Mercantilism: Historical Foundations, Main Tenets, and Key Figures

Mercantilism: Historical Background

Origins and Context

Mercantilism is an economic doctrine that emerged between the Middle Ages (circa AD 1000–1450) and the rise of laissez-faire economics (1500–1776). It was driven by the rapid expansion of trade, both domestically and internationally, following 1500. This period saw increased use of money, urbanization, and a shift from feudal self-sufficiency to merchant capitalism. The growth of navigation and geographic exploration led to the discovery of gold in the Western Hemisphere and the establishment of new colonies.

• Rise of National States: Economic competition intensified among nations, with powerful states acquiring colonies and influence.

• Transition in Economic Doctrine: Feudal self-sufficiency was replaced by a trade-based doctrine promoting nationalism, the interests of merchants, and economic and military expansion.

Main Tenets of Mercantilism

1. Bullionism: Gold and Silver as Wealth

Mercantilists believed that a nation's wealth was measured by its stock of precious metals, especially gold and silver (bullion). Export surpluses were seen as essential for accumulating bullion, which in turn was viewed as the foundation of national power.

• Definition: Bullionism is the belief that national prosperity depends on the accumulation of precious metals.

• Example: Exporting more than importing to ensure a net inflow of gold and silver.

2. Nationalism and Militarism

Mercantilism emphasized national pride and the importance of a strong state. Only powerful nations could acquire colonies, dominate trade, and win wars. Economic resources were seen as limited, so nations sought to enrich themselves at the expense of others, often through colonization and military force.

• Fisheries: Viewed as training grounds for naval personnel.

• Political Lent: Laws restricting meat consumption to support fisheries and naval strength.

3. Trade Regulation and Protectionism

Mercantilists advocated for free import of raw materials, protection of domestic manufacturing, and export controls on raw materials. Import restrictions increased domestic availability and bullion reserves, while export bans kept raw material prices low for domestic producers.

• Example: Laws banning the export of live sheep and raw wool in England, with severe penalties for violations.

4. Colonialism and Trade Monopolies

Colonies were required to depend on the mother country, serving as sources of raw materials and markets for finished goods. Trade was tightly regulated to benefit the mother country, often through navigation acts and monopolistic practices.

• Example: The English Navigation Acts (1651 & 1660) mandated that colonial goods be transported on English ships and sold primarily to England.

5. Opposition to Internal Tariffs and Taxes

Mercantilists opposed internal tolls and taxes that hindered domestic trade, favoring exclusive trading privileges and monopolies for select individuals or groups.

• Example: Excessive tolls on the Elbe River in 1685 drastically reduced the amount of goods reaching their destination.

6. Strong Central Government

A powerful central government was seen as essential for promoting mercantilist goals, including granting monopolies, regulating production and quality, and ensuring uniform national policies.

• Role: Supporting agriculture, mining, and industry through subsidies and tariffs; coordinating national economic policy.

7. Large, Industrious Population

Mercantilists valued a large, hardworking population to supply labor for the military and industry, keeping wages low and exports competitive. Laws were enacted to punish idleness and encourage employment.

• Example: Under Queen Elizabeth (1572), unlicensed beggars faced severe punishments unless employed.

Mercantilism and Rent Seeking

Mercantilism often led to rent-seeking behavior, where private interests sought government-granted privileges to increase their wealth. This benefited merchants, nobility, and government officials, while increasing state revenues and military capacity.

Economic Functions of Bullion

Bullion played a crucial role during the transition from self-sufficient economies to modern, money-based economies. It facilitated trade, tax collection, and military expenditures before the development of modern banking and international finance.

• Effect: Increased bullion supply lowered interest rates and promoted business activity.

Lasting Contributions of Mercantilism

• Highlighted the importance of international trade.

• Laid the groundwork for the concept of the balance of payments.

• Encouraged the development of national accounting and trade statistics.

• Promoted economic nationalism and the expansion of internal markets.

Criticisms and Limitations of Mercantilism

• Failed to recognize that wealth could be increased through resource discovery, capital formation, and efficient labor use—not just colonization.

• Did not understand the benefits of specialization and trade for all nations.

• Incorrectly assumed that high wages would reduce labor participation.

Key Figures in Mercantilism

Thomas Mun (1571–1641)

Thomas Mun was a prominent British merchant and director of the East India Company. His influential work, England’s Treasure by Foreign Trade, argued that national wealth depended on export surpluses rather than mere production or capital accumulation. Mun also recognized the importance of including invisible items (such as payments for espionage or diplomatic gifts) in the balance of payments.

• Advocated: Multilateral trade over bilateral trade for maximizing national gain.

• Example: Exporting goods using English ships to benefit from insurance and freight charges.

Jean Baptiste Colbert (1619–1683)

Colbert was the French Minister of Finance and a leading proponent of mercantilism. He believed that national strength depended on abundant financial resources, which could be achieved through export promotion, import reduction, and strict controls on bullion outflows. Colbert also supported a large, industrious population, low wages, and child labor, while discouraging unproductive classes.

• Policies: Encouraged early marriage and large families through tax exemptions.

• View: Colonies were essential as markets for French goods and sources of raw materials, necessitating a strong navy and merchant fleet.

Summary Table: Main Tenets of Mercantilism

Tenet	Description	Example/Policy
Bullionism	Wealth measured by gold and silver reserves	Export surpluses to accumulate bullion
Nationalism	Strong state, military, and national pride	Colonization, Navigation Acts
Trade Regulation	Import raw materials, protect domestic industry	Tariffs, export bans on raw materials
Colonialism	Colonies as suppliers and markets	Trade monopolies, Navigation Acts
Strong Government	Centralized economic control	Monopoly grants, production regulation
Large Population	Abundant, cheap labor for industry and military	Laws against idleness, low wages