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Seaport at sunset, a French seaport painted by
Claude Lorrain in 1639, at the height of mercantilism
Mercantilism is an economic policy that is designed to maximize the exports and minimize the imports for an economy. It promotes imperialism, tariffs and subsidies on traded goods to achieve that goal. The policy aims to reduce a possible current account deficit or reach a current account surplus, and it includes measures aimed at accumulating monetary reserves by a positive balance of trade, especially of finished goods. Historically, such policies frequently led to war and motivated colonial expansion. Mercantilist theory varies in sophistication from one writer to another and has evolved over time.
Mercantilism was dominant in modernized parts of Europe, and some
areas in Africa from the 16th to the 19th centuries, a period of proto-industrialization,
before it fell into decline, but some commentators argue that it is
still practiced in the economies of industrializing countries, in the form of economic interventionism.
It promotes government regulation of a nation's economy for the purpose
of augmenting state power at the expense of rival national powers. High
tariffs, especially on manufactured goods, were almost universally a feature of mercantilist policy.
With the efforts of supranational organizations such as the World Trade Organization to reduce tariffs globally, non-tariff barriers to trade have assumed a greater importance in neomercantilism.
History
Mercantilism became the dominant school of economic thought in Europe throughout the late Renaissance and the early-modern period (from the 15th to the 18th centuries). Evidence of mercantilistic practices appeared in early-modern Venice, Genoa, and Pisa regarding control of the Mediterranean trade in bullion. However, the empiricism of the Renaissance,
which first began to quantify large-scale trade accurately, marked
mercantilism's birth as a codified school of economic theories. The Italian economist and mercantilist Antonio Serra is considered to have written one of the first treatises on political economy with his 1613 work, A Short Treatise on the Wealth and Poverty of Nations.
Mercantilism in its simplest form is bullionism,
yet mercantilist writers emphasize the circulation of money and reject
hoarding. Their emphasis on monetary metals accords with current ideas
regarding the money supply, such as the stimulative effect of a growing money-supply. Fiat money and floating exchange rates have since rendered specie concerns irrelevant. In time, industrial policy
supplanted the heavy emphasis on money, accompanied by a shift in focus
from the capacity to carry on wars to promoting general prosperity.
Mature neomercantilist theory recommends selective high tariffs for "infant" industries or the promotion of the mutual growth of countries through national industrial specialization.
England began the first large-scale and integrative approach to mercantilism during the Elizabethan Era (1558–1603). An early statement on national balance of trade appeared in Discourse of the Common Weal of this Realm of England,
1549: "We must always take heed that we buy no more from strangers than
we sell them, for so should we impoverish ourselves and enrich them." The period featured various but often disjointed efforts by the court of Queen Elizabeth
(reigned 1558–1603) to develop a naval and merchant fleet capable of
challenging the Spanish stranglehold on trade and of expanding the
growth of bullion at home. Queen Elizabeth promoted the Trade and Navigation Acts in Parliament and issued orders to her navy for the protection and promotion of English shipping.
Elizabeth's efforts organized national resources sufficiently in
the defense of England against the far larger and more powerful Spanish Empire, and in turn, paved the foundation for establishing a global empire in the 19th century. Authors noted most for establishing the English mercantilist system include Gerard de Malynes (fl. 1585–1641) and Thomas Mun (1571–1641), who first articulated the Elizabethan system (England's Treasure by Foreign Trade or the Balance of Foreign Trade is the Rule of Our Treasure), which Josiah Child (c.
1630/31 – 1699) then developed further. Numerous French authors helped
cement French policy around mercantilism in the 17th century. Jean-Baptiste Colbert (Intendant général, 1661–1665; Contrôleur général des finances, 1661–1683) best articulated this French mercantilism. French economic policy liberalized greatly under Napoleon (in power from 1799 to 1814/1815)
Many nations applied the theory, notably France. King Louis XIV (reigned 1643–1715) followed the guidance of Jean Baptiste Colbert, his Controller-General of Finances from 1665 to 1683. It was determined
that the state should rule in the economic realm as it did in the
diplomatic, and that the interests of the state as identified by the
king were superior to those of merchants and of everyone else.
