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Mercantilism

MERCANTILISM

MERCANTILISM. Mercantilism was an economic "system" that developed in Europe during the period of the new monarchies (c. 1500) and culminated with the rise of the absolutist states (c. 16001700). Mercantilism was not characterized by the blind adherence to a single, precisely defined economic theorem. Rather, its adherents embraced, in various degrees, parts of a set of commonly held theoretical beliefs or tendencies that were best suited to the needs of a particular time and state. The underlying principles of mercantilism included (1) the belief that the amount of wealth in the world was relatively static; (2) the belief that a country's wealth could best be judged by the amount of precious metals or bullion it possessed; (3) the need to encourage exports over imports as a means for obtaining a favorable balance of foreign trade that would yield such metals; (4) the value of a large population as a key to self-sufficiency and state power; and (5) the belief that the crown or state should exercise a dominant role in assisting and directing the national and international economies to these ends. As such, mercantilism developed logically from the changes inherent in the decline of feudalism, the rise of strong national states, and the development of a world market economy.

The shift from payments in kind, characteristic of the feudal period, to a money economy was one key development in this process. By the late fifteenth century, as regional, national, and international trade continued to blossom, European currencies expanded as well; circulation was more common, widespread, and vital. The early mercantilists recognized the seminal fact of this period. Money was wealth sui generis; it gave its holder the power to obtain other commodities and services. Precious metals, especially gold, were in universal demand as the surest means to obtain other goods and services. At the same time the rise of more powerful European states with burgeoning bureaucracies, frequent dynastic wars that required larger and more expensive armies, and more lavish court expenditures exacerbated this fundamental need for money in the form of precious metals. Foreign trade, not domestic trade, was viewed as the preferred method for obtaining bullion, while manufacturing, which provided the goods for such trade, was favored over agriculture. Finally, the discovery of the New World by Columbus in 1492 and the discovery of the sea route to India by Vasco da Gama in 14971499 also provided fertile ground for obtaining such wealth while creating an ever greater need for wealth to conquer and protect these colonies and their imperial trade. All of these factors ensured that the rising late medieval and early modern states embraced mercantilism as an economic theory that allowed them to adapt to and seek to exploit these shifting structures.

Since mercantilism at base postulated increased royal control over both the internal and external economic policies of the state, it found easy acceptance among the "new" monarchies of the late fifteenth century and the sixteenth century. In Portugal, Manuel I (ruled 14951521) and his successors embraced its tenets regarding bullion and colonies to help exploit their burgeoning Asian empire. In Spain both Charles I (ruled 15161556) and Philip II (ruled 15561598), given the boon of New World precious metals, also found comfort in bullionism as well as the tenets calling for the exploitation of colonies for the benefit of the mother country. In England, Henry VIII (ruled 15091547) and Elizabeth I (ruled 15581603) adhered to some mercantilist principles in an effort that was, at least in part, designed to combat the threat of universal Habsburg Monarchy and Iberian dominance in the developing world market economy.

PROPONENTS OF MERCANTILISM

During the seventeenth century, adherents of absolutism also found much to embrace in mercantilism. During the age of Stuart absolutism James I (ruled 16031625) and Charles I (ruled 16251649) found it logical to accept the premise that the monarch should not only control the political and social hierarchy but should enjoy control over the economy as well. Oliver Cromwell (15991658), after destroying Stuart pretensions in the Civil War, embraced both mercantilist warfare and the Navigation Acts in his commercial struggle with the Dutch. It was in France, however, that mercantilism found perhaps its greatest supporter in Jean-Baptiste Colbert (16191683). Colbert's career was as much a product of the sociopolitical dynamics of the absolutist state as the result of the unrivaled bureaucratic energies he displayed in the service of his early patrons and eventually the crown. His family rose through the social hierarchy based on the time-honored expedients of wealth and venality of office. Utilizing family connections, Colbert entered the service of Michel Le Tellier in 1643, soon after the latter became secretary of state in charge of military affairs. This promising foundation was solidified during Colbert's "apprenticeship" under Jules Cardinal Mazarin, a mutually advantageous relationship that began in 1651 and lasted until Mazarin's death in 1661. By the end of this decade of opportunity, Colbert had become baron de Seignelay, secretary of the orders of the queen, intendant general of the affairs of Mazarin, counselor of the king in all of his councilsnot to mention a very wealthy man. Just as importantly, he had begun to create an apparatus for the implementation of his later policies by further enriching his family and arranging influential positions for a bevy of his brothers and cousins.

