a quick essay
…….Mercantilism is an economic theory that asserts that the prosperity of a nation depends upon its supply of capital (gold, silver, or other money) and that the volume of international trade is finite and unchangeable. Economic capital is represented by bullion held by each state, which is best increased through a positive balance of trade with other nations (more exports than imports). Mercantilism suggests that governments should play a protectionist role in their nations’ economies, by encouraging exports and discouraging imports, commonly through the imposing import tariffs and subsidizing domestic industry.
The mercantile system of economic warfare between states was the prevalent in Europe from the 16th century into the 18th century. Due to merchants’ and economists’ strong advocacy of mercantile theory in England, France, Spain, Austria, and Italy, governments began significant intervention in (and control over) European nations’ economies, much of the modern capitalist system was established, and international commerce (even transoceanic) flourished. Mercantilism encouraged European monarchs toward wars of the fifteenth through eighteenth centuries and fueled European imperialism. In hindsight, mercantilists’ ideas were generated then propagated to rationalize particular trade practices, not to present the objectively best policies (Landes 31).
Belief in mercantilism began to fade in the late eighteenth century, as Adam Smith (who coined “mercantile system”) and other economists argued against it. Today, mercantilism, as a whole, is rejected by credible economists, although some elements are considered favorably by non-economists, including merchants and monarchs. “Philosophically, mercantilism died in 1776; but in policy circles it has been resurrected over and over again by special interests” with profit motives (Policy Network.net). Smith debunked the mercantilists with a treatise explaining the true nature and causes of the wealth of nations. He showed that wealth arose from people owning property and trading with one another, which leads to specialization and competition, which in turn drive the development of better, cheaper, more efficient goods (and modes of production) and, ultimately, economic growth.
However, Smith’s analysis has been ignored by leaders in governments around the globe to this day, as evidenced by mercantilist policies and mercantilist activities which we can observe. Let us consider a few modern applications of mercantilist ideas that persist in our time (twenty-first century).
An Austrian lawyer, Philipp Wilhelm von Hornick, in 1684, detailed a nine-point program of effective national economy, which summed up the tenets of mercantilism comprehensively (Ekelund and Hébert 12):
(1) Every inch of a country’s soil should be utilized for agriculture, mining or manufacturing.
For decades, the national and regional governments in Brazil have permitted, for their profit, with little long-term view of ecological damage, the clear-cutting of centuries, old, biologically rich rainforests, collectively an irreplaceable natural treasure, to make room for farming, which is reminiscent of von Hornick’s first tenet.
Indonesia burns thousands of acres of hardwood forest, and clearcuts thousands more acres each year, to make space for farmland and to use the hardwood in manufacturing finished goods. It pollutes its air and that of neighboring nations as it burns wood, and soil, henceforth not anchored by tree roots, tends to erode.
(2) All raw materials found in a country should be used in domestic manufacture, because finished goods have a higher value than raw materials.
If one’s land grows tobacco, one ought to add value to the tobacco by making cigars and cigarettes with domestic labor. Capitalists tend to find more convenience and profit in employing domestic labor, infrastructure (facilities and resources [water, electricity, etc.]) and technologies. Why export raw cotton to other nations, then import, at greater cost, finished garments made from cloth made from raw cotton?
(3) A large, working population should be encouraged.
China uses governmental control on every level to encourage (even force) its populace to labor to produce raw materials and finished goods for domestic consumption and for export, while Western ideals of leisure, vacations from work, and higher education, are not promoted. China is famous for producing raw material (wood, metal, silk) and finish products to sell to nations around the world. China is nicknamed ‘the factory of the world,’ as it can, and does, produce almost any consumer goods.
(4) All export of gold and silver should be prohibited, and all domestic money be kept in circulation.
Western nations, including the U.S., have policies generated by various ministries, for various purposes, which strongly discourage private citizens from taking their precious metals out of their homelands and from taking their capital elsewhere. Governments typically influence citizens to reinvest or spend surplus wealth domestically.
