Mercantilism

Mercantilism is an economic policy that is designed to

maximize the exports and minimize the imports for an
economy. It promotes imperialism, tariffs and subsidies
on traded goods to achieve that goal. These policies aim
to reduce a possible current account deficit or reach a
current account surplus. Mercantilism includes measures
aimed at accumulating monetary reserves through a
positive balance of trade, especially of finished goods.
Historically, such policies frequently led to war and also
motivated colonial expansion.[1] Mercantilist theory
varies in sophistication from one writer to another and
has evolved over time.

Mercantilism was dominant in modernized parts of Seaport at sunrise, a French seaport painted by
Europe from the 16th to the 18th centuries, a period of Claude Lorrain in 1639, at the height of
proto-industrialization,[2] before falling into decline, mercantilism
although some commentators argue that it is still
practiced in the economies of industrializing countries,[3]
in the form of economic interventionism.[4][5][6][7][8] It promotes government regulation of a nation's economy
for the purpose of augmenting state power at the expense of rival national powers. High tariffs, especially on
manufactured goods, were an almost universal feature of mercantilist policy.[9]

With the efforts of supranational organizations such as the World Trade Organization to reduce tariffs globally,
non-tariff barriers to trade have assumed a greater importance in neomercantilism.

Contents
History
Theory
Policies
France
New France
Great Britain
Other countries
Wars and imperialism Merchants in Venice
Origins
End of mercantilism
Legacy
See also
References
Further reading
External links

History
Mercantilism became the dominant school of economic thought in Europe throughout the late Renaissance and
the early-modern period (from the 15th to the 18th centuries). Evidence of mercantilistic practices appeared in
early-modern Venice, Genoa, and Pisa regarding control of the Mediterranean trade in bullion. However, the
empiricism of the Renaissance, which first began to quantify large-scale trade accurately, marked
mercantilism's birth as a codified school of economic theories.[9] The Italian economist and mercantilist
Antonio Serra is considered to have written one of the first treatises on political economy with his 1613 work,
A Short Treatise on the Wealth and Poverty of Nations.[10]

Mercantilism in its simplest form is bullionism, yet mercantilist writers emphasize the circulation of money and
reject hoarding. Their emphasis on monetary metals accords with current ideas regarding the money supply,
such as the stimulative effect of a growing money-supply. Fiat money and floating exchange rates have since
rendered specie concerns irrelevant. In time, industrial policy supplanted the heavy emphasis on money,
accompanied by a shift in focus from the capacity to carry on wars to promoting general prosperity. Mature
neomercantilist theory recommends selective high tariffs for "infant" industries or the promotion of the mutual
growth of countries through national industrial specialization.

England began the first large-scale and integrative approach to mercantilism during the Elizabethan Era (1558–
1603). An early statement on national balance of trade appeared in Discourse of the Common Weal of this
Realm of England, 1549: "We must always take heed that we buy no more from strangers than we sell them,
for so should we impoverish ourselves and enrich them."[11] The period featured various but often disjointed
efforts by the court of Queen Elizabeth (reigned 1558-1603) to develop a naval and merchant fleet capable of
challenging the Spanish stranglehold on trade and of expanding the growth of bullion at home. Queen
Elizabeth promoted the Trade and Navigation Acts in Parliament and issued orders to her navy for the
protection and promotion of English shipping. A systematic and coherent explanation of balance of trade
emerged in Thomas Mun's argument England's Treasure by Forraign Trade or the Balance of our Forraign
Trade is The Rule of Our Treasure - written in the 1620s and published in 1664.[12]

Elizabeth's efforts organized national resources sufficiently in the defense of England against the far larger and
more powerful Spanish Empire, and in turn, paved the foundation for establishing a global empire in the 19th
century. Authors noted most for establishing the English mercantilist system include Gerard de Malynes (fl.
1585–1641) and Thomas Mun (1571-1641), who first articulated the Elizabethan system (England's Treasure
by Forraign Trade or the Balance of Forraign Trade is the Rule of Our Treasure), which Josiah Child (c.
1630/31 – 1699) then developed further. Numerous French authors helped cement French policy around
mercantilism in the 17th century. Jean-Baptiste Colbert (Intendant général, 1661–1665; Contrôleur général des
finances, 1661–1683) best articulated this French mercantilism. French economic policy liberalized greatly
under Napoleon (in power from 1799 to 1814/1815)

Many nations applied the theory, notably France, which was the most important state economically in Europe
at the time. King Louis XIV (reigned 1643-1715) followed the guidance of Jean Baptiste Colbert, his
Controller-General of Finances from 1665 to 1683. It was determined that the state should rule in the
economic realm as it did in the diplomatic, and that the interests of the state as identified by the king were
superior to those of merchants and of everyone else. Mercantilist economic policies aimed to build up the state,
especially in an age of incessant warfare, and theorists charged the state with looking for ways to strengthen
the economy and to weaken foreign adversaries.[13]
In Europe, academic belief in mercantilism began to fade in the late-18th century after the British seized
control of the Mughal Bengal,[14][15] a major trading nation, and the establishment of the British India through
the activities of the East India Company,[16] in light of the arguments of Adam Smith (1723-1790) and of the
classical economists.[17] The British Parliament's repeal of the Corn Laws under Robert Peel in 1846
symbolized the emergence of free trade as an alternative system.