In this rapid ascent through the labyrinth of French political life, Colbert honed the ideas and theories that shaped his policies after 1661, the year Louis XIV (ruled 16431715) began his personal reign and Nicolas Fouquet was imprisoned, thus ensuring Colbert's ascent to ministerial preeminence. The basic theoretical tenets of mercantilism predated Louis XIV's reign, in some cases by half a dozen generations. Colbert was exposed to such ideas in the Paris of his youth, when the economic traditions of the first Bourbon king of France, Henry IV (ruled 15891610), and the theories of his able controleur général du commerce (comptroller general of finance), Barthélemy de Laffemas, were still relatively strong. Armand-Jean Du Plessis, Cardinal Richelieu (15851642) was still alive at that time, and Issac de Laffemas, the cardinal's creature, was in the midst of perpetuating his father's intellectual legacy. Although Colbert never referred to the writings of Antoine de Montchrestien (c. 15751621) and Jean Bodin (15301596), he was probably familiar with their works. Mercantilism reached its apogee under Colbert not because he was a theorist but rather because he was a man of action who judged its tenets to be the only natural and logical way to achieve his most cherished goal: a powerful and wealthy France united under a glorious monarch. The primary obstacle to France's economic greatness was the overweening economic power of the Dutch. If the mercantile power of the burghers of Amsterdam could be broken in both Europe and the lucrative Asian trade, France could prosper.

Colbert's anti-Dutch strategy evolved logically from his beliefs on political economy. Foremost among his particular tenets on mercantilism was the conviction that the volume of world trade was essentially static and that, to increase its share, France would have to win part of that controlled by its rivals. In one of his most quoted mémoires (Lettres VI: 260270) Colbert wrote, "The commerce of all Europe is carried on by ships of every size to the number of 20,000, and it is perfectly clear that this number cannot be increased." Commerce caused "perpetual combat in peace and war among the nations of Europe, as to who shall win most of it." His exaggerated estimate on the maritime strength of the major European trading nations competing in this "war" was fifteen thousand to sixteen thousand Dutch ships, three thousand to four thousand English ships, and five hundred to six hundred French ships. Just as importantly neither the French nor the English could "improve their commerce save by increasing this number, save from the 20,000 . . . and consequently by making inroads on the 15,000 to 16,000 of the Dutch." (Lettres VI: 260270). The bellicism inherent in such beliefs would in part culminate in the Dutch War of 1672, a war Colbert supported. Unfortunately, despite his most careful calculations regarding this struggle in both Europe and the Indian Ocean, Louis XIV's armies and fleets suffered increasing difficulties in the war from 1672 to 1679. These setbacks forced Colbert to undo many of his initial reforms from 1661 that had doubled the king's revenues, forged a powerful navy, and set France on a course for apparent dominance in Europe. By the time of his death in 1683, the kingdom was instead on the road to bankruptcy and revolt, and Louis XIV's penchant for continued warfare in the decades down to 1715 only exacerbated this decline.

OPPONENTS OF MERCANTILISM

During the eighteenth century the limits of mercantilism became increasingly obvious, and intellectual and political critics of its basic tenets gradually emerged. First, Louis XIV's spectacular failures in the kingdom viewed as the apogee of both absolutism and mercantilism certainly revealed the limitations of allowing the state to direct the economy for its own frequently selfish, if not self-destructive, purposes. At the same time, in parts of England, Holland, and northwestern France the initial adherence to mercantilist principles created the very conditions that fostered antimercantilist sentiments. These developments would ultimately cause the destruction of merchant capitalism. In short, merchant capitalism reached a level within the mercantilist system where state intervention and direction of the economy was threatening and even preventing further expansion. The critical spirit toward existing Old Regime structures embodied in the intellectual revolution of the Enlightenment found its antimercantilist champions in the Physiocrats. In part adapting "natural law" doctrines to the economy, this influential group of economic theorists, including François Quesnay (16941774), Jean-Claude-Marie-Vincent de Gournay (17121759), and Pierre-Samuel du Pont de Nemours (17391817), instead argued for laissez-faire. This theory argued that the economy functioned best when its own "natural laws" were allowed to function without government intervention. Complementing the work of the French économistes, the Scottish philosopher David Hume (17111776) sought to identify the natural advantages that various nations enjoyed in the flow of commerce and provided a new theory on international trade. In his Political Discourses (1752) and Essays and Treatises on Several Subjects (1753), Hume also sought to refute some of the principal tenets of mercantilism, including confounding money with wealth and the blind acceptance of bullionism. Yet by far the most important work criticizing mercantilist thought was Adam Smith's (17231790) An Inquiry into the Nature and Causes of the Wealth of Nations (1776), the first systematic economic analysis of the world market economy created during the preceding age of mercantilism. Smith's strong advocacy of free trade and his belief that world wealth was not static, as Colbert and others had held, did much to undermine mercantilism. At the same time his theories and those of other Physiocrats also encouraged colonies like British North America to reject the traditional dependence on their mother countries as defined by the mercantilist model while furnishing intellectual fuel for the industrial revolution then taking place in Great Britain. In France, however, only the French Revolution and Napoléon I (17691821) would facilitate the destruction of the economic remnants of both the late medieval and mercantilist periods.

See also Absolutism ; Colbert, Jean-Baptiste ; Hume, David ; Liberalism, Economic ; Physiocrats and Physiocracy ; Smith, Adam .

