Mercantilism | An in-depth history of European imperial economics

Summary

In 1621 London, Thomas Munn penned 'England's Treasure by Forraign Trade,' establishing mercantilism as a dominant economic theory for centuries. Mercantilism focused on achieving a positive trade balance and a heavily regulated domestic economy to strengthen national industries. It advocated for high tariffs, colonial exploitation, and state control over trade companies. However, by the 18th century, critics like Adam Smith challenged mercantilism, advocating for free trade and the benefits of competition. The theory's decline coincided with broader intellectual shifts towards economic liberalism and the rise of citizens' rights.

Takeaways

• 📜 Thomas Mun's work during the early 17th century in London laid the foundation for mercantilism, an economic theory that would dominate Western economic thinking for centuries.
• 🌐 Mercantilism emerged as a response to economic depression caused by English manufacturers being out-competed by cheaper goods from India, particularly affecting the East India Trading Company.
• 💡 The core of mercantilism was the pursuit of a positive balance of trade, where exports exceeded imports, to strengthen national industries and increase government revenue through taxation.
• 🏛️ Mercantilists advocated for a heavily regulated domestic economy to prevent overproduction and maintain a balance that would support national industries against foreign competition.
• 🌱 The theory recognized the importance of agriculture for self-sufficiency and proposed state intervention to modernize farming practices and increase food production.
• 🏭 Mercantilism encouraged state support for industries through subsidies and favorable loans, aiming to create larger, more efficient companies that could compete internationally.
• 🛡️ National trade companies, like the English East India Trading Company, were established with military and economic power to expand trade and enforce mercantilist policies.
• 🌍 Colonies were seen as extensions of the mother country's economy, sources of raw materials, and markets for manufactured goods, essential for maintaining a positive balance of trade.
• 👥 Mercantilism was closely tied to elitist views of society, where the common folk's economic aspirations were restricted for the perceived greater good of the nation.
• ⚖️ Adam Smith's 'Wealth of Nations' criticized mercantilism for its focus on gold and precious metals as measures of wealth and advocated for free trade as a means to mutual benefit.
• 🔄 The shift towards economic liberalism in the late 18th and 19th centuries, along with social and political changes, led to the decline of mercantilism as the dominant economic system.

Q & A

What was the economic situation in England in 1621 that led to the development of mercantilism?

England in 1621 was experiencing a harsh depression due to English manufacturers being out-competed by cheap goods from India, leading to public ire directed at the East India Trading Company, which was seen as the main culprit of the crisis.

Who was Thomas Munn and what role did he play in the establishment of mercantilism?

Thomas Munn was the director of the East India Trading Company. He played a pivotal role in the establishment of mercantilism by writing a work that not only saved the company's reputation but also laid down the first formulation of mercantilism, an economic stream that dominated Western economic thinking for nearly two centuries.

What were the two main pillars of early modern mercantile economics?

The two main pillars of early modern mercantile economics were the establishment of a positive balance of trade and a heavily regulated domestic economy.

How did mercantilists view the relationship between trade and a nation's prosperity?

Mercantilists believed that trade had the potential to enrich a country and make it stronger, but it could also harm a country's economy if not managed properly. They emphasized the need for a positive trade balance, where exports exceeded imports, to strengthen national industries and increase government revenue through taxation.

What was the mercantilist perspective on the influx of capital and its reinvestment?

Mercantilists viewed the influx of capital as positive for a country, but only if the wealth was reinvested into the nation's industries. They were aware of the dangers of hoarding capital and believed that reinvestment was crucial for economic growth and competitiveness.

How did mercantilists analyze the downfall of Spain as an empire?

Mercantilists analyzed the downfall of Spain by pointing out that the influx of gold and silver from its colonies led to skyrocketing prices, creating incentives to import cheaper products. They also noted that Spain's feudal system and the nobility's control over land prevented industrial innovation, leading to a reliance on exporting raw materials and importing manufactured goods.

What strategies did mercantilist thinkers advocate for securing a positive balance of trade?

Mercantilist thinkers advocated for high tariffs on imported goods, the creation of new laws and regulations to restrict foreign products, and the establishment of colonies to control territories for raw material production and as markets for domestic industrial products.

How did national trade companies like the East India Company contribute to mercantilism?

National trade companies, such as the East India Company, contributed to mercantilism by receiving privileges and subsidies from their states to establish and maintain trade that would benefit their mother countries. They also had military might to enforce trade and protect their interests.

What was the mercantilist view on domestic market competition and how did they propose to regulate it?

Mercantilists viewed competition in the domestic market as detrimental to economic growth, leading to inefficiencies and higher wages. They proposed heavy regulation, including special privileges for factory owners and state control over guilds, to prevent over-competition and ensure industries could compete internationally.

How did mercantilists approach agriculture in relation to national prosperity?

Mercantilists believed that a nation's agriculture needed to be self-sufficient to avoid jeopardizing the balance of trade. They advocated for state intervention to merge landlots into larger arable areas, allowing for innovation in agricultural production and increasing the nation's food production and workforce.

What were the underlying ideological streams associated with mercantilism?

The underlying ideological streams associated with mercantilism included elitism, viewing the common folk as needing guidance from the rational elite; the state society idea, where different social classes had predetermined roles; and realism in foreign affairs, viewing international relations as a zero-sum competition.