History of Capitalism - Merchant Capitalism and Mercantilism

Merchant Capitalism and Mercantilism

The earliest recorded activity of long-distance profit-seeking merchants can be traced back to the Old Assyrian merchants active in the 2nd millennium BC. The Roman Empire developed more advanced forms of Merchant capitalism, and similarly widespread networks existed in Islamic capitalism, but the modern form took shape in Europe in the late Middle Ages and Renaissance. Some scholars, Rodney Stark particularly, trace the origins to medieval Italian and French monastic estates.

There is a separate but also related tradition of the emergence of commerce and capitalism related to monastic estates in Italy and France and later the independent city republics of Italy during the late Middle Ages and into the early modern period. Innovations in banking, insurance, accountancy, and various production and commercial practices linked closely to a 'spirit' of frugality, reinvestment, and city life and promoted attitudes which sociologists have tended to associate only with northern Europe, Protestantism and a much later age. The city republics maintained their political independence from Empire and Church, traded with north Africa, the middle East and Asia, and introduced Eastern practices as well as innovated substantially, producing many links between of culture and commerce. They were also considerably different from the absolutist monarchies of Spain and France, and were strongly attached to civic liberty and anti-monarchical republications.;;.

Modern capitalism didn't arise until the early modern period, between the 16th and 18th centuries, when merchant capitalism and mercantilism were established. This period was associated with geographic discoveries by merchant overseas traders, especially from England, Portugal, Spain and the Low Countries; the European colonization of the Americas; and the rapid growth in overseas trade. Referring to this period in the Communist Manifesto, Marx wrote:

The discovery of America, the rounding of the Cape, opened up fresh ground for the rising bourgeoisie. The East-Indian and Chinese markets, the colonisation of America, trade with the colonies, the increase in the means of exchange and in commodities generally, gave to commerce, to navigation, to industry, an impulse never before known, and thereby, to the revolutionary element in the tottering feudal society, a rapid development."

Mercantilism was a system of trade for profit, although commodities were still largely produced by non-capitalist production methods. Noting the various pre-capitalist features of mercantilism, Karl Polanyi argued that "mercantilism, with all its tendency toward commercialization, never attacked the safeguards which protected two basic elements of production - labor and land - from becoming the elements of commerce"; thus with mercantilism regulation was more akin to feudalism than capitalism. According to Polanyi, "not until 1834 was a competitive labor market established in England, hence industrial capitalism as a social system cannot be said to have existed before that date."

Under mercantilism, European merchants, backed by state controls, subsidies, and monopolies, made most of their profits from the buying and selling of goods. In the words of Francis Bacon, the purpose of mercantilism was "the opening and well-balancing of trade; the cherishing of manufacturers; the banishing of idleness; the repressing of waste and excess by sumptuary laws; the improvement and husbanding of the soil; the regulation of prices..." Similar practices of economic regimentation had begun earlier in the medieval towns. However, under mercantilism, given the contemporaneous rise of the absolutism, the state superseded the local guilds as the regulator of the economy.

Among the major tenets of mercantilist theory was bullionism, a doctrine stressing the importance of accumulating precious metals. Mercantilists argued that a state should export more goods than it imported so that foreigners would have to pay the difference in precious metals. Mercantilists asserted that only raw materials that could not be extracted at home should be imported; and promoted government subsides, such as the granting of monopolies and protective tariffs, were necessary to encourage home production of manufactured goods.

Proponents of mercantilism emphasized state power and overseas conquest as the principal aim of economic policy. If a state could not supply its own raw materials, according to the mercantilists, it should acquire colonies from which they could be extracted. Colonies constituted not only sources of supply for raw materials but also markets for finished products. Because it was not in the interests of the state to allow competition, to help the mercantilists, colonies should be prevented from engaging in manufacturing and trading with foreign powers.