trade and allowed for taxes to be levied as goods flowed through the country.
The next phase of the Navigation Acts specifically listed which products were to be shipped to ports within the British empire and which were to be shipped to foreign countries. They also regulated the manufacture and trade of colonial products. Those colonial products needed within the empire, like iron, lumber, and other raw materials, were highly supported by the British government. Direct bounties were used to promote the colonial production of hemp, tar, pitch, and other naval stores. Other colonial products benefited from bounties at various times, including raw silk, masts, lumber, and indigo. Large sums were paid for the production and trade of these items between 1705 and 1774, with payments averaging more than £15,000 a year in the decade preceding the Revolution alone. Other products, like tobacco, were given a monopoly of the market in England, as the government levied high tariffs on tobacco from Spain and other foreign markets. Sugar and molasses received similar treatment. When such products were not needed in the British market, the taxes were rolled back so that they could be exported to other markets with a minimum of British taxes.
As it actively supported some products, the British government also actively discouraged the production of colonial products that would compete with those produced at home. In 1699, prohibitive legislation was passed to restrict the transportation of raw wool from one colony to another because wool production and manufacturing would infringe upon the business practiced in England. Similar legislation restricting transportation between colonies was passed with regard to hats in 1732, as hat production was a valued craft in England. The Wrought Iron and Steel Bill of 1750 prohibited the creation within the colonies of new steel mills, slitting mills, and tilt hammers. In addition to these restrictions, taxes became the main issue of resentment of the American colonists living under the British mercantile system. With the Townshend Acts of 1767, Parliament levied duties on colonial imports of paper, glass, paint, and tea, to which one colonial response was the Boston Tea Party (1773).
It is widely asserted that among the causes of the American Revolution were these mercantilist laws. Revolutionary Americans resented the economic restrictions, finding them exploitative. They claimed the policy restricted colonial trade and industry and raised the cost of many consumer goods. In his 1774 pamphlet, "A Summary View of the Rights of British America, " Thomas Jefferson asserted the Navigation Acts had infringed upon the colonists' freedom in preventing the "exercise of free trade with all parts of the world, possessed by the American colonists, as of natural right." Yet, as O. M. Dickerson points out, it is difficult to find opposition to the mercantile system among the colonists when the measures were purely regulatory and did not levy a tax on them. The British mercantile system did after all allow for colonial monopoly over certain markets such as tobacco, and not only encouraged, but with its 1660 regulation was instrumental in, the development of colonial shipbuilding. Indeed, the mercantile system was specifically approved by the First Continental Congress in the Declaration of Rights of 14 October 1774.
Comprehensive intellectual criticism of mercantilism as an economic doctrine began to arise in the 1750s and continued through the end of the century. Many intellectuals during the Enlightenment explored new ideas in political economy; Adam Smith in his 1776 An Inquiry into the Nature and Causes of the Wealth of Nations was one of the most influential figures for the Americans. Smith admitted the mercantile system worked, yet criticized its principles. Expounding a doctrine of individualism, Smith was one of many voices stating that the economy, like the individual, should be free from detailed regulation from the state. Economic, as well as individual, self-interest and its outcome in the market should be allowed to function without state regulation. Although it was indeed approved by the First Continental Congress, the practice of mercantilism was replaced with a Smith-oriented form of liberalism in post-Revolutionary America.
Bibliography
Bruchey, Stuart Weems, ed. The Colonial Merchant: Sources and Readings. New York: Harcourt, Brace, 1966.
Crowley, John E. The Privileges of Independence: Neomercantilism and the American Revolution. Baltimore: Johns Hopkins University Press, 1993.
Dickerson, Oliver Morton. Navigation Acts and the American Revolution. Philadelphia: University of Pennsylvania Press, 1951.
Mercantilism is the doctrine that economic activity, especially foreign trade, should be directed to unifying and strengthening state power. Though some mercantilist writers emphasized the accumulation of gold and silver by artificial trade surpluses, this "bullionist" version was not dominant in Russia.
