Assignment: Rise of Modern West

Date 4.4.2015

Elaborate the main principles of the policy of

Mercantilism. What was the nature of state involvement
with Mercantilism in Britain, France, Netherland and
Prussia?

The term "mercantilism" applied to both a type of economic

system and a period in the history of the political economy. It
developed during the decay of Feudalism to unify and increase
the power and especially the monetary wealth of a nation by a
strict governmental regulation of the entire national economy.
This was undertaken through policies designed to secure an
accumulation of bullion, a favourable balance of trade, the
development of agriculture and manufactures and the
establishment of foreign trading monopolies. Between 1500
and 1800 AD, European nations practiced a highly monopolized
and controlled form of trade. Colonial governments in France,
Great Britain, Spain and Sweden were its most notable
practitioners. It was the economic counterpart of political
absolutism seeking to secure a nations political and economic
supremacy in its rivalry with other states.
When Adam Smith reviewed and reviled "the mercantile
system," he dealt chiefly with its monetary attitude and its
protectionist policy. When Schmoller wrote about The
Mercantile System and Its Historical Significance in 1884, he
declared that its "innermost kernel is nothing but statemaking ... the total transformation of society and its
organization, as well as of the state and its institutions, in the
replacing of a local and territorial economic policy by that of the
state." To Schmoller's English contemporary, Cunningham,
mercantilism was a "system of power," a policy pursued "so
that the power of England relatively to other nations might be

promoted." These three writers thus examined four different

aspects-money, protection, unification, and power. However
each concentrated on one or two items which seemed
important to him. Heckscher in his book Mercantilism
embraces all four and adds a fifth, for through the welter of
discussion and the smoke of controversy he is able to perceive
the emergence of a "fairly uniform conception of general social
phenomena in the field of economics" and a "mercantilist
conception of society."
By the beginning of the 16th century, Mercantilist theorists
believed that the amount of wealth in the world was static. A
nation could increase its wealth and power in two ways. First, it
could obtain as much gold and silver as possible. Second, it
could establish a favourable balance of trade. A nations
ultimate goal under mercantilism was to become self-sufficient.
It was the role of the protected corporation to bring in as much
of that wealth to the home country as possible. A countrys
wealth was measured by the amount of precious metals and
coinage received from trade (a system known as Bullionism).
The underlying principles of mercantilism was the need to
encourage exports over imports as a means for obtaining a
favourable balance of foreign trade that would yield such
metals; the value of a large population as a key to selfsufficiency and state power; and the belief that the crown or
state should exercise a dominant role in assisting and directing
the national and international economies to these ends. These
monopolistic corporations were to be controlled by the
government and act as an arm of government interests. In
return, the government would use regulations, subsidies and, if
needed, military force to protect the corporation from domestic
and foreign competition. The most famous and
powerful mercantilist corporations were the British and Dutch
East India Companies.
ELI .F Heckscher in his book Mercantilism writes that
mercantilism is not a compact, consistent ism characterized
by adherence to a single, precisely defined economic theorem.

Rather it is "only an instrumental concept which, if aptly

chosen, should enable us to understand a particular historical
period more clearly than we otherwise might" Its content is that
"phase in the history of economic policy" which lies between
the end of the Middle Ages and the dawn of the age of laissez
faire. During that period mercantilism was the normal approach
to "a common European problem.
Mercantilism went hand in hand with colonization, for colonies
played a vital role in this new economic practice. Aside from
providing silver and gold, colonies provided materials that could
not be found in the home country. In addition to playing the role
of supplier, the colonies also provided a market. The home
country could sell its goods to its colonies.
During the seventeenth century, adherents of absolutism also
found much to embrace in mercantilism. In England, during the
age of Tudor and Stuart absolutism rulers found it logical to
accept the premise that the monarch should not only control
the political and social hierarchy but should enjoy control over
the economy as well. Oliver Cromwell, after destroying Stuart
pretensions in the Civil War embraced both mercantilist warfare
and the Navigation Acts in his commercial struggle with the
Dutch. The period of mercantilism in England extended from
roughly 1500 to 1750 and reached its peak during the Long
Parliament government.
From the end of the 15th century to the first half to the 17th
century the emphasis was on balance of trade and commerce
and the regulation of domestic industries. Moreover in this
period accumulation of bullions and manufacturing activities
were also promoted. To encourage the export of English
products Henry VII signed two important treaties-Malcus
Intercurses and Magnus intercurses with Flanders one of the
chief manufacturing centres of Europe. This enabled English
merchants to sell their products without paying duties. At the
same time the Tudor government tried to control the entry of
foreigners into specifics craft to prevent the decline in the

