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Mercantilism is an economic policy that is designed to maximize the exports and minimize the imports for an economy. It promotes
imperialism Imperialism is the state policy, practice, or advocacy of extending power and dominion, especially by direct territorial acquisition or by gaining political and economic control of other areas, often through employing hard power (economic powe ...
,
colonialism Colonialism is a practice or policy of control by one people or power over other people or areas, often by establishing colonies and generally with the aim of economic dominance. In the process of colonisation, colonisers may impose their reli ...
, tariffs and subsidies on traded goods to achieve that goal. 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 The balance of trade, commercial balance, or net exports (sometimes symbolized as NX), is the difference between the monetary value of a nation's exports and imports over a certain time period. Sometimes a distinction is made between a balance ...
, especially of finished goods. Historically, such policies frequently led to war and motivated colonial expansion. Mercantilist theory varies in sophistication from one writer to another and has evolved over time. It promotes government regulation of a nation's economy for the purpose of augmenting state power at the expense of rival national powers. High
tariff A tariff is a tax imposed by the government of a country or by a supranational union on imports or exports of goods. Besides being a source of revenue for the government, import duties can also be a form of regulation of foreign trade and p ...
s, especially on manufactured goods, were almost universally a feature of mercantilist policy.John J. McCusker, ''Mercantilism and the Economic History of the Early Modern Atlantic World'' (Cambridge UP, 2001) 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. Some commentators argue that it is still practised in the economies of industrializing countries,. in the form of economic interventionism. With the efforts of supranational organizations such as the
World Trade Organization The World Trade Organization (WTO) is an intergovernmental organization that regulates and facilitates international trade. With effective cooperation in the United Nations System, governments use the organization to establish, revise, and ...
to reduce tariffs globally, non-tariff barriers to trade have assumed a greater importance in neomercantilism.


History

Mercantilism became the dominant school of economic thought in Europe throughout the late
Renaissance The Renaissance ( , ) , from , with the same meanings. is a period in European history marking the transition from the Middle Ages to modernity and covering the 15th and 16th centuries, characterized by an effort to revive and surpass ide ...
and the early-modern period (from the 15th to the 18th centuries). Evidence of mercantilistic practices appeared in early-modern
Venice Venice ( ; it, Venezia ; vec, Venesia or ) is a city in northeastern Italy and the capital of the Veneto Regions of Italy, region. It is built on a group of 118 small islands that are separated by canals and linked by over 400  ...
,
Genoa Genoa ( ; it, Genova ; lij, Zêna ). is the capital of the Italian region of Liguria and the sixth-largest city in Italy. In 2015, 594,733 people lived within the city's administrative limits. As of the 2011 Italian census, the Province of ...
, and Pisa regarding control of the Mediterranean trade in bullion. However, the
empiricism In philosophy, empiricism is an epistemological theory that holds that knowledge or justification comes only or primarily from sensory experience. It is one of several views within epistemology, along with rationalism and skepticism. Empir ...
of the
Renaissance The Renaissance ( , ) , from , with the same meanings. is a period in European history marking the transition from the Middle Ages to modernity and covering the 15th and 16th centuries, characterized by an effort to revive and surpass ide ...
, which first began to quantify large-scale trade accurately, marked mercantilism's birth as a codified school of economic theories. The Italian economist and mercantilist
Antonio Serra Antonio Serra was a late 16th-century Italian philosopher and economist in the mercantilist tradition. Biography Little is known about Serra's life. He was born in Cosenza in the late 16th century (the dates of his birth and death are unknownAle ...
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''. 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 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. Mature neomercantilist theory recommends selective high tariffs for "infant" industries or the promotion of the mutual growth of countries through national industrial specialization. England began the first large-scale and integrative approach to mercantilism during the Elizabethan Era (1558–1603). An early statement on national balance of trade appeared in ''Discourse of the Common Weal of this Realm of England'', 1549: "We must always take heed that we buy no more from strangers than we sell them, for so should we impoverish ourselves and enrich them." The period featured various but often disjointed efforts by the court of
Queen Elizabeth Queen Elizabeth, Queen Elisabeth or Elizabeth the Queen may refer to: Queens regnant * Elizabeth I (1533–1603; ), Queen of England and Ireland * Elizabeth II (1926–2022; ), Queen of the United Kingdom and other Commonwealth realms * Queen ...
(r. 1558–1603) to develop a naval and merchant fleet capable of challenging the Spanish stranglehold on trade and of expanding the growth of bullion at home. Queen Elizabeth promoted the
Trade and Navigation Acts The Navigation Acts, or more broadly the Acts of Trade and Navigation, were a long series of English laws that developed, promoted, and regulated English ships, shipping, trade, and commerce between other countries and with its own colonies. The ...
in Parliament and issued orders to her navy for the protection and promotion of English shipping. Authors noted most for establishing the English mercantilist system include Gerard de Malynes ( 1585–1641) and Thomas Mun (1571–1641), who first articulated the Elizabethan system (''England's Treasure by Foreign Trade or the Balance of Foreign Trade is the Rule of Our Treasure''), which Josiah Child (–1699) then developed further. Numerous French authors helped cement French policy around mercantilism in the 17th century.
Jean-Baptiste Colbert Jean-Baptiste Colbert (; 29 August 1619 – 6 September 1683) was a French statesman who served as First Minister of State from 1661 until his death in 1683 under the rule of King Louis XIV. His lasting impact on the organization of the country ...
(Intendant général, 1661–1665; Contrôleur général des finances, 1661–1683) best articulated this
French mercantilism Colbertism ( French: ''Colbertisme'') is an economic and political doctrine of the 17th century, created by Jean-Baptiste Colbert, the Controller-General of Finances under Louis XIV of France. Colbertism is a variant of mercantilism that is sometim ...
. French economic policy liberalized greatly under
Napoleon Napoleon Bonaparte ; it, Napoleone Bonaparte, ; co, Napulione Buonaparte. (born Napoleone Buonaparte; 15 August 1769 – 5 May 1821), later known by his regnal name Napoleon I, was a French military commander and political leader wh ...
(in power from 1799 to 1814/1815) Many nations applied the theory, notably France. King Louis XIV (reigned 1643–1715) followed the guidance of
Jean Baptiste Colbert Jean-Baptiste Colbert (; 29 August 1619 – 6 September 1683) was a French statesman who served as First Minister of State from 1661 until his death in 1683 under the rule of King Louis XIV. His lasting impact on the organization of the country' ...
, his
Controller-General of Finances The Controller-General or Comptroller-General of Finances (french: Contrôleur général des finances) was the name of the minister in charge of finances in France from 1661 to 1791. It replaced the former position of Superintendent of Finances ('' ...
from 1665 to 1683. It was determined that the state should rule in the economic realm as it did in the diplomatic, and that the interests of the state as identified by the king were superior to those of merchants and of everyone else. Mercantilist economic policies aimed to build up the state, especially in an age of incessant warfare, and theorists charged the state with looking for ways to strengthen the economy and to weaken foreign adversaries. In Europe, academic belief in mercantilism began to fade in the late-18th century after the
East India Company The East India Company (EIC) was an English, and later British, joint-stock company founded in 1600 and dissolved in 1874. It was formed to trade in the Indian Ocean region, initially with the East Indies (the Indian subcontinent and Sou ...
annexed the Mughal Bengal, a major trading nation, and the establishment of the
British India The provinces of India, earlier presidencies of British India and still earlier, presidency towns, were the administrative divisions of British governance on the Indian subcontinent. Collectively, they have been called British India. In one ...
through the activities of the East India Company, in light of the arguments of Adam Smith (1723–1790) and of the classical economists. The British Parliament's repeal of the Corn Laws under Robert Peel in 1846 symbolized the emergence of
free trade Free trade is a trade policy that does not restrict imports or exports. It can also be understood as the free market idea applied to international trade. In government, free trade is predominantly advocated by political parties that hold econ ...
as an alternative system.


