Mercantilism

Mercantilism is the economic theory that a nation's prosperity depends upon its supply of capital and that the global volume of trade is unchangeable. The amount of capital, represented by bullion (amount of precious metal held by the state), is best increased through a balance of trade with large exports and low imports. Mercantilism suggests that the government should advance these goals by playing an active, protectionist role in the economy by encouraging exports and discouraging imports, especially through the use of tariffs. The economic policy based on these ideas is often called the mercantile system.

Causes

Scholars are divided on why mercantilism was the dominant economic ideology for two and a half centuries.{{ref|cause}} One group, represented by Jacob Viner, argues that mercantilism was simply a straightforward, commonsense system that the people of the time simply did not have the analytical tools to discover was actually deeply fallacious. The second school, supported by scholars such as Robert B. Ekelund, contends that mercantilism was not a mistake, but rather the best possible system for those who developed it. This school argues that mercantilist policies were developed and enforced by rent-seeking merchants and governments. 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.{{ref|jobs}}

Related Topics:
Jacob Viner - Rent-seeking

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Mercantilism developed at a time when the European economy was in transition. The isolated feudal estates were being replaced as the locus of power by centralized nation-states. Technological changes in shipping and the growth of urban centres led to a rapid increase in international trade.{{ref|feud}} 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.{{ref|double}}

Related Topics:
Feudal - Nation-state - International trade - Double-entry bookkeeping

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Prior to mercantilism, the most important economic work done in Europe was by the Medieval scholastics. The goal of these thinkers was to find an economic system that was compatible with Christian doctrines of piety and justice. They focused mainly on microeconomics and local exchanges between individuals. Mercantilism was closely aligned with the other theories and ideas that were replacing the Medieval worldview. This period saw the adoption of Machiavelli's amoral political science and the primacy of the raison d'état in international relations. The mercantilist idea that all trade was a zero sum game, in which each side was trying to cheat 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 Acts, was introduced by the government of Oliver Cromwell.{{ref|pur}}

Related Topics:
Medieval - Scholastics - Microeconomics - Machiavelli - Raison d'état - International relations - Thomas Hobbes - Puritan - Navigation Acts - Oliver Cromwell

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