quality of manufactured products. An English author of the

time, Thomas Munn wrote about the new economic idea of
mercantilism: Although a Kingdom may be enriched by gifts
received, or by purchases taken from some other Nations . . .
these are things uncertain and of small consideration when
they happen. The ordinary means therefore to increase our
wealth and treasure is by Foreign Trade, wherein we must ever
observe this rule: to sell more to strangers yearly than we
consume of theirs in value.The mercantilists who wrote before
1600 believed a favourable balance would enable England to
accumulate bullion for war purposes. For this reason Hales
regarded the export industries as most valuable to the nation,
saying: "I would have them most preferred and cherished that
bring in most commodity and treasure to the country,"
commodity and treasure being synonyms here.
To regulate domestic industries The Statute of Artificers was
implemented in 1563 under Queen Elizabeth I which sought to
fix prices, impose maximum wages, restrict workers' freedom of
movement and regulate training. Though in Britain,
government control over the domestic economy was far less
extensive than on the Continent, limited by common law and
the steadily increasing power of Parliament. On the same lines
of general mercantilist ideas, bullion regulations were also
enforced. In 1581, Parliamentary law forbade the export of any
coins or bullions. The Tudor laws also insisted that English
goods should be shipped only on English vessels. Such
measured contributed to the strength of England by developing
a powerful navy. At the same time a lot of importance was
given to monopolistic institutions. A group of merchants
founded the East India Company in 1600 as a joint-stock
company designed to take advantage of the new trading
opportunities with Asia. A royal charter from Queen Elizabeth I
granted the company a 15-year exclusive monopoly to all trade
beyond the Cape of Good Hope, as well as customs concessions
and permission to export specie. Christopher Hill in The
Century of Revolution states that government-controlled

monopolies were common, especially before the English Civil

War, but were often controversial.
The emphasis of English mercantilism changed with the
economic development of the country. It shifted from bullionism
to strict internal supervision to the spheres of foreign trade and
colony. During Oliver Cromwells time mercantilist policies were
followed with great vigour. In 1651 the first Navigation Act was
implemented to establish English supremacy over the
neighbouring waters. The second and the third Navigation acts
led to a naval war that destroyed the commercial supremacy of
the Netherlands. . The Navigation Acts expelled foreign
merchants from England's domestic trade. The nation
aggressively sought colonies and once under British control,
regulations were imposed that allowed the colony to only
produce raw materials and to only trade with Britain. This led to
friction with the inhabitants of these colonies, and mercantilist
policies (such as forbidding trade with other empires and
controls over smuggling) were a major irritant leading to
the American Revolution.It was under the guidance of Sir
George Downing, also known as the architect of English
mercantile system that trade between English and the colonies
was strongly enclosed protected and channelized in the English
shipping.