Theory
Most of the European economists who wrote between 1500 and 1750 are today generally considered
mercantilists; this term was initially used solely by critics, such as Mirabeau and Smith, but historians proved
quick to adopt it. Originally the standard English term was "mercantile system". The word "mercantilism"
came into English from German in the early-19th century.

The bulk of what is commonly called "mercantilist literature" appeared in the 1620s in Great Britain.[18] Smith
saw the English merchant Thomas Mun (1571–1641) as a major creator of the mercantile system, especially in
his posthumously published Treasure by Foreign Trade (1664), which Smith considered the archetype or
manifesto of the movement.[19] Perhaps the last major mercantilist work was James Steuart's Principles of
Political Economy, published in 1767.[18]

Mercantilist literature also extended beyond England. Italy and France produced noted writers of mercantilist
themes, including Italy's Giovanni Botero (1544–1617) and Antonio Serra (1580–?) and, in France, Jean
Bodin and Colbert. Themes also existed in writers from the German historical school from List, as well as
followers of the American system and British free-trade imperialism, thus stretching the system into the 19th
century. However, many British writers, including Mun and Misselden, were merchants, while many of the
writers from other countries were public officials. Beyond mercantilism as a way of understanding the wealth
and power of nations, Mun and Misselden are noted for their viewpoints on a wide range of economic
matters.[20]

The Austrian lawyer and scholar Philipp Wilhelm von Hornick, one of the pioneers of Cameralism, detailed a
nine-point program of what he deemed effective national economy in his Austria Over All, If She Only Will of
1684, which comprehensively sums up the tenets of mercantilism:[21]

That every little bit of a country's soil be utilized for agriculture, mining or manufacturing.
That all raw materials found in a country be used in domestic manufacture, since finished
goods have a higher value than raw materials.
That a large, working population be encouraged.
That all exports of gold and silver be prohibited and all domestic money be kept in circulation.
That all imports of foreign goods be discouraged as much as possible.
That where certain imports are indispensable they be obtained at first hand, in exchange for
other domestic goods instead of gold and silver.
That as much as possible, imports be confined to raw materials that can be finished [in the
home country].
That opportunities be constantly sought for selling a country's surplus manufactures to
foreigners, so far as necessary, for gold and silver.
That no importation be allowed if such goods are sufficiently and suitably supplied at home.

Other than Von Hornick, there were no mercantilist writers presenting an overarching scheme for the ideal
economy, as Adam Smith would later do for classical economics. Rather, each mercantilist writer tended to
focus on a single area of the economy.[22] Only later did non-mercantilist scholars integrate these "diverse"
ideas into what they called mercantilism. Some scholars thus reject the idea of mercantilism completely,
arguing that it gives "a false unity to disparate events". Smith saw the mercantile system as an enormous
conspiracy by manufacturers and merchants against consumers, a view that has led some authors, especially
Robert E. Ekelund and Robert D. Tollison, to call mercantilism "a rent-seeking society". To a certain extent,
mercantilist doctrine itself made a general theory of economics impossible.[23] Mercantilists viewed the
economic system as a zero-sum game, in which any gain by one party required a loss by another.[24] Thus,
any system of policies that benefited one group would by definition harm the other, and there was no
possibility of economics being used to maximize the commonwealth, or common good.[25] Mercantilists'
writings were also generally created to rationalize particular practices rather than as investigations into the best
policies.[26]

Mercantilist domestic policy was more fragmented than its trade policy. While Adam Smith portrayed
mercantilism as supportive of strict controls over the economy, many mercantilists disagreed. The early modern
era was one of letters patent and government-imposed monopolies; some mercantilists supported these, but
others acknowledged the corruption and inefficiency of such systems. Many mercantilists also realized that the
inevitable results of quotas and price ceilings were black markets. One notion that mercantilists widely agreed
upon was the need for economic oppression of the working population; laborers and farmers were to live at the
"margins of subsistence". The goal was to maximize production, with no concern for consumption. Extra
money, free time, and education for the lower classes were seen to inevitably lead to vice and laziness, and
would result in harm to the economy.[27]

The mercantilists saw a large population as a form of wealth that made possible the development of bigger
markets and armies. Opposite to mercantilism was the doctrine of physiocracy, which predicted that mankind
would outgrow its resources. The idea of mercantilism was to protect the markets as well as maintain
agriculture and those who were dependent upon it.

Policies
Mercantilist ideas were the dominant economic ideology of all of Europe in the early modern period, and most
states embraced it to a certain degree. Mercantilism was centred on England and France, and it was in these
states that mercantilist policies were most often enacted.