The greatest of the Russian enlightened despots, Peter the Great, was eager to borrow the best of Western practice in order to modernize his vast country and to expand its power north and south. Toward this end, the tsar emulated successful Swedish reforms by establishing a regular bureaucracy and unifying measures. Peter brought in Western artisans to help design his new capital at St. Petersburg. He granted monopolies for fiscal purposes on salt, vodka, and metals, while developing workshops for luxury products. Skeptical of private entrepreneurs, he set up state-owned shipyards, arsenals, foundries, mines, and factories. Serfs were assigned to some of these. Like the state-sponsored enterprises of Prussia, however, most of these failed within a few decades.
Tsar Peter instituted many new taxes, raising revenues some five times, not counting the servile labor impressed to build the northern capital, canals, and roads. Like Henry VIII of England, he confiscated church lands and treasure for secular purposes. He also tried to unify internal tolls, something accomplished only in 1753.
Foreign trade was a small, and rather late, concern of Peter's. That function remained mostly in the hands of foreigners. To protect the industries in his domains, he forbade the import of woolen textiles and needles. In addition, he forbade the export of gold and insisted that increased import duties be paid in specie (coin).
Bibliography
Gerschenkron, Alexander. (1970). Europe in the Russian Mirror. London: Cambridge University Press.
Spechler, Martin C. (2001). "Nationalism and Economic History." In Encyclopedia of Nationalism, vol. 1, ed. Alexander Motyl. New York: Academic Press, pp. 219-235.
Spechler, Martin C. (1990). Perspectives in Economic Thought. New York: McGraw-Hill.
—MARTIN C. SPECHLER
Bibliography
See J. W. Horrocks, A Short History of Mercantilism (1925); D. C. Coleman, ed., Revisions in Mercantilism (1969); R. B. Ekelund, Jr., and R. D. Tollison, Mercantilists as a Rent-Seeking Society (1982); J. C. Miller, Way of Death: Merchant Capitalism and the Angolan Slave Trade (1988).
Mercantilism was an economic "system" that developed in Europe during the period of the new monarchies (c. 1500) and culminated with the rise of the absolutist states (c. 1600–1700). Mercantilism was not characterized by the blind adherence to a single, precisely defined economic theorem. Rather, its adherents embraced, in various degrees, parts of a set of commonly held theoretical beliefs or tendencies that were best suited to the needs of a particular time and state. The underlying principles of mercantilism included (1) the belief that the amount of wealth in the world was relatively static; (2) the belief that a country's wealth could best be judged by the amount of precious metals or bullion it possessed; (3) the need to encourage exports over imports as a means for obtaining a favorable balance of foreign trade that would yield such metals; (4) the value of a large population as a key to self-sufficiency and state power; and (5) the belief that the crown or state should exercise a dominant role in assisting and directing the national and international economies to these ends. As such, mercantilism developed logically from the changes inherent in the decline of feudalism, the rise of strong national states, and the development of a world market economy.
The shift from payments in kind, characteristic of the feudal period, to a money economy was one key development in this process. By the late fifteenth century, as regional, national, and international trade continued to blossom, European currencies expanded as well; circulation was more common, widespread, and vital. The early mercantilists recognized the seminal fact of this period. Money was wealth sui generis; it gave its holder the power to obtain other commodities and services. Precious metals, especially gold, were in universal demand as the surest means to obtain other goods and services. At the same time the rise of more powerful European states with burgeoning bureaucracies, frequent dynastic wars that required larger and more expensive armies, and more lavish court expenditures exacerbated this fundamental need for money in the form of precious metals. Foreign trade, not domestic trade, was viewed as the preferred method for obtaining bullion, while manufacturing, which provided the goods for such trade, was favored over agriculture. Finally, the discovery of the New World by Columbus in 1492 and the discovery of the sea route to India by Vasco da Gama in 1497–1499 also provided fertile ground for obtaining such wealth while creating an ever greater need for wealth to conquer and protect these colonies and their imperial trade. All of these factors ensured that the rising late medieval and early modern states embraced mercantilism as an economic theory that allowed them to adapt to and seek to exploit these shifting structures.
