HIST363: Global Perspectives on Industrialization

Early mercantilist writers embraced bullionism, the belief that that quantities of gold and silver were the measure of a nation's wealth. Later mercantilists developed a somewhat more sophisticated view.

The period of 1500–1800 was one of religious and commercial warfare, 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, an economic theory known as bullionism. This tendency to identify money with wealth and, consequently, the theory of bullionism was attainable only under several conditions:

• Thriving agriculture should be carefully encouraged as it meant less of need to import foods and, above all, the prosperous farmers were providing a solid base for taxation.
• Sea power was necessary to control foreign markets not only to carry the nations own trading goods but also adding the power and prestige to the nation.
• Imposing of internal taxes of all kinds.

Obviously, state action, an essential feature of the mercantile system, was used to accomplish these purposes.

Thus, 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 or tariffs 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.

The bulk of what is commonly called "mercantilist literature" appeared in the 1620s in Great Britain. Smith saw English merchant Thomas Mun (1571-1641) as a major creator of the mercantile system, especially in his England's Treasure by Forraign Trade, which Smith considered the archetype of manifesto of the movement. Perhaps the last major mercantilist work was James Steuart's Inquiry into the Principles of Political Economy published in 1767. 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.

Mun presented early mercantile policy in his manuscript England's Treasure by Forraign Trade, written in the 1630s and published posthumously by his son John in 1664. According to Mun, trade was the only way to increase England's treasure (national wealth) and in pursuit of this end he suggested several courses of action: frugal consumption in order to increase the amount of goods available for export, increased utilization of land and other domestic natural resources to reduce import requirements, lowering of export duties on goods produced domestically from foreign materials, and the export of goods with inelastic demand because more money could be made from higher prices. Mercantilist policies in England were effective in creating a skilled industrial population and a large shipping industry. Through a series of Navigation Acts England finally destroyed the commerce of Holland, its chief rival.

In France, Jean Baptiste Colbert, chief minister of Louis XIV from 1661 to 1683, was a great exponent of economic regulation. As a practical politician intent on the welfare of the middle class to which he belonged, mercantilism was the most convenient method of attaining his end. He prohibited the export of money, levied high tariffs on foreign manufactures, and gave liberal bounties to encourage French shipping. He purchased Martinique and Guadeloupe in the West Indies, encouraged settlement in Santo Domingo, Canada, and Louisiana, and established trading "factories" (armed commercial posts) in India and Africa. Colbert also tried to make certain that French manufacturers purchased raw materials only from France or French colonial sources, and provided France with a merchant marine of nearly three hundred vessels. He sought to promote the rapid growth of population by discouraging young people from taking holy orders, and instituted tax exemptions for families of ten or more children. One can notice the striking similarity of such comprehensive control to latter-day fascism. Both the mercantilist and the fascist would chain the economic system to national power. Both make a fetish of self-sufficiency. 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.

The mercantilist idea that all trade was 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. Note that non-zero sum games such as prisoner's dilemma can also be consistent with a mercantilist view. In prisoner's dilemma, players are rewarded for defecting against their opponents - even though everyone would be better off if everyone could cooperate. More modern views of economic co-operation, amidst ruthless competition, can be seen in game theory the folk theorems.