Mercantilist economic policies aimed to build up the state, especially
in an age of incessant warfare, and theorists charged the state with
looking for ways to strengthen the economy and to weaken foreign
adversaries.
In Europe, academic belief in mercantilism began to fade in the late-18th century after the East India Company annexed the Mughal Bengal, a major trading nation, and the establishment of the British India through the activities of the East India Company, in light of the arguments of Adam Smith (1723–1790) and of the classical economists.
The British Parliament's repeal of the Corn Laws under Robert Peel in 1846 symbolized the emergence of free trade as an alternative system.
Theory
Most of the European economists who wrote between 1500 and 1750 are today generally considered
mercantilists; this term was initially used solely by critics, such as
Mirabeau and Smith, but historians proved quick to adopt it. Originally
the standard English term was "mercantile system". The word
"mercantilism" came into English from German in the early-19th century.
The bulk of what is commonly called "mercantilist literature" appeared in the 1620s in Great Britain. Smith saw the English merchant Thomas Mun (1571–1641) as a major creator of the mercantile system, especially in his posthumously published Treasure by Foreign Trade (1664), which Smith considered the archetype or manifesto of the movement. Perhaps the last major mercantilist work was James Steuart's Principles of Political Economy, published in 1767.
Mercantilist literature also extended beyond England. Italy and
France produced noted writers of mercantilist themes, including Italy's Giovanni Botero (1544–1617) and Antonio Serra (1580–?) and, in France, Jean Bodin and Colbert.
Themes also existed in writers from the German historical school from
List, as well as followers of the American and British systems of
free-trade, thus stretching the system into the 19th century. However,
many British writers, including Mun and Misselden,
were merchants, while many of the writers from other countries were
public officials. Beyond mercantilism as a way of understanding the
wealth and power of nations, Mun and Misselden are noted for their
viewpoints on a wide range of economic matters.
The Austrian lawyer and scholar Philipp Wilhelm von Hornick, one of the pioneers of Cameralism, detailed a nine-point program of what he deemed effective national economy in his Austria Over All, If She Only Will of 1684, which comprehensively sums up the tenets of mercantilism:
- That every little bit of a country's soil be utilized for agriculture, mining or manufacturing.
- That all raw materials found in a country be used in domestic
manufacture, since finished goods have a higher value than raw
materials.
- That a large, working population be encouraged.
- That all exports of gold and silver be prohibited and all domestic money be kept in circulation.
- That all imports of foreign goods be discouraged as much as possible.
- That where certain imports are indispensable they be obtained at
first hand, in exchange for other domestic goods instead of gold and
silver.
- That as much as possible, imports be confined to raw materials that can be finished [in the home country].
- That opportunities be constantly sought for selling a country's
surplus manufactures to foreigners, so far as necessary, for gold and
silver.
- That no importation be allowed if such goods are sufficiently and suitably supplied at home.
Other than Von Hornick, there were no mercantilist writers presenting an overarching scheme for the ideal economy, as Adam Smith would later do for classical economics. Rather, each mercantilist writer tended to focus on a single area of the economy.
Only later did non-mercantilist scholars integrate these "diverse"
ideas into what they called mercantilism. Some scholars thus reject the
idea of mercantilism completely, arguing that it gives "a false unity to
disparate events". Smith saw the mercantile system as an enormous
conspiracy by manufacturers and merchants against consumers, a view that
has led some authors, especially Robert E. Ekelund and Robert D.
Tollison, to call mercantilism "a rent-seeking society". To a certain extent, mercantilist doctrine itself made a general theory of economics impossible. Mercantilists viewed the economic system as a zero-sum game, in which any gain by one party required a loss by another.
Thus, any system of policies that benefited one group would by
definition harm the other, and there was no possibility of economics
being used to maximize the commonwealth, or common good.
Mercantilists' writings were also generally created to rationalize
particular practices rather than as investigations into the best
policies.