Theory

Most of the European economists who wrote between 1500 and 1750 are today generally considered 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 German(s) may refer to: * Germany (of or related to) **Germania (historical use) * Germans, citizens of Germany, people of German ancestry, or native speakers of the German language ** For citizens of Germany, see also German nationality law **Ge ...
in the early-19th century. The bulk of what is commonly called "mercantilist literature" appeared in the 1620s in Great Britain.. Smith saw the English merchant Thomas Mun (1571–1641) as a major creator of the mercantile system, especially in his posthumously published ''Treasure by Foreign Trade'' (1664), which Smith considered the archetype or manifesto of the movement. Perhaps the last major mercantilist work was James Steuart's ''Principles of Political Economy'', published in 1767. Mercantilist literature also extended beyond England. Italy and France produced noted writers of mercantilist themes, including Italy's Giovanni Botero (1544–1617) and
Antonio Serra Antonio Serra was a late 16th-century Italian philosopher and economist in the mercantilist tradition. Biography Little is known about Serra's life. He was born in Cosenza in the late 16th century (the dates of his birth and death are unknownAle ...
(1580–?) and, in France,
Jean Bodin Jean Bodin (; c. 1530 – 1596) was a French jurist and political philosopher, member of the Parlement of Paris and professor of law in Toulouse. He is known for his theory of sovereignty. He was also an influential writer on demonology. Bo ...
and Colbert. Themes also existed in writers from the German historical school from List, as well as followers of the American and British systems of free-trade, thus stretching the system into the 19th century. However, many British writers, including Mun 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. 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: * That every little bit of a country's soil be utilized for agriculture, mining or manufacturing. * That all raw materials found in a country be used in domestic manufacture, since finished goods have a higher value than raw materials. * That a large, working population be encouraged. * That all exports of gold and silver be prohibited and all domestic money be kept in circulation. * That all imports of foreign goods be discouraged as much as possible. * That where certain imports are indispensable they be obtained at first hand, in exchange for other domestic goods instead of gold and silver. * That as much as possible, imports be confined to raw materials that can be finished n the home country * That opportunities be constantly sought for selling a country's surplus manufactures to foreigners, so far as necessary, for gold and silver. * That no importation be allowed if such goods are sufficiently and suitably supplied at home. 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. 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. Mercantilists viewed the economic system as a
zero-sum game Zero-sum game is a mathematical representation in game theory and economic theory of a situation which involves two sides, where the result is an advantage for one side and an equivalent loss for the other. In other words, player one's gain is e ...
, in which any gain by one party required a loss by another. 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. Mercantilists' writings were also generally created to rationalize particular practices rather than as investigations into the best policies. 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 Quota may refer to: Economics * Import quota, a trade restriction on the quantity of goods imported into a country * Market Sharing Quota, an economic system used in Canadian agriculture * Milk quota, a quota on milk production in Europe * Indi ...
and price ceilings were
black markets A black market, underground economy, or shadow economy is a clandestine market or series of transactions that has some aspect of illegality or is characterized by noncompliance with an institutional set of rules. If the rule defines the ...
. 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. The mercantilists saw a large population as a form of wealth that made possible the development of bigger
markets Market is a term used to describe concepts such as: *Market (economics), system in which parties engage in transactions according to supply and demand *Market economy *Marketplace, a physical marketplace or public market Geography *Märket, an ...
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.


