Mercantilism

1. Introduction to Mercantilism
2. Historical Background of Mercantilism 3. Main Points of Mercantilism

4. Early Writers
5. Mercantilist Thinkers 6. Conclusion

1. Introduction to Mercantilism

What is Mercantilism?
the theory that a countrys power depended

mainly on its wealth to build strong navies and purchase vital trade goods.

What is Mercantilism?
Mercantilism had no systematic,

comprehensive, consistent treatise, no leader, common method, or theory. Each mercantilist" sought advantage for a specific, trade, merchant, jointstock company or social group. "Protectionism" is often seen as a primary characteristic of Mercantilism.

What is Mercantilism?
The primary objective of Mercantilism

was to increase the power of the nation state. One of the important aspects of national power or strength was wealth that was equated with specie. The states that followed a policy of mercantilism tended to see trade, colonialism and conquest as the primary ways of increasing wealth.

Mercantilism

When?
16th 18th C
In Poland: 17th C

Where?
Western Europe, particularly England and France

2. Historical Background of Mercantilism

Generally, Mercantilism is associated with the

rise of the Nation state. Feudal institutions were weakened by the increasing use of money and a greater reliance on exchange within the economy. The Protestant Reformation weakened the role of the church and consequently the civil role of the state was expanded There was a rise of Humanism (the concern for well-being of humans in the short term).

 The decline of feudalism was influenced by changes in

technology

enclosure movement and the commercialization of agriculture Increasing use of money in the economy reduced the role of barter and reciprocity, people wanted to sell or work for money nailed horse shoe, harness, stirrup, horse collar, heavy plough three-field system [1 field winter crop, 1 field spring crop, third lying fallow] extended area peasant could farm by 1/8, 50% increase in output rise of mechanical power [water, wind] used in textile and mining urbanization

rise of markets and fairs gunpowder improvements in navigation, shipping, transport moveable type, (standardization, mass production and marketing of books in a variety of languages) mechanical clocks, mechanisms, instruments, Increased skills of craftsmen who made machines

The Decline of Feudalism and the Plague

The "Black Death" of 1346-61

restricted trade reduction in population Increased production of wool; need industry and commerce to process and sell wool and textiles. strengthening of guilds leads to an emphasis on trade

Reduction in Population
Population of England fell by about 1.5 million

(out of a population of 3.5 to 5 million in 1346). Result was more money per person but also more animals, land and goods per person, prices fell. Labour shortage pushed wages and earnings up.

 Less people with increased agricultural

production (some problems with harvests and animals dying, but on average diets improved. Labour became more mobile, masters on feudal estates had to "hire" labour. This led to the rise of "free" labour. If you couldn't hire workers, then you rent the land to others. Small farms with limited labour shifted to pasture and sheep rather than tilling the soil.

Medieval fiction to circumvent anti-usury laws

Lends at no interest
B fails to repay A

Effectively, a different set of books to disguise breaching the laws against usury

Medieval Breakdown
Feudal system imposed many imposts upon

merchants/tradesmen/moneylenders; but social change went against feudalism:

Growth of specialist manufactures in towns: the guilds Growth of specialist traders between nations: the Mercantilists Revolt against religious strictures against merchants/lending, church hypocrisy Religious revolts: beginnings of Protestantism bound up with growth of merchants/financiers

A new ideology/analysis struggled for

dominance: Mercantilism
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1500s
Rise of the nation-state
John Calvin (1509-1564): Prosperity is

Piety Nicolo Machiavelli (1469-1527) and The Prince

Separates the church and the state Denies mankinds desire for freedom Charity has no role for the individual

1500s and 1600s

Elizabethan Poor Law of 1601
Invention of printing with movable type gave rise to

economic literature written by lay people Thomas Wilson (1525-81) wrote Discourse on Usury (1572) Charles Dumoulin (Latinized as Molinaeus) wrote Treatise on Contracts and Usury (1546)

Denied that interest was forbidden by divine law Suggested public regulation of lending and interest

Influx of gold and silver from the New World

Main Points of Mercantilism

Economics as applied statecraft
Promotion of National wealth and power Importance of trade surpluses Trade surplus leads to a net gold inflow, and

thereby to greater national wealth and power Analogy between nations and households Encourage domestic production and exports, discourage imports

3. Main Points of Mercantilism

Economics as statecraft not analysis Tendency to see gold and treasure as

constituting national wealth Emphasis on balance of trade surpluses Emphasis on maximizing productivity and output Trade as a zero sum game Role of government in encouraging domestic manufacturing and exports while minimizing imports Link between money supply and prices

Two Ways to Increase a Nations Wealth

obtain as much gold and establish a favorable

silver as possible

balance of trade, in which it sold more goods than in bought

Mercantilism Explained
colonies existed for the benefit of the

Mother Country Source of Raw materials = cheap shipped to M. C. to be turned into finished goods Finished good shipped to Colony = expensive profit goes to M. C. Pass laws forbidding colonies from producing their own goods

Mercantilism = unfair or unbalanced trade

Triangular Trade
Europeans transported manufactured

goods to the west coast of Africa

Triangular Trade
Traders then exchanged these goods for captured

Africans who were then sold in the Americas

Triangular Trade
Merchants then bought sugar,

coffee, and tobacco in the West Indies and sailed back to Europe to sell these products.