Mercantilist domestic policy was more fragmented than its trade
policy. While Adam Smith portrayed mercantilism as supportive of strict
controls over the economy, many mercantilists disagreed. The early
modern era was one of letters patent and government-imposed monopolies;
some mercantilists supported these, but others acknowledged the
corruption and inefficiency of such systems. Many mercantilists also
realized that the inevitable results of quotas and price ceilings were black markets. One notion that mercantilists widely agreed upon was the need for economic oppression of the working population; laborers and farmers were to live at the "margins of subsistence". The goal was to maximize production, with no concern for consumption. Extra money, free time, and education for the lower classes were seen to inevitably lead to vice and laziness, and would result in harm to the economy.
The mercantilists saw a large population as a form of wealth that made possible the development of bigger markets and armies. Opposite to mercantilism was the doctrine of physiocracy,
which predicted that mankind would outgrow its resources. The idea of
mercantilism was to protect the markets as well as maintain agriculture
and those who were dependent upon it.
Policies
Mercantilist
ideas were the dominant economic ideology of all of Europe in the early
modern period, and most states embraced it to a certain degree.
Mercantilism was centred on England and France, and it was in these
states that mercantilist policies were most often enacted.
The policies have included:
- High tariffs, especially on manufactured goods.
- Forbidding colonies to trade with other nations.
- Monopolizing markets with staple ports.
- Banning the export of gold and silver, even for payments.
- Forbidding trade to be carried in foreign ships, as per, for example, the Navigation Acts.
- Subsidies on exports.
- Promoting manufacturing and industry through research or direct subsidies.
- Limiting wages.
- Maximizing the use of domestic resources.
- Restricting domestic consumption through non-tariff barriers to trade.
Aztec Empire
Pochteca (singular pochtecatl) were professional, long-distance traveling merchants in the Aztec Empire.
The trade or commerce was referred to as pochtecayotl. Within the
empire, the pochteca performed three primary duties: market management,
international trade, and acting as market intermediaries domestically.
They were a small but important class as they not only facilitated
commerce, but also communicated vital information across the empire and
beyond its borders, and were often employed as spies due to their
extensive travel and knowledge of the empire. The pochteca are the
subject of Book 9 of the Florentine Codex (1576), compiled by Bernardino de Sahagún.
Pochteca occupied a high status in Aztec society,
below the noble class. They were responsible for providing the
materials that the Aztec nobility used to display their wealth, which
were often obtained from foreign sources. The pochteca also acted as
agents for the nobility, selling the surplus tribute that had been
bestowed on the noble and warrior elite and also sourcing rare goods or
luxury items. The pochteca traded the excess tribute (food, garments,
feathers and slaves) in the marketplace or carried it to other areas to
exchange for trade goods.
Due to the success of the pochteca, many of these merchants
became as wealthy as the noble class, but were obligated to hide this
wealth from the public. Trading expeditions often left their districts
late in the evening, and their wealth was only revealed within their
private guildhalls. Although politically and economically powerful, the
pochteca strove to avoid undue attention. The merchants followed their
own laws in their own calpulli, and venerating their god, Yacatecuhtli, "The Lord Who Guides" and Lord of the Vanguard an aspect of Quetzalcoatl. Eventually the merchants were elevated to the rank of the warriors of the military orders.
France
Mercantilism arose in France in the early 16th century soon after the
monarchy had become the dominant force in French politics. In 1539, an
important decree banned the import of woolen goods from Spain and some parts of Flanders. The next year, a number of restrictions were imposed on the export of bullion.
Over the rest of the 16th century, further protectionist measures
were introduced. The height of French mercantilism is closely
associated with Jean-Baptiste Colbert, finance minister for 22 years in the 17th century, to the extent that French mercantilism is sometimes called Colbertism.
Under Colbert, the French government became deeply involved in the
economy in order to increase exports. Protectionist policies were
enacted that limited imports and favored exports. Industries were
organized into guilds and monopolies, and production was regulated by
the state through a series of more than one thousand directives
outlining how different products should be produced.
To encourage industry, foreign artisans and craftsmen were
imported. Colbert also worked to decrease internal barriers to trade,
reducing internal tariffs and building an extensive network of roads and
canals. Colbert's policies were quite successful, and France's
industrial output and the economy grew considerably during this period,
as France became the dominant European power. He was less successful in
turning France into a major trading power, and Britain and the Dutch
Republic remained supreme in this field.