Since mercantilism at base postulated increased royal control over both the internal and external economic policies of the state, it found easy acceptance among the "new" monarchies of the late fifteenth century and the sixteenth century. In Portugal, Manuel I (ruled 1495–1521) and his successors embraced its tenets regarding bullion and colonies to help exploit their burgeoning Asian empire. In Spain both Charles I (ruled 1516–1556) and Philip II (ruled 1556–1598), given the boon of New World precious metals, also found comfort in bullionism as well as the tenets calling for the exploitation of colonies for the benefit of the mother country. In England, Henry VIII (ruled 1509–1547) and Elizabeth I (ruled 1558–1603) adhered to some mercantilist principles in an effort that was, at least in part, designed to combat the threat of universal Habsburg Monarchy and Iberian dominance in the developing world market economy.
Proponents of Mercantilism
During the seventeenth century, adherents of absolutism also found much to embrace in mercantilism. During the age of Stuart absolutism James I (ruled 1603–1625) and Charles I (ruled 1625–1649) found it logical to accept the premise that the monarch should not only control the political and social hierarchy but should enjoy control over the economy as well. Oliver Cromwell (1599–1658), after destroying Stuart pretensions in the Civil War, embraced both mercantilist warfare and the Navigation Acts in his commercial struggle with the Dutch. It was in France, however, that mercantilism found perhaps its greatest supporter in Jean-Baptiste Colbert (1619–1683). Colbert's career was as much a product of the sociopolitical dynamics of the absolutist state as the result of the unrivaled bureaucratic energies he displayed in the service of his early patrons and eventually the crown. His family rose through the social hierarchy based on the time-honored expedients of wealth and venality of office. Utilizing family connections, Colbert entered the service of Michel Le Tellier in 1643, soon after the latter became secretary of state in charge of military affairs. This promising foundation was solidified during Colbert's "apprenticeship" under Jules Cardinal Mazarin, a mutually advantageous relationship that began in 1651 and lasted until Mazarin's death in 1661. By the end of this decade of opportunity, Colbert had become baron de Seignelay, secretary of the orders of the queen, intendant general of the affairs of Mazarin, counselor of the king in all of his councils—not to mention a very wealthy man. Just as importantly, he had begun to create an apparatus for the implementation of his later policies by further enriching his family and arranging influential positions for a bevy of his brothers and cousins.
In this rapid ascent through the labyrinth of French political life, Colbert honed the ideas and theories that shaped his policies after 1661, the year Louis XIV (ruled 1643–1715) began his personal reign and Nicolas Fouquet was imprisoned, thus ensuring Colbert's ascent to ministerial preeminence. The basic theoretical tenets of mercantilism predated Louis XIV's reign, in some cases by half a dozen generations. Colbert was exposed to such ideas in the Paris of his youth, when the economic traditions of the first Bourbon king of France, Henry IV (ruled 1589–1610), and the theories of his able controleur général du commerce (comptroller general of finance), Barthélemy de Laffemas, were still relatively strong. Armand-Jean Du Plessis, Cardinal Richelieu (1585–1642) was still alive at that time, and Issac de Laffemas, the cardinal's creature, was in the midst of perpetuating his father's intellectual legacy. Although Colbert never referred to the writings of Antoine de Montchrestien (c. 1575–1621) and Jean Bodin (1530–1596), he was probably familiar with their works. Mercantilism reached its apogee under Colbert not because he was a theorist but rather because he was a man of action who judged its tenets to be the only natural and logical way to achieve his most cherished goal: a powerful and wealthy France united under a glorious monarch. The primary obstacle to France's economic greatness was the overweening economic power of the Dutch. If the mercantile power of the burghers of Amsterdam could be broken in both Europe and the lucrative Asian trade, France could prosper.
