MERCANTILISM

I. INTRODUCTION (for the three centuries after the fall of feudalism) A. Background 1. a period of changes towards more centralized nationstates 2. Mercantilism can be examined as: a. doctrinal a body of summarized events from the fall of feudalism towards liberalism b. policy or historical a historical process described as dynamic Mercantilism works like capitalism with self-interest at the helm in pursuit of gain. II. DOCTRINAL MERCANTLISM A. Mercantilism a term coined by Mirabeau in 1763 1. covered the economic ideas from the 1500s to the 1700s 2. writers were merchants from different countries : there was no cohesion of thought B. Philipp Wilhelm von Hornick condensed the mercantilist principles 1. Common characteristics generally endorsed by the mercantilist writers: a. That every inch of a countrys soil be utilized for agriculture, mining or manufacturing b. That all raw materials found in a country be used in domestic manufacture as finished goods have a higher value than raw materials c. That a large working population be encouraged d. That all exports of gold and silver be prohibited and all domestic money be kept in circulation e. That all imports of foreign goods be discouraged as much as possible f. That where certain imports are indispensable, they be obtained at first hand, in exchange for other domestic goods instead of gold and silver g. That, as much as possible, imports be confined to raw materials that can be finished at home h. That opportunities be constantly sought for selling a countrys surplus manufactures to foreigners, so far as necessary, for gold and silver

i. That no importation be allowed if such goods are sufficiently and suitably supplied at home C. Materialistic objects became the end and not the means to something spiritual unlike in the medieval period D. INTERNATIONAL POLICY 1. GOAL: material resources are used to promote enrichment and well-being : actions at the state level must be geared towards making that state a political and economic power 2. MEANS: international trade practices and finance and the acquisition of gold 3. Gold was the unit of international account: money has now become equated to wealth 4. Stockpiling of gold augmented wealth a. specie = money in coin form = gold buillion 5. employment and industry were promoted by raw material imports and finished exports 6. Exports > Imports is the key and the balance is remitted in gold a. the accumulation of wealth is s result of a trade surplus 7. DISCLAIMER: increases in wealth should not mean less for the others but that mercantilists believed that any increases in the stock of one was a loss for another was referred to as beggar-thyneighbor principle 8. CRITIQUE: using the Quantity Theory of Money, inflation will results from the increases in currency in circulation E. DOMESTIC POLICY 1. the state regulates the economy 2. the state provides policies on taxation, subsidies, restricted entry into markets and even quality control 3. legal monopolies were granted through franchises and patents 4. maintained a merchant-monarch status quo F. LIMITATION OF MERCANTILIST DOCTRINE 1. there was dualism in ideas: soma call for state regulation while other lobbied for liberalism G. ON LABOR AND WAGES 1. wages should be maintained at subsistent levels a. justified low wages as saying suffering is therapeutic to being lazy 2. unemployment was a result of indolence 3. endorsed child labor and that public schooling only promoted laziness

III. MERCANTLISM AS A ECONOMIC PROCESS seeks to explain how and why mercantilism gave was to a new economic system A. Economic regulation was supplied by the throne and other statesmen; and eventually members of Parliament B. Demand for economic regulation came from the merchant/mercantilist class, seeking favors and other forms of regulation that serve the class self-interest C. Financial guarantees and other economic rewards were promised to the statesmen and these were the price/cost of regulation D. When the authority of economic regulation was redistributed (i.e., the king/queen was not the absolute power anymore), the cost of regulation exceeded the benefits E. Mercantilists ceased to demand for economic regulation and did not pay anymore F. The state did away with meddling in the economic affairs of the nation G. The practices of mercantilism were gradually forgotten H. The elements of a modern market economy have been established : a strong middle class with a capitalist nature, a recognized currency, the availability of raw materials, a market for final goods, supply of cheap labor and the absence of state intervention