Policies

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. The policies have included: * High
tariff A tariff is a tax imposed by the government of a country or by a supranational union on imports or exports of goods. Besides being a source of revenue for the government, import duties can also be a form of regulation of foreign trade and p ...
s, especially on manufactured goods. * Forbidding colonies to trade with other nations. * Monopolizing markets with
staple ports Staple may refer to: *Staple food, a foodstuff that forms the basic constituent of a diet *Staple (fastener), a small formed metal fastener **Surgical staple Arts, entertainment, and media *Staple (band), a Christian post-hardcore band ** ''Stapl ...
. * Banning the export of gold and silver, even for payments. * Forbidding trade to be carried in foreign ships, as per, for example, the Navigation Acts. * Subsidies on exports. * Promoting manufacturing and industry through research or direct subsidies. * Limiting wages. * Maximizing the use of domestic resources. * Restricting domestic consumption through non-tariff barriers to trade.


Aztec Empire

Pochteca (singular pochtecatl) were professional, long-distance traveling merchants in the
Aztec Empire The Aztec Empire or the Triple Alliance ( nci, Ēxcān Tlahtōlōyān, �jéːʃkaːn̥ t͡ɬaʔtoːˈlóːjaːn̥ was an alliance of three Nahua city-states: , , and . These three city-states ruled that area in and around the Valley of Mexi ...
. The trade or commerce was referred to as pochtecayotl. Within the empire, the pochteca performed three primary duties: market management, international trade, and acting as market intermediaries domestically. They were a small but important class as they not only facilitated commerce, but also communicated vital information across the empire and beyond its borders, and were often employed as spies due to their extensive travel and knowledge of the empire. The pochteca are the subject of Book 9 of the Florentine Codex (1576), compiled by Bernardino de Sahagún. Pochteca occupied a high status in Aztec society, below the noble class. They were responsible for providing the materials that the Aztec nobility used to display their wealth, which were often obtained from foreign sources. The pochteca also acted as agents for the nobility, selling the surplus tribute that had been bestowed on the noble and warrior elite and also sourcing rare goods or luxury items. The pochteca traded the excess tribute (food, garments, feathers and slaves) in the marketplace or carried it to other areas to exchange for trade goods. Due to the success of the pochteca, many of these merchants became as wealthy as the noble class, but were obligated to hide this wealth from the public. Trading expeditions often left their districts late in the evening, and their wealth was only revealed within their private guildhalls. Although politically and economically powerful, the pochteca strove to avoid undue attention. The merchants followed their own laws in their own
calpulli In precolumbian Aztec society, a calpulli (from Classical Nahuatl '' calpōlli'', , meaning "large house") was the designation of an organizational unit below the level of the altepetl "city-state". In Spanish sources, they are termed ''parcialidad ...
, and venerating their god, Yacatecuhtli, "The Lord Who Guides" and Lord of the Vanguard an aspect of
Quetzalcoatl Quetzalcoatl (, ; Spanish: ''Quetzalcóatl'' ; nci-IPA, Quetzalcōātl, ket͡saɬˈkoːaːt͡ɬ (Modern Nahuatl pronunciation), in honorific form: ''Quetzalcōātzin'') is a deity in Aztec culture and literature whose name comes from the Nah ...
. Eventually the merchants were elevated to the rank of the warriors of the military orders.