Colbert's anti-Dutch strategy evolved logically from his beliefs on political economy. Foremost among his particular tenets on mercantilism was the conviction that the volume of world trade was essentially static and that, to increase its share, France would have to win part of that controlled by its rivals. In one of his most quoted mémoires (Lettres VI: 260–270) Colbert wrote, "The commerce of all Europe is carried on by ships of every size to the number of 20,000, and it is perfectly clear that this number cannot be increased." Commerce caused "perpetual combat in peace and war among the nations of Europe, as to who shall win most of it." His exaggerated estimate on the maritime strength of the major European trading nations competing in this "war" was fifteen thousand to sixteen thousand Dutch ships, three thousand to four thousand English ships, and five hundred to six hundred French ships. Just as importantly neither the French nor the English could "improve their commerce save by increasing this number, save from the 20,000 . . . and consequently by making inroads on the 15,000 to 16,000 of the Dutch." (Lettres VI: 260–270). The bellicism inherent in such beliefs would in part culminate in the Dutch War of 1672, a war Colbert supported. Unfortunately, despite his most careful calculations regarding this struggle in both Europe and the Indian Ocean, Louis XIV's armies and fleets suffered increasing difficulties in the war from 1672 to 1679. These setbacks forced Colbert to undo many of his initial reforms from 1661 that had doubled the king's revenues, forged a powerful navy, and set France on a course for apparent dominance in Europe. By the time of his death in 1683, the kingdom was instead on the road to bankruptcy and revolt, and Louis XIV's penchant for continued warfare in the decades down to 1715 only exacerbated this decline.
Opponents of Mercantilism
During the eighteenth century the limits of mercantilism became increasingly obvious, and intellectual and political critics of its basic tenets gradually emerged. First, Louis XIV's spectacular failures in the kingdom viewed as the apogee of both absolutism and mercantilism certainly revealed the limitations of allowing the state to direct the economy for its own frequently selfish, if not self-destructive, purposes. At the same time, in parts of England, Holland, and northwestern France the initial adherence to mercantilist principles created the very conditions that fostered antimercantilist sentiments. These developments would ultimately cause the destruction of merchant capitalism. In short, merchant capitalism reached a level within the mercantilist system where state intervention and direction of the economy was threatening and even preventing further expansion. The critical spirit toward existing Old Regime structures embodied in the intellectual revolution of the Enlightenment found its antimercantilist champions in the Physiocrats. In part adapting "natural law" doctrines to the economy, this influential group of economic theorists, including François Quesnay (1694–1774), Jean-Claude-Marie-Vincent de Gournay (1712–1759), and Pierre-Samuel du Pont de Nemours (1739–1817), instead argued for laissez-faire. This theory argued that the economy functioned best when its own "natural laws" were allowed to function without government intervention. Complementing the work of the French économistes, the Scottish philosopher David Hume (1711–1776) sought to identify the natural advantages that various nations enjoyed in the flow of commerce and provided a new theory on international trade. In his Political Discourses (1752) and Essays and Treatises on Several Subjects (1753), Hume also sought to refute some of the principal tenets of mercantilism, including confounding money with wealth and the blind acceptance of bullionism. Yet by far the most important work criticizing mercantilist thought was Adam Smith's (1723–1790) An Inquiry into the Nature and Causes of the Wealth of Nations (1776), the first systematic economic analysis of the world market economy created during the preceding age of mercantilism. Smith's strong advocacy of free trade and his belief that world wealth was not static, as Colbert and others had held, did much to undermine mercantilism. At the same time his theories and those of other Physiocrats also encouraged colonies like British North America to reject the traditional dependence on their mother countries as defined by the mercantilist model while furnishing intellectual fuel for the industrial revolution then taking place in Great Britain. In France, however, only the French Revolution and Napoléon I (1769–1821) would facilitate the destruction of the economic remnants of both the late medieval and mercantilist periods.
Bibliography
Colbert, Jean Baptiste. Lettres, instructions, et mémoires. Edited by Pierre Clément. 7 vols. Paris, 1861–1882.
Cole, Charles Woosley. Colbert and a Century of French Mercantilism. 2 vols. New York, 1939.
——. French Mercantilist Doctrines before Colbert. New York, 1931.
Heckscher, Eli F. Mercantilism. Translated by Mendel Shapiro. Rev. ed. 2 vols. London, 1955.
