Mercantilism is a school of thought derived from the Italian word “mercante,” meaning merchant. Mercantilists were not “thinkers” in the traditional sense, nor did they constitute a formal school with a unified perspective on economic realities. Instead, they were practitioners—merchants, financiers, and sometimes civil servants—who grappled with economic issues in the course of their work and developed practical concepts from which they attempted to derive more general convictions. They then sought to promote these convictions among the powerful.
When acting as merchants or bankers, they often advocated for what they called “economic freedom,” which, in practice, meant securing advantages, monopolies, and government interventions to develop and protect their businesses. While their specific arguments may have varied, they shared a number of doctrinal beliefs.
Some authors, such as A. Smith, exclusively refer to this school of thought as mercantilism or mercantilist writings. This perspective was only acknowledged by select authors like K. Marx and J.M. Keynes, the latter of whom considered them his precursors.
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The Value of Mercantilist Thought
Several lessons can be derived from studying mercantilist thought:
- Understanding how economic thought has evolved historically.
- Assessing the role of the Third World (periphery) in the development of the West (center) and why some countries progressed while others lagged.
- Gaining insights into certain aspects of contemporary capitalism that remain mercantilist in nature, such as the approach to natural resources and the behavior of multinational corporations.
Contributions of Mercantilist Thought
To understand mercantilist thought, it is essential to place it in its historical context before examining its contributions and relevance.
Historical Context of Mercantilism
Mercantilist thought evolved over a long period, from 1450 to 1750, marking the transition from feudalism to capitalism. This era was characterized by radical transformations and significant upheavals, including:
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Emergence of New Mentalities: People began to emancipate themselves from the dominance of religion and the church, fostering an environment conducive to economic activity and scientific inquiry.
Rise of the Nation-State: A new conception of the state emerged, independent of moral and religious influences.
Great Discoveries and Expansion of International Trade:
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- The invention of the compass and telescope opened up new horizons and led to exploration.
- In 1456, the Portuguese reached Africa.
- In 1492, Christopher Columbus discovered America.
- In 1498, Vasco da Gama arrived in India.
- In 1519, Ferdinand Magellan completed the first circumnavigation of the globe. This period also witnessed the slave trade and triangular trade between Africa and America.
These developments paved the way for mercantilism, with its primary goal of enriching the nation.
Foundations and Forms of Mercantilist Thought
Common Foundations of Mercantilism
Mercantilists shared a common concern: how to enrich the nation as represented by the state. For them, the purpose of political economy was to achieve this enrichment. Their approach was inherently interventionist, offering a set of means to achieve a predefined end.
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Main Forms of Mercantilist Thought
This doctrine, with its cornerstone being the identification of wealth with gold and silver reserves, led to varying policies depending on the methods employed to accumulate wealth. We will examine the following forms sequentially:
- Spanish Mercantilism or Bullionism: This initial form of mercantilism emerged in Spain and Portugal. Proponents of this approach believed that a nation’s wealth was measured by the quantity of precious metals it possessed, as evidenced by the plunder of precious metals from Latin America. However, this system ultimately failed due to the influx of gold and silver into the Spanish market, which caused a sharp rise in prices. As Spanish product prices became higher than those abroad, their exports were disadvantaged, leading to a trade imbalance and the outflow of Spanish gold to other European countries. Additionally, the near-elimination of agricultural and industrial activity led to the long-term impoverishment of Spain.
- English Mercantilism or Commercialism: Reflecting Britain’s maritime dominance at the time, this form of mercantilism focused on dominating world trade to accumulate wealth. With limited access to precious metals, Britain sought to enrich itself through international commerce.
- French Mercantilism or Industrialism: This school of thought emerged in France during the 17th century and reflected the country’s context. Lacking control over maritime trade and colonies, France advocated for the development of manufactures (the term used for factories at the time). The goal remained to enrich the state, but through industrial development.
Key Mercantilist Ideas
Mercantilists viewed the economy as a zero-sum game, believing that nations’ interests were inherently antagonistic and that one country could only enrich itself at the expense of another. Consequently, mercantilism tended to pit countries against each other.
To acquire gold and silver, a country needed to maintain a favorable or surplus balance of trade, with exports exceeding imports.
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Mercantilists advocated protectionism to achieve this surplus. They recommended high tariffs on imported finished products, prohibited the export of raw materials essential for the domestic industry, and encouraged the export of manufactured goods. They also supported the import of raw materials and wheat when domestic production was insufficient.
They believed that favorable terms of trade were crucial, with export prices exceeding import prices, as seen in colonial trade.
Mercantilists favored population growth, believing that a larger population would contribute to the development of industry and commerce, particularly exports. This abundance of labor, coupled with low wages, would enrich merchants and industrialists and enable the state to raise powerful armies.
They promoted economic interventionism and nationalism, arguing for a strong state capable of defending the nation’s interests.
They supported a division of labor between the metropolis and colonies, with colonies providing raw materials and serving as markets for manufactured goods. Low wages were seen not only as a means to reduce production costs and increase profits but also as a way to encourage people to seek monetary abundance, facilitating exchanges and financing for manufacturers. They believed that interest rates could only be lowered with an abundant supply of money, which, at the time, was synonymous with capital. It was only later that the concept of fiduciary money emerged.
Conclusion
Prior to its rehabilitation by Keynes, mercantilism faced significant criticism. However, to understand mercantilist thought, it is crucial to consider its historical context. Mercantilism can be viewed as the earliest attempt at creating a scientific economic framework.
This school of thought contributed to the autonomy of economics from other disciplines, such as philosophy and religion. It provides insights into how Western European countries accumulated wealth and structured less developed countries to serve their needs.
Mercantilist thought also highlights that the underdevelopment of Third World countries is a result of their subordination to developed nations and that their path to progress lies in rejecting this submission.
Mercantilist thought remains relevant today as it helps us understand certain aspects of contemporary capitalism, such as the fierce competition among global powers for control over natural resources, the aggressive behavior of multinational corporations, and quasi-colonial international divisions of labor. Some even speak of neo-mercantilism. Thus, mercantilist thought deserves a prominent place in economic thinking.