France

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 , image_flag = Bandera de España.svg , image_coat = Escudo de España (mazonado).svg , national_motto = '' Plus ultra'' (Latin)(English: "Further Beyond") , national_anthem = (English: "Royal March") , ...
and some parts of
Flanders Flanders (, ; Dutch: ''Vlaanderen'' ) is the Flemish-speaking northern portion of Belgium and one of the communities, regions and language areas of Belgium. However, there are several overlapping definitions, including ones related to cultu ...
. The next year, a number of restrictions were imposed on the export of bullion. Over the rest of the 16th century, further protectionist measures were introduced. The height of French mercantilism is closely associated with
Jean-Baptiste Colbert Jean-Baptiste Colbert (; 29 August 1619 – 6 September 1683) was a French statesman who served as First Minister of State from 1661 until his death in 1683 under the rule of King Louis XIV. His lasting impact on the organization of the country ...
, 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.. 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.


New France

France imposed its mercantilist philosophy on its colonies in North America, especially
New France New France (french: Nouvelle-France) was the area colonized by France in North America, beginning with the exploration of the Gulf of Saint Lawrence by Jacques Cartier in 1534 and ending with the cession of New France to Great Britain and Spa ...
. 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-Associés The Company of One Hundred Associates (French: formally the Compagnie de la Nouvelle-France, or colloquially the Compagnie des Cent-Associés or Compagnie du Canada), or Company of New France, was a French trading and colonization company cha ...
, created in 1627 by King Louis XIII, and the Communauté des habitants in 1643. These were the first corporations to operate in what is now Canada.


Great Britain

In England, mercantilism reached its peak during the
Long Parliament The Long Parliament was an English Parliament which lasted from 1640 until 1660. It followed the fiasco of the Short Parliament, which had convened for only three weeks during the spring of 1640 after an 11-year parliamentary absence. In Septe ...
government (1640–60). Mercantilist policies were also embraced throughout much of the Tudor and Stuart periods, with
Robert Walpole Robert Walpole, 1st Earl of Orford, (26 August 1676 – 18 March 1745; known between 1725 and 1742 as Sir Robert Walpole) was a British statesman and Whig politician who, as First Lord of the Treasury, Chancellor of the Exchequer, and Lea ...
being another major proponent. In Britain, government control over the domestic economy was far less extensive than on the
Continent A continent is any of several large landmasses. Generally identified by convention rather than any strict criteria, up to seven geographical regions are commonly regarded as continents. Ordered from largest in area to smallest, these seven ...
, limited by
common law In law, common law (also known as judicial precedent, judge-made law, or case law) is the body of law created by judges and similar quasi-judicial tribunals by virtue of being stated in written opinions."The common law is not a brooding omniprese ...
and the steadily increasing power of Parliament. Government-controlled monopolies were common, especially before the
English Civil War The English Civil War (1642–1651) was a series of civil wars and political machinations between Parliamentarians (" Roundheads") and Royalists led by Charles I (" Cavaliers"), mainly over the manner of England's governance and issues of r ...
, but were often controversial. With respect to its colonies, British mercantilism meant that the government and the merchants became partners with the goal of increasing political power and private wealth, to the exclusion of other European powers. The government protected its merchants—and kept foreign ones out—through trade barriers, regulations, and subsidies to domestic industries in order to maximize exports from and minimize imports to the realm. The government had to fight smuggling, which became a favourite American technique in the 18th century to circumvent the restrictions on trading with the French, Spanish, or Dutch. The goal of mercantilism was to run trade surpluses to benefit the government. The government took its share through duties and taxes, with the remainder going to merchants in Britain. The government spent much of its revenue on the
Royal Navy The Royal Navy (RN) is the United Kingdom's naval warfare force. Although warships were used by English and Scottish kings from the early medieval period, the first major maritime engagements were fought in the Hundred Years' War against Fr ...
, which both protected the colonies of Britain but was vital in capturing the colonies of other European powers.Max Savelle
''Seeds of Liberty: The Genesis of the American Mind'' (1948) pp. 204ff.
/ref> 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 The Thirteen Colonies, also known as the Thirteen British Colonies, the Thirteen American Colonies, or later as the United Colonies, were a group of British colonies on the Atlantic coast of North America. Founded in the 17th and 18th centur ...
led to friction with the inhabitants of the
Thirteen Colonies The Thirteen Colonies, also known as the Thirteen British Colonies, the Thirteen American Colonies, or later as the United Colonies, were a group of British colonies on the Atlantic coast of North America. Founded in the 17th and 18th centu ...
, 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 The American Revolution was an ideological and political revolution that occurred in British America between 1765 and 1791. The Americans in the Thirteen Colonies formed independent states that defeated the British in the American Revoluti ...
. 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. 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 Highest and Best Use, or highest or best use (HBU), is a concept that originated with early economists such as Irving Fisher (1867-1947), who conceptualized the idea of maximum productivity. One of the earliest citations of the term is found in the ...
, and this era thus saw projects like the draining of
The Fens The Fens, also known as the , in eastern England are a naturally marshy region supporting a rich ecology and numerous species. Most of the fens were drained centuries ago, resulting in a flat, dry, low-lying agricultural region supported by a ...
.


