Mercantilism

Mercantilism is a form of economic system and nationalist economic policy that is designed to maximize the exports and minimize the imports of an economy. It seeks to maximize the accumulation of resources within the country and use those resources for one-sided trade.
The concept aims to reduce a possible current account deficit or reach a current account surplus, and it includes measures aimed at accumulating monetary reserves by a positive balance of trade, especially of finished goods. Historically, such policies may have contributed to war and motivated colonial expansion. Mercantilist theory varies in sophistication from one writer to another and has evolved over time.
Mercantilism promotes government regulation of a nation's economy for the purpose of augmenting and bolstering state power at the expense of rival national powers. High tariffs, especially on manufactured goods, were almost universally a feature of mercantilist policy. Before it fell into decline, mercantilism was dominant in modernized parts of Europe and some areas in Africa from the 16th to the 19th centuries, a period of proto-industrialization. Some commentators argue that it is still practised in the economies of industrializing countries in the form of economic interventionism.
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.

History

Mercantilism became the dominant school of economic thought in Europe throughout the late Renaissance and the early modern period before advent of Classical liberalism. 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 the beginning of mercantilism as a codified school of economic theories. The Italian economist and mercantilist Antonio Serra is considered to have written one of the first treatises on political economy in his 1613 work, A Short Treatise on the Wealth and Poverty of Nations.
Mercantilism, in its simplest form, is all about bullionism, or the theory that a nation's wealth is measured in terms of how much precious metal, particularly gold and silver, it possesses. Mercantilist authors were concerned with the movement of money, however, more than with the hoarding of it. They felt that money needed to move through the economy to induce trade and economic activity, a concept different from that of simply amassing wealth. This focus on money's role, specifically precious metals, mirrors modern discussions of the money supply and its implications for economic growth, i.e., how money supply expansion can stimulate economic activity. However, with the advent of fiat money and floating exchange rates, the importance of specie in economic systems has diminished. Progressively, the focus shifted from the handling of money to the implementation of industrial policies that placed greater economic goals, e.g., stimulating general prosperity and supporting technological and industrial advancement, above the financing of war.
England began the first large-scale and integrative approach to mercantilism during the Elizabethan Era. An early statement on national balance of trade appeared in Discourse of the Common Wealth 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." The period featured various but often disjointed efforts by the court of Queen Elizabeth I 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 trade and navigation acts in Parliament and issued orders to her navy for the protection and promotion of English shipping. The first Navigation Acts regulating trade were passed by Parliament in 1651 and 1652, during the English Commonwealth.
Authors noted most for establishing the English mercantilist system include Gerard de Malynes and Thomas Mun, who first articulated the Elizabethan system, which Josiah Child then developed further.
Numerous French authors helped cement French policy around statist mercantilism in the 17th century, as King Louis XIV followed the guidance of Jean Baptiste Colbert, his Controller-General of Finances from 1665 to 1683 who revised the tariff system and expanded industrial policy. Colbertism was based on the principle 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.
In Europe, academic belief in mercantilism began to fade in the late 18th century after the East India Company annexed Mughal Bengal, a major trading nation, and the establishment of British India through the activities of the East India Company, in light of the arguments of Adam Smith and of the classical economists. French economic policy liberalized greatly under Napoleon. 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 described as 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. Smith saw the English merchant Thomas Mun as a major creator of the mercantile system, especially in his posthumously published Treasure by Foreign Trade, which Smith considered the archetype or manifesto of the movement. Perhaps the last major mercantilist work was James Steuart's Principles of Political Economy, published in 1767.
Mercantilist literature also extended beyond England. Italy and France produced noted writers of mercantilist themes, including Italy's Giovanni Botero and Antonio Serra and, in France, Jean Bodin and Jean-Baptiste Colbert. Themes also existed in writers from the German historical school from List, as well as followers of the American and British systems of free-trade, thus stretching the system into the 19th century. However, many British writers, including Mun and Edward 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.
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:

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 .
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. 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. Mercantilists viewed the economic system as a zero-sum game, in which any gain by one party required a loss by another. 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. Mercantilists' writings were also generally created to rationalize particular practices rather than as investigations into the best policies.
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.
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.