Mercantilism - Theory

Theory

Most of the European economists who wrote between 1500 and 1750 are today generally considered mercantilists; this term was initially used solely by critics, such as Mirabeau and Smith, but was quickly adopted by historians. Originally the standard English term was "mercantile system". The word "mercantilism" was introduced into English from German in the early 19th century.

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 posthumously published Treasure by Foreign Trade (1664), which Smith considered the archetype or manifesto of the movement. Perhaps the last major mercantilist work was James Steuart’s Principles of Political Economy published in 1767.

"Mercantilist literature" also extended beyond England. Italy and France produced noted writers of mercantilist themes including Italy's Giovanni Botero (1544–1617) and Antonio Serra (1580-?); France's, Jean Bodin, Colbert and other physiocrats. Themes also existed in writers from the German historical school from List, as well as followers of the "American system" and British "free-trade imperialism," thus stretching the system into the 19th century. 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.

The Austrian lawyer and scholar Philipp Wilhelm von Hornick, in his Austria Over All, If She Only Will of 1684, detailed a nine-point program of what he deemed effective national economy, which sums up the tenets of mercantilism comprehensively:

• That every inch of a country's soil be utilized for agriculture, mining or manufacturing.
• That all raw materials found in a country be used in domestic manufacture, since finished goods have a higher value than raw materials.
• That a large, working population be encouraged.
• That all export of gold and silver be prohibited and all domestic money be kept in circulation.
• That all imports of foreign goods be discouraged as much as possible.
• That where certain imports are indispensable they be obtained at first hand, in exchange for other domestic goods instead of gold and silver.
• That as much as possible, imports be confined to raw materials that can be finished .
• That opportunities be constantly sought for selling a country's surplus manufactures to foreigners, so far as necessary, for gold and silver.
• That no importation be allowed if such goods are sufficiently and suitably supplied at home.

Other than Von Hornick, there were no mercantilist writers presenting an overarching scheme for the ideal economy, as Adam Smith would later do for classical economics. Rather, each mercantilist writer tended to focus on a single area of the economy. Only later did non-mercantilist scholars integrate these "diverse" ideas into what they called mercantilism. Some scholars thus reject the idea of mercantilism completely, arguing that it gives "a false unity to disparate events". Smith saw the mercantile system as an enormous conspiracy by manufacturers and merchants against consumers, a view that has led some authors, especially Robert E. Ekelund and Robert D. Tollison to call mercantilism "a rent-seeking society". To a certain extent, mercantilist doctrine itself made a general theory of economics impossible. Mercantilists viewed the economic system as a zero-sum game, in which any gain by one party required a loss by another. Thus, any system of policies that benefited one group would by definition harm the other, and there was no possibility of economics being used to maximize the "commonwealth", or common good. Mercantilists' writings were also generally created to rationalize particular practices rather than as investigations into the best policies.

Mercantilist domestic policy was more fragmented than its trade policy. While Adam Smith portrayed mercantilism as supportive of strict controls over the economy, many mercantilists disagreed. The early modern era was one of letters patent and government-imposed monopolies; some mercantilists supported these, but others acknowledged the corruption and inefficiency of such systems. Many mercantilists also realized that the inevitable results of quotas and price ceilings were black markets. One notion mercantilists widely agreed upon was the need for economic oppression of the working population; laborers and farmers were to live at the "margins of subsistence". The goal was to maximize production, with no concern for consumption. Extra money, free time, or education for the "lower classes" was seen to inevitably lead to vice and laziness, and would result in harm to the economy.