Other countries

The other nations of Europe also embraced mercantilism to varying degrees. The Netherlands, which had become the financial centre of Europe by being its most efficient trader, had little interest in seeing trade restricted and adopted few mercantilist policies. Mercantilism became prominent in Central Europe and Scandinavia after the
Thirty Years' War The Thirty Years' War was one of the longest and most destructive conflicts in European history, lasting from 1618 to 1648. Fought primarily in Central Europe, an estimated 4.5 to 8 million soldiers and civilians died as a result of batt ...
(1618–48), with Christina of Sweden, Jacob Kettler of Courland, and
Christian IV of Denmark Christian IV (12 April 1577 – 28 February 1648) was King of Denmark and Norway and Duke of Holstein and Schleswig from 1588 until his death in 1648. His reign of 59 years, 330 days is the longest of Danish monarchs and Scandinavian mona ...
being notable proponents. The Habsburg
Holy Roman Emperor The Holy Roman Emperor, originally and officially the Emperor of the Romans ( la, Imperator Romanorum, german: Kaiser der Römer) during the Middle Ages, and also known as the Roman-German Emperor since the early modern period ( la, Imperat ...
s 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 Frederick II (german: Friedrich II.; 24 January 171217 August 1786) was King in Prussia from 1740 until 1772, and King of Prussia from 1772 until his death in 1786. His most significant accomplishments include his military successes in the Sil ...
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 lead to the separation of the Dutch from the Spanish Empire. The culmination of all of these policies lead to Spain defaulting in 1557, 1575, and 1596. During the economic collapse of the 17th century, Spain had little coherent economic policy, but French mercantilist policies were imported by Philip V with some success.
Russia Russia (, , ), or the Russian Federation, is a transcontinental country spanning Eastern Europe and Northern Asia. It is the largest country in the world, with its internationally recognised territory covering , and encompassing one-ei ...
under
Peter I Peter I may refer to: Religious hierarchs * Saint Peter (c. 1 AD – c. 64–88 AD), a.k.a. Simon Peter, Simeon, or Simon, apostle of Jesus * Pope Peter I of Alexandria (died 311), revered as a saint * Peter I of Armenia (died 1058), Catholicos ...
(Peter the Great) attempted to pursue mercantilism, but had little success because of Russia's lack of a large merchant class or an industrial base.


Wars and imperialism

Mercantilism was the economic version of warfare using economics as a tool for warfare by other means backed up by the state apparatus and was well suited to an era of military warfare. Since the level of world trade was viewed as fixed, it followed that the only way to increase a nation's trade was to take it from another. A number of wars, most notably the Anglo-Dutch Wars and the
Franco-Dutch War The Franco-Dutch War, also known as the Dutch War (french: Guerre de Hollande; nl, Hollandse Oorlog), was fought between France and the Dutch Republic, supported by its allies the Holy Roman Empire, Spain, Brandenburg-Prussia and Denmark-Nor ...
s, can be linked directly to mercantilist theories. Most wars had other causes but they reinforced mercantilism by clearly defining the enemy, and justified damage to the enemy's economy. Mercantilism fueled the
imperialism Imperialism is the state policy, practice, or advocacy of extending power and dominion, especially by direct territorial acquisition or by gaining political and economic control of other areas, often through employing hard power (economic powe ...
of this era, as many nations expended significant effort to conquer new colonies that would be sources of gold (as in Mexico) or sugar (as in the West Indies), as well as becoming exclusive markets. European power spread around the globe, often under the aegis of companies with government-guaranteed monopolies in certain defined geographical regions, such as the
Dutch East India Company The United East India Company ( nl, Verenigde Oostindische Compagnie, the VOC) was a chartered company established on the 20th March 1602 by the States General of the Netherlands amalgamating existing companies into the first joint-stock ...
or the
Hudson's Bay Company The Hudson's Bay Company (HBC; french: Compagnie de la Baie d'Hudson) is a Canadian retail business group. A fur trading business for much of its existence, HBC now owns and operates retail stores in Canada. The company's namesake business di ...
(operating in present-day
Canada Canada is a country in North America. Its ten provinces and three territories extend from the Atlantic Ocean to the Pacific Ocean and northward into the Arctic Ocean, covering over , making it the world's second-largest country by to ...
). With the establishment of overseas
colonies In modern parlance, a colony is a territory subject to a form of foreign rule. Though dominated by the foreign colonizers, colonies remain separate from the administration of the original country of the colonizers, the '' metropolitan state'' ...
by European powers early in the 17th century, mercantile theory gained a new and wider significance, in which its aim and ideal became both national and imperialistic. The connection between communism and mercantilism has been explored by Marxist economist and sociologist Giovanni Arrighi, who analyzed mercantilism as having three components: "settler colonialism, capitalist slavery, and economic nationalism," and further noted that slavery was "partly a condition and partly a result of the success of settler colonialism."Miller, C. L. 2008. “Introduction.” p. 14 in ''The French Atlantic triangle: literature and culture of the slave trade''. Duke University Press. In France, the triangular trade method was integral in the continuation of mercantilism throughout the 17th and 18th centuries.Miller, C. L. 2008. “Introduction.” pp. 1–39 in ''The French Atlantic triangle: literature and culture of the slave trade''. Duke University Press. In order to maximize exports and minimize imports, France worked on a strict Atlantic route: France, to Africa, to the Americas and then back to France. By bringing African slaves to labor in the New World, their labor value increased, and France capitalized upon the market resources produced by slave labor. Mercantilism as a weapon has continued to be used by nations through the 21st century by way of modern tariffs as it puts smaller economies in a position to conform to the larger economies goals or risk economic ruin due to an imbalance in trade. Trade wars are often dependent on such tariffs and restrictions hurting the opposing economy.


