MERCANTILISM was a type of national economic policy designed to
maximize the trade of a nation and especially to maximize the
accumulation of gold and silver. It was dominant in modernized parts
of Europe from the 16th to the 18th centuries. It promoted
governmental regulation of a nation's economy for the purpose of
augmenting state power at the expense of rival national powers. With
the establishment of overseas colonies by northern 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
* forbidding colonies to trade with other nations * monopolizing markets with staple ports * 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
The term "mercantile system" was used by its foremost critic, Adam Smith , but Mirabeau (1715-1789) had used "mercantilism" earlier.
Many nations applied the theory, notably France, which was the most
important state economically in Europe at the time. King Louis XIV
followed the guidance of
Jean Baptiste Colbert
* 1 Influence
* 2 Theory
* 2.1 Infinite growth
* 3 Origins
* 4 Policies
* 4.1 France
* 5 Criticisms * 6 Legacy * 7 See also * 8 References * 9 Further reading * 10 External links
This section NEEDS ADDITIONAL CITATIONS FOR VERIFICATION . Please help improve this article by adding citations to reliable sources . Unsourced material may be challenged and removed. (January 2010) (Learn how and when to remove this template message )
Evidence of mercantilistic practices appeared in early modern Venice
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 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 in Parliament and issued orders to her navy for the protection and promotion of English shipping. A systematic and coherent explanation of balance of trade was made public through Thomas Mun 's argument England's Treasure by Forraign Trade, or the Balance of our Forraign Trade is The Rule of Our Treasure. It was written in the 1620s and published in 1664.
These efforts organized national resources sufficiently in the
defense of England against the far larger and more powerful Spanish
Empire , and in turn paved the foundation for establishing a global
empire in the 19th century. The authors noted most for establishing
the English mercantilist system include
Gerard de Malynes and Thomas
Mun , who first articulated the Elizabethan system, which in turn was
then developed further by
In Europe, academic belief in mercantilism began to fade in the late
18th century, especially in Britain, in light of the arguments of Adam
Smith and the classical economists . The repeal of the
Corn Laws by
Neomercantilism is a 20th-century economic policy that uses the ideas and methods of neoclassical economics . The new mercantilism has different goals and focuses on more rapid economic growth based on advanced technology. It promotes such policies as substitution state taxation, subsidies, expenditures, and general regulatory powers for tariffs and quotas, and protection through the formation of supranational trading blocs.
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 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 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
Giovanni Botero (1544–1617) and
Antonio Serra (1580–?)
and, in France,
Jean Bodin , Colbert . Themes also existed in writers
from the German historical school from List, as well as followers of
the American system and British free-trade imperialism, 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. Merchants in
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 export 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 . * 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 , 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 and price ceilings were black markets . One notion that mercantilists widely agreed upon was the need for economic oppression of the working population; laborers and farmers were to live at the "margins of subsistence ". The goal was to maximize production, with no concern for consumption . Extra money, free time, and education for the lower classes were seen to inevitably lead to vice and laziness, and would result in harm to the economy.
The mercantilists saw a large population as a form of wealth which made possible the development of bigger markets and armies . Opposite to mercantilism was the doctrine of physiocracy , which predicted that mankind would outgrow its resources. The idea of mercantilism was to protect the markets as well as maintain agriculture and those who were dependent upon it.
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 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.
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
and on local exchanges between individuals.
Jean-Baptiste Colbert '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
French finance minister and mercantilist Jean-Baptiste Colbert served for over 20 years.
Mercantilist ideas were the dominant economic ideology of all of
Europe in the early modern period, and most states embraced it to a
Over the rest of the 16th century, further protectionist measures were introduced. The height of French mercantilism is closely associated with Jean-Baptiste Colbert , finance minister for 22 years in the 17th century, to the extent that French mercantilism is sometimes called COLBERTISM . Under Colbert, the French government became deeply involved in the economy in order to increase exports. Protectionist policies were enacted that limited imports and favored exports. Industries were organized into guilds and monopolies, and production was regulated by the state through a series of more than one thousand directives outlining how different products should be produced.
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 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 Netherlands remained supreme in this field.
Main article: Economic history of Canada
France imposed its mercantilist philosophy on its colonies in North
In England, mercantilism reached its peak during the Long Parliament government (1640–60). Mercantilist policies were also embraced throughout much of the Tudor and Stuart periods, with Robert Walpole being another major proponent. In Britain, government control over the domestic economy was far less extensive than on the Continent , limited by common law and the steadily increasing power of Parliament. Government-controlled monopolies were common, especially before the English Civil War , but were often controversial. The Anglo-Dutch Wars were fought between the English and the Dutch for control over the seas and trade routes.
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 empires. The government protected its merchants—and kept others 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 favorite 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, so that gold and silver would pour into London. 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 a superb Royal Navy, which not only protected the British colonies but threatened the colonies of the other empires, and sometimes seized them. Thus the British Navy captured New Amsterdam (New York) in 1664. The colonies were captive markets for British industry, and the goal was to enrich the mother country.
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
expelled foreign merchants from England's domestic trade. The nation
aggressively sought colonies and once under British control,
regulations were imposed that allowed the colony to only produce raw
materials and to only trade with Britain. This led to friction with
the inhabitants of these colonies, and mercantilist policies (such as
forbidding trade with other empires and controls over smuggling) were
a major irritant leading to the
Mercantalism 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 turn it into the world's dominant trader and the
global hegemon . One domestic policy that had a lasting impact was
the conversion of "waste lands" to agricultural use. Mercantilists
believed that to maximize a nation's power, all land and resources had
to be used to their utmost, and this era thus saw projects like the
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.
Some constituent states of the empire did embrace Mercantilism, most
notably Prussia, which under
Frederick the Great had perhaps the most
rigidly controlled economy in Europe. During the economic collapse of
the 17th century,
WARS AND IMPERIALISM
Adam Smith and
John 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 (although
this idea was only fully fleshed out in 1817 by
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.
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
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 .
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
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
Adam Smith rejected the mercantilist focus on production, arguing
that consumption was paramount to production. He added that
mercantilism was popular among merchants because it was what is now
called rent seeking . However,
John Maynard Keynes
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.
As of 2010 , the word "mercantilism" remains a pejorative term, often
used to attack various forms of protectionism . The similarities
between Keynesianism (and its successor ideas) and mercantilism have
sometimes led critics to call them neo-mercantilism .
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 14 May 2007 issue of
Mercantilism, which reached its height in the Europe of the
seventeenth and eighteenth centuries, was a system of statism which
employed economic fallacy to build up a structure of imperial state
power, as well as special subsidy and monopolistic privilege to
individuals or groups favored by the state. Thus, mercantilism held
exports should be encouraged by the government and imports
John Maynard Keynes
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.
* ^ "Mercantilism," Laura LaHaye The Concise Encyclopedia of
* Ames, Glenn J. (1996), Colbert,