—GLENN J. AMES
An economic doctrine that flourished in Europe from the sixteenth to the eighteenth centuries. Mercantilists held that a nation's wealth consisted primarily in the amount of gold and silver in its treasury. Accordingly, mercantilist governments imposed extensive restrictions on their economies to ensure a surplus of exports over imports. In the eighteenth century, mercantilism was challenged by the doctrine of laissez-faire. (See also Adam Smith.)
Mercantilism is an economic theory that holds the prosperity of a nation dependable upon its supply of capital, and that the global volume of trade is "unchangeable." Economic assets, or capital, are represented by bullion (gold, silver, and trade value) held by the state, which is best increased through a positive balance of trade with other nations (exports minus imports). Mercantilism suggests that the ruling government should advance these goals by playing a protectionist role in the economy, by encouraging exports and discouraging imports, especially through the use of tariffs. The economic policy based upon these ideas is often called the mercantile system.
Mercantilism was established during the early modern period (starting in the 16th to the 18th century, which roughly corresponded to the emergence of the nation-state). This led to some of the first instances of significant government intervention and control over market economies, and it was during this period that much of the modern capitalist system was established. Internationally, mercantilism encouraged the many European wars of the period, and fueled European imperialism, as the European powers fought over "available" markets. Belief in mercantilism began to fade in the late 18th century, as the arguments of Adam Smith and the other classical economists won favour in the British Empire (among such advocates as Richard Cobden) and to a lesser degree in the rest of Europe (with the notable exception of Germany where the Historical school of economics was favored throughout the 19th and early 20th century). Some have said that America chose not to adhere to classical economics, preferring a form of neo-mercantilism embodied by the "American School," but in 1792 Alexander Hamilton, basing his policies on his study of Adam Smith, established a gold standard designed to conform to that of Britain to promote international trade contrary to the mercantilist leaning of men like Thomas Jefferson. America drifted from the gold standard a number of times prior to the Great Depression, but always returned to the Hamilton gold standard. The Great Depression influenced American government to return to neo-mercantilism imposing high protectionist tariffs and suspending private ownership of gold. Finally, during the New Deal, the currency was devalued based on the government’s new neo-mercantilist leaning. Today, mercantilism has seen a resurgence in economic theories that focus on the trade surplus and deficit as determinants of monetary value, but mercantilism as a whole is rejected by many economists, though elements of it are still accepted by some economists including Ravi Batra, Pat Choate, Eammon Fingleton, and Michael Lind.[1]
The word comes from the Latin word mercari, which means "to run a trade," from merx, meaning "commodity." It was initially used solely by critics, such as Mirabeau and Smith, but was quickly adopted by historians. Originally, the standard English term was mercantile system. The word mercantilism was introduced into English from German in the early 20th century.
Many European economists between 1500 and 1750 are today generally considered mercantilists; however, these economists did not see themselves as contributing to a single economic ideology. The bulk of what is commonly called "mercantilist literature" appeared in the 1620s in Great Britain.[2] However, the term was coined by the French writer Victor de Riqueti, marquis de Mirabeau in 1763 in his Philosophie Rurale, although the French form of mercantilism was called Colbertism after 1600s French finance minister Jean-Baptiste Colbert. Perhaps the last major mercantilist work was James Steuart’s Principles of Political Oeconomy published in 1767.[3] Adam Smith, who was critical of the idea, was the first person to organize formally most of the contributions of mercantilists into what he called "the mercantile system" in his 1776 book The Wealth of Nations.[4] Smith saw English merchant Thomas Mun (1571-1641) as a major creator of the mercantile system, especially in his posthumously published Treasure by Forraign Trade (1664), which Smith considered the archetype of manifesto of the movement. [5]
Beyond England, Italy, France, and Spain had noted writers who had mercantilist themes in their work, indeed the earliest examples of mercantilism are from outside of England: in Italy, Giovanni Botero (1544-1617) and Antonio Serra (1580-?), in France, Colbert and some other precursors to the physiocrats, in Spain, the School of Salamanca writers Francisco de Vitoria (1480 or 1483 – 1546), Domingo de Soto (1494-1560), Martin de Azpilcueta (1491 - 1586), and Luis de Molina (1535-1600). Themes also existed in writers from the German historical school from List, as well as followers of the "American system" and British "free-trade impirialism," thus stretching the system into the nineteenth century. However, many British writers including Munn and Misselden were merchants, while many of the writers from other countries were public officials. Beyond mercantilism as a way of understanding the wealth and power of nations, Mun and Misselden are noted for their viewpoints on a wide range of economic matters.[6]