New France
France imposed its mercantilist philosophy on its colonies in North America, especially New France.
It sought to derive the maximum material benefit from the colony, for
the homeland, with a minimum of colonial investment in the colony
itself. The ideology was embodied in New France through the
establishment under Royal Charter of a number of corporate trading
monopolies including La Compagnie des Marchands, which operated from
1613 to 1621, and the Compagnie de Montmorency, from that date until
1627. It was in turn replaced by La Compagnie des Cent-Associés,
created in 1627 by King Louis XIII, and the Communauté des habitants in
1643. These were the first corporations to operate in what is now
Canada.
Great Britain
In England, mercantilism reached its peak during the Long Parliament government (1640–60).
Mercantilist policies were also embraced throughout much of the Tudor and Stuart periods, with Robert Walpole being another major proponent. In Britain, government control over the domestic economy was far less extensive than on the Continent, limited by common law and the steadily increasing power of Parliament. Government-controlled monopolies were common, especially before the English Civil War, but were often controversial.
The
Anglo-Dutch Wars were fought between the English and the Dutch for control over the seas and trade routes.
With respect to its colonies, British mercantilism meant that the
government and the merchants became partners with the goal of increasing
political power and private wealth, to the exclusion of other European
powers. The government protected its merchants—and kept foreign ones
out—through trade barriers, regulations, and subsidies to domestic
industries in order to maximize exports from and minimize imports to the
realm. The government had to fight smuggling, which became a favourite
American technique in the 18th century to circumvent the restrictions on
trading with the French, Spanish, or Dutch. The goal of mercantilism
was to run trade surpluses to benefit the government. The government
took its share through duties and taxes, with the remainder going to
merchants in Britain. The government spent much of its revenue on the Royal Navy, which both protected the colonies of Britain but was vital in capturing the colonies of other European powers.
British mercantilist writers were themselves divided on whether
domestic controls were necessary. British mercantilism thus mainly took
the form of efforts to control trade. A wide array of regulations were
put in place to encourage exports and discourage imports. Tariffs were
placed on imports and bounties given for exports, and the export of some
raw materials was banned completely. The Navigation Acts removed foreign merchants from being involved England's domestic trade. British policies in their American colonies led to friction with the inhabitants of the Thirteen Colonies,
and mercantilist policies (such as forbidding trade with other European
powers and enforcing bans on smuggling) were a major irritant leading
to the American Revolution.
Mercantilism taught that trade was a zero-sum game, with one
country's gain equivalent to a loss sustained by the trading partner.
Overall, however, mercantilist policies had a positive impact on
Britain, helping to transform the nation into the world's dominant
trading power and a global hegemon.
One domestic policy that had a lasting impact was the conversion of
"wastelands" to agricultural use. Mercantilists believed that to
maximize a nation's power, all land and resources had to be used to
their highest and best use, and this era thus saw projects like the draining of The Fens.
Other countries
Mercantilism helped create trade patterns such as the
triangular trade
in the North Atlantic, in which raw materials were imported to the
metropolis and then processed and redistributed to other colonies.
The other nations of Europe also embraced mercantilism to varying
degrees. The Netherlands, which had become the financial centre of
Europe by being its most efficient trader, had little interest in seeing
trade restricted and adopted few mercantilist policies. Mercantilism
became prominent in Central Europe and Scandinavia after the Thirty Years' War (1618–48), with Christina of Sweden, Jacob Kettler of Courland, and Christian IV of Denmark being notable proponents.
The Habsburg Holy Roman Emperors
had long been interested in mercantilist policies, but the vast and
decentralized nature of their empire made implementing such notions
difficult. Some constituent states of the empire did embrace
Mercantilism, most notably Prussia, which under Frederick the Great had perhaps the most rigidly controlled economy in Europe.
