Mercantilism

1. Introduction to Mercantilism
2. Historical Background of Mercantilism
3. Main Points of Mercantilism
4. Early Writers
5. Mercantilist Thinkers
6. Conclusion
 1. Introduction to Mercantilism

What is Mercantilism?
 the theory that a country’s power depended
mainly on its wealth to build strong navies and
purchase vital trade goods.
What is Mercantilism?

 Mercantilism had no systematic,

comprehensive, consistent treatise, no
leader, common method, or theory.
 Each “mercantilist" sought advantage
for a specific, trade, merchant, joint-
stock company or social group.
 "Protectionism" is often seen as a
primary characteristic of Mercantilism.
What is Mercantilism?
 The primary objective of Mercantilism was
to increase the power of the nation state.
 One of the important aspects of national
power or strength was wealth that was
equated with specie.
 The states that followed a policy of
mercantilism tended to see trade,
colonialism and conquest as the primary
ways of increasing wealth.
Mercantilism
When?

 16th – 18th C

 In Poland: 17th C
Where?

Western Europe, particularly England and

France
 2. Historical Background
of Mercantilism
 Generally, Mercantilism is associated with the
rise of the “Nation state.”
 Feudal institutions were weakened by the
increasing use of money and a greater reliance
on exchange within the economy.
 The Protestant Reformation weakened the role
of the church and consequently the civil role of
the state was expanded
 There was a rise of Humanism (the concern for
well-being of humans in the short term).
 The decline of feudalism was influenced by changes in
technology

 “enclosure movement” and the commercialization of agriculture

 Increasing use of money in the economy reduced the role of
barter and reciprocity, people wanted to sell or work for money
 nailed horse shoe, harness, stirrup, horse collar, heavy plough
 three-field system [1 field winter crop, 1 field spring crop, third
lying fallow] extended area peasant could farm by 1/8, 50%
increase in output
 rise of mechanical power [water, wind] used in textile and mining
 urbanization
 rise of markets and fairs
 gunpowder
 improvements in navigation, shipping,
transport
 moveable type, (standardization, mass
production and marketing of books in a
variety of languages)
 mechanical clocks, mechanisms,
instruments, Increased skills of craftsmen
who made machines
The Decline of Feudalism and
the Plague
 The "Black Death" of 1346-61
 restricted trade
 reduction in population
 Increased production of wool; need
industry and commerce to process and sell
wool and textiles.
 strengthening of guilds leads to an
emphasis on trade
 Reduction in Population

 Population of England fell by about 1.5 million

(out of a population of 3.5 to 5 million in 1346).
 Result was more money per person but also
more animals, land and goods per person, prices
fell.
 Labour shortage pushed wages and earnings up.
 Less people with increased agricultural
production (some problems with harvests and
animals dying, but on average diets improved.
 Labour became more mobile, masters on feudal
estates had to "hire" labour. This led to the rise
of "free" labour. If you couldn't hire workers,
then you rent the land to others. Small farms
with limited labour shifted to pasture and sheep
rather than tilling the soil.
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 Medieval Breakdown
 Feudal system imposed many imposts upon
merchants/tradesmen/moneylenders; but social
change went against feudalism:
 Growth of specialist manufactures in towns: the guilds
 Growth of specialist traders between nations: the
Mercantilists
 Revolt against religious strictures against
merchants/lending, church hypocrisy
 Religious revolts: beginnings of Protestantism bound up
with growth of merchants/financiers
 A new ideology/analysis struggled for dominance:
Mercantilism

16
1500s
 Rise of the nation-state
 John Calvin (1509-1564): Prosperity is
Piety
 Nicolo Machiavelli (1469-1527) and “The
Prince”
 Separates the church and the state
 Denies mankind’s desire for freedom
 Charity has no role for the individual
1500s and 1600s
 Elizabethan Poor Law of 1601
 Invention of printing with movable type gave rise to
economic literature written by lay people
 Thomas Wilson (1525-81) wrote Discourse on Usury
(1572)
 Charles Dumoulin (Latinized as Molinaeus) wrote
Treatise on Contracts and Usury (1546)
 Denied that interest was forbidden by divine law
 Suggested public regulation of lending and interest
 Influx of gold and silver from the New World
Main Points of Mercantilism

 Economics as applied statecraft

 Promotion of National wealth and power
 Importance of trade surpluses
 Trade surplus leads to a net gold inflow, and
thereby to greater national wealth and power
 Analogy between nations and households
 Encourage domestic production and exports,
discourage imports
3. Main Points of Mercantilism
 Economics as statecraft not analysis
 Tendency to see gold and “treasure” as
constituting national wealth
 Emphasis on balance of trade surpluses
 Emphasis on maximizing productivity and
output
 Trade as a zero sum game
 Role of government in encouraging domestic
manufacturing and exports while minimizing
imports
 Link between money supply and prices
 Two Ways to Increase
a Nations Wealth

 obtain as much gold and  establish a favorable

silver as possible balance of trade, in which
it sold more goods than in
bought
 Mercantilism Explained

 colonies existed for the benefit of the Mother

Country
 Source of Raw materials = cheap
 shipped to M. C. to be turned into finished
goods
 Finished good shipped to Colony = expensive
 profit goes to M. C.
 Pass laws forbidding colonies from producing
their own goods

Mercantilism = unfair or unbalanced trade

 Triangular Trade
 Europeans transported manufactured
goods to the west coast of Africa
 Triangular Trade
 Traders then exchanged these goods for captured
Africans who were then sold in the Americas
 Triangular Trade

