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The Economic History of Mercantilism

Updated on March 24, 2017

Fuedalism is the economic school of thought that reigned in mid-evil Europe up until Mercantilism began to take form. Mercantilism established itself around 1500 and lasted through about 1776, varying its beginning and ending times from region to region (Brue, 2007). Mercantilism at its core is the idea of an economy that exports more than it imports and increases its stock of gold, silver, and other precious metal (bullion). Throughout the reign of mercantilism were many thinkers that influenced it such as Thomas Mun, Gerard Malynes, Charles Davenant, Jean Baptiste Colbert, and Sir William Petty, all of whom affected some of the ideas of mainstream economics that we use today.



Within mercantilist ideas was the influence of bullionism. Bullion would serve to define a country’s wealth. Jean Baptiste Colbert was a bullionist who believed that the strength of the state was derived through finances dependent upon tax revenue. He served mercantilism mostly through his knowledge of finance (French minister of finance 1681-1683) and was known as the heart and soul of mercantilism (Brue, 2007). Another major tenet of mercantilism was nationalism, an idea that would push countries to export more than they imported (“fear of goods”). A key to this concept can be noted by the French essayist Michel de Montaigne who wrote, “The profit of one man is the damage of another… No profit whatever can possibly be made but at the expense of another.” (Brue, 2007). The concept of nationalism influenced competition among countries to gain their wealth at the expense of another. This concept influenced war as countries began to seek more profit and bullion from outside of their borders. While countries tried to increase their exports and decrease their imports, merchants sought duty-free (tax free) importation of raw materials that the country wasn’t able to produce domestically. The idea of making imports being duty free meant that they could be purchased at a lower cost in order to be sold abroad, thus increasing the wealth of the kingdom. In addition to duty free taxes merchants also sought protection for domestically produced goods and raw materials, as well as restrictions on the exportation of raw materials. The restrictions set on exports helped fight internal tolls, taxes, and restrictions.

During the economic era of mercantilism, various countries in Europe used the Americas to their advantage. Many merchant capitalists were pro-colonization because they could control what the colonists did in their trade practices through regulations like the English Navigation Acts of 1651 and 1660. Importations into the colonies and Great Britain had to be transported via British ships, the colonies’ ships, or by the ships of the countries that provided the goods. This kept the colonies from being able to export to other countries and bypass the expense of their mother countries in Europe. Some trade practices and manufacturing within the colonies was even banned in an effort to keep Great Britain dependable. A strong central government was needed to enforce regulations. The government used monopoly practices and subsidies as a way to decrease competition and keep business in Great Britain. Gerard Malynes advocated government regulations as being necessary to increase the quality of exports. He also developed the idea that more money or specie (coin) in a country would in turn stimulate business, which was later found to be untrue. Along with Malynes and other mercantilists, Sir William Petty favored a large hardworking and poorly paid labor force to decrease expenses for the aristocracy. He also paved the way for a new era of economic thought with writings like “Political Arithmetick”, which expressed his favoritism toward freer trade.

The mercantilists mainly contributed to economics with an influence in international trade and their accounting practices. We see these in our global economy today. The emergence of the most powerful legislative and judicial body in the world, The World Trade Organization (WTO), is a great example of a byproduct of the influential thought mercantilists gave to economics. Other trade organizations like NATO, NAFTA, OPEC, MERCOSUR, and more are great examples of trade organizations influenced by mercantilist thought. Most of the aspects of economics we see today have come from the failures of the mercantilists, eventually overcome by Adam Smith, a classical economist. He helped develop the more laissez-faire – a policy or attitude of letting things take their own course without interfering – form of economics that we participate in today.

Sources

Brue, Stanley L., and Randy R. Grant. The Evolution of Economic Thought. Mason, OH: Thomson/South-Western, 2007. Print.

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