Spain benefited from mercantilism early on as it brought a large
amount of precious metals such as gold and silver into their treasury by
way of the new world. In the long run, Spain's economy collapsed as it
was unable to adjust to the inflation that came with the large influx of
bullion. Heavy intervention from the crown put crippling laws for the
protection of Spanish goods and services. Mercantilist protectionist
policy in Spain caused the long-run failure of the Castilian textile
industry as the efficiency severely dropped off with each passing year
due to the production being held at a specific level. Spain's heavily
protected industries led to famines as much of its agricultural land was
required to be used for sheep instead of grain. Much of their grain was
imported from the Baltic region of Europe which caused a shortage of
food in the inner regions of Spain. Spain limiting the trade of their
colonies is one of the causes that lead to the separation of the Dutch
from the Spanish Empire. The culmination of all of these policies lead
to Spain defaulting in 1557, 1575, and 1596.
During the economic collapse of the 17th century, Spain had
little coherent economic policy, but French mercantilist policies were
imported by Philip V with some success. Russia under Peter I
(Peter the Great) attempted to pursue mercantilism, but had little
success because of Russia's lack of a large merchant class or an
industrial base.
Wars and imperialism
Mercantilism
was the economic version of warfare using economics as a tool for
warfare by other means backed up by the state apparatus and was well
suited to an era of military warfare.
Since the level of world trade was viewed as fixed, it followed that
the only way to increase a nation's trade was to take it from another. A
number of wars, most notably the Anglo-Dutch Wars and the Franco-Dutch Wars,
can be linked directly to mercantilist theories. Most wars had other
causes but they reinforced mercantilism by clearly defining the enemy,
and justified damage to the enemy's economy.
Mercantilism fueled the imperialism
of this era, as many nations expended significant effort to conquer new
colonies that would be sources of gold (as in Mexico) or sugar (as in
the West Indies), as well as becoming exclusive markets. European power
spread around the globe, often under the aegis of companies with
government-guaranteed monopolies in certain defined geographical
regions, such as the Dutch East India Company or the Hudson's Bay Company (operating in present-day Canada).
With the establishment of overseas colonies
by European powers early in the 17th century, mercantile theory gained a
new and wider significance, in which its aim and ideal became both
national and imperialistic.
The connection between imperialism and mercantilism has been explored by economist and sociologist Giovanni Arrighi,
who analyzed mercantilism as having three components: "settler
colonialism, capitalist slavery, and economic nationalism," and further
noted that slavery was "partly a condition and partly a result of the
success of settler colonialism."
In France, the triangular trade method was integral in the continuation of mercantilism throughout the 17th and 18th centuries.
In order to maximize exports and minimize imports, France worked on a
strict Atlantic route: France, to Africa, to the Americas and then back
to France.
By bringing African slaves to labor in the New World, their labor value
increased, and France capitalized upon the market resources produced by
slave labor.
Mercantilism as a weapon has continued to be used by nations
through the 21st century by way of modern tariffs as it puts smaller
economies in a position to conform to the larger economies goals or risk
economic ruin due to an imbalance in trade. Trade wars are often dependent on such tariffs and restrictions hurting the opposing economy.
Origins
The term "mercantile system" was used by its foremost critic, Adam Smith, but Mirabeau (1715–1789) had used "mercantilism" earlier.
Mercantilism functioned as the economic counterpart of the older version of political power: divine right of kings and absolute monarchy.
Scholars debate over why mercantilism dominated economic ideology for 250 years. One group, represented by Jacob Viner, sees mercantilism as simply a straightforward, common-sense system whose logical fallacies remained opaque to people at the time, as they simply lacked the required analytical tools.
The second school, supported by scholars such as Robert B. Ekelund,
portrays mercantilism not as a mistake, but rather as the best possible
system for those who developed it. This school argues that rent-seeking
merchants and governments developed and enforced mercantilist policies.
Merchants benefited greatly from the enforced monopolies, bans on
foreign competition, and poverty of the workers. Governments benefited
from the high tariffs and payments from the merchants. Whereas later
economic ideas were often developed by academics and philosophers,
almost all mercantilist writers were merchants or government officials.