The policies have included:

High tariffs, especially on manufactured goods.

Forbidding colonies to trade with other nations.
Monopolizing markets with staple ports.
Banning the export of gold and silver, even for payments.
Forbidding trade to be carried in foreign ships, as per, for example, the Navigation Acts.
Subsidies on exports.
Promoting manufacturing and industry through research or direct subsidies.
Limiting wages.
Maximizing the use of domestic resources.
Restricting domestic consumption through non-tariff barriers to trade.

France

Mercantilism arose in France in the early 16th century soon after the monarchy had become the dominant force
in French politics. In 1539, an important decree banned the import of woolen goods from Spain and some
parts of Flanders. The next year, a number of restrictions were imposed on the export of bullion.[28]
Over the rest of the 16th century, further protectionist measures were
introduced. The height of French mercantilism is closely associated
with Jean-Baptiste Colbert, finance minister for 22 years in the 17th
century, to the extent that French mercantilism is sometimes called
Colbertism. Under Colbert, the French government became deeply
involved in the economy in order to increase exports. Protectionist
policies were enacted that limited imports and favored exports.
Industries were organized into guilds and monopolies, and production
was regulated by the state through a series of more than one thousand
directives outlining how different products should be produced.[29]

To encourage industry, foreign artisans and craftsmen were imported.

Colbert also worked to decrease internal barriers to trade, reducing
internal tariffs and building an extensive network of roads and canals.
Colbert's policies were quite successful, and France's industrial output
and the economy grew considerably during this period, as France
became the dominant European power. He was less successful in
turning France into a major trading power, and Britain and the French finance minister and
Netherlands remained supreme in this field.[29] mercantilist Jean-Baptiste Colbert
served for over 20 years.

New France

France imposed its mercantilist philosophy on its colonies in North America, especially New France. It sought
to derive the maximum material benefit from the colony, for the homeland, with a minimum of imperial
investment in the colony itself. The ideology was embodied in New France through the establishment under
Royal Charter of a number of corporate trading monopolies including La Compagnie des Marchands, which
operated from 1613 to 1621, and the Compagnie de Montmorency, from that date until 1627. It was in turn
replaced by La Compagnie des Cent-Associés, created in 1627 by King Louis XIII, and the Communauté des
habitants in 1643. These were the first corporations to operate in what is now Canada.

Great Britain

In England, mercantilism reached its peak during the Long Parliament government (1640–60). Mercantilist
policies were also embraced throughout much of the Tudor and Stuart periods, with Robert Walpole being
another major proponent. In Britain, government control over the domestic economy was far less extensive
than on the Continent, limited by common law and the steadily increasing power of Parliament.[30]
Government-controlled monopolies were common, especially before the English Civil War, but were often
controversial.[31]

With respect to its colonies, British mercantilism meant that the government and the merchants became partners
with the goal of increasing political power and private wealth, to the exclusion of other empires. The
government protected its merchants—and kept others out—through trade barriers, regulations, and subsidies to
domestic industries in order to maximize exports from and minimize imports to the realm. The government had
to fight smuggling, which became a favorite American technique in the 18th century to circumvent the
restrictions on trading with the French, Spanish, or Dutch. The goal of mercantilism was to run trade surpluses
so that gold and silver would pour into London. The government took its share through duties and taxes, with
the remainder going to merchants in Britain. The government spent much of its revenue on a superb Royal
Navy, which not only protected the British colonies but threatened the colonies of the other empires, and
sometimes seized them. Thus the British Navy captured New Amsterdam (New York) in 1664. The colonies
were captive markets for British industry, and the goal was to enrich the mother country.[32]
 British mercantilist writers were themselves divided on whether
domestic controls were necessary. British mercantilism thus
mainly took the form of efforts to control trade. A wide array of
regulations were put in place to encourage exports and
discourage imports. Tariffs were placed on imports and bounties
given for exports, and the export of some raw materials was
banned completely. The Navigation Acts expelled foreign
merchants from England's domestic trade. The nation
aggressively sought colonies and once under British control,
The Anglo-Dutch Wars were fought
between the English and the Dutch for
regulations were imposed that allowed the colony to only
control over the seas and trade routes. produce raw materials and to only trade with Britain. This led to
friction with the inhabitants of these colonies, and mercantilist
policies (such as forbidding trade with other empires and controls
over smuggling) were a major irritant leading to the American Revolution.[33]

Mercantilism taught that trade was a zero-sum game, with one country's gain equivalent to a loss sustained by
the trading partner. Overall, however, mercantilist policies had a positive impact on Britain helping turn it into
the world's dominant trader and the global hegemon.[34] One domestic policy that had a lasting impact was the
conversion of "wastelands" to agricultural use. Mercantilists believed that to maximize a nation's power, all
land and resources had to be used to their highest and best use, and this era thus saw projects like the draining
of The Fens.[35]

Other countries

The other nations of Europe also embraced mercantilism to

varying degrees. The Netherlands, which had become the
financial centre of Europe by being its most efficient trader, had
little interest in seeing trade restricted and adopted few
mercantilist policies. Mercantilism became prominent in Central
Europe and Scandinavia after the Thirty Years' War (1618–48),
with Christina of Sweden, Jacob Kettler of Courland, and
Christian IV of Denmark being notable proponents.