Much of Mun and Misseldon's writings are a result of the discussion about the depression England was in at the time, starting in the early 1620s. English merchant Gerrard de Malynes argued that the depression was due to weakening terms of trade for English goods due to a conspiracy by foreign money speculators (especially Dutch and Jewish) to lower the value of English Money. de Malynes saw speculation as a moral evil, and wrote about it in his 1601 pamphlet, "The Canker of England's Commonwealth". Mun, who chaired a Privy Council committee which sought a solution to the crisis, felt along with Misselden that the weakening terms of trade was due to a negative balance of trade between England and other countries since the beginning of the Thirty Years War.[7] Beyond questions of validity of Mun's and Misselden's arguments, Swedish historian of economics Lars Magnussen emphasizes the importance of aspects of their arguments on future thinkers such as Josiah Child, Charles Davenant, Nicholas Barbon, Sir Dudley North, John Martyn, and William Petty. Magnussen traces the importance of Mun and Misselden to their belief in the role of supply and demand for bullion on balance of payments as a cause of depression, and of their emphasis on amoral self-interested agents rather than looking at economic matters as moral questions. This meant that Mun and Misselden were able to introduce the Baconian scientific method of Francis Bacon to the area of economics, and thus base their work on empiricism in a much stronger way than those who more tightly tied economics with morality.[8]
Mercantilism as a whole cannot be considered a unified theory of economics. There were no mercantilist writers presenting an overarching scheme for the ideal economy, as Adam Smith would later do for classical (laissez-faire) economics. Rather, each mercantilist writer tended to focus on a single area of the economy.[9] 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. Eklund 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. Mercantilists viewed the economic system as a zero-sum game, in which any gain by one party required a loss by another.[10] 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.[11] Mercantilists' writings were also generally created to rationalize particular practices rather than as investigations into the best policies.[12]
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 the inevitable result of quotas and price ceilings were black markets. One notion 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, or education for the "lower classes" was seen to inevitably lead to vice and laziness, and would result in harm to the economy.[13]
Scholars are divided on why mercantilism was the dominant economic ideology for two and a half centuries.[14] One group, represented by Jacob Viner, argues that mercantilism was simply a straightforward, common-sense system whose logical fallacies could not be discovered by the people of the time, as they simply lacked the required analytical tools. The second school, supported by scholars such as Robert B. Ekelund, contends that mercantilism was not a mistake, but rather the best possible system for those who developed it. This school argues that mercantilist policies were developed and enforced by rent-seeking merchants and governments. Merchants benefited greatly from the enforced monopolies, bans on foreign competition, and poverty of the workers. Governments benefited from the high tariffs and payments from the merchants. Whereas later economic ideas were often developed by academics and philosophers, almost all mercantilist writers were merchants or government officials.[15]
Mercantilism developed at a time when the European economy was in transition. Isolated feudal estates were being replaced by centralized nation-states as the focus of power. Technological changes in shipping and the growth of urban centers led to a rapid increase in international trade.[16] Mercantilism focused on how this trade could best aid the states. Another important change was the introduction of double-entry bookkeeping and modern accounting. This accounting made extremely clear the inflow and outflow of trade, contributing to the close scrutiny given to the balance of trade.[17] Of course, the impact of the discovery of America can not be ignored. New markets and new mines propelled foreign trade to previously inconceivable heights. The latter led to “the great upward movement in prices” and an increase in “the volume of merchant activity itself.”[18] Prior to mercantilism, the most important economic work done in Europe was by the medieval scholastic theorists. The goal of these thinkers was to find an economic system that was compatible with Christian doctrines of piety and justice. They focused mainly on microeconomics and local exchanges between individuals. Mercantilism was closely aligned with the other theories and ideas that were replacing the medieval worldview. This period saw the adoption of Niccolò Machiavelli's realpolitik and the primacy of the raison d'état in international relations. The mercantilist idea that all trade was a zero sum game, in which each side was trying to best the other in a ruthless competition, was integrated into the works of Thomas Hobbes. Note that non-zero sum games such as prisoner's dilemma can also be consistent with a mercantilist view. In prisoner's dilemma, players are rewarded for defecting against their opponents - even though everyone would be better off if everyone could cooperate. More modern views of economic co-operation amidst ruthless competition can be seen in the folk theorem of game theory.