BIBLIOGRAPHY

Colbert, Jean Baptiste. Lettres, instructions, et mémoires. Edited by Pierre Clément. 7 vols. Paris, 18611882.

Cole, Charles Woosley. Colbert and a Century of French Mercantilism. 2 vols. New York, 1939.

. French Mercantilist Doctrines before Colbert. New York, 1931.

Heckscher, Eli F. Mercantilism. Translated by Mendel Shapiro. Rev. ed. 2 vols. London, 1955.

Glenn J. Ames

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AMES, GLENN J.. "Mercantilism." Europe, 1450 to 1789: Encyclopedia of the Early Modern World. 2004. Encyclopedia.com. 26 Sep. 2016 <http://www.encyclopedia.com>.

AMES, GLENN J.. "Mercantilism." Europe, 1450 to 1789: Encyclopedia of the Early Modern World. 2004. Encyclopedia.com. (September 26, 2016). http://www.encyclopedia.com/doc/1G2-3404900725.html

AMES, GLENN J.. "Mercantilism." Europe, 1450 to 1789: Encyclopedia of the Early Modern World. 2004. Retrieved September 26, 2016 from Encyclopedia.com: http://www.encyclopedia.com/doc/1G2-3404900725.html

Mercantilism

Mercantilism

BIBLIOGRAPHY

The term mercantilism designates a system of economic policy as well as an epoch in the development of economic doctrines, lasting from the sixteenth to the eighteenth century. It first appeared in print in Marquis de Mirabeaus Philosophie rurale in 1763 as système mercantile. The main popularizer of the commercial systemas he preferred to call itwas Adam Smith. According to him the core of the mercantile system consisted of the folly of confusing wealth with money. Despite the practical orientation of the mercantilist writers, they did propose a principle: the so-called positive balance of trade theory, which implied that a country must export more than it imported. According to Smith, the mercantile system was put into place by a mercantile special interest that would be able to profit from duties on imports, tariffs, and bounties.

From Smith onward, the view of the mercantile system, or simply mercantilism, as state dirigism and protectionism serving a special interest through the maintenance of positive balances of trade was developed further by classical political economy. During the nineteenth century this viewpoint was contested by the German historical school, which preferred to define mercantilism as state-making in a general sense. According to its view mercantilism as a system of theory was the rational expression of nation-building during the early modern period. An attempt to combine these two interpretations was made by the Swedish economic historian Eli Heckscher in his Mercantilism ([1935] 1994). A response to Heckschers wide definition of mercantilism was to altogether reject the notion of a particular mercantilist system.

This latter position goes too far, however. It is certainly correct that mercantilism was not a finished system or coherent doctrine in the nineteenth- and twentieth-century sense. It is better described as a literature of pamphlets and books that mainly dealt with practical political economy, published roughly between the late sixteenth century and 1750. The underlying issue dealt with in this literature was the question of how to achieve national wealth and power. This general agenda can be traced in English, Italian, and French economic texts from the sixteenth century onward. From this point of view, Italian writers such as Giovanni Botero (15441617) and Antonio Serra (1580?), as well as sixteenth-century Spanish writers such as de Vitorias, de Soto, de Azpilcueta, and Luis de Ortiz were perhaps the first mercantilists. In England, the most well-known mercantilists in the middle of the seventeenth century were Thomas Mun (15711641) and Edward Misselden (16081654). Later well-known mercantilist writers include Josiah Child (16301699), Nicholas Barbon (16401698), Charles Davenant (16561714), Malachy Postlethwayt (17071767), and James Steuart (17131780) in England and Antoine Montchrètien (15751621) and Jean Baptiste Colbert (16191683) in France. Most of these writers shared the view that the increase of trade and manufacture could only be accomplished through state intervention, and that it was not possible to rely only on the self-equilibrating forces of the marketplace.

From Adam Smith onward the view has been repeated that the mercantilist writers confused money with wealth. However, recent research has shown that this conception of the mercantilists is highly questionable. For the bulk of seventeenth-century writers on economic and trade issues, the quantity theory of money was a standard presupposition. Moreover, there were very few price inflationists among the mercantilists. Instead, a majority agreed that high prices would cause lower exportsthat is, they argued that the effect of elasticity of demand was considerable on most export markets. However, Mun as well as many others during this period seems to have feared that without a steady inflow of money originating from a favorable balance of trade, trade and industry would stagnate and the price of land would fall. To counter this shortage of bullion in circulation, a steady inflow of money through a net trade surplus was necessary.

However, most writers had abandoned the favorable balance of trade theory in its simple form by the end of the seventeenth century. Some argued that the principle was impractical as a policy goal, as it was impossible to account for a trade surplus in quantitative terms. Others found problems on more theoretical groundsthat is, they directly or indirectly admitted to the argument later known as the specie-flow argument. Instead, from the 1690s writers such as Josiah Child (16301699), Charles Davenant (16561714), and Nicholas Barbon (16401698) developed a new idea that alternatively has been called the theory of foreign-paid incomes, the labor balance of trade theory, or the export of work theory. Instead of holding on to the dogma that a country should receive an inflow of bullion through the balance of trade, these authors stressed that a country should export products with as much value-added content as possible and import as little of such products as they could. The profit would come from the fact that the buyerSpain, Portugal, or other countrieswould not only pay England for its raw materials, but also for its laborers.

