mercantilism

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mercantilism

(mûr`kəntĭlĭzəm), economic system of the major trading nations during the 16th, 17th, and 18th cent., based on the premise that national wealth and power were best served by increasing exports and collecting precious metals in return. It superseded the medieval feudal organization in Western Europe, especially in Holland, France, and England. The period 1500–1800 was one of religious and commercial wars, and large revenues were needed to maintain armies and pay the growing costs of civil government. Mercantilist nations were impressed by the fact that the precious metals, especially gold, were in universal demand as the ready means of obtaining other commodities; hence they tended to identify money with wealth. As the best means of acquiring bullion, foreign trade was favored above domestic trade, and manufacturing or processing, which provided the goods for foreign trade, was favored at the expense of the extractive industries (e.g., agriculture). State action, an essential feature of the mercantile system, was used to accomplish its purposes. Under a mercantilist policy a nation sought to sell more than it bought so as to accumulate bullion. Besides bullion, raw materials for domestic manufacturers were also sought, and duties were levied on the importation of such goods in order to provide revenue for the government. The state exercised much control over economic life, chiefly through corporations and trading companies. Production was carefully regulated with the object of securing goods of high quality and low cost, thus enabling the nation to hold its place in foreign markets. Treaties were made to obtain exclusive trading privileges, and the commerce of colonies was exploited for the benefit of the mother country. In England mercantilist policies were effective in creating a skilled industrial population and a large shipping industry. Through a series of Navigation ActsNavigation Acts,
in English history, name given to certain parliamentary legislation, more properly called the British Acts of Trade. The acts were an outgrowth of mercantilism, and followed principles laid down by Tudor and early Stuart trade regulations.
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 England finally destroyed the commerce of Holland, its chief rival. As the classical economists were later to point out, however, even a successful mercantilist policy was not likely to be beneficial, because it produced an oversupply of money and, with it, serious inflation. Mercantilist ideas did not decline until the coming of the Industrial RevolutionIndustrial Revolution,
term usually applied to the social and economic changes that mark the transition from a stable agricultural and commercial society to a modern industrial society relying on complex machinery rather than tools.
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 and of laissez-fairelaissez-faire
[Fr.,=leave alone], in economics and politics, doctrine that an economic system functions best when there is no interference by government. It is based on the belief that the natural economic order tends, when undisturbed by artificial stimulus or regulation, to
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. Henry VIII, Elizabeth I, and Oliver Cromwell conformed their policies to mercantilism. In France its chief exponent was Jean Baptiste ColbertColbert, Jean Baptiste
, 1619–83, French statesman. The son of a draper, he was trained in business and was hired by Cardinal Mazarin to look after his financial affairs.
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.

Bibliography

See J. W. Horrocks, A Short History of Mercantilism (1925); D. C. Coleman, ed., Revisions in Mercantilism (1969); R. B. Ekelund, Jr., and R. D. Tollison, Mercantilists as a Rent-Seeking Society (1982); J. C. Miller, Way of Death: Merchant Capitalism and the Angolan Slave Trade (1988).

mercantilism

the economic doctrine of state power and the merchant class in the 16th and 17th centuries, in which foreign trade that gave rise to a trade surplus in bullion was regarded as the main indicator of national wealth. Under this doctrine, trade was controlled by state power. In the 19th century, the doctrine was overturned by the arguments of CLASSICAL ECONOMISTS, and replaced by the doctrine of free trade and LAISSEZ-FAIRE, although ‘protectionism’ and state intervention in the economy have often re-emerged as rival doctrines.

Mercantilism

 

(1) The first school of bourgeois political economy; an attempt to provide a theoretical explanation of and rationalization for the economic policy favored by the merchants.

(2) The economic policies of the early capitalist period, which were characterized by state intervention in the economy.

Early mercantilism (from the last third of the 15th century to the mid-16th) was characterized by Marx as a monetary system (K. Marx and F. Engels, Soch. , 2nd ed., vol. 24, p. 71). Its proponents were W. Stafford in England and De Santis and G. Scaruffi in Italy. The main element of early mercantilism was the theory of the money balance, which provided the rationale for the policy aimed at increasing monetary wealth by purely legislative means. In order to keep money in a country, its export was forbidden, and all sums earned by foreigners from sales in a country had to be spent on domestic goods.

Late mercantilism developed in the second half of the 16th century and reached its peak in the 17th century. Its chief theoreticians were T. Mun (England), A. Serra (Italy), and A. Montchrétien (France). Characteristic of late mercantilist policy was the favorable balance of trade, which was to be attained by the export of finished products and promoted by intermediary trade, in connection with which the export of money was permitted. Associated with intermediary trade is the mercantilist principle of buying cheaply in one country in order to sell more dearly in another.

Under mercantilist policy, the development of industry (especially manufacturing) was encouraged in order to increase the production of goods for export. Active protectionism was characteristic of mercantilist policy, as was support for the expansion of merchant capital—in particular, encouragement of the formation of monopolistic trading companies. Navigation and navies were developed and colonies seized. To finance all these measures, taxes were sharply increased.

The mercantilists focused on circulation and did not investigate the internal laws of the emerging capitalist production. They regarded political economy as the science of the balance of trade. Early mercantilists equated wealth with gold and silver as specie. Later theorists conceived of it as the surplus of products remaining after the needs of the country had been met—a surplus that could be transformed into money on the foreign market. Because money was scarce, the early mercantilists assigned it a limited function as a means of accumulation. Later mercantilists, however, also considered it a means of circulation. At the same time, in defending intermediary trade, the later mercantilists treated money essentially as capital. They recognized that money is a commodity, but like all of Marx’ predecessors, they were unable to solve the main problem of how and why commodities become money. The early mercantilists were the forefathers of the nominalist theory of money, and the later mercantilists, of the qualitative theory. Both theories contradict the mercantilist thesis that money is wealth. Because they regarded unequal exchange in foreign trade as the chief source of profit, the later mercantilists declared that the only productive labor was that which took place in industries whose products, when exported, brought into the country more money than they had cost to manufacture.

With the development of capitalism, the basic concepts of mercantilism ceased to correspond to changing economic conditions. Mercantilism gave way to classical bourgeois political economy, which provided the theoretical basis for free enterprise.

REFERENCES

Marx, K., and F. Engels. Soch. , 2nd ed., vol. 26, part 1, pp. 9, 11, 20, 34-35, 134-36, 155-57, 161-62, 277, 390.
Lenin, V. I. Poln. sobr. soch. , vol. 3, pp. 377-83.
Merkantilizm. Leningrad, 1935. [A collection.]
Itoriia ekonomicheskoi mysli, part 1. Moscow, 1961.
Mordukhovich, L. M. Ocherki istorii ekonomicheskikh uchenii. Moscow, 1957.
Mordukhovich, L. M. Glavnye etapy istorii ekonomicheskikh uchenii, part 1. Moscow, 1970.
Heckscher, E. Mercantilism, vols. 1-2. London, 1955.
Kellenbenz, H. Der Merkantilismus und die soziale Mobilitdt in Europa. Wiesbaden, 1965.
Kellenbenz, H. “Probleme der Merkantilismusforschung.”In XII Congres International des Sciences Historiques: Rapports 4. Vienna, 1965.