Monetarism
offers a third explanation for mercantilism. European trade exported
bullion to pay for goods from Asia, thus reducing the money supply and
putting downward pressure on prices and economic activity. The evidence
for this hypothesis is the lack of inflation in the British economy
until the Revolutionary and Napoleonic Wars, when paper money came into vogue.
A fourth explanation lies in the increasing professionalisation
and technification of the wars of the era, which turned the maintenance
of adequate reserve funds (in the prospect of war) into a more and more
expensive and eventually competitive business.
Mercantilism developed at a time of transition for the European economy. Isolated feudal estates were being replaced by centralized nation-states
as the focus of power. Technological changes in shipping and the growth
of urban centers led to a rapid increase in international trade. Mercantilism focused on how this trade could best aid the states. Another important change was the introduction of double-entry bookkeeping
and modern accounting. This accounting made extremely clear the inflow
and outflow of trade, contributing to the close scrutiny given to the
balance of trade. Of course, the impact of the discovery of America cannot be ignored.
New markets and new mines propelled foreign trade to previously
inconceivable volumes, resulting in "the great upward movement in
prices" and an increase in "the volume of merchant activity itself".
Prior to mercantilism, the most important economic work done in Europe was by the medieval scholastic
theorists. The goal of these thinkers was to find an economic system
compatible with Christian doctrines of piety and justice. They focused
mainly on microeconomics
and on local exchanges between individuals. Mercantilism was closely
aligned with the other theories and ideas that began to replace the
medieval worldview. This period saw the adoption of the very Machiavellian realpolitik and the primacy of the raison d'état in international relations.
The mercantilist idea of all trade as a zero-sum game, in which each
side was trying to best the other in a ruthless competition, was
integrated into the works of Thomas Hobbes. This dark view of human nature also fit well with the Puritan view of the world, and some of the most stridently mercantilist legislation, such as the Navigation Ordinance of 1651, was enacted by the government of Oliver Cromwell.
Jean-Baptiste Colbert's
work in 17th-century France came to exemplify classical mercantilism.
In the English-speaking world, its ideas were criticized by Adam Smith with the publication of The Wealth of Nations in 1776 and later by David Ricardo with his explanation of comparative advantage. Mercantilism was rejected by Britain and France by the mid-19th century. The British Empire embraced free trade and used its power as the financial center of the world to promote the same. The Guyanese historian Walter Rodney
describes mercantilism as the period of the worldwide development of
European commerce, which began in the 15th century with the voyages of
Portuguese and Spanish explorers to Africa, Asia, and the New World.
End of mercantilism
Adam Smith, David Hume, Edward Gibbon, Voltaire and Jean-Jacques Rousseau
were the founding fathers of anti-mercantilist thought. A number of
scholars found important flaws with mercantilism long before Smith
developed an ideology that could fully replace it. Critics like Hume, Dudley North and John Locke undermined much of mercantilism and it steadily lost favor during the 18th century.
In 1690, Locke argued that prices vary in proportion to the quantity of money. Locke's Second Treatise
also points towards the heart of the anti-mercantilist critique: that
the wealth of the world is not fixed, but is created by human labor
(represented embryonically by Locke's labor theory of value). Mercantilists failed to understand the notions of absolute advantage and comparative advantage (although this idea was only fully fleshed out in 1817 by David Ricardo) and the benefits of trade.
Hume famously noted the impossibility of the mercantilists' goal of a constant positive balance of trade.
As bullion flowed into one country, the supply would increase, and the
value of bullion in that state would steadily decline relative to other
goods. Conversely, in the state exporting bullion, its value would
slowly rise. Eventually, it would no longer be cost-effective to export
goods from the high-price country to the low-price country, and the
balance of trade would reverse. Mercantilists fundamentally
misunderstood this, long arguing that an increase in the money supply
simply meant that everyone gets richer.
The importance placed on bullion was also a central target, even
if many mercantilists had themselves begun to de-emphasize the
importance of gold and silver. Adam Smith noted that at the core of the
mercantile system was the "popular folly of confusing wealth with
money", that bullion was just the same as any other commodity, and that
there was no reason to give it special treatment.
More recently, scholars have discounted the accuracy of this critique.
