Mercantilism

Mercantilism is a long reaching economic doctrine that dominated Europe from the sixteenth to the 18th century. Mercantilism calls for a restriction of imports and a large trade surplus to benefit the mother country. “In contrast to the agricultural system of the physiocrats or the laissez-faire of the nineteenth and early twentieth centuries, the mercantile system served the interests of merchants and producers such as the British East India Company, whose activities were protected or encouraged by the state.”(LaHaye) Most mercantilists were related to the trade industry and were criticized for creating economic policies to directly benefit themselves.

Policies and values

Mercantilists were highly nationalistic. For them, the state was everything and it did not matter what had to happen, so long as the state succeeded. (Landreth,Colander)In thereturntoamsterdamofthesecondexpedition.jpgorder to keep the nation at the forefront, some people, according to the mercantilists, had to pay the price. One of the biggest problems the mercantilists dealt with was how to keep the working class poor. Mercantilists solved this problem with a fixed wage rate. They believed that if the nation got wealthier and the working class could be paid more, that they would become complacent and lazy; workers would no longer work as hard for their wages, since they were no longer living at a subsistence level.(Landreth,Colander) Mercantilists believed that there was a fixed amount of gold in the world market and they believed that the only way for a nation to thrive, is for it to own the most gold that it could. Mercantilists believed that if one nation was doing well then that nation had taken something from their own nation; this belief is often called a zero sum game.
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For the mercantilists, gold and capital were key. The only way for a county to succeed, in the mercantilist's view was if
the sate heavily regulated trade. For the Mercantilists, trade surpluses were the desired goal. Thomas Mun, the director of the East India Company and mercantilist, said that the, “means by which a nation increased its wealth and treasure was by trade, ‘ wherein wee must ever observe this rule; to sell more strangers yearly than wee consume of theirs in Value’”(Heilbroner 40) To accomplish this type of trade, export subsidies were called for, and Mercantilists would have required a ban on bullion leaving the country. (LaHaye) They would also restrict citizens from consuming or importing any foreign goods. All of this government intervention in trade was, in the view of the mercantilists, for the good and welfare of the nation.

Impact of Mercantilism on the Policies of the Time

The mercantilists mark a shift in the focus of economics. After the mercantilists the whole of the nation is not as important as the plight of the individual. Economists like J.S. Mill that come after the mercantilist era care incredibly for the plight of the people and dedicated much of his work to social reform. Other economists formulated their theories and policies in direct response to mercantilist theories.
Adam Smith came directly after the mercantilists in thought and ideas. His theories directly refute those of the mercantilists. Smith’s views on markets and the wealth of a nation directly refute the ideas and policies of the mercantilists. Smith viewed competition and competitive markets as a good thing while mercantilists thought that the more fixed the market could be, the better. (Landreth, Colander)Smith believed that the wealth of a nation was found in a variety of things from labor to goods produced, while mercantilists only saw value in gold.(Landreth, Colander)
Phisiocracy was also a direct and drastic reaction against mercantilism in England and France. “The physiocrats focused not on money but on the real forces leading to economic development. In reaction to the mercantilistic notion that wealth was created by the process of exchange, they studied the creation of physical value and concluded that the origin of wealth was in agriculture, or nature.”(Landreth, Colander 58) French physiocrats took the core of their ideas from the work of one man, Francois Quesnay. Physicocracy is founded on the idea that wealth is taken from the land rather than from markets for goods. Physiocrats believe in laissez-faire economics, which requires no government influence or interference in markets. This means, according to the physiocrats, that there should be no government regulation on trade and there should be no stimuli given to companies in order for them to produce goods domestically. “French mercantilism had been even more through going in its regulation of domestic and foreign economic activity than its British counterpart, and physiocracy was an intellectual reaction to this regulation”.(Landreth, Colander 57-58)



Mercantilism was important in the development of foreign policy for nations like Britain and France. Mercantilism allowed for expansion of the power of large European powers through colonies. Colonies had a purpose in the economy; this was to let mother countries like Britain to leach important new sources of gold as is shown in this video. Colonies allowed countries like Britain to have a permanent market for their goods and have a constant stream of raw materials that they otherwise would not have access to. This fits the tenants of mercantilism perfectly. By having the legal ability to create and enforce laws on imports and exports the mother country was essentially able to gain an unfair monopoly over the movement of goods to and from the colony.(Cashman)




Images and Video

Image 1 Retrieved from :http://hogsheadwine.wordpress.com/2011/04/15/the-dutch-wine-trade-in-the-17th-century/
Image 2 Retrieved from :http://socialesmercapi.blogspot.com/
Video Retrieved from :http://www.youtube.com/?-6cGVA

Sources


Cashman, G. (1999). What Causes War?: An Introduction to Theories of International Conflict . New York, New York: Lexington Books.

Heilbroner, R. L. (1972). The worldly philosophers: The lives, times, and ideas of the great economic thinkers. New York: Simon and Schuster.

LaHaye, Laura. "Mercantilism." The Concise Encyclopedia of Economics. 2008. Library of Economics and Liberty. Retrieved November 30, 2011 from the World Wide Web: http://www.econlib.org/library/Enc/Mercantilism.html

Landreth, H., & Colander, D. (2001). History of economic thought. (4 ed.). South-Western College Pub.