The Habsburg Holy Roman Emperors had long been interested

Mercantilism helped create trade patterns
in mercantilist policies, but the vast and decentralized nature of
such as the triangular trade in the North
their empire made implementing such notions difficult. Some
Atlantic, in which raw materials were
constituent states of the empire did embrace Mercantilism, most
imported to the metropolis and then
notably Prussia, which under Frederick the Great had perhaps the
processed and redistributed to other
most rigidly controlled economy in Europe. colonies.

Spain benefited from mercantilism early on as it brought a large

amount of precious metals such as gold and silver into their
treasury by way of the new world. In the long run, Spain's economy collapsed as it was unable to adjust to the
inflation that came with the large influx of bullion. Heavy intervention from the crown put crippling laws for
the protection of Spanish goods and services. Mercantilist protectionist policy in Spain caused the long-run
failure of the Castilian textile industry as the efficiency severely dropped off with each passing year due to the
production being held at a specific level. Spain's heavily protected industries led to famines as much of its
agricultural land was required to be used for sheep instead of grain. Much of their grain was imported from the
Baltic region of Europe which caused a shortage of food in the inner regions of Spain. Spain limiting the trade
of their colonies is one of the causes that lead to the separation of the Dutch from the Spanish Empire. The
culmination of all of these policies lead to Spain defaulting in 1557, 1575, and 1596.[36]
During the economic collapse of the 17th century, Spain had little coherent economic policy, but French
mercantilist policies were imported by Philip V with some success. Russia under Peter I (Peter the Great)
attempted to pursue mercantilism, but had little success because of Russia's lack of a large merchant class or an
industrial base.

Wars and imperialism

Mercantilism was the economic version of warfare using economics as a tool for warfare by other means
backed up by the state apparatus and was well suited to an era of military warfare.[37] Since the level of world
trade was viewed as fixed, it followed that the only way to increase a nation's trade was to take it from another.
A number of wars, most notably the Anglo-Dutch Wars and the Franco-Dutch Wars, can be linked directly to
mercantilist theories. Most wars had other causes but they reinforced mercantilism by clearly defining the
enemy, and justified damage to the enemy's economy.

Mercantilism fueled the imperialism of this era, as many nations expended significant effort to conquer new
colonies that would be sources of gold (as in Mexico) or sugar (as in the West Indies), as well as becoming
exclusive markets. European power spread around the globe, often under the aegis of companies with
government-guaranteed monopolies in certain defined geographical regions, such as the Dutch East India
Company or the British Hudson's Bay Company (operating in present-day Canada).

With the establishment of overseas colonies by European powers early in the 17th century, mercantile theory
gained a new and wider significance, in which its aim and ideal became both national and imperialistic.[38]

Mercantilism as a weapon has continued to be used by nations through the 21st century by way of modern
tariffs as it puts smaller economies in a position to conform to the larger economies goals or risk economic ruin
due to an imbalance in trade. Trade wars are often dependent on such tariffs and restrictions hurting the
opposing economy.

Origins
The term "mercantile system" was used by its foremost critic, Adam Smith,[39] but Mirabeau (1715–1789) had
used "mercantilism" earlier.

Mercantilism functioned as the economic counterpart of the older version of political power: divine right of
kings and absolute monarchy.[40]

Scholars debate over why mercantilism dominated economic ideology for 250 years.[41] 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.[42]

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 British 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 centers led to a rapid increase in international trade.[43] 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.[44] Of course, the impact of the discovery of America cannot be
ignored. New markets and new mines propelled foreign trade to previously inconceivable volumes, resulting
in "the great upward movement in prices" and an increase in "the volume of merchant activity itself".[45]

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. This 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.[46]

Jean-Baptiste Colbert's work in 17th-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 by 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 center of the world to promote the same. The Guyanese historian Walter Rodney describes
mercantilism as the period of the worldwide development of European commerce, which began in the 15th
century with the voyages of Portuguese and Spanish explorers to Africa, Asia, and the New World.

End of mercantilism
Adam Smith and David Hume were the founding fathers of anti-mercantilist thought. A number of scholars
found important flaws with mercantilism long before Smith developed an ideology that could fully replace it.
Critics like Hume, Dudley North and John Locke undermined much of mercantilism and it steadily lost favor
during the 18th century.

