Mercantilism
Mercantilism is a nationalist economic policy that is designed to maximize the exports and minimize the imports for an economy. In other words, it seeks to maximize the accumulation of resources within the country and use those resources for one-sided trade.
The policy aims to reduce a possible current account deficit or reach a current account surplus, and it includes measures aimed at accumulating monetary reserves by a positive balance of trade, especially of finished goods. Historically, such policies might have contributed to war and motivated colonial expansion.[1] Mercantilist theory varies in sophistication from one writer to another and has evolved over time.
Mercantilism promotes government regulation of a nation's economy for the purpose of augmenting and bolstering state power at the expense of rival national powers. High tariffs, especially on manufactured goods, were almost universally a feature of mercantilist policy.[2] Before it fell into decline, mercantilism was dominant in modernized parts of Europe and some areas in Africa from the 16th to the 19th centuries, a period of proto-industrialization.[3] Some commentators argue that it is still practised in the economies of industrializing countries,[4] in the form of economic interventionism.[5][6][7][8][9]
With the efforts of supranational organizations such as the World Trade Organization to reduce tariffs globally, non-tariff barriers to trade have assumed a greater importance in neomercantilism.
Most of the European economists who wrote between 1500 and 1750 are today generally described as mercantilists; this term was initially used solely by critics, such as Mirabeau and Smith, but historians proved quick to adopt it. Originally the standard English term was "mercantile system". The word "mercantilism" came into English from German in the early-19th century.
The bulk of what is commonly called "mercantilist literature" appeared in the 1620s in Great Britain.[17] 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.[18] Perhaps the last major mercantilist work was James Steuart's Principles of Political Economy, published in 1767.[17]
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 (1580–?) and, in France, Jean Bodin 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.[19]
The Austrian lawyer and scholar Philipp Wilhelm von Hornick, one of the pioneers of Cameralism, detailed a nine-point program of what he deemed effective national economy in his Austria Over All, If She Only Will of 1684, which comprehensively sums up the tenets of mercantilism:[20]
Other than Von Hornick, there were no mercantilist writers presenting an overarching scheme for the ideal economy, as Adam Smith would later do for classical economics. Rather, each mercantilist writer tended to focus on a single area of the economy.[21] Only later did non-mercantilist scholars integrate these "diverse" ideas into what they called mercantilism. Some scholars thus reject the idea of mercantilism completely, arguing that it gives "a false unity to disparate events". Smith saw the mercantile system as an enormous conspiracy by manufacturers and merchants against consumers, a view that has led some authors, especially Robert E. Ekelund and Robert D. Tollison, to call mercantilism "a rent-seeking society". To a certain extent, mercantilist doctrine itself made a general theory of economics impossible.[22] Mercantilists viewed the economic system as a zero-sum game, in which any gain by one party required a loss by another.[23] Thus, any system of policies that benefited one group would by definition harm the other, and there was no possibility of economics being used to maximize the commonwealth, or common good.[24] Mercantilists' writings were also generally created to rationalize particular practices rather than as investigations into the best policies.[25]
Mercantilist domestic policy was more fragmented than its trade policy. While Adam Smith portrayed mercantilism as supportive of strict controls over the economy, many mercantilists disagreed. The early modern era was one of letters patent and government-imposed monopolies; some mercantilists supported these, but others acknowledged the corruption and inefficiency of such systems. Many mercantilists also realized that the inevitable results of quotas and price ceilings were black markets. One notion that mercantilists widely agreed upon was the need for economic oppression of the working population; laborers and farmers were to live at the "margins of subsistence". The goal was to maximize production, with no concern for consumption. Extra money, free time, and education for the lower classes were seen to inevitably lead to vice and laziness, and would result in harm to the economy.[26]
The mercantilists saw a large population as a form of wealth that made possible the development of bigger markets and armies. Opposite to mercantilism was the doctrine of physiocracy, which predicted that mankind would outgrow its resources. The idea of mercantilism was to protect the markets as well as maintain agriculture and those who were dependent upon it.
Wars and imperialism[edit]
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.[36] 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 Wars, 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 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 or the Hudson's Bay Company (operating in present-day Canada).
With the establishment of overseas colonies 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.[37]
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."[38]
In France, the triangular trade method was integral in the continuation of mercantilism throughout the 17th and 18th centuries.[39] 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.[38] 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.[39]
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.