The dark view of human nature fit well with the Puritan view of the world, and some of the most stridently mercantilist legislation, such as the Navigation Acts, was introduced by the government of Oliver Cromwell.[19]
Adam Smith and David Hume are considered to be the founding fathers of anti-mercantilist thought. A number of scholars found important flaws with mercantilism long before Adam Smith developed an ideology that could fully replace it. Critics like Dudley North, John Locke, and David Hume undermined much of mercantilism, and it steadily lost favor during the eighteenth century. Mercantilists failed to understand the notions of absolute advantage and comparative advantage (although this idea was only fully fleshed out in 1817 by David Ricardo) and the benefits of trade. For instance, Portugal was a far more efficient producer of wine than England, while in England it was relatively cheaper to produce cloth. Thus if Portugal specialized in wine and England in cloth, both states would end up better off if they traded. This is an example of the reciprocal benefits of trade due to a comparative advantage. In modern economic theory, trade is not a zero-sum game of cutthroat competition, because both sides can benefit (rather, it is an iterated prisoner's dilemma). By imposing mercantilist import restrictions and tariffs instead, both nations ended up poorer.
David Hume famously noted the impossibility of the mercantilists' goal of a constant positive balance of trade. As bullion flowed into one country, the supply would increase and the value of bullion in that state would steadily decline relative to other goods. Conversely, in the state exporting bullion, its value would slowly rise. Eventually it would no longer be cost-effective to export goods from the high-price country to the low-price country, and the balance of trade would reverse itself. Mercantilists fundamentally misunderstood this, long arguing that an increase in the money supply simply meant that everyone gets richer.[20]
The importance placed on bullion was also a central target, even if many mercantilists had themselves begun to de-emphasize the importance of gold and silver. Adam Smith noted that at the core of the mercantile system was the "popular folly of confusing wealth with money," bullion was just the same as any other commodity, and there was no reason to give it special treatment.[21] More recently, scholars have discounted the accuracy of this critique. They believe that Mun and Misselden were not making this mistake in th 1620s, and point to their followers Child and Davenant, who, in 1699, wrote: "Gold and Silver are indeed the Measure of Trade, but that the Spring and Original of it, in all nations is the Natural or Artificial Product of the Country; that is to say, what this Land or what this Labour and Industry Produces."[22] The critique that mercantilism was a form of rent-seeking has also seen criticism, as scholars such Jacob Viner in the 1930s point out that merchant mercantilists such as Mun understood that they would not gain by higher prices for English wares abroad.[23]
The first school to completely reject mercantilism was the physiocrats, who developed their theories in France. Their theories also had several important problems, and the replacement of mercantilism did not come until Adam Smith published The Wealth of Nations in 1776. This book outlines the basics of what is today known as classical economics. Smith spends a considerable portion of the book rebutting the arguments of the mercantilists, though often these are simplified or exaggerated versions of mercantilist thought.[24]
Scholars are also divided over the cause of mercantilism's end. Those who believe the theory was simply an error hold that its replacement was inevitable as soon as Smith's more accurate ideas were unveiled. Those who feel that mercantilism was rent seeking hold that it ended only when major power shifts occurred. In Britain, mercantilism faded as the Parliament gained the monarch's power to grant monopolies. While the wealthy capitalists who controlled the House of Commons benefited from these monopolies, Parliament found it difficult to implement them because of the high cost of group decision making.[25]
Mercantilist regulations were steadily removed over the course of the eighteenth century in Britain, and during the 19th century the British government fully embraced free trade and Smith's laissez-faire economics. On the continent, the process was somewhat different. In France economic control remained in the hands of the royal family and mercantilism continued until the French Revolution. In Germany mercantilism remained an important ideology in the nineteenth and early twentieth centuries, when the historical school of economics was paramount.[26]
In the English-speaking world, Adam Smith's utter repudiation of mercantilism was accepted without question in the British Empire but rejected in the United States by such prominent figures as Alexander Hamilton, Henry Clay, Henry Charles Carey, and Abraham Lincoln. In the 20th century, most economists on both sides of the Atlantic have come to accept that in some areas mercantilism had been correct. Most prominently, the economist John Maynard Keynes explicitly supported some of the tenets of mercantilism. Adam Smith had rejected focusing on the money supply, arguing that goods, population, and institutions were the real causes of prosperity. Keynes argued that the money supply, balance of trade, and interest rates were of great importance to an economy. These views later became the basis of monetarism, whose proponents actually reject much of Keynesian monetary theory, and has developed as one of the most important modern schools of economics.
