What is Mercantilism?

What is Mercantilism?

History of Mercantilism:

Need for international trade was also felt because money was needed for maintaining strong armies and gradually commercial interests began to govern foreign policies of the nations. It was now realized that commercialgains of one nation could only be at the cost of the other.This was one reason as to why there was hostility among the nations throughout 17th century and many wars had to be fought to gain supremacy and the markets.

It was out of this situation i.e. need for international trade and control over every other nation that mercantilism arose. It was economic aspect of vigorous nationalism of the period. It was primarily an economic theory which got linked political philosophy of nationalism.

The practice of mercantilism began in 1516 when Charles V on his accession to the throne of Spain began retaliatory measures against commercial policy of Venice. It was first of all systematically stressed by Italian writer Serra. In England, Sir William Petty, the leading person who stressed importance of mercantilism, and he laid emphasis on gold, silver and jewelry in the national wealth. Subsequently Thomas Munro, a Director of East India Company, laid stresson international trade. During the latter part of the 17th century on mercantilists theory much, stress was laid especially by the Whig Party. The writings of Dudley, North and Josiah Child propagated that world was a commercial unit under that supply and demandshould determine price of a commodity.

In France restrictive policies of mercantilism were carried out by Jean Colbert (1619-83). He used protective tariffs to improve trade and industry and also taxation system. In German states mercantilist view point supported by Karmaralism, which aimed at finding out how royal income could be maintained increased and administered. But philosophy of mercantilism became popular in France, England and Holland and much less in German states. Whereas in England mercantilists were businessmen and pamphleteers, the German Karmaralists were professors of Finance who wrotevolumes and systematic treatises on this subject and illustrated to make the whole subject of study very interesting.

Need for Mercantilism:

International trade was the only important source for earning money for the monarchies, throughout middle ages. This could be done only when the state controlled both national as all as international trade and protected industries at home.It was felt that without such a trade neither there could be prosperity nor stability.The result was that every state began to put maximum pressure on its merchant classes,so that they could produce as well as sell their commodities in the international market.The state also began to give necessary and needed protection. Thus basic idea was to promote international trade and to earn wealth.For the purpose initiative in some countries came from the Government, while in others from the individuals or group of merchants, who were interested in such a trade.

In mercantilism both agriculture and industrial revolutions played a very significant role. In addition the roles of colonies and international trade too played a vital role. The pressure of merchant classes in the government in no way was significant.

The process was expedited because the king, the government and the merchants all equally realized and visualized anticipated growth of trade activity. The traders looked towards government both for protection and trade facilities.

Features of Mercantilism:

But from whatsoever source initiative came mercantilism had its own features or characteristics. These were:

  1. The first characteristic was that it needed the collaboration of the merchant class with the monarchies. Both felt that without one the other could not proceed further. The kings needed trades so that the goods could be sold in the international market. On the other hand, the traders required royal protection and patronage while they were abroad, so that they could sell their goods. Such a collaboration as previously unknown, because the monarchs did not care for the trade, which was considered private affair of the individual.
  2. Then another feature was that this resulted in craze for colonies and more markets. Need for colonies were felt and were closely linked with international trade. It was realized that unless there were colonies goods produced could not be sold.
  3. Still another feature was that manufacturers were now exalted over every other class of workers. Before mercantilism maximum stress was laid on agriculturists. Now this stress shifted to manufacturers. Agriculture, ofcourse, continued to occupy a strong position in the economy,but stress began to shift from it to trade.
  4. So for domestic trade was considered very important and paid maximum attention. Now this fell in the background. In its place international trade began to be paid more and more attention. Every nation now wanted to have favorable balance of trade. It was only then that the nation could expect more from abroad.
  5. Every nation which got involved in the international trade felt great need for new type of laws which otherwise it would not have thought. Several navigation laws had to be passed in order to provide facilities to navigators who sailed abroad. This law had to be passed to protect their interests when they were abroad. Similarly steps had to be taken to protect their lives and property when they were on the high seas. Arrangements had to be made with the trading countries for providing facilities to the traders while in the country.  Not only this, but in the country several type of new laws had to be passed. Domestic industries needed legislative protection so that these were not killed in the international competition. In addition, of incentives had to be provided to the traders and so on.
  1. Still another feature of the system was rivalry at national and international levels. Each nation wanted favourable balance of trade. This could be possible only in a monopoly situation. The result was that nations began to fight with each other to protect the interests of their traders and merchants. Such a rivalry was unavoidable and subsequently resulted in many wars.
  2. In this age of mercantilism, there was a consistent stress on wealth. It was believed that earning national wealth should be the aim of the state. Such state wanted to expand and powers go hand in hand and that both were inseparable. Eyes of every nation were looting and instances of violence of the worst kind for earning wealth. The wealth of each nation was measured in terms of precious metals which it possessed. This could be possible when the nation had favourable balance of trade and colonies to provide cheap raw material and markets to consume finished products. Under this policy each nation tried to be self-sufficient by itself and make the other nations dependent on it.
  3. Each power which could manage to increase her international trade became an exploiter. It was unfortunate that instead of making the colony a partner in international trade and prosperity, colonies began to be considered as the suppliers of raw material. Each trading nation wanted to be economically self- sufficient without caring for the interests of the others. The colonies began to be considered as potential aligner in the international market and thus an attempt was made to always keep them dependent on the country.
  4. Mercantilism brought certain notions and beliefs with it. It was believed that wealth of a nation could be measured in terms of precious metals which it possessed. It was also believed that population was a source of strength for the nation and as such it should be increased. Importance of bullion was especially stressed. In short mercantilism aimed at creating a strong, populous and self-supporting state.