Long Term Results

global trade routes shifted over time the old silk routes declined West Asia and the Islamic world were displaced

as the centralized location of global trade the Atlantic and Pacific sea routes become the new focus of global trade

Theories of International Trade

It measures the wealth of nation by the

size of its accumulated treasures i. e. gold & silver. Focus is international trade, rather than internal commerce

Nationalism essential: promote nation by gain from trade Trade imbalance the object: export more than import

Theories of International Trade

Wealth (Gold) can be accumulated by

encouraging exports and discouraging imports. This theory aims at creating trade surplus. Limitations:

Accumulation of wealth takes place at the cost of another trading partner; a win-lose game & a zerosum game for global wealth (international trade). Supported only in short run. Overlooks other resources such as its natural resources, manpower & its skill levels, capital, etc. Used by colonial powers as a means of exploitation and not development.

Recap
Feudal ideology significantly anti-

capitalist, anti-financier. But

Merchants essential
Exotic

commodities from other lands Trade between different fiefs/kingdoms

Finance essential
Merchant Wars

activity

Merchants tolerated (but controlled, taxed)

4. Early Writers
Niccolo Machiavelli (1469-1527)
Jean Bodin (1530-1596) Antonio Serra (1580-1650)

Niccolo Machiavelli (1469-1527)

Author of The Prince, 1512
Machiavelli's work is associated with the rise of

nation state Morality was necessary as guide to private actions Politics should be free from ethical or theological influence general postulate about human nature, selfinterest empirical bent [Bacon sees Machiavelli as predecessor]

Jean Bodin (1530-1596)

Contributions to quantity theory of

money Accepted mercantilist position on balance of trade, but saw inflow of specie believed in supreme power of the state and natural law

Antonio Serra (1580-1650)

Serra was one of the first writers who

constructed a a systematic development of Mercantilism. In1613 he published, A Brief Treatise on the Causes which make Gold and SIlver abound in Kingdoms where there are no Mines Agriculture and trade in manufactured goods most important source of wealth to a nation.

5. Mercantilist Thinkers
Josiah Child
Bernard Mandeville David Hume

Von Hornick
Thomas Mun

Josiah Child
Josiah Child was a seventeenth-century

mercantilist. Essentially a defense contractor, Child wrote Circumstance on the Discourse on Trace, which he published anonymously. His, while not iron-clad, suggested that Britain should lower interest rates since Holland had done so. His self-interested recommendations did not have much economic foundation.

Jean-Baptiste Colbert
Jean-Baptiste Colbert was the French

minister of finance from 1661 until 1683. Mercantilist considerations led Colbert to advocate war as an instrument of economic policy. He regulated the minute details of industry. He wanted to increase work, exports, and child labor. This extreme government control still lives in France today.

Bernard Mandeville
Bernard Mandeville, a social satirist,

wrote the The Fable of the Bees. This satire preached the themes of hard work and the beneficial social consequences of private self-interest behaviour. It linked avaricious behaviour to increased trade.

David Hume
David Hume questioned

mercantilist assumptions in his essays. He denied that money and gold were equivalent to wealth. Instead, they had merely instrumental value.

David Hume
He thought that accumulating precious

metals would result in higher prices. Hume believed that imports as well as exports were beneficial. He suggested that trade was not equivalent to warfare, since both to the parties to the transaction benefit.

Von Hornick
Von Hornick: Austria Over All, If Only

She Will (1684) Some Mercantilist Programs: - Full use of all land and natural resources for domestic industry - Large working population - Finish raw materials at home, as finished goods have a higher value - Discouragement of imports, and no imports where domestic supply is available - Imports be confined to raw materials to be finished at home

Von Hornick
- Prohibition of all bullion exports (bullionist position) - Necessary imports be obtained in exchange for domestic goods, not gold or silver - Sell surplus manufactures to foreigners, if possible for gold and silver Hornick is very influential in Austria

Thomas Mun
Thomas Mun: Englands Treasure by Foreign

Trade (1664) Mercantilist Programs - Importance of trade and the social position of the merchant -Bring all unused land into production - Fully utilize natural resources including fisheries - Reduce consumption of imports, particularly luxuries - Export goods with inelastic demandcan charge higher prices

Thomas Mun
- Customs duties on imports to be consumed domestically -Export in own ships -Encourage distant trade - make England a trans-shipment point - Export of bullion permitted, if for purposes of trade (non-bullionist position) - Make the most we can of our own

Mercantilism: Conclusion
Foreign trade as the source of surplus No analysis of production In practice

Added to feudal imposts on commerce Created government-sanctioned monopolies ostensibly to increase national wealth; but often in practice enriched favoured individuals

Point of criticism and departure for later

Physiocrats & Classical Economists, with emphasis upon laisser-faire, laisser-passer

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