Mercantilism
A Particular Economic Mindset
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Definition (Webster)
• mercantilism
• Function: noun Date: 1838
• An economic system developed during the
decay of feudalism to unify and increase the
power and especially the monetary wealth of
a nation by a strict governmental regulation
of the entire national economy usually
through policies designed to secure an
accumulation of bullion, a favorable balance
of trade, the development of agriculture and
manufactures, and the establishment of
foreign trading monopolies
To put things in perspective, let me explain that mercantilism is an early form of
capitalism, but it is not the free trade capitalism with which we are familiar. It is
described sometimes as “state capitalism.†The state is in essence in bed with the
capitalists, and the capitalists support the state.
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Sir Thomas Mun
• Mun was, one of the leading lights of mercantilism. The
following quotes are from his tract England’s Treasure by
Foreign Trade (1630)
“The ordinary means to increase our wealth and treasure is by
foreign trade, wherein we must ever observe this rule: to sell
more to strangers yearly tan we consume of theirs in value…
Although a Kingdom may be enriched by gifts received, or by
purchase taken from some other Nations, yet these are things
uncertain and of small consideration when they happen. The
ordinary means therefore to increase our wealth and treasure is
by Foreign Trade.â€
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Mun
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Definition Developed
• Excerpt from “Article in the Concise Encyclopedia of
Economics by Laura LaHaye.”
• Mercantilism is economic nationalism for the
purpose of building a wealthy and powerful state.
ADAM SMITH coined the term “mercantile system†to
describe the system of political economy that
sought to enrich the country by restraining imports
and encouraging exports. This system dominated
Western European economic thought and policies
from the sixteenth to the late eighteenth centuries.
The goal of these policies was, supposedly, to
achieve a “favorable†balance of trade that would
bring gold and silver into the country and also to
maintain domestic employment.
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Bullion
• It helps to know that at that time wealth was
thought of in terms of accumulated precious metals
or bullion (gold and silver)
• This was supposed to exist in limited quantities.
• If your opponent got a hold of it, you lost out, as
there was less for you.
• Wealth equals power. So if your enemy has more
wealth he has more power than you.
• Hence you design a policies to make sure you have
the majority of the bullion.
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Ramifications?
• Most of the mercantilist policies were the
outgrowth of the relationship between the
governments of the nation-states and their
mercantile classes. In exchange for paying
levies and taxes to support the armies of the
nation-states, the mercantile classes induced
governments to enact policies that would
protect their business interests against foreign
competition; up to and including going to war.
In a world were accumulating gold and silver and constantly maintaining a positive
balance of trade was seen as imperative to magnifying, not only a countries wealth,
but its military power and its national security, trade is no longer simply an individual
undertaking with consequences for those individuals involved, but part of the
national struggle. For you see, should your balance of trade be negative for any length
of time, and your bullion decrease, then your enemies would grow relative in power
to you. That could put your existence and independence on the line. How else could
you pay your armies and fund your wars? Could you then be conquered? Should you
not then go to war to open new markets and acquire access to new goods for trade?
In such an atmosphere, just imagine much can be excused, even by supposedly moral
people, as a necessary evil. For example you could you not justify fighting wars in
distant places to control small tropical islands on which you could establish sugar
plantations? Could you then possibly justify human slavery? After all, slavery made
the sugar plantations function profitably, and having those plantations meant you had
sugar, a valuable in-demand commodity to sell to generate bullion! Just as
importantly it meant that you did not have to buy it from dastardly competitors and
hemorrhage your precious bullion in the process. Having preserved and hopefully
built your wealth (your stock of bullion) you now had the means necessary to pay
your armies, and fight your wars, and remain powerful and independent. In that case,
could society not justify away slavery, or the multiple other forms of horrendous
actions taken to ensure the positive balance of trade and accumulation of bullion!
I am not arguing that mercantilism was the cause of slavery here, but I am
wondering, and asking you to do the same, if such a mindset could attribute to
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turning a blind eye to horrendous abuses.
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Mercantilist Wars
• The most clear example of a mercantilist
conflict are the first two of the Anglo-Dutch
Wars, fought in two phases. The first phase
was between 1652-1654 and the second was
between 1665-1667.
• The Dutch had emerged out of the wars of
religion as one of the, if not the, premier
European naval power. They dominated trade
in the Baltic and built the largest mercantile
fleet in Europe.
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Anglo-Dutch Mercantile War
• The Dutch Navy was able to push its
competitors, including old allies such as the
English out of the East Indies. They dominated
the lucrative herring fishing off the east coast
of England. They also circumvented English
restrictions on trade with England’s North
American Colonies.
• Those along with competing aspirations to
expand their overseas presence and
possession led the two old allies to go to war.
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End of Anglo-Dutch War
• After the 1688 Glorious Revolution in England which
brought Mary and her husband William of Orange,
the stadtholder of Holland (the de facto leader of the
Dutch Republic,) to the English Throne, these AngloDutch hostilities came to an end.
• William granted the English Navy many privileges to
assure its loyalty.
• Many Dutch merchant elites moved their operations
to London.
• Holland’s economy stagnated while England’s grew
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Adam Smith
• The most serious blow dealt to mercantilist
theory, and what many historians/economists
regard as the nails in its coffin as a serious
economic theory, came with the Publication of
The Wealth of Nations, by Adam Smith, in
1776.
• HOWEVER…. See notes below
The heyday of mercantilism was the 17th century. By the 18th this theory was facing
serious challenges from the advocates of free trade (what came to be known as the
liberals – a far different usage of the word than we have today.) By the late 18th
century countries like Holland, England, France, and the United States among others
had abandoned full adherence to the principles of mercantilism. The famous
HOWEVER, this does not mean that such attitudes about trade and wealth ever truly
disappeared. In one form or the other aspects of mercantilist thought have always
been with us, and they occasionally experience a global resurgence.
We should note that some commentators see quasi mercantilist beliefs behind the
current trade disputes facing international trade in 2018.
Concerns over trade imbalances, mushrooming trade deficits, viability of local
industries seen as important to national security…all such things raise reasonable
concerns in a society, and sometimes might call for certain reasonable restrictions on
absolute “laissez faire†free trade. As with all things the key word here is
“reasonable.†Reasonable concerns and reasonable responses! The trick though is
defining what is reasonable, and that answer is far beyond my capacity.
11
Adam Smith
Scottish economist and Philosopher. A leading light of the Scottish enlightenment.
Born 1723 and died 1790.
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