LESSON 3:

Mercantilism
and
Economic
Nationalism
Stages/Modes of Production (Economic Systems)
a. Primitive Communalism
b. Slavery
c. Feudalism
d. Mercantilism
e. Capitalism
f. Communism
g. Socialism
h. Welfare State System
i. Regulatory State
A. Mercantilism
Due to the growth of trade and
commerce, the merchant class became
wealthy and powerful.
The once powerful feudal lords lost
their influences.
 Merchant guilds (union of traders in the
same craft/skill) were created to promote
and protect their own interests.
Some of the contributions of the
merchant guilds were the funding of public
works, construction of churches and
cathedrals.
Economic Doctrines of Mercantilism
1. It is the duty of the state to create and accumulate
wealth.
2. Wealth came from gold and silver.
3. Wealthy nations were considered to be powerful
and prestigious.
4. Nations without gold and silver fought one another
in order to colonize new territories.
Objectives of Mercantilism
1. Manufacturing was given top priority.
2. Agriculture was not anymore appreciated because
of its shortcomings (e.g., agricultural products are
perishable and bulky; limited area of land; and
products usually depend on weather conditions).
3. On the other hand, manufactured products could
be sold easily abroad than agricultural ones.
 Mercantilism dominated the economy since
commerce and manufacturing superseded agricultural
production.
Goal is to increase national power by foreign trade.
In other words, to attain a favorable balance of trade
with which the nation traded.
An industry manufacturing for exports was to be
preferred over one manufacturing for the domestic
market.
 It promotes the policy that in order to
regulate wages downward, a larger population is
needed.
At the same time, it improves the competitive
position of the nation in the export market.
Thus, most mercantilists were in favor of a
large population.
Bullionism (A School of Mercantilist
Thought)
A nation’s wealth was to be measured by
the amount of bullion (gold or silver) it
possessed.
It discouraged the exportation of bullion
since they mistakingly identified money with
wealth.
 Thus, it promotes the idea that
plentiful money was beneficial for a
nation and made trade to flourish.
However, it did not see the
inflationary consequences of such a
policy.
 This theory was predominant between the
16th and 19th centuries. Important names
associated with Mercantilist Theory are
Alexander Hamilton and Friedrich List.
Mercantilism falls under the realist school of
thought. Mercantilism arose from the ashes of
feudalism as a way for states to unify territory.
 An important belief of mercantilism is that it
is a zero-sum situation.
In order for one state to gain, another must
lose.
Mercantilists felt that having trade surplus
was necessary at all cost, leading to "beggar-thy-
neighbor" policies.
Who Are the Dominant Actors and What Are
Their Interests?
In the mercantilist school of thought, the
important players are the domestic government,
foreign states, and product producers.
Mercantilists feel that the state should
protect its home products as much as possible.
 An important figure in mercantilism,
Alexander Hamilton, found an ideal situation
for mercantilist ideology in the newly founded
United States.
As colonies, the US was not allowed to
develop any substantial industry, leaving the
US as primarily a natural resource producer.
 Hamilton realized the importance of
natural resource production, especially
agriculture in the US, but also felt that
strong protectionist measures were
necessary in order to help infant
manufacturing industries in the US.
 Mercantilists feel that states and
markets are "tag team," so to speak.
The state helps the market to stay
prosperous, and then, in turn, the
market helps keep the state
prosperous.
 States only interact with each other
when they feel that they have
something to gain, usually through
means of war.
In fact, war and trade protectionism
are the few interactions between the
home state and foreign states.
How do the state and the market interact?
In mercantilism, the state is the protector of
the state’s market.
Its goal is to have a trade surplus.
To achieve this, mercantilists have the
greatest form of protectionism of the three
schools of thought addressed here.
Finally, how do states cooperate in
these various schools of thought?
Mercantilists see the world economy as
a "my way or the highway" situation.
They are after relative gains. Power,
however relative, is the ultimate goal.
 B. Economic Nationalism
Economic Nationalism rose in the late 19th
century.
It is a term used to describe policies which are
guided by the idea of protecting domestic
consumption, labor and capital formation, even if
this requires the imposition of tariffs and other
restrictions on the movement of labor, goods and
capital.
It is in opposition to Globalization and Free
Trade.
 It would include such doctrines as
Protectionism, Import Substitution,
Mercantilism, and Planned Economies.
Economic Nationalism consists of
practices to create, bolster, and protect
national economies in the context of world
markets.
 The institutionalization of economic nationalism in the
20th century was a product of economic crisis and
nationalist movements.
Some states did increase tariff levels but this has not
led to a generalized increase in barriers to trade in the
pursuit of national economies for interrelated reasons:
(1) the integration and therefore interdependency of
economies; and
(2) the complexity of the global economy, making it
impossible to separate by nationality.