Hence, what makes it legitimate to speak of a specific mercantile system was its proponents preoccupation with the question of how a nation could become rich, and thus also achieve greater national power and glory. In the broader sense of an ideology promoting economic protection in order to achieve domestic growth, the term mercantilism is not applicable only to the period before Adam Smith. Mercantilist ideas can also be found in modern forms of protectionism that have appeared since the nineteenth century. For example, the period between World Wars I and II was characterized by protectionism and economic nationalism; it was this that led to Heckschers synthesis, which he intended as advocacy in favor of liberal and free-trade ideas. Despite Heckschers insistence that mercantilism was a false ideologyfree trade, he argued, was better for economic growth, at least in the long runmercantilism was hailed as a form of popular economics of common sense. As such, it still exists to some degree, though it has reappeared most clearly during periods of economic crisis, such as the 1920s and 1930s. Mercantilist theory has found only a very few proponents among more modern schools of economics. Some economists inspired by institutional economics have referred sympathetically to mercantilist doctrines concerning population growth (for example Joseph J. Spengler), as have others inspired by radical development economics (for example, Cosimo Perrotta).

After World War II, mercantilist ideas have instead largely recurred in the form of neomercantilism and strategic-trade theory. From the end of the 1970s, strategic-trade theorists such as Lester Thurow, James Brander, Barbara Spencer, and Paul Krugman sought to replace the theory of comparative advantages with a theory of competitive advantage. Their argument is that the pattern of international trade cannot be explained on the basis of comparative advantage or with the help of the simple Heckscher-Ohlin theorem. Instead, the flow of international trade is a consequence of scale and scope, economic muscle, and increasing returns to scale. The political implications of this were straightforward: Governmental support is appropriate when used to bring about a competitive advantage for an industry that would benefit its nation in the long term. Certainly, this was another way to defend the infant-industry argument, with clear implications for trade policy.

SEE ALSO Beggar-Thy-Neighbor; Postlethwayt, Malachy; Smith, Adam; Zero-sum Game

BIBLIOGRAPHY

Heckscher, Eli F. [1935] 1994. Mercantilism. London and New York: Routledge.

Hutchison, Terence W. 1988. Before Adam Smith. Oxford: Blackwell.

Magnusson, Lars. 1994. Mercantilism. The Shaping of an Economic Language. London and New York: Routledge.

Lars Magnusson

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Mercantilism

MERCANTILISM

MERCANTILISM is the name given to the economic doctrines and practices of major trading nations roughly from the fifteenth through the eighteenth centuries. Colonial empires such as those of England, France, and Spain were among those adhering to the mercantile system. Although specific practices regarding the doctrine varied from nation to nation, there were basic principles all mercantilists followed. Mercantilists practiced heavy state regulation of economic activity in order to boost national wealth. The wealth of the nation was based upon its stocks of gold and silver, rather than on its peoples' living conditions, for example. Thus the accumulation of national wealth was believed to be best achieved by creating as large an excess of exports over imports as possible, as the difference would be collected in gold from importing countries. Colonies in particular were seen as a valuable means of increasing exports and thereby enriching the mother country, as was the case with the British colonies.

One of the earliest navigation acts passed by the British Parliament to have a direct impact on the American colonies was in 1651. It is the modification of this law in 1660 that became known as the Navigation Act, which defined British colonial policy and its practice of mercantilism. Protecting its national interests, the law stated that trade within the British empire was to be conducted by English ships and English seamen. Those defined as English included residents of the colonies as well as England. This gave English ships a complete monopoly over trade within the British empire, greatly limited the trade of foreign vessels within England's ports, and excluded foreign vessels altogether from colonial ports.

Further revisions of the Act made British ports the hub for all trade within the empire. The revisions called for trade with foreign powers to be shipped from its point of production to England or a British colonial port before being shipped to its foreign destination. Conversely, foreign goods set for the colonies were required to stop first in England. This ensured England would be the center for all colonial trade and allowed for taxes to be levied as goods flowed through the country.

The next phase of the Navigation Acts specifically listed which products were to be shipped to ports within the British empire and which were to be shipped to foreign countries. They also regulated the manufacture and trade of colonial products. Those colonial products needed within the empire, like iron, lumber, and other raw materials, were highly supported by the British government. Direct bounties were used to promote the colonial production of hemp, tar, pitch, and other naval stores. Other colonial products benefited from bounties at various times, including raw silk, masts, lumber, and indigo. Large sums were paid for the production and trade of these items between 1705 and 1774, with payments averaging more than £15,000 a year in the decade preceding the Revolution alone. Other products, like tobacco, were given a monopoly of the market in England, as the government levied high tariffs on tobacco from Spain and other foreign markets. Sugar and molasses received similar treatment. When such products were not needed in the British market, the taxes were rolled back so that they could be exported to other markets with a minimum of British taxes.