In 1690, Locke argued that prices vary in proportion to the quantity of money. Locke's Second Treatise also
points towards the heart of the anti-mercantilist critique: that the wealth of the world is not fixed, but is created
by human labor (represented embryonically by Locke's labor theory of value). Mercantilists failed to
understand the notions of absolute advantage and comparative advantage (although this idea was only fully
fleshed out in 1817 by David Ricardo) and the benefits of trade.[47]

For instance, imagine that Portugal was a more efficient producer of wine than England, yet in England, cloth
could be produced more efficiently than it could in Portugal. Thus if Portugal specialized in wine and England
in cloth, both states would end up better off if they traded. This is an example of the reciprocal benefits of trade
(whether due to comparative or absolute advantage). In modern economic theory, trade is not a zero-sum game
of cutthroat competition, because both sides can benefit from it.
 Hume famously noted the impossibility of the mercantilists' goal of a constant
positive balance of trade. As bullion flowed into one country, the supply
would increase, and the value of bullion in that state would steadily decline
relative to other goods. Conversely, in the state exporting bullion, its value
would slowly rise. Eventually, it would no longer be cost-effective to export
goods from the high-price country to the low-price country, and the balance of
trade would reverse. Mercantilists fundamentally misunderstood this, long
arguing that an increase in the money supply simply meant that everyone gets
richer.[48]

The importance placed on bullion was also a central target, even if many
mercantilists had themselves begun to de-emphasize the importance of gold
and silver. Adam Smith noted that at the core of the mercantile system was the
"popular folly of confusing wealth with money", that bullion was just the
Much of Adam Smith's The same as any other commodity, and that there was no reason to give it special
Wealth of Nations is an treatment.[18] More recently, scholars have discounted the accuracy of this
attack on mercantilism. critique. They believe Mun and Misselden were not making this mistake in
the 1620s, and point to their followers Josiah Child and Charles Davenant,
who in 1699 wrote, "Gold and Silver are indeed the Measures of Trade, but
that the Spring and Original of it, in all nations is the Natural or Artificial Product of the Country; that is to say,
what this Land or what this Labour and Industry Produces."[49] The critique that mercantilism was a form of
rent seeking has also seen criticism, as scholars such Jacob Viner in the 1930s pointed out that merchant
mercantilists such as Mun understood that they would not gain by higher prices for English wares abroad.[50]

The first school to completely reject mercantilism was the physiocrats, who developed their theories in France.
Their theories also had several important problems, and the replacement of mercantilism did not come until
Adam Smith published The Wealth of Nations in 1776. This book outlines the basics of what is today known
as classical economics. Smith spent a considerable portion of the book rebutting the arguments of the
mercantilists, though often these are simplified or exaggerated versions of mercantilist thought.[42]

Scholars are also divided over the cause of mercantilism's end. Those who believe the theory was simply an
error hold that its replacement was inevitable as soon as Smith's more accurate ideas were unveiled. Those
who feel that mercantilism amounted to rent-seeking hold that it ended only when major power shifts occurred.
In Britain, mercantilism faded as the Parliament gained the monarch's power to grant monopolies. While the
wealthy capitalists who controlled the House of Commons benefited from these monopolies, Parliament found
it difficult to implement them because of the high cost of group decision making.[51]

Mercantilist regulations were steadily removed over the course of the 18th century in Britain, and during the
19th century, the British government fully embraced free trade and Smith's laissez-faire economics. On the
continent, the process was somewhat different. In France, economic control remained in the hands of the royal
family, and mercantilism continued until the French Revolution. In Germany, mercantilism remained an
important ideology in the 19th and early 20th centuries, when the historical school of economics was
paramount.[52]

Legacy
Adam Smith rejected the mercantilist focus on production, arguing that consumption was paramount to
production. He added that mercantilism was popular among merchants because it was what is now called rent
seeking.[53] John Maynard Keynes argued that encouraging production was just as important as encouraging
consumption, and he favored the "new mercantilism". Keynes also noted that in the early modern period the
focus on the bullion supplies was reasonable. In an era before paper money, an increase in bullion was one of
the few ways to increase the money supply. Keynes said mercantilist policies generally improved both
domestic and foreign investment—domestic because the policies lowered the domestic rate of interest, and
investment by foreigners by tending to create a favorable balance of trade.[54] Keynes and other economists of
the 20th century also realized that the balance of payments is an important concern. Keynes also supported
government intervention in the economy as necessity, as did mercantilism.[55]

As of 2010, the word "mercantilism" remains a pejorative term, often used to attack various forms of
protectionism.[56] The similarities between Keynesianism (and its successor ideas) and mercantilism have
sometimes led critics to call them neo-mercantilism.

