Mercantilism

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Mercantilism, which existed primarily during the 16th through 18th centuries in Europe, was an economic system founded on the belief that the government should encourage trade as a means to generate wealth for the country. Wealth was amassed by exporting more goods to other countries than the nation imported. A high import was placed on building up sums of gold, silver, and other currencies, while banning the export of such riches. To explore this concept, consider the following mercantilism definition.

Definition of Mercantilism

Noun

  1. An archaic economic system in which the power and monetary wealth of a country were built through strict governmental regulation of the economy, and an accumulation of bullion.

Origin

1870-1875    French      mercantilisme

What is Mercantilism

Mercantilism, the gold standard for Western European countries between the 16th and late 18th centuries, was an economic system in which countries put a limit on how many imports can be brought into the country, while simultaneously encouraging as many exports as possible. The goal in trading this way is to encourage a foreign trade balance that would increase the country’s overall revenue, without having a negative impact on domestic employment.

Another goal of mercantilism was to be able to colonize countries beyond Europe in order to expand commerce and put into place monetary systems that were based on gold and silver, rather than on currency. Ultimately, mercantilism caused violent military conflicts over territories, as each nation worked to create a military superior to that of its neighbors, to both build up its defense capabilities, and increase the reach of its colonial expansion.

Mercantilism was a success for the Western European countries that embraced it, particularly Great Britain. However, by 1860, England had done away with all of its mercantile regulations and tariffs, having finally recognized that mercantilism neglected the general population’s welfare, pushing wealth toward the political and commercial classes. By welcoming the agricultural bounties of the American colonies, Great Britain developed one of Europe’s strongest economies.

Mercantilism Examples in European Countries

Mercantilism, which was centered in Great Britain and France, became such a dominant force that most European countries of the time embraced it in some form. What follows are some mercantilism examples in major European countries: .

France

France embraced mercantilism during the early 16th century, shortly after the monarchy rose to dominate French politics. Mercantilism reached its peak in France during the 17th century, under Jean-Baptiste Colbert, who served as King Louis XIV’s Minister of Finances from 1665 to 1683. Colbert was such an influence on the French version of the system, that it is still sometimes referred to as “Colbertism.”

Under Colbert, the French government aggressively pushed toward increasing its overall exports. Here is where protectionism entered the picture. Protectionism is an economic policy that places limits on trades by imposing tariffs, quotas, and other regulations that are supposed to encourage “fairer” competition in imports, as well as in goods and services that are produced domestically. Protectionist policies were implemented under Colbert, which both limited imports, and favored exports.

Further, under Colbert, industries were separated into either guilds or monopolies, and the government would regulate production by issuing commands specifying how different products should be manufactured. Even artisans and craftsmen were brought in from other countries during this time, in an effort to increase production. Colbert himself fought for restrictions on internal trade, and for internal tariffs to be lifted. He also worked to build an extensive network made up of both roads and canals, to facilitate trading within the country by both land and by sea.

Colbert’s tactics in mercantilism were very successful, resulting in considerable growth in France’s industrial production, and its economy. France rose to become a major economic power in Europe at the time. Colbert was less successful, however, in trading outside France, so Britain and the Netherlands remained the chief trading authorities.

Great Britain

Great Britain was a stellar example of mercantilism in its earlier history. Mercantilism in Great Britain reached its peak during the period of 1640-1660, which is referred to as the “Long Parliament” government. Government-controlled monopolies were also fairly common during this period, especially before the beginning of the English Civil War, however these monopolies were often viewed as controversial.

The British government had a very tight grip on its trade industry during this era. It would protect its merchants – while keeping other empires’ merchants out – via trade barriers, regulations, and subsidies offered to domestic industries. These methods worked toward maximizing exports, and minimizing imports back to it.

Smuggling became a very large thorn in Great Britain’s side as 18th-century America used the tactic to get around the restrictions that had been imposed on any trades they wanted to make within the Dutch, French, and Spanish markets. British mercantilism’s main goal was to create trade surpluses, so that gold and silver paid for its exports would flood in great abundance into London. The government would take its share off the top, in the forms of duties and taxes, and the remaining profits would be allowed to trickle down to the British merchants.