As it actively supported some products, the British government also actively discouraged the production of colonial products that would compete with those produced at home. In 1699, prohibitive legislation was passed to restrict the transportation of raw wool from one colony to another because wool production and manufacturing would infringe upon the business practiced in England. Similar legislation restricting transportation between colonies was passed with regard to hats in 1732, as hat production was a valued craft in England. The Wrought Iron and Steel Bill of 1750 prohibited the creation within the colonies of new steel mills, slitting mills, and tilt hammers. In addition to these restrictions, taxes became the main issue of resentment of the American colonists living under the British mercantile system. With the Townshend Acts of 1767, Parliament levied duties on colonial imports of paper, glass, paint, and tea, to which one colonial response was the Boston Tea Party (1773).

It is widely asserted that among the causes of the American Revolution were these mercantilist laws. Revolutionary Americans resented the economic restrictions, finding them exploitative. They claimed the policy restricted colonial trade and industry and raised the cost of many consumer goods. In his 1774 pamphlet, "A Summary View of the Rights of British America, " Thomas Jefferson asserted the Navigation Acts had infringed upon the colonists' freedom in preventing the "exercise of free trade with all parts of the world, possessed by the American colonists, as of natural right." Yet, as O. M. Dickerson points out, it is difficult to find opposition to the mercantile system among the colonists when the measures were purely regulatory and did not levy a tax on them. The British mercantile system did after all allow for colonial monopoly over certain markets such as tobacco, and not only encouraged, but with its 1660 regulation was instrumental in, the development of colonial shipbuilding. Indeed, the mercantile system was specifically approved by the First Continental Congress in the Declaration of Rights of 14 October 1774.

Comprehensive intellectual criticism of mercantilism as an economic doctrine began to arise in the 1750s and continued through the end of the century. Many intellectuals during the Enlightenment explored new ideas in political economy; Adam Smith in his 1776 An Inquiry into the Nature and Causes of the Wealth of Nations was one of the most influential figures for the Americans. Smith admitted the mercantile system worked, yet criticized its principles. Expounding a doctrine of individualism, Smith was one of many voices stating that the economy, like the individual, should be free from detailed regulation from the state. Economic, as well as individual, self-interest and its outcome in the market should be allowed to function without state regulation. Although it was indeed approved by the First Continental Congress, the practice of mercantilism was replaced with a Smith-oriented form of liberalism in post-Revolutionary America.

BIBLIOGRAPHY

Bruchey, Stuart Weems, ed. The Colonial Merchant: Sources and Readings. New York: Harcourt, Brace, 1966.

Crowley, John E. The Privileges of Independence: Neomercantilism and the American Revolution. Baltimore: Johns Hopkins University Press, 1993.

Dickerson, Oliver Morton. Navigation Acts and the American Revolution. Philadelphia: University of Pennsylvania Press, 1951.

MargaretKeady

See alsoBoston Tea Party ; Colonial Policy, British ; Navigation Acts ; Townshend Acts .

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Mercantilism

Mercantilism

Sources

Economic Practice. Nations established colonies as outposts to promote their interests in their expanding empires. Rather than actual gold and silver, the British sought natural resources for their factories. They also wanted to develop markets to purchase their manufactured goods, goods they could tax to increase revenue. By controlling trade with colonies the parent nations wanted to establish a balance of trade that would bring national benefits to the government. Initially this economic strategy proved beneficial for both England and her colonies. The demand for labor to process the abundant natural resources of North America provided opportunities for English workers who could not find employment in England. The efficient efforts of immigrant labor provided the raw materials England needed to avoid reliance on other nations. The growing population in the British colonies increased the flow of consumer goods from England to the colonies, which in turn stimulated the English economy. Ultimately this expanded trade and its revenue produced the much sought after gold and silver.

Exchange of Goods. The British colonies provided a variety of foodstuffs, minerals, and forest products for English consumption and manufacture. Furs and raw tobacco were the first commodities in demand. Whether traded with Indians or harvested in colonial fields, the commodities were exported to England, where they were processed. The finished product, tobacco or fur hats, could then be reexported in the international free market. The ideal trading situation for a nation and its colony was the production of what a colony did not need to use and the consumption of what they could not produce. The southern colonies came closest to the ideal since they produced rice and tobacco for export and imported consumer goods from other colonies and England. Eventually the colonies exported fish, furs and pelts, grain, indigo (blue dye), livestock, lumber, naval stores (masts, pitch, tar, turpentine), rice, and rum. Englands primary market lay in its colonies. Half of the copperware, ironware, glassware, earthenware, silk goods, printed cotton, and flannel that England exported went to British America. Between two-thirds and three-quarters of cordage, iron nails, beaver hats, and linen went there, too. Although these exchanges were privately financed,

the government needed to intercede to protect the British economic interests at home and abroad.