Paul Samuelson, writing within a Keynesian framework, wrote of mercantilism, "With employment less than
full and Net National Product suboptimal, all the debunked mercantilist arguments turn out to be valid."[57]

Some other systems that copy several mercantilist policies, such as Japan's economic system, are also
sometimes called neo-mercantilist.[58] In an essay appearing in the 14 May 2007 issue of Newsweek, business
columnist Robert J. Samuelson wrote that China was pursuing an essentially neo-mercantilist trade policy that
threatened to undermine the post–World War II international economic structure.[3]

Murray Rothbard, representing the Austrian School of economics, describes it this way:

Mercantilism, which reached its height in the Europe of the seventeenth and eighteenth centuries,
was a system of statism which employed economic fallacy to build up a structure of imperial state
power, as well as special subsidy and monopolistic privilege to individuals or groups favored by
the state. Thus, mercantilism held exports should be encouraged by the government and imports
discouraged.[59]

In specific instances, protectionist mercantilist policies also had an important and positive impact on the state
that enacted them. Adam Smith, for instance, praised the Navigation Acts, as they greatly expanded the British
merchant fleet and played a central role in turning Britain into the world's naval and economic superpower
from the 18th century onward.[60] Some economists thus feel that protecting infant industries, while causing
short-term harm, can be beneficial in the long term.

See also
Money-free market
Neorealism (international relations)
Taxation as theft

References
1. Johnson et al. History of the domestic and foreign commerce of the United States p. 37.
2. "Mercantilism," Laura LaHaye The Concise Encyclopedia of Economics (2008)
3. Samuelson 2007.
4. kanopiadmin (2017-02-15). "Mercantilism: A Lesson for Our Times? | Murray N. Rothbard" (http
s://mises.org/library/mercantilism-lesson-our-times). Mises Institute. Retrieved 2018-09-11.
5. https://krugman.blogs.nytimes.com/2009/12/31/macroeconomic-effects-of-chinese-
mercantilism/?
mtrref=www.google.com&mtrref=krugman.blogs.nytimes.com&gwh=4FBA77E3C830475DD4BB
6. https://www.reuters.com/article/us-china-usa-business/u-s-tech-group-urges-global-action-
against-chinese-mercantilism-idUSKBN16N0YJ
 7. https://www.forbes.com/sites/peterpham/2018/03/20/why-do-all-roads-lead-to-
china/#51d9ae1e4ac8
8. https://piie.com/commentary/op-eds/learning-chinese-mercantilism
9. John J. McCusker, Mercantilism and the Economic History of the Early Modern Atlantic World
(Cambridge UP, 2001)
10. Friedrich List (1916). The National System of Political Economy (https://archive.org/details/nati
onalsystemp00nichgoog). A.M. Kelley. p. 265 (https://archive.org/details/nationalsystemp00nic
hgoog/page/n315).
11. Now attributed to Sir Thomas Smith; quoted in Braudel (1979), p. 204.
12. David Onnekink; Gijs Rommelse (2011), Ideology and Foreign Policy in Early Modern Europe
(1650–1750) (https://books.google.com/books?id=M1QdbzdTimsC&pg=PA257), Ashgate
Publishing, Ltd., p. 257, ISBN 9781409419143
13. Jerome Blum et al. The European World: A history (1970) p 279.
14. Giorgio Riello, Tirthankar Roy (2009). How India Clothed the World: The World of South Asian
Textiles, 1500-1850 (https://books.google.com/books?id=niuwCQAAQBAJ&pg=PA174). Brill
Publishers. p. 174. ISBN 9789047429975.
15. Abhay Kumar Singh (2006). Modern World System and Indian Proto-industrialization: Bengal