The British government ultimately spent much of what it earned on building its superior Royal Navy, and this form of defense was their most effective offense, as the Royal Navy not only worked to protect the British colonies, but it also threatened other empires’ colonies, and occasionally seized them. This was actually how the British Navy was able to acquire New Amsterdam, which eventually became the state of New York, in 1664.

Prussia, the Netherlands, and Scandinavia

Of the European countries practicing mercantilism, stretching from France to Britain, the Netherlands was the least interested in its policies. This is because the nation had used its expertise in trading to become Europe’s financial center. The Netherlands had no interest in seeing trade restricted. Central Europe and Scandinavia became more interested in mercantilism after the Thirty Years’ War, and Prussia embraced the system so strongly that it became the most strictly controlled economy in all of Europe.

The Navigation Acts

During the period in which Britain served as an aggressive example of mercantilism. Britain’s Navigation Acts were laws created to restrict how foreign ships were used for trade. The first of these laws was enacted in 1651, and it required all merchandise being transported between England and its Dutch colonies to be transported in English or colonial ships. The Navigation Act of 1660 added to these restrictions, specifying that certain products, including sugar, ginger, tobacco, indigo, cotton, and wool, could be shipped only to England, or to one of its provinces.

The various Navigation Acts created such a hardship on the North Carolina traders, they resorted to smuggling. The Navigation Acts were not repealed until nearly 200 years later, in 1849, and Britain’s main goal, in keeping with its mercantilism policies, was to keep all of the trade benefits within the Empire and minimize how much of their gold and silver was ultimately lost to foreigners.

The Navigation Acts prohibited the British colonies from directly trading with the colonies of France, the Netherlands, and Spain. Further, the Acts also restricted the number of non-English sailors that could be employed on crews returning on the East India Company ships to one quarter of the crew.

Britain was a force to be reckoned with under the Navigation Acts, as it would aggressively seek out colonies and, once those colonies were under British rule, impose regulations upon them requiring them to trade only with Britain, or to produce only raw materials. As expected, the inhabitants of these acquired colonies were less than pleased with their rudimentary introduction to mercantilism policies. In fact, England’s policies under mercantilism fueled the fire that eventually became the American Revolution.

The Stamp Act

The Stamp Act of 1765 imposed a direct tax on British colonies and also required that the colonies’ printed materials, such as legal documents, magazines, and even playing cards, be printed on paper carrying an embossed revenue stamp, which was produced in London. The “stamp” on the paper acted as proof that the printer had paid the tax. Taxes on these materials were to be paid in valid British currency, as opposed to the colonial paper money that was sometimes used, and the purpose of this tax was to help fund the military (i.e. troops that were still stationed in North America after the Seven Years’ War).

The U.S. argued that this was a flimsy example of mercantilism in that there was no legitimate need for soldiers to remain on North American soil because there were no foreign enemies present, and the Americans were always fully capable of protecting themselves from the Indians and did not need British assistance. Instead, the U.S. suggested that the tax was merely to reimburse British officers and career soldiers whose salaries should have really been paid by London.

Colonists were equally unhappy with the Stamp Act, with many considering it a violation of their rights to be taxed without the consent that only colonial lawmaking bodies could grant, and petitioned and protested as they saw fit. This is where the phrase “no taxation without representation” originated.

Protests and demonstrations often turned violent as more disgruntled citizens joined, including British merchants and manufacturers whose exports were being threatened by the boycotts that were happening in the colonies. This was also the period where the secret organization known as the Sons of Liberty rose up, which was a group that was established to protect colonists’ rights and to fight the imposed taxation.

The protests and demonstrations were ultimately a success in that stamp tax distributors were intimidated into forfeiting their commissions, and so the tax was never collected as intended. The Stamp Act was repealed on March 18, 1766, but the battle wasn’t over yet, as Parliament simultaneously passed the Declaratory Act, which allowed for a new set of taxes and regulations. The organized resistance that the colonists formed thereafter would serve as a basis for the American Revolution that began in 1775.

Related Legal Terms and Issues

  • Domestic – existing or occurring within a country; not foreign or international
  • Duties – taxes levied by the state
  • Commercialism – a focus on the maximization of profit
  • Guild – medieval groups of merchants or craftsmen that often held significant power
  • Monopoly – the exclusive control of the supply or trade concerning a good or service