Mercantilism arose in France in the early 16th century soon

after the monarchy had become the dominant force in French
politics. In 1539, an important decree banned the importation
of woollen goods from Spain and some parts of Flanders. The
next year, a number of restrictions were imposed on the export
of bullion. French Mercantilism can be summed in the views of
Montchretien in his work Treatise on political economy at the
beginning of the seventeenth century: we must have money,
and if we have none from our own production, then we must
have from foreigners. To carry this out he recommended
encouraging national trade by preventing foreign merchants

from exporting bullion out of France, regulating the economic

professions, carrying trade workshops and promoting
production through privileges and concessions. Later on
Richielieu and Colbert, ministers of absolutist rulers Louis XIII
and Louis XIV respectively worked out these policies.
Richielieu adopted a strict line of mercantilism in his policy
towards commerce and manufacture. He believed that royal
edicts were the best method of stimulating growth. Unlike his
colleague Sully, who laid emphasis on the development of
agricullture, Richielieu concentrated on commerce which he
considered the new generator of wealth. His desire for French
colonies didnt come to pass as his energies were taken up
dealing with the opposition within the court.
Louis XIV's minister of finances, Jean-Baptiste Colbert started
a mercantile system which used protectionism and statesponsored manufacturing to promote the production of luxury
goods over the rest of the economy. The state established new
industries (the royal tapestry works at Beauvais, French
quarries for marble), took over established industries
(the Gobelins tapestry works), protected inventors, invited
workmen from foreign countries (Venetian glass
and Flemish cloth manufacturing), and prohibited French
workmen from emigrating. To maintain the character of French
goods in foreign markets, Colbert had the quality and measure
of each article fixed by law, and severely punished breaches of
the regulations..It was in under him, that mercantilism found
perhaps its greatest supporter in Jean-Baptiste Colbert .He had
studied the previous theorists of a foreign-trade-driven
economy and was in a unique position of authority to execute
their ideas. He was also a devout monarchist and wanted an
economic strategy to protect the French crown from a rising
Dutch mercantile class.
In England, mercantilist regulations were essentially policy
regulations while in France, mercantilism implied minute and
detailed regulation of the industry. The code of Commerce was

drawn up and included every aspect of the industry. It also

formed the basis of French Commercial Law. In this field,
monopolies were also granted to the well connected merchants
as had happened in the case of England. Colbert increased the
size of the French navy on the premise that his country would
have to take control of trade routes in order to increase its
wealth. Even though his practices were ultimately unsuccessful,
his ideas became extremely popular until Adam Smith and free
market economics.
On one hand, where France and England provide the best
examples of mercantilist policies, Netherlands on the other was
"less affected by mercantilist tendencies than most other
countries". According to Eli F. Heckscher "they did not really
follow mercantilist practice"; and their development was "an
antithesis of mercantilism. H.Kellenbenz also questions
whether Holland ever engaged in any form of mercantilism.
Netherlands, which had become the financial centre of Europe
by being its most efficient trader, had little interest in seeing
trade restricted and adopted few mercantilist policies. However
Braudel points out that Dutch advocacy of free trade was only
skin-deep. All her economic activities required the creation of
monopolies, which was an important element of mercantilism.
He further substantiates his argument by saying that the Dutch
behaved no differently from other colonial powers in their
overseas trade.
The reason mercantilism in Netherland took a slightly different
character can be explained in the work which was first
published in 16622 titled The interest of Holland. It is
considered a standard account of Dutch economy and their
political occupation. The authors emphasized freedom from
persecution, taxation, monopoly, regulation and dynastic rule
.They considered the merchant community a dynamic factor in
the economy and saw the presence of a strong centralized
power as a major threat.

The Dutch had a well balanced economic system and had

developed as brokers, exchangers and ship owners. Unlike
other states, which had agricultural economies, Dutch were
practitioners of arts and commerce. Though they had excelled
in shipbuilding, trade and financial institutions, bullion
accumulation was not emphasized. Dutch mercantilists
advocated freedom of the seas and emphasized on monopoly
trading. In 1602, the States General (the Dutch governing body)
initiated and helped finance the formation of the Dutch United
East India Company, which was granted exclusive monopoly
rights to engage in trade with Asia. However, the Dutch
commercial power was destroyed in the seventeenth century
Britain and France, which by now had adopted strict
mercantilist policies.

