mercantilism

mercantilism A much disputed term which, according to one authority ( E. A. J. Johnson , Predecessors of Adam Smith, 1937
), has become a ‘positive nuisance’ since it is commonly confused with nationalism, protectionism, and autarky. It refers to the economic theories and strategic thinking which guided relationships between states in early-modern Europe. The term gained popular currency through Adam Smith's critique of the seventeenth and eighteenth century ‘mercantile system’ in The Wealth of Nations (1776).

According to Smith, mercantilists operated with a zero-sum conception of wealth (one person's gain inevitably meant another's loss), and so were particularly concerned with the conditions under which the state might intervene in the economic sphere in order to secure a favourable balance of trade. The central characteristics of the mercantilist system were therefore an obsession with policies designed, on the one hand, to encourage exports of manufactured goods and provision of imported raw materials; and, on the other, to discourage imports of manufactures and loss of domestically produced raw materials. The principal dogma of mercantilism is well expressed in Thomas Mun's insistence (in his Englands Treasure by Fforraign Trade, 1664) that ‘The ordinary means to increase our wealth and treasure is by Fforraign Trade’, wherein the cardinal rule to be observed is ‘to sell more to strangers yearly than wee consume of theirs in value’. The resulting regulation of trade, accumulation of bullion, and international power struggles to protect the interest of ‘state-making as national-economy-making’ allegedly benefited only merchants and manufacturers (hence the term ‘mercantilism’).

Classical political economists such as Smith offered a systematic critique of mercantilist doctrines, and emphasized real capital accumulation as the key to economic growth, arguing that the systematic pursuit of self-interest by individuals (persons or countries) could be mutually beneficial through increasing the size of the economic cake (rather than merely offering a ‘beggar-your-neighbour’ strategy).

It is important to remember that the system's coherence is largely an ex post facto creation. The motives, logic, policies, and practice of mercantilism varied from country to country, although its effect was often the same: namely, to lead to plunder, warfare, and international violence.