 Merchants then bought sugar,

coffee, and tobacco in the
West Indies and sailed back
to Europe to sell these
products.
 Long Term Results
 global trade routes shifted over time
 the old silk routes declined
 West Asia and the Islamic world were displaced as the
centralized location of global trade
 the Atlantic and Pacific sea routes become the new
focus of global trade
Theories of International Trade
 It measures the wealth of nation by the
size of its accumulated treasures i. e.
gold & silver.
 Focus is international trade, rather than
internal commerce
 Nationalism essential: promote nation by
gain from trade
 Trade imbalance the object: export more
than import
Theories of International Trade
 Wealth (Gold) can be accumulated by
encouraging exports and discouraging imports.
 This theory aims at creating trade surplus.
 Limitations:
 Accumulation of wealth takes place at the cost of
another trading partner; a win-lose game & a zero-
sum game for global wealth (international trade).
 Supported only in short run.
 Overlooks other resources such as its natural
resources, manpower & its skill levels, capital, etc.
 Used by colonial powers as a means of exploitation
and not development.
Recap
 Feudal ideology significantly anti-
capitalist, anti-financier. But
 Merchants essential
 “Exotic”
commodities from other lands
 Trade between different fiefs/kingdoms

 Finance essential
 Merchant activity
 Wars

 Merchants tolerated (but controlled, taxed)

4. Early Writers

 Niccolo’ Machiavelli (1469-1527)

 Jean Bodin (1530-1596)
 Antonio Serra (1580-1650)
Niccolo’ Machiavelli (1469-1527)
 Author of The Prince, 1512
 Machiavelli's work is associated with the rise of
nation state
 Morality was necessary as guide to private actions
 Politics should be free from ethical or theological
influence
 general postulate about human nature, self-
interest
 empirical bent [Bacon sees Machiavelli as
predecessor]
Jean Bodin (1530-1596)

 Contributions to “quantity theory of

money”
 Accepted mercantilist position on
balance of trade, but saw inflow of
specie
 believed in supreme power of the state
and natural law
Antonio Serra (1580-1650)

 Serra was one of the first writers who

constructed a a systematic development
of “Mercantilism.” In1613 he published, A
Brief Treatise on the Causes which
make Gold and SIlver abound in
Kingdoms where there are no Mines
 Agriculture and trade in manufactured
goods most important source of wealth
to a nation.
5. Mercantilist Thinkers

 Josiah Child
 Bernard Mandeville
 David Hume
 Von Hornick
 Thomas Mun
Josiah Child
 Josiah Child was a seventeenth-century
mercantilist.
 Essentially a defense contractor, Child wrote
Circumstance on the Discourse on Trace,
which he published anonymously.
 His, while not iron-clad, suggested that Britain
should lower interest rates since Holland had
done so.
 His self-interested recommendations did not
have much economic foundation.
 Jean-Baptiste Colbert
 Jean-Baptiste Colbert was the French
minister of finance from 1661 until 1683.
 Mercantilist considerations led Colbert to
advocate war as an instrument of economic
policy.
 He regulated the minute details of industry.
 He wanted to increase work, exports, and
child labor.
 This extreme government control still lives in
France today.
Bernard Mandeville
 Bernard Mandeville, a social satirist,
wrote the The Fable of the Bees.
 This satire preached the themes of hard
work and the beneficial social
consequences of private self-interest
behaviour.
 It linked avaricious behaviour to
increased trade.
David Hume
 David Hume questioned
mercantilist assumptions
in his essays.
 He denied that money and
gold were equivalent to
wealth. Instead, they had
merely instrumental value.
David Hume

 He thought that accumulating precious

metals would result in higher prices.
 Hume believed that imports as well as
exports were beneficial.
 He suggested that trade was not
equivalent to warfare, since both to the
parties to the transaction benefit.
Von Hornick
 Von Hornick: Austria Over All, If Only She
Will (1684)
 Some Mercantilist Programs:
- Full use of all land and natural resources
for domestic industry
- Large working population
- Finish raw materials at home, as finished
goods have a higher value
- Discouragement of imports, and no
imports where domestic supply is available
- Imports be confined to raw materials to
be finished at home
Von Hornick

- Prohibition of all bullion exports (bullionist

position)
- Necessary imports be obtained in
exchange for domestic goods, not gold
or silver
- Sell surplus manufactures to
foreigners, if possible for gold and silver
 Hornick is very influential in Austria
Thomas Mun
 Thomas Mun: England’s Treasure by Foreign
Trade (1664)
 Mercantilist Programs
- Importance of trade and the social position of
the merchant
-Bring all unused land into production
- Fully utilize natural resources including fisheries
- Reduce consumption of imports, particularly
luxuries
- Export goods with inelastic demand—can
charge higher prices
Thomas Mun

- Customs duties on imports to be

consumed domestically
-Export in own ships
-Encourage distant trade
- make England a trans-shipment point
- Export of bullion permitted, if for
purposes of trade (non-bullionist
position)
- “Make the most we can of our own”
 Mercantilism: Conclusion
 Foreign trade as the source of surplus
 No analysis of production
 In practice
 Added to feudal imposts on commerce
 Created government-sanctioned monopolies
 ostensibly to increase national wealth; but
 often in practice enriched favoured individuals
 Point of criticism and departure for later
Physiocrats & Classical Economists, with
emphasis upon “laisser-faire, laisser-passer”

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