They believe Mun and Misselden were not making this mistake in the
1620s, and point to their followers Josiah Child and Charles Davenant,
who in 1699 wrote, "Gold and Silver are indeed the Measures of Trade,
but that the Spring and Original of it, in all nations is the Natural or
Artificial Product of the Country; that is to say, what this Land or
what this Labour and Industry Produces." The critique that mercantilism was a form of rent seeking has also seen criticism, as scholars such as Jacob Viner
in the 1930s pointed out that merchant mercantilists such as Mun
understood that they would not gain by higher prices for English wares
abroad.
The first school to completely reject mercantilism was the
physiocrats, who developed their theories in France. Their theories also
had several important problems, and the replacement of mercantilism did
not come until Adam Smith published The Wealth of Nations in 1776. This book outlines the basics of what is today known as classical economics.
Smith spent a considerable portion of the book rebutting the arguments
of the mercantilists, though often these are simplified or exaggerated
versions of mercantilist thought.
Scholars are also divided over the cause of mercantilism's end.
Those who believe the theory was simply an error hold that its
replacement was inevitable as soon as Smith's more accurate ideas were
unveiled. Those who feel that mercantilism amounted to rent-seeking hold
that it ended only when major power shifts occurred. In Britain,
mercantilism faded as the Parliament gained the monarch's power to grant
monopolies. While the wealthy capitalists who controlled the House of
Commons benefited from these monopolies, Parliament found it difficult
to implement them because of the high cost of group decision making.
Mercantilist regulations were steadily removed over the course of
the 18th century in Britain, and during the 19th century, the British
government fully embraced free trade and Smith's laissez-faire
economics. On the continent, the process was somewhat different. In
France, economic control remained in the hands of the royal family, and
mercantilism continued until the French Revolution. In Germany, mercantilism remained an important ideology in the 19th and early 20th centuries, when the historical school of economics was paramount.
Legacy
Adam
Smith rejected the mercantilist focus on production, arguing that
consumption was paramount to production. He added that mercantilism was
popular among merchants because it was what is now called rent seeking. John Maynard Keynes
argued that encouraging production was just as important as encouraging
consumption, and he favored the "new mercantilism". Keynes also noted
that in the early modern period the focus on the bullion supplies was
reasonable. In an era before paper money, an increase in bullion was one of the few ways to increase the money supply.
Keynes said mercantilist policies generally improved both domestic and
foreign investment—domestic because the policies lowered the domestic
rate of interest, and investment by foreigners by tending to create a
favorable balance of trade.
Keynes and other economists of the 20th century also realized that the
balance of payments is an important concern. Keynes also supported government intervention in the economy as necessity, as did mercantilism.
As of 2010, the word "mercantilism" remains a pejorative term, often used to attack various forms of protectionism. The similarities between Keynesianism (and its successor ideas) and mercantilism have sometimes led critics to call them neo-mercantilism.
Paul Samuelson,
writing within a Keynesian framework, wrote of mercantilism, "With
employment less than full and Net National Product suboptimal, all the
debunked mercantilist arguments turn out to be valid."
Some other systems that copy several mercantilist policies, such as Japan's economic system, are also sometimes called neo-mercantilist. In an essay appearing in the 14 May 2007 issue of Newsweek, business columnist Robert J. Samuelson wrote that China was pursuing an essentially neo-mercantilist trade policy that threatened to undermine the post–World War II international economic structure.
Murray Rothbard, representing the Austrian School of economics, describes it this way:
Mercantilism, which reached its height in the Europe of the seventeenth and eighteenth centuries, was a system of statism
which employed economic fallacy to build up a structure of imperial
state power, as well as special subsidy and monopolistic privilege to
individuals or groups favored by the state. Thus, mercantilism held
exports should be encouraged by the government and imports discouraged.
In specific instances, protectionist mercantilist policies also had
an important and positive impact on the state that enacted them. Adam
Smith, for instance, praised the Navigation Acts,
as they greatly expanded the British merchant fleet and played a
central role in turning Britain into the world's naval and economic
superpower from the 18th century onward. Some economists thus feel that protecting infant industries, while causing short-term harm, can be beneficial in the long term.
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