Mercantilism - Origins

Origins

Scholars debate over why mercantilism dominated economic ideology for 250 years. One group, represented by Jacob Viner, sees mercantilism as simply a straightforward, common-sense system whose logical fallacies remained opaque to people at the time, as they simply lacked the required analytical tools.

The second school, supported by scholars such as Robert B. Ekelund, portrays mercantilism not as a mistake, but rather as the best possible system for those who developed it. This school argues that rent-seeking merchants and governments developed and enforced mercantilist policies. Merchants benefited greatly from the enforced monopolies, bans on foreign competition, and poverty of the workers. Governments benefited from the high tariffs and payments from the merchants. Whereas later economic ideas were often developed by academics and philosophers, almost all mercantilist writers were merchants or government officials.

Monetarism offers a third explanation for mercantilism. European trade exported bullion to pay for goods from Asia, thus reducing the money supply and putting downward pressure on prices and economic activity. The evidence for this hypothesis is the lack of inflation in the English economy until the Revolutionary and Napoleonic wars when paper money came into vogue.

A fourth explanation lies in the increasing professionalisation and technification of the wars of the era, which turned the maintenance of adequate reserve funds (in the prospect of war) into a more and more expensive and eventually competitive business.

Mercantilism developed at a time of transition for the European economy. Isolated feudal estates were being replaced by centralized nation-states as the focus of power. Technological changes in shipping and the growth of urban centres led to a rapid increase in international trade. Mercantilism focused on how this trade could best aid the states. Another important change was the introduction of double-entry bookkeeping and modern accounting. This accounting made extremely clear the inflow and outflow of trade, contributing to the close scrutiny given to the balance of trade. Of course, the impact of the discovery of America cannot be ignored. New markets and new mines propelled foreign trade to previously inconceivable heights. The latter led to "the great upward movement in prices" and an increase in "the volume of merchant activity itself".

Prior to mercantilism, the most important economic work done in Europe was by the medieval scholastic theorists. The goal of these thinkers was to find an economic system compatible with Christian doctrines of piety and justice. They focused mainly on microeconomics and on local exchanges between individuals. Mercantilism was closely aligned with the other theories and ideas that began to replace the medieval worldview. This period saw the adoption of the very Machiavellian realpolitik and the primacy of the raison d'état in international relations. The mercantilist idea of all trade as a zero-sum game, in which each side was trying to best the other in a ruthless competition, was integrated into the works of Thomas Hobbes. The dark view of human nature also fit well with the Puritan view of the world, and some of the most stridently mercantilist legislation, such as the Navigation Ordinance of 1651, was enacted by the government of Oliver Cromwell.

Jean-Baptiste Colbert's work in seventeenth century France came to exemplify classical mercantilism. In the English-speaking world its ideas were criticized by Adam Smith with the publication of The Wealth of Nations in 1776 and later David Ricardo with his explanation of comparative advantage. Mercantilism was rejected by Britain and France by the mid-19th century. The British Empire embraced free-trade and used its power as the financial centre of the world to promote the same. The Guyanese historian Walter Rodney describes mercantilism as the period of the world-wide development of European commerce, which began in the fifteenth century with the voyages of Portuguese and Spanish explorers to Africa, Asia and the New World.

Read more about this topic:  Mercantilism

Famous quotes containing the word origins:

    Compare the history of the novel to that of rock ‘n’ roll. Both started out a minority taste, became a mass taste, and then splintered into several subgenres. Both have been the typical cultural expressions of classes and epochs. Both started out aggressively fighting for their share of attention, novels attacking the drama, the tract, and the poem, rock attacking jazz and pop and rolling over classical music.
    W. T. Lhamon, U.S. educator, critic. “Material Differences,” Deliberate Speed: The Origins of a Cultural Style in the American 1950s, Smithsonian (1990)

    Grown onto every inch of plate, except
    Where the hinges let it move, were living things,
    Barnacles, mussels, water weeds—and one
    Blue bit of polished glass, glued there by time:
    The origins of art.
    Howard Moss (b. 1922)

    The settlement of America had its origins in the unsettlement of Europe. America came into existence when the European was already so distant from the ancient ideas and ways of his birthplace that the whole span of the Atlantic did not widen the gulf.
    Lewis Mumford (1895–1990)