Origins

The term "mercantile system" was used by its foremost critic, Adam Smith, but Mirabeau (1715–1789) had used "mercantilism" earlier. Mercantilism functioned as the economic counterpart of the older version of
political power In social science and politics, power is the social production of an effect that determines the capacities, actions, beliefs, or conduct of actors. Power does not exclusively refer to the threat or use of force ( coercion) by one actor again ...
: divine right of kings and
absolute monarchy Absolute monarchy (or Absolutism as a doctrine) is a form of monarchy in which the monarch rules in their own right or power. In an absolute monarchy, the king or queen is by no means limited and has absolute power, though a limited constituti ...
. Scholars debate over why mercantilism dominated economic ideology for 250 years.. One group, represented by Jacob Viner, sees mercantilism as simply a straightforward, common-sense system whose logical fallacies remained opaque to people at the time, as they simply lacked the required analytical tools. The second school, supported by scholars such as Robert B. Ekelund, portrays mercantilism not as a mistake, but rather as the best possible system for those who developed it. This school argues that rent-seeking merchants and governments developed and enforced mercantilist policies. 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..
Monetarism Monetarism is a school of thought in monetary economics that emphasizes the role of governments in controlling the amount of money in circulation. Monetarist theory asserts that variations in the money supply have major influences on nati ...
offers a third explanation for mercantilism. European trade exported bullion to pay for goods from Asia, thus reducing the money supply and putting downward pressure on prices and economic activity. The evidence for this hypothesis is the lack of inflation in the British economy until the Revolutionary and Napoleonic Wars, when paper money came into vogue. A fourth explanation lies in the increasing professionalisation and technification of the wars of the era, which turned the maintenance of adequate reserve funds (in the prospect of war) into a more and more expensive and eventually competitive business. Mercantilism developed at a time of transition for the European economy. 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. Mercantilism focused on how this trade could best aid the states. Another important change was the introduction of
double-entry bookkeeping Double-entry bookkeeping, also known as double-entry accounting, is a method of bookkeeping that relies on a two-sided accounting entry to maintain financial information. Every entry to an account requires a corresponding and opposite entry t ...
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. Of course, the impact of the discovery of America cannot be ignored. New markets and new mines propelled foreign trade to previously inconceivable volumes, resulting in "the great upward movement in prices" and an increase in "the volume of merchant activity itself". 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 compatible with Christian doctrines of piety and justice. They focused mainly on
microeconomics Microeconomics is a branch of mainstream economics that studies the behavior of individuals and firms in making decisions regarding the allocation of scarce resources and the interactions among these individuals and firms. Microeconomics fo ...
and on local exchanges between individuals. Mercantilism was closely aligned with the other theories and ideas that began to replace the medieval worldview. This period saw the adoption of the very Machiavellian realpolitik and the primacy of the '' raison d'état'' in
international relations International relations (IR), sometimes referred to as international studies and international affairs, is the scientific study of interactions between sovereign states. In a broader sense, it concerns all activities between states—such ...
. The mercantilist idea of all trade as 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 Thomas Hobbes ( ; 5/15 April 1588 – 4/14 December 1679) was an English philosopher, considered to be one of the founders of modern political philosophy. Hobbes is best known for his 1651 book '' Leviathan'', in which he expounds an influ ...
. This dark view of human nature also fit well with the
Puritan The Puritans were English Protestants in the 16th and 17th centuries who sought to purify the Church of England of Roman Catholic practices, maintaining that the Church of England had not been fully reformed and should become more Protestant. ...
view of the world, and some of the most stridently mercantilist legislation, such as the Navigation Ordinance of 1651, was enacted by the government of
Oliver Cromwell Oliver Cromwell (25 April 15993 September 1658) was an English politician and military officer who is widely regarded as one of the most important statesmen in English history. He came to prominence during the 1639 to 1651 Wars of the Three ...
.
Jean-Baptiste Colbert Jean-Baptiste Colbert (; 29 August 1619 – 6 September 1683) was a French statesman who served as First Minister of State from 1661 until his death in 1683 under the rule of King Louis XIV. His lasting impact on the organization of the country ...
's work in 17th-century France came to exemplify classical mercantilism. In the English-speaking world, its ideas were criticized by Adam Smith with the publication of '' The Wealth of Nations'' in 1776 and later by
David Ricardo David Ricardo (18 April 1772 – 11 September 1823) was a British political economist. He was one of the most influential of the classical economists along with Thomas Malthus, Adam Smith and James Mill. Ricardo was also a politician, and a ...
with his explanation of
comparative advantage In an economic model, agents have a comparative advantage over others in producing a particular good if they can produce that good at a lower relative opportunity cost or autarky price, i.e. at a lower relative marginal cost prior to trade. C ...
. Mercantilism was rejected by Britain and France by the mid-19th century. The British Empire embraced
free trade Free trade is a trade policy that does not restrict imports or exports. It can also be understood as the free market idea applied to international trade. In government, free trade is predominantly advocated by political parties that hold econ ...
and used its power as the financial center of the world to promote the same. The Guyanese historian Walter Rodney describes mercantilism as the period of the worldwide development of European commerce, which began in the 15th century with the voyages of Portuguese and Spanish explorers to Africa, Asia, and the New World.