Adam Smith rejected the mercantilist focus on production, arguing that consumption was the only way to grow an economy. Keynes argued that encouraging production was just as important as consumption. Keynes also noted that in the early modern period the focus on the bullion supplies was reasonable. In an era before paper money, an increase for bullion was one of the few ways to increase the money supply. Keynes and other economists of the period also realized that the balance of payments is an important concern, and since the 1930s, all nations have closely monitored the inflow and outflow of capital, and most economists agree that a favorable balance of trade is desirable. Keynes also adopted the essential idea of mercantilism that government intervention in the economy is a necessity. While Keynes' economic theories have had a major impact, few have accepted his effort to rehabilitate the word mercantilism. Today the word remains a pejorative term, often used to attack various forms of protectionism.[27] The similarities between Keynesianism, and its successor ideas, with mercantilism have sometimes led critics to call them neo-mercantilism. Some other systems that do copy several mercantilist policies, such as Japan's economic system, are also sometimes called neo-mercantilist.[28] In an essay appearing in the May 14, 2007 issue of Newsweek, economist Robert J. Samuelson argued that China was pursuing an essentially mercantilist trade policy that threatened to undermine the post-World War II international economic structure.
One area Smith was reversed on well before Keynes was that of use of data. Mercantilists, who were generally merchants or government officials, gathered vast amounts of trade data and used it considerably in their research and writing. William Petty, a strong mercantilist, is generally credited with being the first to use empirical analysis to study the economy. Smith rejected this, arguing that deductive reasoning from base principles was the proper method to discover economic truths. Today, many schools of economics accept that both methods are important; the Austrian School being a notable exception.
In specific instances, protectionist mercantilist policies also had an important and positive impact on the state that enacted them. Adam Smith, himself, for instance praised the Navigation Acts as they greatly expanded the British merchant fleet, and played a central role in turning Britain into the naval and economic superpower that it was for several centuries.[29] Some economists thus feel that protecting infant industries, while causing short term harm, can be beneficial in the long term.
Nonetheless, The Wealth of Nations had profound impact on the end of mercantilist era and the later adoption of free market policy. By 1860, England removed the last vestiges of the mercantile era. Industrial regulations, monopolies and tariffs were withdrawn.
| Mercantilists |
|---|
| International trade | |
|---|---|
| Definitions | |
| Organizations and policies | |
| Schools of thought |
Free trade · Balanced trade · Mercantilism · Protectionism |
| Related issues | |
| Schools of economics | |
|---|---|
| Pre-modern | Ancient schools of economics |
| Early Modern | Scholasticism · Mercantilism · Physiocrats |
| Modern | Classical Economics · English historical school · German historical school · Socialist economics · Neoclassical economics · Lausanne school · Institutional economics |
| 20th-century | Stockholm school · Keynesian economics · Austrian school · Chicago school |
| Related | History of economic thought |
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