The origin of mercantilism

The origin of mercantilism

The quality and role of mercantilism can be better understood by taking into account the historical background. This is because the writings of the mercantilists were greatly influenced by the concurrent situation of their times. According to Keynes, it follows that the theories of the past cannot be properly understood or their validity fairly estimated unless they are taken in connection with the actual phenomenon. Therefore, it is pertinent to take up a study of social, political, economic, religious, and other factors that gave rise to mercantilist philosophy during the 13th and 14th centuries.


The Renaissance movement was against the dictates of medieval theology.  During the close of the medieval period, nationalism became a strong force in Europe. As such, the countries were undergoing sharp change. It gave rise to a new light and learning among the people. Reasoning and Skepticism were the order of the day in the place of blind obedience of certain given ideas. This led to a freedom of the leaders of the society from obscurantism. The age of reasoning dawned upon the people of Europe. They used to accept an issue on the basis of adequate logical reasoning. No place for blind following. This resulted in increasing inquisitiveness regarding materialistic aspects of life. People began to understand that life on earth was more important than the life on the immortal world such as heaven. Emphasis was laid on creative human activities, acquisition of wealth, and trade and commerce. In fact, mercantilism was a reaction against the moral and idealistic attitude of the medieval period. These ideas were inscribed in the literary and art works of the time.  For example, the artists like Leonardo da vinci, and Michelangelo, and philosophers, namely, Erasmus and Bacon were the torch bearers in the spreading the new line of thinking in Europe. Therefore, money came to occupy a place of pride in human relations and materialism started gaining strength day by day.


With the development of skepticism among the people of the Western Europe, the tendency of questioning was developed as a mass movement and the intellectuals of the society leading to ‘Reformation Movement’. The Reformation Movement raised its voice against the supremacy of the Roman Catholic Church and its dictates through the authority of Pope in religious and political matters. This development was associated with the rise of Protestantism, as a new religion. This new religion was led by Martin Luther. This led to the weakening of loyal and blind obedience and gave way to more reasoned arguments. The Protestantism had given a rational meaning to Christianity and accepted the acquisition of material goods and property. It laid stress on the importance of money, economic effort and thrift in man’s life unlike the Christianity, which taught complete detachment of man from material things. Also, the new religion favoured complete liberty and individual freedom. The Protestantism believed in a strong nation. Political Economy became a reality with the fall of feudalism and the dictatorial authority of the Roman Catholic Church.

In course of time, the new religion became very strong and embraced by the kings and merchants. These sections of the society broke away from the clutches of the Roman Catholic Church and started their own Churches under the new religion. For example, the King of England, Henry VIII established the Church of England under the new religion. The power and popularity of the Catholic Church was declined.

Changes on the economic and political front

At the close of the 15th century, several changes had taken place in various countries of Europe in both economic and political front as well. In this period, feudalism was replaced by ‘commercial capitalism’. Foreign trade and commerce became the sources of profits to the traders. Self-sufficient domestic economy with limited exchange gave way to the ‘exchange economy’. Agriculture was receded to background and it gave birth to manufacturing economy. In England, a good deal of interaction between commercial capitalism and agriculture took place and it gave way to capitalism in the country. With the invention of new farming methods of production, feudalistic methods of production were lost their dominance. Having been replaced from their feudal lordships, landlords converted themselves into merchant class and engaged themselves in trade and commerce. In view of the growing importance attached to the manufacturing sector, a new class, known as, ‘labouring classes’ was emerged. Competition among various manufacturing industries became the order of the day.  Increased specialization together with increasing exchange and trade, the importance of money increased all the more. The benefit for all this was increase in the foreign trade. Also, the discovery of the new World like America increased the flow of gold and silver in to the Europe causing the rise in the price level.  With the increased price level, the governments had failed to manage their increasing expenses due to low receipts from their estates and from other sources.  The governments then resorted to the imposition of heavy taxation. The development of industry and trade felicitated such changes.  There was widespread ‘debasement’ of coin currency by which prices had increased much.  The price increase led to the onset of ‘speculation’.  At that time, the kings used to believe in the strength of wealth to wage a war rather on the strength of the army. All this led to increased importance to money.

Further, Increased security resulted in the encouragement of saving and banking habit. As a result, Bank of England was established by the close of this period.

On the political side, to mercantilists the objective of a state was not to increase wealth, but to increase strength and authority. It was pointed out that mercantilists were not basically ’nationalists’ whose nationalism was the product of ‘romanticism’ (Heckscher). Even by keeping the wage level of labour low, a strong state could be built up leaving the labour poor. Therefore, the state has the “authority of authorities”. So, the state must keep in mind the objective of gaining power.  A state therefore had to be strong enough both internally and externally.

According to mercantilists, the strength was an end in itself and economic policy had to be planned accordingly. So at any time, when a state was called upon to wage a war, it must get ready with the required strength to wage a war. The political organization, which was loose in the past due to scattered centres of power of feudal lordships, came to be replaced, thus, by a strong nation state.  A strong nation state headed by a strong king was the norm. Some of the strong kings were Tudor King and Louis XIV. Therefore, shift in emphasis was, therefore, on the development of nationalist state with a centralized government. These ideas were explained by Machiavelli’s “The Prince” and Jean Bodin’s “Six Livres de la republique”.

The mercantilists recognized that to achieve political unity economic unity was also required.  These two are mutually complementary. So, power lies in wealth. For instance, in order to be strong and powerful a king required money and wealth which could only be acquired by trade and commerce. Thus, there emerged a compatibility of economic interests of the merchant classes and the political interests of the state. The state was interested in capitalism as a continuously increasing source of revenue for the ever-hungry state. Money revenue was the goal of the economic activities which the state engaged in or suggested to the private businessmen (Heckscher).  Similarly, without the strength of the state, the commercial interests of the state could not be protected and colonies established could not serve as marketing zones for the home trader. The key to mercantilist prosperity was in the strength of the state. The mercantilists therefore explained the strength of the state and state-making.

Most of the mercantilist thinking was carried out by merchant price of a nation state. Thus, the role of merchant class had increased in the political sphere due to the rise of labour class and fall of feudal lordships.

On the other hand, competition was intensified among the nation states in the sphere of foreign trade.  The principal reason in extending foreign trade was to acquire gold and silver.  To gain an upper hand in the international sphere and to get more stocks of gold and silver, nation states intensified their efforts to build strong ocean fleets and admiralties and extended trade to every corner of the globe with the discovery maritime routes. This led to the prolonged hostilities between nations. England and Portugal were at logger heads during the 17th century.   Therefore, mercantilists emphasized the role of international trade in state making.

Other developments

The thinking process of mercantilists was influenced by many discoveries and inventions of the period. These include discovery of maritime routes to America (1492 by Columbus) and India (1498), and inventions like mariner’s compass, printing press, etc. Inventions of Galileo and Kepler dispelled the centuries old beliefs and taboos and demolished the supremacy of the Christian theology.  All these developments led to significant changes in trade and commerce. Marketing avenues were developed with the establishment of colonies in Asia, Africa and America.

All the above explained developments came to be taken as the genesis of the birth of mercantilism.  In brief, it was a reaction against the medieval thought and the dictates of the Christian theology.