1650-1800, (Volume 1). Northern Book Centre. ISBN 9788172112011.
16. Sanjay Subrahmanyam (1998). Money and the Market in India, 1100–1700. Oxford University
Press. ISBN 9780521257589.
17. Humphrey, Thomas M. "Insights From Doctrinal History. MERCANTILISTS. CLASSICALS" (htt
ps://www.richmondfed.org/~/media/richmondfedorg/publications/research/annual_report/1998/p
df/article.pdf) (PDF). Richmond Federal Reserve. Retrieved 14 June 2018. "[...] the
mercantilism of John Law and Sir James Steuart gave way to the classicism of David Hume
and David Ricardo [...]."
18. Magnusson 2003, p. 46.
19. Magnusson, Lars G. (2003). "Mercantilism". In Samuels, Warren J.; Biddle, Jeff E.; Davis, John
B. (eds.). A Companion to the History of Economic Thought (https://books.google.com/books?id
=TOLTiyceXDMC). Blackwell Companions to Contemporary Economics (reprint ed.). Malden,
Massachussets: John Wiley & Sons (published 2008). p. 47. ISBN 9781405128964. Retrieved
24 August 2020. "According to Adam Smith, the main architect of the mercantile system of
economic thinking was the English writer and tradesman Thomas Mun (1571-1641). His main
published writings appear in two short treatises, A Discourse of Trade from England unto the
East Indies (1621) and perhaps the more important England's Treasure by Forraign Trade
(1664). Adam Smith picked out this last tract - published posthumously after Mun's death, but
probably written during the late 1620s - as the archetype of mercantilist texts; its manifesto."
20. Magnusson 2003, p. 50.
21. Ekelund & Hébert 1997, pp. 40–41.
22. Landreth & Colander 2002, p. 44.
23. Ekelund & Tollison 1981, p. 154.
24. Ekelund & Tollison 1981, p. 9.
25. Landreth & Colander 2002, p. 48.
26. Landes 1997, p. 31.
27. Ekelund & Hébert 1975, p. 46.
28. Kellenbenz 1976, p. 29.
29. Williams 1999, pp. 177–83.
30. Hansen 2001, p. 65.
31. Hill 1980, p. 32.
32. Nester 2000, p. 54.
33. Max Savelle, Seeds of Liberty: The Genesis of the American Mind (1948) pp. 204ff. (https://boo
ks.google.com/books?id=hIgl_HNozQsC&pg=PA204)
34. Jeffry A. Frieden et al. eds. (2002). International Political Economy: Perspectives on Global
Power and Wealth (https://books.google.com/books?id=l-eAAgAAQBAJ&pg=PA132).
Routledge. pp. 128ff. ISBN 9781134595952.
35. Wilson 1963, p. 15.
36. Rothbard, Murray (2010). "Mercantilism in Spain" (https://mises.org/library/mercantilism-spain).
Mises Institute.
37. Spiegel 1991, pp. 93–118.
38. Emory Richard Johnson; et al. (1915). History of domestic and foreign commerce of the United
States (https://archive.org/details/historyofdomesti02johnuoft). Carnegie Institution of
Washington. pp. 35 (https://archive.org/details/historyofdomesti02johnuoft/page/35)–37.
39. Gauci, Perry (2011). Regulating the British Economy, 1660-1850. Farnham: Ashgate Pub.
p. 83. ISBN 9780754697626.
40. editors, Encyclopædia Britannica (2014) (http://www.britannica.com/EBchecked/topic/375578/
mercantilism)
41. Ekelund & Hébert 1975, p. 61.
42. Niehans 1990, p. 19.
43. Landreth & Colander 2002, p. 43.
44. Wilson 1963, p. 10.
45. Galbraith 1987, pp. 33–34.
46. Landreth & Colander 2002, p. 53.
47. Spiegel 1991, ch. 8.
48. Ekelund & Hébert 1975, p. 43.
49. Referenced to Davenant, 1771 [1699], p. 171, in Magnusson 2003, p. 53.
50. Magnusson 2003, p. 54.
51. Ekelund & Tollison 1981.
52. Wilson 1963, p. 6.
53. Brezis 2003, vol. 2, p. 484.
54. Harris 1950, p. 321.
55. See Markwell 2006.
56. Wilson 1963, p. 3.
57. Samuelson 1964.
58. Walters & Blake 1976.
59. Rothbard 1997, p. 43.
60. Hansen 2001, p. 64.