Government Regulation. In order to protect British trade and imperial gains, it was essential that the government impose regulations and restrictions on colonial trade. Between 1651 and 1733 the English Parliament directed those restrictions to both the domestic and overseas economy. With regard to colonial trade, Parliament enacted a series of navigation laws that controlled shipping and markets. In 1651 Parliament specified that colonial commodities be carried only in British-owned ships. This was an effort to prevent Dutch domination of the seas. In 1660 certain goods, such as furs, indigo, naval supplies, rice, sugar, and tobacco could be sold only to England or other English colonies. An act in 1663 stipulated that goods imported into the colonies must first pass through English ports. Finally, Parliament prohibited the colonies from manufacturing goods that would have directly competed with English exports. The Woolen Act of 1698, the Hat Act of 1731, and the Iron Act of 1750 limited the mass production of these specified goods for export. This intentional effort to control imperial trade prevented a competitive free market that would shape the American economy in the nineteenth century.

Sources

Ralph Davies, The Rise of the Atlantic Economies (Ithaca, N.Y.: Cornell University Press, 1973);

John J. McCusker and Russell R. Menard, The Economy of British America, 16071789 (Chapel Hill: University of North Carolina Press, 1985).

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mercantilism

mercantilism (mûr´kəntĬlĬzəm), economic system of the major trading nations during the 16th, 17th, and 18th cent., based on the premise that national wealth and power were best served by increasing exports and collecting precious metals in return. It superseded the medieval feudal organization in Western Europe, especially in Holland, France, and England. The period 1500–1800 was one of religious and commercial wars, and large revenues were needed to maintain armies and pay the growing costs of civil government. Mercantilist nations were impressed by the fact that the precious metals, especially gold, were in universal demand as the ready means of obtaining other commodities; hence they tended to identify money with wealth. As the best means of acquiring bullion, foreign trade was favored above domestic trade, and manufacturing or processing, which provided the goods for foreign trade, was favored at the expense of the extractive industries (e.g., agriculture). State action, an essential feature of the mercantile system, was used to accomplish its purposes. Under a mercantilist policy a nation sought to sell more than it bought so as to accumulate bullion. Besides bullion, raw materials for domestic manufacturers were also sought, and duties were levied on the importation of such goods in order to provide revenue for the government. The state exercised much control over economic life, chiefly through corporations and trading companies. Production was carefully regulated with the object of securing goods of high quality and low cost, thus enabling the nation to hold its place in foreign markets. Treaties were made to obtain exclusive trading privileges, and the commerce of colonies was exploited for the benefit of the mother country. In England mercantilist policies were effective in creating a skilled industrial population and a large shipping industry. Through a series of Navigation Acts England finally destroyed the commerce of Holland, its chief rival. As the classical economists were later to point out, however, even a successful mercantilist policy was not likely to be beneficial, because it produced an oversupply of money and, with it, serious inflation. Mercantilist ideas did not decline until the coming of the Industrial Revolution and of laissez-faire. Henry VIII, Elizabeth I, and Oliver Cromwell conformed their policies to mercantilism. In France its chief exponent was Jean Baptiste Colbert.

See J. W. Horrocks, A Short History of Mercantilism (1925); D. C. Coleman, ed., Revisions in Mercantilism (1969); R. B. Ekelund, Jr., and R. D. Tollison, Mercantilists as a Rent-Seeking Society (1982); J. C. Miller, Way of Death: Merchant Capitalism and the Angolan Slave Trade (1988).

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"mercantilism." The Columbia Encyclopedia, 6th ed.. 2016. Encyclopedia.com. 26 Sep. 2016 <http://www.encyclopedia.com>.

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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.

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GORDON MARSHALL. "mercantilism." A Dictionary of Sociology. 1998. Encyclopedia.com. 26 Sep. 2016 <http://www.encyclopedia.com>.

GORDON MARSHALL. "mercantilism." A Dictionary of Sociology. 1998. Encyclopedia.com. (September 26, 2016). http://www.encyclopedia.com/doc/1O88-mercantilism.html

GORDON MARSHALL. "mercantilism." A Dictionary of Sociology. 1998. Retrieved September 26, 2016 from Encyclopedia.com: http://www.encyclopedia.com/doc/1O88-mercantilism.html

mercantilism

mercantilism. This general term, coined in 1763 by Mirabeau, is usually applied to the system of economic thought and policy which flourished between the 16th and 18th cents. Mercantilists were concerned to increase and sustain the power of the nation state by competition with hostile rival nations. Most characteristic were their ideas about trade and gold. Wealth was defined exclusively in terms of gold bullion reserves, so that a positive trade balance became a prime aim of policy to increase the currency reserves. Conversely a trade deficit represented disaster, through the loss of gold reserves in payment for the excess of imports over exports. Such notions supported the acquisition of colonies to provide necessary imports or exotic commodities like sugar and tobacco which, otherwise, would have to be bought from rivals in exchange for bullion. The Navigation Acts introduced in the 17th cent. by the English government represented a typically mercantilist attempt to manipulate the costs of trade by stipulating that goods in the colonial trade must be carried in English ships. Another characteristic mercantilist strategy lay in the granting of legal monopolies by the state, such as the franchise given to the East India Company to trade exclusively with specified territories. Mercantilist doctrine also favoured control of the domestic economy by the state. Advocates agreed that low wages and a growing population were necessary to sustain national prosperity. Workers should be kept on the brink of poverty because any surplus above the level of subsistence, it was feared, would be frittered away in indulgence and idleness.

