By Levi Clancy for Student Reader on
- Adam Smith
- Dramatalurgical approach
- Economic Systems
- Five functional requisites of society
- Marxian Socialism
- Order and Freedom
- Political complexity
- Political economics
- Social bathing
- Social Contract
- Supply-side vs Demand-side economics
- Surplus value
The mercantile system put the nation at the economic center. This economic theory dominated the 16th and 17th centuries.
Mercantilism was a highly nationalist theory. It rested on the conviction that the nation (not the individual) was at the center of economic life and that each nation should work to maximize its own share of the finite wealth for which all nations were competing. A gain for France, mercantilism taught, was in effect a loss for Britain or Spain. Thus, mercantilism encouraged each nation to work for itself and to attempt to weaken its rivals. Brinkley, p 20
When mercantilism first emerged, a nation's wealth was largely measured by its gold and silver. Thus, mercantilism was initially intertwined with bullionism.
In its early years, mercantilism was closely associated with "bullionism," which is the theory that only gold and silver defined a nation's wealth. As such, the early Spanish colonies of the New World, in particular, emphasized the procurement of gold, silver, and other precious metals for the home nation. (English colonies such as Jamestown were founded in part with the same intention, but they were much less successful at finding precious metals.) Even when gold and silver were scarce, however, colonies could provide other important resources for the imperial capitals -- for example, fur, timber, sugar, tobacco, and slaves. Brinkley, p 21
Mercantilism advocated colonial expansion. Further, a colony had to transfer wealth to its suzerain, and was forbidden from trading with other nations.
Each nation must search for its own sources of trade and raw materials around the world. Every European state was trying to find markets for its exports, which would bring wealth into the nation, while trying at the same time to limit imports, which would transfer wealth to others. ... Colonies were critical to the nation's economic well-being. They served as providers of raw materials and markets for finished goods. A colony, mercantilism taught, should trade only with its home nation, and wealth should flow only in one direction, toward the center of the empire. Naval power became an integral part of the mercantilist idea. Only by controlling the sea-lanes between the colonies and the homeland could a nation preserve its favorable balance of trade. Brinkley, p 20
Because mercantilism taught that any wealth a nation acquired was, in effect, taken away from some other nation, mercantilists believed that nations should heavily regulate the economic affairs of their colonies. To this end, England in the 1760s passed the Navigation Acts, laws that sharply restricted colonial trade with anyone but England. England was not alone in imposing such restrictions. Spain took equally definitive control over its colonial economies, passing similarly intensive regulations and, until 1720, insisting that all colonial trade must pass through the port of Seville. Brinkley, p 20 - 21
Mercantilism was implemented in different ways, and varying benefited the middle or upper classes.
Despite the common assumptions underlying all forms of mercantilism, the system took many different forms, often depending on whether colonial merchants or state bureaucrats drove the economic discussion. In England, Spain and the Netherlands, mercantilism was closely identified with the emerging middle class, which stood to profit personally from the increased trade (hence the term "mercantilism," from merchant). In France and Germany, on the other hand, state officials -- rather than private citizens -- laid more of the groundwork for mercantilist principles. In France, mercantilism was often known as "Colbertism," after its primary proponent, Jean-Baptiste Colbert, foreign minister under Louis XIV. In Germany, the theory was known as "cameralism," for the Kammer, or royal treasury. Brinkley, p 20 - 21
Mercantilism began to unravel from emerging doctrines and its own impossibility.
Adam Smith's 1776 tract The Wealth of Nations rebutted mercantilism's key tenets. Smith advocated free trade among nations: individual self-interest, not national self-interest, would best increase global and thus national wealth.
Despite the many laws restricting colonial economies to their home nations, many colonial merchants struck up unregulated trade with their nonaffiliated neighbors when possible. The French, Spanish, and Dutch West Indies in particular became the site of a thriving intercolonial trade that was, according to mercantilist doctrine, illegal. Indeed, so many traders from so many countries violated mercantile laws in the eighteenth century -- and so many of them amassed great profits in the process -- that the mercantilist system gradually began to unravel. By the time of the American Revolution, which resulted in part from the colonists' resistance to mercantilist policies, the patterns of global trade were already moving toward the freer, less-regulated trading patterns of the modern capitalist world. Brinkley, p 21