Mercantilism

References

• Mercantilism Wikipedia Article

Related

• Current Account
• • In macroeconomics and international finance, a country's current account records the value of exports and imports of both goods and services and international transfers of capital. It is one of the two components of the balance of payments, the other being the capital account. Current account measures the nation's earnings and spendings aboard and it consists of the balance of trade, net primary income or factor income and net unilateral transfers, that have taken place over a given period of time.
• Unilateralism
• • Any doctrine or agenda that supports one sided action. Such action may be in disregard for other parties, or as an expression of commitment toward a direction which other parties may find disagreeable.
• Tariffs
• • A tax imposed by the government of a country or by a supernatural union on imports or exports of goods.
• Proto-Industrialization
• • The regional development, alongside commercial agriculture, of rural handicraft production for external markets. The term was introduced in the early 1970s by economic historians who argued that such developments in parts of Europe between the 16th and 19th centuries created the social and economic conditions that led to the Industrial Revolution.
• Economic Interventionism
• • A market intervention is a policy of measure that modifies or interferes with a market, typically done in the form of state action.
• Rent-Seeking
• • Rent-seeking is the act of growing one's existing wealth by manipulating the social and political environment without creating new wealth.
• Monetarism
• • Monetarism is a school of thought in monetary economics that emphasizes the role of policy-makers in controlling the amount of money in circulation.
• Absolute Advantage
• • In economics, the principle of absolute advantage is the ability of a party (an individual, firm, or country) to produce a good or service more efficiently than its competitors.
• Comparative Advantage
• • Comparative advantage as an economic model is the advantage over others in producing a particular good.

Notes

Mercantilism is a national economic policy that is designed to maximize the exports and minimize the imports for an economy. In other words, it seeks to maximize the accumulation of resources within the country and use those resources for one-sided trade.

• It includes measures aimed at accumulating monetary reserves by a positive balance of trade, especially of finished goods. Historically, such policies might have contributed to war and motivated colonial expansion.
• Mercantilism promotes government regulation of a nation's economy for the purpose of augmenting and bolstering state power at the expense of rival national powers. High tariffs especially on manufactured goods, were almost universally a feature of mercantilist policy.
• Mercantilism was dominant in modernized parts of Europe and some areas in Africa from the 16th to the 19th century, a period of proto-industrialization. Some commentators argue that it is still practiced in the economies of industrializing countries.

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 economic thought of Europe throughout the late Renaissance and the early-modern period (from the 15th to the 18th centuries).

• The empiricism of the Renaissance, which first began to quantity large-scale trade accurately, marked mercantilism's birth as a codified school of economic theories.
• Antonio Serra, an Italian economist and mercantilist, is considered to have written one of the first treatises on political economy with his 16134 work, A Short Treatise on the Wealth and Poverty of Nations.
• England began the first large-scale and integrative approach to mercantilism during the Elizabethan Era. An early statement on national balance of trade appeared in Discourse of the Common Wealth of this Realm of England:

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.

• In France, Colbertism was based on the principle that the state should rule the economic realm as it did in the diplomatic, and that the interests of the state as identified by the king were superior to that of the merchants and everyone else.

In Europe, academic belief in mercantilism began to fade in the late-18th century after the East India Company annexed 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 and of the classical economists. French economic policy liberalized greatly under Napoleon. 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 described as mercantilists; this term was initially used solely by critics, such as Mirabeau and Smith, but historians proved quick to adopt it.

