Mercantilism: Economic Theory and Practice
Mercantilism
Mercantilism is a set of economic ideas that posit a nation’s prosperity depends on its capital. The overall volume of world trade is considered unchangeable. Capital, represented by bullion (precious metals) held by the state, is increased primarily through a positive trade balance (exports exceeding imports).
Core Principles
Mercantilism suggests that national leaders should strive for these objectives through protectionist economic policies. These policies promote exports and discourage imports, often through tariffs. This economic approach is sometimes called the mercantile system.
Mercantilist thinkers advocated economic development by enriching nations through trade, enabling them to discover surplus production. The state plays a leading role in developing national wealth by adopting protectionist policies, especially by establishing trade barriers and export support measures.
Historical Context
Mercantilism itself isn’t a unified school of thought. It marks the end of the economic ideology of Christianity (financial considerations) inspired by Aristotle and Plato, who rejected wealth accumulation and interest-bearing loans (usury). This new economic power arose as kings sought to amass gold. Mercantilist theories aimed to develop an objective, enrichment-based system. This system relied on simplified analyses of economic flows, for example, not considering social system theory.
Mercantilism predominated throughout the modern era (16th-18th centuries), coinciding with the emergence of the nation-state and the Old Regime in Western Europe. Nationally, it represents early government intervention and control over the economy, establishing much of the modern capitalist system. Internationally, it indirectly fueled European wars and underpinned European imperialism as powers battled for global market control.
Mercantilism vs. Other Forces
Aiming to create sovereign nation-states, mercantilism opposed two forces: the universal powers (Church and Empire) with their spiritual, legal, and economic policies, and local particularism, hindered by poor communication and the persistence of the barter economy. Mercantilists argued for a closed market, replacing domestic goods and bartering with gold as the measure of value and medium of exchange.
State Intervention and Wealth
Mercantilism views state intervention as crucial for economic development. Another key aspect was strengthening state power by subordinating economic activity to that goal. Wealth served as the basis for state power. In contrast to later liberalism, which viewed wealth as an individual good and an end in itself, mercantilism saw private wealth as a means to an end, subject to state control.
Mercantilist Literature and Schools
Throughout this period, a complex literature developed, reflecting a vaguely unified awareness. In the 19th century, it spread across European nations, adapting to national characteristics. Notable mercantilist schools include bullionism (“Spanish mercantilism”), which advocated accumulating precious metals; Colbertism (“French mercantilism”), which favored industrialization; and commercialism (“British mercantilism”), which emphasized foreign trade as the source of national wealth.
Shift from Theology to Economics
Financial matters moved away from theological control. The Modern Age marked a gradual shift towards economic autonomy from morality and religion, influenced by rulers and merchants. This shift led to the development of physiocracy as an economic science.
Key Figures and Decline
Prominent mercantilist writers include Martin de Azpilicueta (1492), Tomas de Mercado (1525-1575), Jean Bodin (1530-1596), Antoine de Montchrétien (1576-1621), and William Petty (1623-1687). Mercantilism’s influence waned in the late 18th century as Adam Smith and other classical economists gained prominence, particularly in the British Empire. Smith, in The Wealth of Nations, criticized mercantilism as an “economy of the prince’s service.”