Mercantilism

   A set of principles and assumptions prevalent during in the development of European capitalism between 1500 and 1800, according to which national governments regarded competition for access to and distribution of wealth as a prime responsibility of the state. The supporters of mercantilist policy were generally less concerned with articulating a systematic economic theory than with enhancing national power and prosperity, a project they customarily assumed to be in large part predatory and therefore requiring a concentration of military and financial power. Because mercantilists also commonly held that the available wealth and trade available globally was fixed, they favored the acquisition of overseas colonies as a vital interest of the state in the pursuit of raw materials for domestic industry, precious metals, inexpensive labor, and markets. This zero-sum competition for wealth logically favored the development of large merchant marine fleets, professional armies and navies along with the construction of docks, warehouses, and repair facilities both at home and at strategic locations in overseas territorial possessions. Mercantilist policy also sought to achieve a positive balance of trade through high tariffs on the import of manufactured goods and the export of raw materials, combined with low tariffs on the import of raw materials along with an aggressive promotion of the export of finished goods. Raw materials were to be made readily and cheaply available to domestic industry, and foreign manufactures were to be kept out. Domestic industry, in other words, was to have monopolistic access to the home market while being given every advantage in exporting to foreign markets. A related phenomenon was the development of gold and silver mines in overseas colonies and the national hoarding of precious metal supplies. In the case of the Spanish Empire, monopolistic control of trade with colonies was so fanatically applied that it suffocated commerce and ultimately put Spain at a disadvantage against less restrictive competitors such as England and the Netherlands. The argument that in fact mercantilist practice was inherently counterproductive to wealth accumulation - and antithetical in many cases to wealth creation - became the central thesis of Adam Smith ’s Wealth of Nations. With the nineteenth-century embrace of the free trade principle, despite the slower application of free trade practice, mercantilism acquired a pejorative association with absolutist regimes in an increasingly liberal age. The return of protectionism in the late nineteenth century, however, occasioned a revival of the mercantilist spirit and the popularity of economists such as Friedrich List in the newly created German Empire. At the same time intensified imperial competition among the European powers for territory in Africa in the last quarter of the century had an unmistakable mercantilist Flavor.

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   FURTHER READING:

    Clough, Shepard, and Charles Cole. Economic History of Europe. Boston: Heath, 1952;

    Heckscher, Eli F. Mercantilism. Translated by Mendel Shapiro London: Allen & Unwin, 1955;

    Horrocks, John Wesley. A Short History of Mercantilism. London: Methuen & Co., 1925;

    Thomas, Parakunnel Joseph. Mercantilism and East India Trade. New York: A. M. Kelly, 1965.

   CARL CAVANAGH HODGE