Balance of Payments - History of Balance of Payments Issues - Pre-1820: Mercantilism

Pre-1820: Mercantilism

Up until the early 19th century, international trade was generally very small in comparison with national output, and was often heavily regulated. In the Middle Ages, European trade was typically regulated at municipal level in the interests of security for local industry and for established merchants. From about the 16th century, mercantilism became the dominant economic theory influencing European rulers, which saw local regulation replaced by national rules aiming to harness the countries' economic output. Measures to promote a trade surplus such as tariffs were generally favoured. Power was associated with wealth, and with low levels of growth, nations were best able to accumulate funds either by running trade surpluses or by forcefully confiscating the wealth of others. Rulers sometimes strove to have their countries outsell competitors and so build up a "war chest" of gold.

This era saw low levels of economic growth; average global per capita income is not considered to have significantly risen in the whole 800 years leading up to 1820, and is estimated to have increased on average by less than 0.1% per year between 1700 and 1820. With very low levels of financial integration between nations and with international trade generally making up a low proportion of individual nations' GDP, BOP crises were very rare.