Mercantilism is an economic theory of strict government control of trade that dominated the thought of the major trading nations from approximately 1500 CE to the end of the seventeenth century. European countries, in particular, enforced a strict mercantilist system of foreign trade. The basic tenet of mercantilism was that national power and wealth were best achieved by exporting more than was imported and through the subsequent accumulation of bullion.
As a consequence of the Renaissance, the medieval, feudal society in Western Europe was deteriorating in the sixteenth century and being superseded by mercantilism (especially in England, France, and Holland). Medieval, feudal institutions were destabilized by the escalating use of money and by greater dependence on trade within the economy. Whereas kings had formerly relied upon nobles, they became increasingly dependent upon the bourgeoisie and nation-states to support them. Kings hired armies and navies to maintain peace and order, which led to greater prosperity and the continual growth of nationalism.
Trade And Gold Accumulation
Growth in travel during this period led inevitably to more capital for financing commerce and trade. Ship captains had improved navigational ability due to new inventions and were safer due to improved vessel design and construction. The surplus of goods transported across the Mediterranean Sea increased wealth and the production of even more goods, as commercial centers were developed. Mercantilist thought gave prominence to the construction of export centers, developing the power of national states. Export became increasingly important, since a steady supply of exported goods would result in increased accumulation of gold and silver. Whereas the accumulation of gold had previously been viewed as a sign of covetousness (one of the so-called seven deadly sins), gold and silver were now positively regarded as the means to wealth and national power. The mercantilist position was “foreign trade produces riches; riches power; power preserves our trade and religion.”
If mercantilists were to acquire gold and silver, which would maintain national power and also allow safeguarding of one’s religion, it was absolutely necessary for national states to trade. The commercial and religious wars of this era demanded large revenues to finance armies and the escalating expenditures of civil government. Moreover, as the Protestant Reformation challenged the role and teaching of the Catholic Church, the civil role of the state expanded. Eventually, religious disturbances and desire for religious freedom would result in explorers seeking settlement in the New World.
Mercantilism was endorsed by the new nation-states, and the mercantilist nations were impressed by the universal demand for precious metals, especially gold, as the means for obtaining other commodities. Accumulating bullion and making large investments in trade supported mercantile theory and was an aspect of the new politics in the rise of the nation-state. Mercantilist nations began establishing colonies (which they exploited) and trading posts for the benefit of the mother country, since the settlements could provide raw materials for domestic manufacturing that would otherwise have required importation from other countries. The settlements in turn needed manufactured goods, which encouraged ongoing exchange. Kings were ardent supporters of mercantilist theory, and governments supported exploration of the New World as a means of further augmenting the mother country. Ships bearing the flag of the mother country (encouraging monopolization of colonial trade) could transport goods.
Child Labor And Entrepreneurialism
Mercantilists desired a sizeable number of low-wage laborers, including children, to manufacture exports. Even children as young as age four were sent to workhouses for a mere two hours of teaching, only to exhaust the remainder of the day working according to their ability, age, and strength.
Governments also wanted powerful entrepreneurs, or firms, traveling to foreign countries and exporting goods. To facilitate these entrepreneurial firms, the government would grant special favors. The firms were essential for acting upon existing opportunities, creating new opportunities, and creating innovation in the market. The accumulation of gold was the determining factor for financing future trade enterprises and allowing companies to borrow money. If there were a lack of credit, then companies would be forced to borrow money at high interest rates. However, gold and silver in the treasury increased a nation’s wealth, thereby allowing companies to borrow money for investing in new business enterprises.
Defense And Decline Of Mercantilism
The primary exponent of mercantilism in France was JeanBaptiste Colbert (1619–1683). He held the position of minister of finance from 1661 until his death, under King Louis XIV. Colbert believed strongly in fixed government control over the country’s economy, and his efforts made France stable financially. He upheld mercantilist beliefs regarding the expansion of commerce and the safeguarding of a favorable balance of trade as the means for creating and maintaining a wealthy nation. His policies, known as Colbertism, were all maintained according to mercantilist tenets. Colbert was responsible for the creation of a powerful navy that made France a tremendous power at sea. He was also responsible for sending explorers and colonists to America. Colbertism became synonymous with mercantilism, and Colbert’s actions made it the most common European economic system of his day. Colbert sometimes used unscrupulous means to accomplish his purposes and was known for asserting the power of state.
Mercantilist thought did not decline until the advent of the Industrial Revolution and the rise of the laissez-faire physiocrats. Although mercantilist policies no longer dominate, the existence of large business subsidies, large trade surpluses, and low-wage workers demonstrate that certain characteristics of the theory remain prevalent.
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