Modern economic thought gives little support to the basic ideas of mercantilism. Few today, except perhaps the mandarins in the Treasury, would subscribe to the view that national wealth should be defined exclusively in terms of gold reserves. Current theory regards the restriction of trade as damaging to economic growth. Similarly monopolistic control and the regulation of economic activity are perceived as sources of inefficiency. While historical evolution has rendered mercantilism unfashionable, and the evolution of economics has exposed some of its theoretical limitations, it had a rationale in the context of the power struggle of the early modern period, and provides important insights into the ideas which motivated policy at that time.

See also free trade and laissez-faire.

Clive H. Lee

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JOHN CANNON. "mercantilism." The Oxford Companion to British History. 2002. Encyclopedia.com. 26 Sep. 2016 <http://www.encyclopedia.com>.

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Mercantilism

MERCANTILISM

Mercantilism is the doctrine that economic activity, especially foreign trade, should be directed to unifying and strengthening state power. Though some mercantilist writers emphasized the accumulation of gold and silver by artificial trade surpluses, this "bullionist" version was not dominant in Russia.

The greatest of the Russian enlightened despots, Peter the Great, was eager to borrow the best of Western practice in order to modernize his vast country and to expand its power north and south. Toward this end, the tsar emulated successful Swedish reforms by establishing a regular bureaucracy and unifying measures. Peter brought in Western artisans to help design his new capital at St. Petersburg. He granted monopolies for fiscal purposes on salt, vodka, and metals, while developing workshops for luxury products. Skeptical of private entrepreneurs, he set up state-owned shipyards, arsenals, foundries, mines, and factories. Serfs were assigned to some of these. Like the state-sponsored enterprises of Prussia, however, most of these failed within a few decades.

Tsar Peter instituted many new taxes, raising revenues some five times, not counting the servile labor impressed to build the northern capital, canals, and roads. Like Henry VIII of England, he confiscated church lands and treasure for secular purposes. He also tried to unify internal tolls, something accomplished only in 1753.

Foreign trade was a small, and rather late, concern of Peter's. That function remained mostly in the hands of foreigners. To protect the industries in his domains, he forbade the import of woolen textiles and needles. In addition, he forbade the export of gold and insisted that increased import duties be paid in specie (coin).

See also: economy, tsarist; foreign trade; peter i

bibliography

Gerschenkron, Alexander. (1970). Europe in the Russian Mirror. London: Cambridge University Press.

Spechler, Martin C. (2001). "Nationalism and Economic History." In Encyclopedia of Nationalism, vol. 1, ed. Alexander Motyl. New York: Academic Press, pp. 219-235.

Spechler, Martin C. (1990). Perspectives in Economic Thought. New York: McGraw-Hill.

Martin C. Spechler

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SPECHLER, MARTIN C.. "Mercantilism." Encyclopedia of Russian History. 2004. Encyclopedia.com. 26 Sep. 2016 <http://www.encyclopedia.com>.

SPECHLER, MARTIN C.. "Mercantilism." Encyclopedia of Russian History. 2004. Encyclopedia.com. (September 26, 2016). http://www.encyclopedia.com/doc/1G2-3404100818.html

SPECHLER, MARTIN C.. "Mercantilism." Encyclopedia of Russian History. 2004. Retrieved September 26, 2016 from Encyclopedia.com: http://www.encyclopedia.com/doc/1G2-3404100818.html

Mercantilism (Issue)

MERCANTILISM (ISSUE)


Mercantilism was a set of economic ideas followed by many northern and western European countries from the sixteenth to the nineteenth century. These included Portugal, Spain, France, the Netherlands, and England. By the nineteenth century, however, mercantilism was considered discredited as an economic theory. Although it began as a rather vague collection of economic ideas, it was continually refined, elaborated, and modified over time. By the eighteenth century it had shifted from a loosely enforced set of commercial laws to a tightly regulated imperial policy, especially throughout the British Empire.

At the core of mercantilism was the belief that foreign trade could be made to serve the interests of the government and vice versa. The prime objective was the acquisition and retention of as much money (gold and silver) as possible. The state needed gold and silver to wage war. Mercantilism was a form of economic warfare between competing nations. European monarchs realized that in order to secure their political positions and compete with their rival monarchs in other nations they could no longer rely solely on an increase in tax rates. They had to increase their tax base. To do so, many nation-states turned to increased trade and the establishment of colonies.