(5) All imports of foreign goods should be discouraged as much as possible.
One could write a book about duties and tariffs imposed on import goods – from farm tractors, automobiles, airliners, film cameras, ad infinitum. In short, lobbyists who are hired by domestic manufacturers and merchants implore governments to protect domestic industries, jobs, and wealth by imposing tariffs on goods equivalent to those made and sold by the domestic mercantilists. Competition with foreign producers and exporters is discouraged, even if only temporarily, by protectionist policies
(6) If certain imports are indispensable, they should be obtained in exchange for other domestic goods instead of gold and silver.
Then (15th-18th centuries) and now, when a nation’s people must obtain silk, or spices, or circuit boards, or other goods not made at home, they try to trade finished goods, or even raw materials, rather than currency (which historically was precious metal). If a foreign economy does not wish to receive in trade goods that are offered, as today, when an Asian electronics manufacturer likely would not wish to receive Cadillacs, Boeings, or Budweiser rather than monetary payments, businesses and nations’ commerce/trade ministries can do other deals to try to retain domestic capital.
(7) As much as possible, imports be confined to raw materials that can be finished [in the importing country].
Today, as in centuries past, nations’ governments strive to import from former colonies, and other trade neighbors, raw materials such as silica, with which to make circuit board, tobacco with which to make cigarettes, cotton or silk with which to make fabrics, etcetera. Nations want to employ their citizens in production of finished goods, adding value to the imported raw materials, whether for domestic consumption of finished goods or for export.
(8) Opportunities for selling a country’s surplus manufactured goods to foreigners (for gold and silver) should be sought.
We cannot doubt that enlightened nations’ trade ministries strive mightily to promote sales of domestically-produced goods overseas. As manufacturing processes, of cigars, cars, or whatever, become more efficient with employment of skilled workforces and implementation of modern technologies, surpluses in manufacturing capacity typically result. So naturally, if a nations’ own people cannot, or will not, buy all Buicks or all cigars that are made, manufacturers, wholesalers, retailers, and bureaucrats seek buyers elsewhere.
(9) No importation should be allowed if such goods are sufficiently and suitably supplied at home.
In our era protectionist policies have been enacted to block or slow down importation of foreign farm machinery, cars, airliners, restaurant equipment, etcetera, so that equivalent goods that are made domestically will find buyers and thereby keep the domestic workforce employed and capitalists enriched. Though when I was a child I heard teachers claim that we are in a free market economy, with no government involvement in manufacturing and sales, I learned soon enough of secretive or overt protectionism designed to favor producers in particular industries (so that the industries could thrive and hence contribute financially to the policy-makers).
Today we can see government-sanctioned implementation of some of these 400-year-old ideals of mercantilism, in first-world nations and in developing nations. Today, as in past centuries, monarchs and bureaucrats are prodded by mercantilists, in public forums and behind closed doors, to use their powers to enact policies regarding employment, education, manufacturing, and international commerce for the benefit of the capitalists. Policy makers are enriched and capitalists are enriched after neo-mercantilists claim that certain economic policies are the most promising for their nations’ wealth-building and will keep the citizenry employed and peaceable.
Though history may not “repeat itself,” events and ideas of the past have echoes as succeeding generations fail to heed lessons from the past or try to apply theories and –isms in new places and times for their potential self-benefits.
References:
Ekelund, Robert, Jr. and Hébert, Robert F. (1997). A History of Economic Theory and Method (4th ed.). Long Grove, IL: Waveland Press. Print.
Landes, David. (1997). The Unbound Prometheus: Technological Change and Industrial Development in Western Europe from 1750 to the Present. Cambridge: Cambridge University Press. Print.
PolicyNetwork.net. International Policy Network. Web. 2010. July 27, 2010. http://www.policynetwork.net/trade/media/mercantilism-today-how-dead-philosophy-comes-back-life