By the beginning of the 17th century, royal absolutism had emerged victorious all over

Europe. But a king cannot rule all by himself. He must rule through a hierarchical bureaucracy.
And so the rule of absolutism was created through a series of alliances between the king, his
nobles (who were mainly large feudal or post-feudal landlords), and various segments of large-
scale merchants or traders. ‘Mercantilism’ is the name given by late 19 th century historians to the
politico-economic system of the absolute state from approximately the 16 th to the 18th centuries.

Mercantilism has been called by various historians or observers a ‘system of Power or

State-building’ (Eli Heckscher), a system of systematic state privilege, particularly in restricting
imports or subsidizing exports (Adam Smith), or a faulty set of economic theories, including
protectionism and the alleged necessity for piling up bullion in a country. In fact, mercantilism
was all of these things; it was a comprehensive system of state-building, state privilege, and what
might be called ‘state monopoly capitalism’.

As the economic aspect of state absolutism, mercantilism was of necessity a system of

state-building, of Big Government, of heavy royal expenditure, of high taxes, of (especially after
the late 17th century) inflation and deficit finance, of war, imperialism, and the aggrandizing of
the nation-state. But state absolutism means that the state must purchase and maintain allies
among powerful groups in the economy, and it also provides a cockpit for lobbying for special
privilege among such groups. In the area of state absolutism, grants of special privilege included
the creation by grant or sale of privileged ‘monopolies’, i.e. the exclusive right granted by the
Crown to produce or sell a given product or trade in a certain area.

These ‘patents of monopoly’ were either sold or granted to allies of the Crown, or to those
groups of merchants who would assist the king in the collection of taxes. The grants were either
for trade in a certain region, such as the various East India companies, which acquired the
monopoly right in each country to trade with the Far East, or were internal-such as the grant of
a monopoly to one person to manufacture playing cards in England. The result was to privilege
one set of businessmen at the expense of their potential competitors and of the mass of English
consumers. Or, the state would cartelize craft production and industry and cement alliances by
compelling all producers to join and obey the orders of privileged urban guilds.

It should be noted that the most prominent aspects of mercantilist policy – taxing or
prohibiting imports or subsidizing exports – were part and parcel of this system of state
monopoly privilege. Imports were subject to prohibition or protective tariff in order to confer
privilege on domestic merchants or craftsmen; exports were subsidized for similar reasons. The
focus in examining mercantilist thinkers and writers should not be the fallacies of their alleged
economic ‘theories’. Theory was the last consideration in their minds. They were, as Schumpeter
called them, ‘consultant administrators and pamphleteers’ – to which should be added lobbyists.

Their ‘theories’ were any propaganda arguments, however faulty or contradictory, that
could win them a slice of boodle from the state apparatus. The mercantilist ideas emphasized
government stimulation, supervision and protection of the state’s economy. It was an attempt to
increase the power of the state and the efficiency of the national government. The mercantilist
ideas held that a state’s power depended on the actual and calculable wealth, which could be
described only in terms of gold and silver bullion. The states tried to regulate industrial
commerce, control taxation and made economic regulations which were earlier carried on by the
town, the province, the feudal lords or by the church.

In other words, it was the transfer of authority from the lower level of administration to
the state level. Wealth was not seen as an economic concept but as a means to reinforce the
strength of the state. The mercantilists aimed at protecting the merchants and manufacturers
against foreign competition. Even the merchants supported the state. Bullionism was one of the
most important tenets of European mercantilism. As Daniel Dessert says, for the mercantilists,
metal money was the only true measure of all things. In fact, the conquest and subsequent
plundering of the American colonies by Spain is the best example of mercantilism at work on a
large scale. An important idea emphasized by the mercantilist states was the balance of trade.

As gold and silver were the chief wealth for the mercantilists, the European states tried to
retain it in their own territories by controlling the import-export exchanges. Those countries
that had no mines at home or in their colonies adopted specific measures to build-up exports
and reduce imports so that the money could be used for commerce. It held the view that only by
a surplus of exports over imports could a state amass wealth and power. Thus, a policy of
favoring exports and penalizing imports had two important practical effects: it subsidized
merchants and manufacturers engaged in the export trade, and it threw up a wall of privilege
around inefficient manufacturers who formerly had to compete with foreign rivals.

At the same time, the network of regulation and its enforcement built up the state
bureaucracy as well as national and imperial power. Subsequently, it resulted in the idea of
balance of payments that took into consideration not only the sale and purchase of commodities,
but also the amounts spent on freight, insurance, tolls or travel expenses. Emphasis on mines,
manufacturing and industry was universal among the European mercantilist states. Policies
were formulated by each nation to achieve self-sufficiency and produce all that it required and to
have a surplus of export. To be self-sufficient, it was believed that a country must produce every
kind of manufactured goods.

It must nurture and protect its industries and start new industries by giving concessions
and favours to those who contributed in their objective. Foreigners with industrial skills were to
be offered incentives as had happened in the case of Holland where skilled artisans were invited
to come and settle from different regions. Agriculture was given importance primarily to
encourage the production of raw materials, such as wool, flax, silk or hemp, for the industries.
The mercantilists also laid great stress on the role of colonies. In fact, mercantilism to a large
extent developed as a result of the colonial empires. They provided market for the manufactured
products of the country and produced raw materials that could not be produced at home.

Colonies also became a source of employment and an important basis for trade. Closely
associated with this aspect was the importance of sea power. To send goods to foreign markets
and to control distant regions, a country required a large number of merchant ships. Moreover,
to implement tariff regulations and to protect sea trade against foreigners and pirates, a
powerful navy was considered important to threaten opponents, to open up new markets and to
enhance the prestige of a country. The famous English Navigation Acts, which played a leading
role in provoking the American Revolution, are an excellent example of the structure and
purpose of mercantilist regulation.