In the mercantilist system colonies were expected to help the mother country achieve a favorable balance of trade, favorable specie inflow, economic self-sufficiency and an export surplus. Colonies were expected to supply products which would otherwise have to be obtained from non-imperial sources, generate exports by the production and sale of products in high demand outside the empire, and provide a market for the mother country's exports. The mother country would provide the colonies with centralized governmental control of the economy, as well as naval and military protection.

The English laws that systematized these developments for North America were enacted over a century and were built around a series of Navigation Acts beginning in 1651. They were given a comprehensive form in 1696. They confined the transport trade within the Empire to British or colonial ships, required all exports from Europe to the colonies to be shipped via England (and vice versa), and specified a list of goods that could not be shipped to European ports (other than England). These included sugar, cotton, tobacco, indigo, wool, naval stores, rice, furs, and copper. By the mid-seventeenth century, the colonies were prosperous and were encouraged in their prosperity by credits from home. The plantation colonies especially fitted nicely into the mercantilist system because the economies of the South and Britain naturally complemented one another. Britain carried the burden of colonial defense and gave colonial goods and ships protection abroad. From the early eighteenth century until 1763 the colonial policy was on the back burner, as England concentrated on a series of wars with France. The casualness of imperial administration and enforcement soothed points of disagreement and where discord continued, laws were tacitly evaded. Systematic smuggling was confined mainly to tea and molasses. For the most part the mercantile system provided easy credit, assured commercial markets, and brought economic prosperity to colonies and mother countries alike.

English intervention in the economy in order to serve national interests produced financial and strategic advantages to the colonies. By giving the colonies the bulk of the shipping rights on trade with England, British mercantilism benefited the colonies. Mercantilism inevitably brought trade disputes with other countries, which in turn often degenerated into military struggles.

Mercantilism had its critics. In 1776 economist Adam Smith (17231790) in his Wealth of Nations defined a country's wealth in terms of labor and not money. Smith advocated the free play of individual enterprise and free trade. Historians such as George Bancroft (18001891) condemned mercantilism as the source of foreign policy. He concluded that the Navigation Acts and mercantilism in general were the basic causes of the American Revolution (17751783).

Many colonists realized that England looked on them purely for their economic role under mercantilism. They also realized that their own prosperity was largely the result of mercantilist policies. As British statesman and political philospher Edmund Burke (17291797) declared, "the Act of Navigation attended the colonies from their infancy, grew with their growth and strengthened with their strength. They were confirmed in obedience to it even more by usage than by law."

Twentieth century historians such as Lawrence A. Harper and O. M. Dickerson disagreed with Bancroft that the Navigation Acts presented a great impediment to colonial trade. They argued that the real bitterness among American colonists after 1763 was aimed at British customs and revenue collectors, stamp officials, and enforcement agents. They had a distaste not for mercantilism but for their role in a reorganized empire that emerged after the end of the French and Indian Wars (17541763) in 1763. In particular, they objected to the taxation policy. Overzealous officers, racketeering practices, seizures, and new bonding regulations among other things were what brought hostility from colonists.

See also: Navigation Acts, Adam Smith


FURTHER READING

Barrow, Thomas C. Trade and Empire; The British Customs Services in Colonial America: 16601775. New York: Excel, 1999.

Ekelund, Jr. Robert B., and Robert D. Tollison. Politicized Economies: Monarchy, Monopoly, and Mercantilism. Texas A&M University Economics Series, No. 14. College Station: Texas A&M University Press, 1997.

Johns, R.A. Colonial Trade and International Exchange: The Transitions From Autarky to International Trade. London: Pinter Pub. Ltd., 1989.


Sen, Sudipta. Empire of Free Trade: The East India Company and the Making of the Colonial Marketplace. Philadelphia: University of Pennsylvania Press, 1998.

Wallerstein, Immanuel. Modern World System II: Mercantilism and the Consolidation of the European World-Economy, 1756001750. New York: Academic Press, 1980.

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mercantilism

mer·can·til·ism / ˈmərkəntiˌlizəm; -ˌtē-; -ˌtī-/ • n. belief in the benefits of profitable trading; commercialism. ∎ chiefly hist. the economic theory that trade generates wealth and is stimulated by the accumulation of profitable balances, which a government should encourage by means of protectionism. DERIVATIVES: mer·can·til·ist n. & adj. mer·can·til·is·tic / ˌmərkəntiˈlistik; -ˌtē-; -ˌtī-/ adj.

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"mercantilism." The Oxford Pocket Dictionary of Current English. 2009. Encyclopedia.com. 26 Sep. 2016 <http://www.encyclopedia.com>.

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mercantilism

mercantilism Sixteenth- to 18th-century trade policy advocating state intervention in economic affairs, primarily to maximize exports. Foreign trade was publicly controlled to produce the maximum possible surplus in the nation's trade balance, thus increasing the country's store of silver and gold, which constitute the ‘nation's wealth’.

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"mercantilism." World Encyclopedia. 2005. Encyclopedia.com. 26 Sep. 2016 <http://www.encyclopedia.com>.

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