Mercantilism

Background

Mercantilism is an economic theory that evolved in Europe during the 16th to 18th centuries, focusing primarily on the role of capital in promoting national wealth and economic self-sufficiency. It asserts that a nation’s economic health could be assessed by the amount of capital it possessed, predominantly in the form of gold and silver reserves.

Historical Context

Mercantilism flourished during a period marked by the early stages of global exploration, colonization, and the budding stages of the Industrial Revolution. European powers sought to increase their wealth and influence through the accumulation of precious metals, establishment of trade monopolies, and creation of favorable trade balances.

Definitions and Concepts

Mercantilism posits that the world’s wealth is static, and a nation can only increase its wealth at the expense of other nations. Consequently, governments pursued policies centered on accumulating resources and maintaining a favorable balance of export over import. Key concepts include:

Balance-of-Payments Surplus: Ensuring that exports exceed imports to achieve a net positive flow of wealth.
Protectionism: Implementing tariffs and restrictions on imports to protect domestic industries and prevent capital outflow.
Monopolization of Trade: Establishing state-controlled or exclusive trade rights, especially in colonies.
Accumulation of Bullion: Collecting and hoarding precious metals as a measure of national prosperity.

Major Analytical Frameworks

Classical Economics

Classical economists criticized mercantilism for its zero-sum game outlook and lack of attention to comparative advantage and market-driven resource allocation.

Neoclassical Economics

Neoclassical thought further repudiated the stagnant wealth notion, advocating for unrestricted trade and competition based on utility maximization and efficient resource use.

Keynesian Economics

While Keynesian theory focuses on the demand side of economics, it does not delve deeply into mercantilist policies but may concur on government intervention strategies during economic crises.

Marxian Economics

Marxian analysis views mercantilism as an early stage in the development of capitalist economic systems, marked by primitive accumulation and exploitation.

Institutional Economics

Institutional economists might examine how mercantilist policies shaped state institutions and industrial development, particularly the role of state power in economic control.

Behavioral Economics

Behavioral economists could investigate the cognitive biases and cultural factors that sustained mercantilist beliefs in fixed wealth and various forms of economic nationalism.

Post-Keynesian Economics

This school might criticize mercantilism for its simplistic views on trade balances and capital, emphasizing a deeper understanding of monetary flows and economic cycles.

Austrian Economics

Austrian economists would deride mercantilism for its preference for state intervention and control over market freedom and spontaneous order.

Development Economics

The mercantilist emphasis on industrial and economic self-sufficiency finds echoes in some development economics strategies, such as import substitution industrialization.

Monetarism

Monetarists could highlight the flaws in mercantilism’s understanding of money supply dynamics and its ineffective long-term economic policies.

Comparative Analysis

Comparisons between Mercantilism and other economic theories such as Free Trade, could delve into ideological differences regarding state involvement, economic efficiency, and wealth distribution.

Case Studies

Historical examples of mercantilism include European colonial practices in the Americas, British Navigation Acts, and French economic policies under Jean-Baptiste Colbert’s direction in the 17th century.

Suggested Books for Further Studies

“The Wealth of Nations” by Adam Smith
“The Rise and Fall of Great Powers” by Paul Kennedy
“Economic Philosophy” by Joan Robinson

Protectionism: Economic policy of restricting imports to protect domestic industries from foreign competition.
Bullionism: The economic theory aspect of mercantilism, emphasizing the accumulation of precious metals as a measure of wealth.

By way of this comprehensive structure, readers can gain a thorough understanding of mercantilism’s historical evolution, core principles, key differences with other economic theories, and prominent applications in historical contexts.