End of mercantilism

Adam Smith,
David Hume David Hume (; born David Home; 7 May 1711 NS (26 April 1711 OS) – 25 August 1776) Cranston, Maurice, and Thomas Edmund Jessop. 2020 999br>David Hume" '' Encyclopædia Britannica''. Retrieved 18 May 2020. was a Scottish Enlightenment ph ...
,
Edward Gibbon Edward Gibbon (; 8 May 173716 January 1794) was an English historian, writer, and member of parliament. His most important work, '' The History of the Decline and Fall of the Roman Empire'', published in six volumes between 1776 and 1788, i ...
,
Voltaire François-Marie Arouet (; 21 November 169430 May 1778) was a French Enlightenment writer, historian, and philosopher. Known by his '' nom de plume'' M. de Voltaire (; also ; ), he was famous for his wit, and his criticism of Christianity—e ...
and
Jean-Jacques Rousseau Jean-Jacques Rousseau (, ; 28 June 1712 – 2 July 1778) was a Genevan philosopher, writer, and composer. His political philosophy influenced the progress of the Age of Enlightenment throughout Europe, as well as aspects of the French Revolu ...
were the founding fathers of anti-mercantilist thought. A number of scholars found important flaws with mercantilism long before Smith developed an ideology that could fully replace it. Critics like Hume,
Dudley North Dudley North may refer to: *Dudley North, 3rd Baron North (1581–1666), English nobleman and politician *Dudley North, 4th Baron North (1602–1677), English nobleman and politician, son of the above *Sir Dudley North (economist) (1641&ndas ...
and
John Locke John Locke (; 29 August 1632 – 28 October 1704) was an English philosopher and physician, widely regarded as one of the most influential of Enlightenment thinkers and commonly known as the "father of liberalism". Considered one of ...
undermined much of mercantilism and it steadily lost favor during the 18th century. In 1690, Locke argued that prices vary in proportion to the quantity of money. Locke's '' Second Treatise'' also points towards the heart of the anti-mercantilist critique: that the wealth of the world is not fixed, but is created by human labor (represented embryonically by Locke's labor theory of value). Mercantilists failed to understand the notions of absolute advantage and
comparative advantage In an economic model, agents have a comparative advantage over others in producing a particular good if they can produce that good at a lower relative opportunity cost or autarky price, i.e. at a lower relative marginal cost prior to trade. C ...
(although this idea was only fully fleshed out in 1817 by
David Ricardo David Ricardo (18 April 1772 – 11 September 1823) was a British political economist. He was one of the most influential of the classical economists along with Thomas Malthus, Adam Smith and James Mill. Ricardo was also a politician, and a ...
) and the benefits of trade.For instance, imagine that Portugal was a more efficient producer of wine than England, yet in England, cloth could be produced more efficiently than it could in Portugal. 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 (whether due to comparative or absolute advantage). In modern economic theory, trade is ''not'' a zero-sum game of cutthroat competition, because both sides can benefit from it. 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. Mercantilists fundamentally misunderstood this, long arguing that an increase in the money supply simply meant that everyone gets richer. 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", that bullion was just the same as any other commodity, and that there was no reason to give it special treatment. More recently, scholars have discounted the accuracy of this critique. They believe Mun and Misselden were not making this mistake in the 1620s, and point to their followers Josiah Child and Charles Davenant, who in 1699 wrote, "Gold and Silver are indeed the Measures 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." The critique that mercantilism was a form of rent seeking has also seen criticism, as scholars such as Jacob Viner in the 1930s pointed out that merchant mercantilists such as Mun understood that they would not gain by higher prices for English wares abroad. 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 spent a considerable portion of the book rebutting the arguments of the mercantilists, though often these are simplified or exaggerated versions of mercantilist thought. 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 amounted to 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 Group decision-making (also known as collaborative decision-making or collective decision-making) is a situation faced when individuals collectively make a choice from the alternatives before them. The decision is then no longer attributable to any ...
. Mercantilist regulations were steadily removed over the course of the 18th century in Britain, and during the 19th century, the British government fully embraced free trade and Smith's
laissez-faire ''Laissez-faire'' ( ; from french: laissez faire , ) is an economic system in which transactions between private groups of people are free from any form of economic interventionism (such as subsidies) deriving from special interest groups ...
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 The French Revolution ( ) was a period of radical political and societal change in France that began with the Estates General of 1789 and ended with the formation of the French Consulate in November 1799. Many of its ideas are conside ...
. In Germany, mercantilism remained an important ideology in the 19th and early 20th centuries, when the historical school of economics was paramount.


