Mercantilism

Mercantilism is a term broadly describing Western European economic theory from the Early Modern period to the 1750s. The term was coined by the Marquis de Mirabeau in 1763, and was popularized by Adam Smith in The Wealth of Nations. Although Classical economists used it largely as a pejorative, it is now commonly used without bias by historians. Mercantilism is also often used to refer to the economic policy of the period, a confusion which is particularly destructive given its dissimilarity with the bulk of Mercantilist theory.

Mercantilism is not usually considered a unified theory of economics in the sense that Smith and Marshall's works would come to embody, but instead a grouping of highly disparate writers bound by a concern for employment and economic growth. It arose independently in Spain, France, Italy, Austria and Britain for widely differing reasons, with each strain of Mercantilism displaying concerns and assumptions unique to its country of origin.

Mercantilist Theory

Put simply, mercantilism was the theory that a nation’s wealth depends upon the balance of its exports over its imports, coupled with the proposal that the government should subsidize the former and restrict the latter. It was closely associated in people’s minds with bullionism, which was the belief that a nation’s wealth consisted of its possession of gold and silver. The name mercantilism is said to have been attributed to the theory by Adam Smith, who strongly attacked it in his 1776 work The Wealth of Nations. In his 1937 treatise on the theory of international trade , the eminent American economist Jacob Viner has analysed in detail both the theory and modern defenses of it by economic historians and others.

Mercantilism in Spain

Spanish Mercantilism arose as a reaction to the failure of the Spanish economy in spite of gains from its colonial trade. It was expected, at the time, that Spain's importation of large amounts of gold specie from its American colonies would necessarily lead to wealth, a theory known as Bullionism or the Midas fallacy. Spain instead entered a period of sharp economic decline and rapidly increasing unemployment. Mercantilist writers in Spain and elsewhere would come to attribute this to Spain's powerful monopolies, reliance on raw materials, and deindustrialization. Although economic theorists in Spain correctly diagnosed many of the problems facing the nation, government and church suppression resulted in little policy change.

Mercantilism in France

Mercantilism in France is tied into the theories and policies of Jean-Baptiste Colbert, the Minister of Finance under King Louis XIV. Colbert was known for rapidly improving the state of French manufacturing, shipping and colonial trade despite wars nearly bankrupting France.

Mercantilism in Britain

Mercantilism was most developed in Britain. Pamphleteers such as Dudley North, Edward Misselden, and Thomas Mun wrote sophisticated tracts evincing the quantity theory of money, theories of interest and investment, and solutions to the problem of labor immobility and unemployment caused by the Enclosure Acts.

See also

• History of ancient economics