Further reading
Ames, Glenn J. (1996), Colbert, Mercantilism and the French Quest for the Asian Trade
Braudel, Fernand (1979), "The Wheels of Commerce", Civilization and Capitalism 15th–18th
Century
Brezis, Elise S. (2003), "Mercantilism", The Oxford Encyclopedia of Economic History, Oxford
University Press
editors (2014), "Mercantilism" (http://www.britannica.com/EBchecked/topic/375578/mercantilis
m), Encyclopædia Britannica, Oxford University Press
Ekelund, Robert B.; Hébert, Robert F. (1975), A History of Economic Theory and Method (http
s://archive.org/details/historyofeconomi0000ekel_j2f0), New York: McGraw–Hill, ISBN 978-0-
07-019143-3
Ekelund, Robert B., Jr.; Hébert, Robert F. (1997), A History of Economic Theory and Method
(4th ed.), Long Grove, Illinois: Waveland Press, ISBN 978-1-57766-381-2
Ekelund, Robert B.; Tollison, Robert D. (1981), Mercantilism as a Rent-Seeking Society:
Economic Regulation in Historical Perspective, College Station, TX: Texas A&M University
Press, ISBN 978-0-89096-120-9
Galbraith, John Kenneth (1987), Economics in Perspective: A Critical History (https://archive.or
g/details/economicsinpersp00galb_0), Boston: Houghton Mifflin, ISBN 978-0-395-35572-5
Grant, R. George (2009), Tackling the Poverty of Nations: Why So Many Are Poor and What
We Can Do About It, Xlibris, ISBN 978-1-4363-3582-9
Hansen, E. Damsgaard (2001), European Economic History: From Mercantilism to Maastricht
and Beyond (1st ed.), Copenhagen Business School Press, ISBN 978-87-630-0017-8
Harris, Seymour E. (1950), New Economics: Keynes' Influence on Theory And Public Policy
Heckscher, Eli F. (1935), Mercantilism, London: Allen & Unwin
Hill, Christopher (1980) [1961], The Century of Revolution, 1603–1714 (2nd ed.), ISBN 978-0-
17-712002-2
Johnson, Harky G. (March 1974), "Mercantilism: Past, Present and Future" (http://onlinelibrary.
wiley.com/doi/10.1111/manc.1974.42.issue-1/issuetoc), The Manchester School, 42: 1–17,
doi:10.1111/j.1467-9957.1974.tb00098.x (https://doi.org/10.1111%2Fj.1467-9957.1974.tb0009
8.x)
Kellenbenz, Hermann (1976), The rise of the European economy: an economic history of
continental Europe from the fifteenth to the eighteenth century, New York: Holmes & Meier
Publishers
Keynes, John Maynard (1936), "Notes on Mercantilism, the Usury Laws, Stamped Money and
the Theories of Under-Consumption" (https://web.archive.org/web/20081219024637/http://etex
t.library.adelaide.edu.au/k/keynes/john_maynard/k44g/chapter23.html), The General Theory of
Employment, Interest, and Money, London: Palgrave Macmillan, archived from the original (htt
p://etext.library.adelaide.edu.au/k/keynes/john_maynard/k44g/chapter23.html) on 2008-12-19
Landes, David S. (1997), The Unbound Prometheus: Technological Change and Industrial
Development in Western Europe from 1750 to the Present, Cambridge: Cambridge University
Press, ISBN 978-0-521-09418-4
Landreth, Harry; Colander, David C. (2002), History of Economic Thought (4th ed.), Boston:
Houghton Mifflin, ISBN 978-0-618-13394-9
Letwin, William (2003) [1963], The Origins of Scientific Economics: English Economic Thought
1660–1776, London: Routledge, ISBN 978-0-415-31329-2
Magnusson, Lars G. (2003), "Mercantilism", in Samuels, Warren J.; Biddle, Jeff E.; Davis, Jon
B. (eds.), A Companion to the History of Economic Thought, Malden, MA: Blackwell Publishing,
ISBN 978-0-631-22573-7
Markwell, Donald (2006), John Maynard Keynes and International Relations: Economic Paths
to War and Peace, Oxford & New York: Oxford University Press, ISBN 978-0-19-829236-4
Nester, R. (2000), The Great Frontier War: Britain, France, and the Imperial Struggle for North
America, 1607–1755, Praeger, ISBN 978-0-275-96772-7
Niehans, Jürg (1990), A History of Economic Theory: Classic Contributions, 1720–1980,
Baltimore, MD: Johns Hopkins University Press, ISBN 978-0-8018-3834-7
Omrund, David (2003), The rise of commercial empires: England and the Netherlands in the
Age of Mercantilism, 1650–1770
Rees, J. F. "Mercantilism" History 24#94 (1939), pp. 129–135 online (https://www.jstor.org/stabl
e/24401676); historiography
 Rothbard, Murray (1997), Mercantilism: A Lesson for Our Times? (https://mises.org/daily/4304),
Cheltenham, England: Edward Elgar
Samuelson, Paul (May 1964), "Theoretical notes on trade problems", The Review of
Economics and Statistics, 46 (2): 145–154, doi:10.2307/1928178 (https://doi.org/10.2307%2F1
928178), JSTOR 1928178 (https://www.jstor.org/stable/1928178)
Samuelson, Robert J. (17 May 2007), China's Wrong Turn on Trade (http://www.newsweek.co
m/id/34952), Newsweek, retrieved 2007-12-06
Smith, George H. (2008). "Mercantilism" (https://books.google.com/books?id=yxNgXs3TkJYC).
In Hamowy, Ronald (ed.). The Encyclopedia of Libertarianism. Thousand Oaks, CA: SAGE;
Cato Institute. pp. 326–28. doi:10.4135/9781412965811.n198 (https://doi.org/10.4135%2F9781
412965811.n198). ISBN 978-1412965804. LCCN 2008009151 (https://lccn.loc.gov/200800915
1). OCLC 750831024 (https://www.worldcat.org/oclc/750831024).
Spiegel, Henry William (1991), The growth of economic thought (3rd ed.), Duke University
Press, ISBN 978-0-8223-0973-4
Vaggi, Gianni; Groenewegen, Peter (2003), A Concise History of Economic Thought: From
Mercantilism to Monetarism, New York: Palgrave Macmillan, ISBN 978-0-333-99936-3
Walters, Robert S.; Blake, David H. (1976), The Politics of Global Economic Relations,
Englewood Cliffs, NJ: Prentice-Hall, ISBN 978-0-13-684712-0
Williams, E. N. (1999), The Ancién Regime in Europe: government and society in the major
states 1648–1789, London: Pimlico, ISBN 978-0-7126-5934-5
Wilson, Charles (1963) [1958], Mercantilism, London: Routledge and Kegan Paul

External links
Thomas Mun's Englands Treasure by Forraign Trade (http://www.ecn.bris.ac.uk/het/mun/treasur
e.txt)
An Inquiry Into the Nature and Causes of the Wealth of Nations (https://www.gutenberg.org/ebo
oks/38194) at Project Gutenberg: Adam Smith's Wealth of Nations

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