Legacy

Adam Smith criticized the mercantile doctrine that majored on the production in the economy, he maintained that consumption was of prime significance to consumption. Additionally, the mercantile system was well liked by the traders as it was now what is referred to as
rent seeking Rent-seeking is the act of growing one's existing wealth without creating new wealth by manipulating the social or political environment. Rent-seeking activities have negative effects on the rest of society. They result in reduced economic effi ...
.
John Maynard Keynes John Maynard Keynes, 1st Baron Keynes, ( ; 5 June 1883 – 21 April 1946), was an English economist whose ideas fundamentally changed the theory and practice of macroeconomics and the economic policies of governments. Originally trained in ...
affirmed that motivating the production process was as significant as encouraging the consumption, which benefited the new mercantilism. Keynes also affirmed that in the post-classical period the primary focus on gold and silver supplies (bullion) was rational. During the era, before the paper money, an increase in gold and silver was one of the mercantilism way of increasing an economy's reserve or the
supply of money In macroeconomics, the money supply (or money stock) refers to the total volume of currency held by the public at a particular point in time. There are several ways to define "money", but standard measures usually include currency in circula ...
. Keynes reiterated that the doctrines advocated for by mercantilism aided the improvement of both the domestic and foreign outlay—domestic because the policies lowered the domestic rate of interest, and investment by foreigners by tending to create a favorable balance of trade. Keynes and other economists of the 20th century also realized that the balance of payments is an important concern. Keynes also supported government intervention in the economy as necessity, as did mercantilism. , the word "mercantilism" remains a pejorative term, often used to attack various forms of
protectionism Protectionism, sometimes referred to as trade protectionism, is the economic policy of restricting imports from other countries through methods such as tariffs on imported goods, import quotas, and a variety of other government regulation ...
. The similarities between Keynesianism (and its successor ideas) and mercantilism have sometimes led critics to call them neomercantilism. Paul Samuelson, writing within a Keynesian framework, wrote of mercantilism, "With employment less than full and Net National Product suboptimal, all the debunked mercantilist arguments turn out to be valid." Some other systems that copy several mercantilist policies, such as Japan's economic system, are also sometimes called neo-mercantilist. In an essay appearing in the May 14, 2007 issue of ''
Newsweek ''Newsweek'' is an American weekly online news magazine co-owned 50 percent each by Dev Pragad, its president and CEO, and Johnathan Davis (businessman), Johnathan Davis, who has no operational role at ''Newsweek''. Founded as a weekly print m ...
'', business columnist Robert J. Samuelson wrote that
China China, officially the People's Republic of China (PRC), is a country in East Asia. It is the world's List of countries and dependencies by population, most populous country, with a Population of China, population exceeding 1.4 billion, slig ...
was pursuing an essentially neo-mercantilist trade policy that threatened to undermine the post–
World War II World War II or the Second World War, often abbreviated as WWII or WW2, was a world war that lasted from 1939 to 1945. It involved the World War II by country, vast majority of the world's countries—including all of the great power ...
international economic structure. Murray Rothbard, representing the
Austrian School The Austrian School is a heterodox school of economic thought that advocates strict adherence to methodological individualism, the concept that social phenomena result exclusively from the motivations and actions of individuals. Austrian scho ...
of economics, describes it this way: In specific instances, protectionist mercantilist policies also had an important and positive impact on the state that enacted them. Adam Smith, for instance, praised the Navigation Acts, as they greatly expanded the British merchant fleet and played a central role in turning Britain into the world's naval and economic superpower from the 18th century onward.. Some economists thus feel that protecting infant industries, while causing short-term harm, can be beneficial in the long term.


See also

* Money-free market * Neorealism (international relations) *
Crony capitalism Crony capitalism, sometimes called cronyism, is an economic system in which businesses thrive not as a result of free enterprise, but rather as a return on money amassed through collusion between a business class and the political class. This i ...


Notes


References


Further reading

* * * * * * * * * * * * Heckscher, Eli F. (1936) “Revisions in Economic History: V. Mercantilism.” ''
Economic History Review ''The Economic History Review'' is a peer-reviewed history journal published quarterly by Wiley-Blackwell on behalf of the Economic History Society. It was established in 1927 by Eileen Power and is currently edited by Sara Horrell, Jaime Reis ...
,'' 7#1 1936, pp. 44–54
online
* * * * * * * * * * * * * * * Rees, J. F. "Mercantilism" ''History'' 24#94 (1939), pp. 129–13
online
historiography * * * * * * * * *


External links


Thomas Mun's ''Englands Treasure by Forraign Trade''
: Adam Smith's ''Wealth of Nations'' {{Authority control Economic policy