• Most of mercantilist literature appeared in the 1620s in Great Britain. The English merchant Thomas Mun was a creator of the mercantile system, especially in his posthumously published Treasure by Foreign Trade, which Adam Smith considers the manifesto of the movement.
• The last major mercantilist work was James Steuart's Principles of Political Economy, published in 1767.
• Mercantilists existed in England, Italy, France, and Germany (in the historical school).
• The Austrian lawyer and scholar Philipp Wilhelm von Hornick, one of the pioneers of Cameralism, detailed a none-point program of what he deemed effective national economy in Austria Over All, If She Only Will, which sums up the tenets of mercantilism:

1. That every little bit of a country's soil be utilized for agriculture, mining or manufacturing.
2. That all raw materials found in a country be used in domestic manufacture, since finished goods have a higher value than raw materials.
3. That a large, working population be encouraged.
4. That all exports of gold and silver be prohibited and all domestic money be kept in circulation.
5. That all imports of foreign goods be discouraged as much as possible.
6. That where certain imports are indispensable they be obtained at first hand, in exchange for other domestic goods instead of gold and silver.
7. That as much as possible, imports be confined to raw materials that can be finished [in the home country].
8. That opportunities be constantly sought for selling a country's surplus manufactures to foreigners, so far as necessary, for gold and silver.
9. That no importation be allowed if such goods are sufficiently and suitably supplied at home.

• Nearly all mercantilist writers tended to focus on a single area of the economy.
• Adam Smith saw mercantilism as a conspiracy by manufacturers and merchants against consumers.
• Mercantilists viewed the economic system as a zero-sum game, in which any gain by one party required a loss by another.
• Mercantilists domestic policy was more fragmented than it's trade policy, but they agreed:

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.

Policies

• Mercantilism was centered in England and France, and it was in these states that mercantilist policies were most often enacted.
• The policies have included:
• • High tariffs
  • Forbidding colonies to trade with other nations
  • Monopolizing markets
  • Banning the export of gold and silver
  • Forbidding Trade to be carried on foreign ships
  • 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

France

• Mercantilism arose after the Monarchy became a dominant force in French politics in the 16th century. Under Jean-Baptiste Colbert, finance minister in the 17th century, the French government became deeply involved in the economy in order to increase exports.
• To encourage industry, foreign artisans and craftsmen were imported.

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 colonial investment in the colony itself.

United Kingdom

• 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.
• Mercantilist policies has a positive impact on Britain, helping to transform the nation into the world's dominant trading power and a global hegemon.

Wars and Imperialism

• Mercantilism was the economic version of warfare using economics as a tool for warfare by other means back 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.
• Mercantilism fueled the imperialism of this era, as many nations expanded significant effort to conquer new colonies that would be sources of gold or sugar, as well as becoming exclusive markets.

The connection between communism and mercantilism has been explored by Marxist 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."

Origins

• The term mercantile system was used by its foremost critic, Adam Smith. Mercantilism functioned as the economic counterpart to the older version of political power: divine right of kings and absolute monarchy.
• Some argue that rent-seeking merchants and governments developed and enforced mercantilist policies because it was the best possible system for those who developed it. Almost all mercantilist writers were merchants and government officials.
• Monetarism and the increasing professionalism/technification of the wars of the era offer more explanations for mercantilism.
• 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.
• The introduction of accounting with double-entry booking supported the rise of mercantilism.
• Mercantilism replaced scholasticism, which mainly focused on microeconomics, as the dominant economic thought.

End of Mercantilism

• Adam Smith, David Hume, Edward Gibbon, Voltaire, and Jean-Jacques Rousseau were the founding fathers of anti-mercantilist thought.
• Locke noticed that the wealth of the world was not fixed, but created by human labor. Mercantilists failed to understand the notions of absolute advantage and comparative advantage and the benefits of trade.
• Hume famously noted the impossibility of the mercantilists' goal of a constant positive balance of trade.
• Much of Adam Smith's The Wealth of Nations is an attack on mercantilism. He 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.
• • The Wealth of Nations outlines classical economics.
• The first school to completely reject mercantilism was the physiocrats, who developed their theories in France.

Legacy

• Adam Smith criticized the mercantile doctrine that prioritized production in the economy; he maintained that consumption was of prime significance.
• As of 2010, the word mercantilism remains a pejorative term, often used to attack various forms of protectionism.