THE MERCANTILISTS
I.
II.
III.
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VI.
VII.
Brief Historical Overview
Major Tenets of the Mercantilists
Thomas Mun
Gerard Malynes
Charles Davenant
Jean Baptiste Colbert
Sir William Petty
I. Brief Historical Overview
The economic doctrine known as mercantilism appeared
between the Middle Ages and the period of the triumph of
laissez-faire. Mercantilism can be dated roughly from 1500 to
1776. These dates vary, however, in different countries and
regions.
The self-sufficiency of the feudal community slowly gave way to
a new system of merchant capitalism. Cities, which had been
growing gradually during the Middle Ages, became increasingly
important. Trade flourished both within each country and
between countries, and the use of money expanded. Although
they remained "contemptible tradesmen" in the eyes of the
"landed aristocracy," the merchant capitalists were becoming
key figures in the world of business.
National states were rising, and the most powerful of them were
acquiring colonies and spheres of influence. Economic rivalries
between nations were intensified. A body of doctrine emerged
which superseded feudal concepts, promoted nationalism, gave
new dignity and importance to the merchant, and justified a
policy of economic and military expansion. This body of doctrine
became mercantilism.
II. Major Tenets of Mercantilism
1. Gold and silver is the most desirable form of wealth.
2. Nationalism.
For the mercantilists economic allocation is a "zero sum game."
The French essayist Michel de Montaigne who wrote in 1580;
"The profit of one man is the damage of another.... No profit
whatever can possibly be made but at the expense of another."
The same idea was extended to countries. One country gains
only at the expense of another country.
3. Duty free importation of raw materials that could not be
produced at home, protection for manufactured goods and raw
materials that could be produced domestically, and export
restrictions on raw materials.
The interests of the merchant took precedence over those of the
domestic consumer.
4. Colonization and monopolization of colonial trade.
Example of this policy:
The English Navigation Acts of 1651 and 1660:
- Certain colonial products had to be sold only to England.
- Foreign imports into the colonies were restricted.
- Colonial manufacturing was curbed or outlawed.
5. Opposition to internal tolls, taxes, and other restrictions on
the movement of goods.
Tolls and taxes could throttle business enterprise and drive up
the price of a country's exports.
However, mercantilists did not oppose monopoly grants and
exclusive trading privileges.
6. Strong central government.
A Strong central government was needed to:
- grant privileges to companies engaged in foreign trade.
- promote agriculture, mining, and industry with subsidies and
protect them from
imports via tariffs.
- set standards of quality in production to maintain reputation
in foreign markets.
7. Importance of a large, hard-working population.
Why?
- for the military
- to keep wages low
Why keep wages low?
- low export prices
- reduce idleness
IV. Thomas Mun (1571-1641)
Thomas Mun was born into a merchant family and became well
known and wealthy as a merchant dealing in international trade.
He was a director of the East India Company.
The East India Company was criticized for exporting gold.
In 1621 Mun published, in defense of this practice:
Englands Treasure by Forraign Trade, or The Ballance of our
Forraign Trade is The Rule of our Treasure
which Schumpeter says
"is generally looked upon as the classic of English
'mercantilism.' and remarks "This prominence is unfortunate,
but it is not wholly unmerited."
Englands Treasure by Forraign Trade, or The Ballance of our
Forraign Trade is The Rule of our Treasure
A Few Excerpts
Chapter II
"The Means to enrich this Kingdom, and to encrease our
Treasure. Although a Kingdom may be enriched by gifts
received, or by purchase taken from some other Nations, yet
these are things uncertaim and of small consideration when they
happen. The ordinary means therefore to encrease our wealth
and treasure is by Forraign Trade, wherein wee must ever
observe this rule; to sell more to strangers yearly than wee
consume of theirs in value."
V. Gerard Malynes ( ? - 1641)
Gerard Malynes, born in Belgium of English parents, was a
merchant of limited success. He served as the English
commissioner of trade in Belgium and held other positions in the
English government.
In 1622 he published The Ancient Law-Merchant , which
contained put forth many mercantilist ideas.
Malynes had a conception of the role of money in the
determination of prices
From The Ancient Law-Merchant:
"Plenty of Mony maketh generally all things dear, and scarcity of
Mony maketh generally things good cheap."
and had a relatively advanced concept of the interaction of
international exchanges, price levels and gold and silver flows,
which form that basis for the "specie-flow mechanism" analysis.
From Schumpeter,
Book II, Chapter 7, 3. Exchange Control,
"… during the whole of that century, no other writer surpassed
him in clear and full understanding of the international
mechanism of foreign exchanges… In the Second Part of his
treatise, Canker of England's Commonwealth, he nicely explains
how, if a country's currency falls below its mint par and coin
flows out in sonsequence, then prices will fall in that country and
rise abroad 'where our mony concurring with the monies of other
countries causeth plenty, whereby the price of forreign
commodities is aduanced.'… We must go to the eighteenth
centruy in order to find the argument carried to the conclusion to
which it points. "
VI. Charles Davenant (1656 - 1714)
Charles Davenant spent most of his career working for the
British government and in Parliament.
He was a mercantilist, but , in some writings, foreshadowed
latter developments in economic thinking.
He was a mercantilist:
- from An Essay on the East-India Trade (1696)
"For it is the Interest of all Trading Nations whatsoever, that their
Home-Consumption should be little, of a Cheap and Foreign
Growth, and that their own Manufactures should be sold at the
highest Markets, and spend Abroad; since by what is Consum'd
at Home, one loseth only what another gets, and the Nation in
General is not at all Richer; but all Foreign Consumption is a
clear and certain Profit."
He foreshadowed latter developments in economic thinking:
He considered the wealth of a country to be what it produces
rather than gold or silver.
Also - his concern for a surplus in the balance of trade was
based on the notion that an increase in the quantity of money
causes interest rates to fall. It is this "merchantilist" position that
Keynes defended.
VII. Jean Baptiste Colbert (1619-1683)
Jean Baptiste Colbert was the French minister of finance from
1661 to 1683. He worked, with only partial success, to improve
the conditions for internal trade. He improved the public
infrastructure, in part by the use of the hated corvee. Imposed
heavy regulation of business. Promoted a large and hardworking population.
VIII. Sir William Petty (1623-1687)
The son of a poor clothier, he became highly educated,
wealthy and famous. "Petty was a self-made man - physician,
surgeon, mathematician, theoretical engineer, a member of
parliament, public servant, and businessman - one of those vital
people who make a success of almost everything they they
touch, even of their failures. … Marx's decree to the effect that
Petty was the founder of economics added socialist applause to
bourgeois eulogies initiated by Roscher in 1857." (Schumpeter)
Petty supported many mercantilist ideas, but is also considered
a forerunner of classical economics.
Supported many mercantilist ideas:
- supported tariffs on imports
- favored a large population (increasing returns to gov't)
- favored a poll tax to encourage the labor of children
- favored slavery rather than death for thieves; force slaves to do
double work " …and thereby become as two men added to the
Commonwealth, and not as one taken away from it."
forerunner of classical economics:
- velocity of money
- division of labor
(essentially the same ideas as Adam Smith)