As Prussia was divided into small states, each state tried to

adopt its own peculiar type of mercantilism. However, it was
only Brandenburg Prussia which developed an effective
mercantilist system. The scale of mercantilist activities were
not as wide in Prussia as they were in France Or England yet
Prussian mercantilism contributed to its economic recovery
after a prolonged period of war. The Prussian political economy
in the middle of the 18th century is labelled Friederician
Mercantilism after Frederick II (1740-1786). Prussia
under Frederick the Great had perhaps the most rigidly
controlled economy in Europe. His energy and zeal were
harnessed in an effort to establish, within his monarchy, a
viable textile industry of woollen and silk manufacture. To
achieve these ends he was as ready to mobilize the reserves in
his treasury as he was willing to bend the framework of his
state to help a group of fledgling producers get started. The
King exempted potential entrepreneurs from the burdens of
taxation and provided them with various subsidies. At the same
time he prohibited the export of raw wool and raised the import
duties on all woollen goods. Though the growth of the
Brandenburg woollen industry showed signs of promise,

especially in the 1720's, it fell far short of royal expectations.

The disillusionment prompted the ruler to set up the Berlin
Lagerhaus, a kind of state manufacturing establishment which
was to serve as a pace-setter in the trade.
Frederick William I's mercantilist credo was equally well
reflected in his promotional activities on behalf of an
indigenous silk industry. To boost that trade he at first pressed
for an extension in the cultivation of the mulberry tree. He then
tried to strengthen the infant silk manufacture proper by
surrounding it with a protective tariff and by putting various
subsidies at its disposal. Finally, in his hope to assure the
progress of a basically risky venture in a rather precarious
environment, he resorted to what was then the customary
strategy of granting monopoly privileges. He believed that
industry, at least in its initial stages, could be nurtured like an
army. Specifically, he believed that a policy of incentive and
deterrents would insure industrial success.
Prussian mercantilism was neither original nor universal. The
ideas of mercantilism in Prussia can also be seen in the writings
of a school of scholars called Cameralists. Cameralism dealt
with the economic welfare of the state and assumed a form of
treaty on taxation. Its teaching imbued diverse activities
related to economy and state revenue. Although many writers
borrowed their ideas directly or indirectly from the English and
French Mercantilists, the Austrians adopted them according to
their need. As Prussia was not in a position to develop a navy or
colonies, there was little emphasis on foreign trade. The
Prussian industry was protected by high tariffs and prohibitions
were imposed against imports.
To conclude, the seventeenth century defined the age of
mercantilism, in terms of both economic thought and
commercial policy. Mercantilist economic thought held that the
gains from international trade arose solely from exporting and
that the nature of these gains made international trade
equivalent to a zero-sum game. Mercantilist commercial policy

entailed extensive government regulation of international trade

to ensure that these gains accrued to one's own country, a
pursuit that even carried European states into military conflict
with one another. Mercantilism was not a gospel of states that
were satisfied merely to defend themselves and keep what they
had already; it was a weapon for aggression, for acquisition, for
securing more political power and economic benefit. As Fay has
pointed out, England fought its rivals for access to the New
World and the high seas in the sixteenth century and for an
overseas empire, conceived as a source of raw materials and a
market for manufactured goods in the eighteenth century.

BIBLIOGRAPHY

Articles
1 -Prussian Mercantilism and the Rise of the Krefeld Silk
Industry: Variations
upon an
Eighteenth-Century Theme by Herbert Kisch
2-Heckscher on Mercantilism by Herbert Heaton
3- The Liberal Elements in English Mercantilism by William D.
Grampp
4-Heckscher, Mercantilism by B. F. Haley
Book
1-Cambridge Economic History of Europe edited by E.E rich and
C.H.Wilson

SANIA MARIAM
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(HISTORY HONS.)