HISTORY OF ECONOMIC THOUGHT DR. PETROS KOSMAS LECTURER, CASA COLLEGE ACADEMIC YEAR 2010 - 2011 LECTURE 3 ECON-220

Conceptual definition of Mercantilism Mercantilism developed at a time when the European economy was in transition. (Isolated feudal estates were being replaced by centralized nation-states as the focus of power). Technological changes in shipping and the growth of urban centers led to a rapid increase in international trade. Mercantilism is an economic theory, thought to be a form of economic nationalism, that holds that the prosperity of a nation is dependent upon its supply of capital, and that the global volume of international trade is "unchangeable". ECON-220

Mercantilist Policy Mercantilist ideas were the dominant economic ideology of all of Europe in the early modern period. Mercantilism was centered in England and France, and it was in these states that mercantilist polices were most often enacted. Protectionist policies were enacted that limited imports and favored exports. Industries were organized into guilds and monopolies. France's industrial output and economy grew considerably during this period. ECON-220

Mercantilist Policy In England, tariffs were placed on imports and bounties given for exports, and the export of some raw materials was banned completely. 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 mercantilist policies were one of the major causes of the American Revolution. The mercantilist policies had an important effect on Britain helping turn it into the world's dominant trader, and an international superpower. ECON-220

Mercantilist Policy Mercantilists felt that to maximize a nation's power all land and resources had to be used to their utmost. Mercantilism helped create trade patterns such as the triangural trade in the North Atlantic, in which raw materials were imported to the metropolis and then processed and redistributed to other colonies. The Netherlands, which had become the financial center of Europe by being its most efficient trader, had little interest in seeing trade restricted and adopted few mercantilist policies. Since the level of world trade was viewed as fixed, it followed that the only way to increase a nation's trade was to take it from another. ECON-220

Mercantilist Policy A number of wars, most can be linked directly to mercantilist theories. The unending warfare of this period also reinforced mercantilism as it was seen as an essential component to military success. During the mercantilist period, European power spread around the globe. As with the domestic economy this expansion was often conducted under the aegis of companies with government-guaranteed monopolies in a certain part of the world. ECON-220

Mercantilist Policy One notion mercantilists widely agreed upon was the need for economic oppression of the working population. Laborers and farmers were to live at the "margins of subsistence“. The goal was to maximize production, with no concern for consumption. Extra money, free time, or education for the “lower classes" was seen to inevitably lead to vice and laziness, and would result in harm to the economy. ECON-220

Colonial Mercantilism With the acquisition of colonies came the recognition that their purpose was to satisfy the needs of the mother country. In the 1500s, Spain and Portugal exerted strict control over their colonial inhabitants. However, the British were more lax in governing their colonies. As the colonies grew and became more prosperous, the English realized that the colonies could provide increased trade, if competition could be eliminated. From 1650 on, England instituted a series of laws of trade and navigation known as the Navigation Acts. If colonists intended to trade with any other nations, all goods had first to be shipped to England, giving her an opportunity to handle them and collect revenue from taxation. ECON-220

Colonial Mercantilism From 1650 on, England instituted a series of laws of trade and navigation known as the Navigation Acts. If colonists intended to trade with any other nations, all goods had first to be shipped to England, giving her an opportunity to handle them and collect revenue from taxation. In addition, there were certain products that could be traded only with Britain, such as tobacco, sugar and cotton. England encouraged the colonists to specialize in the production of raw materials. English factories converted raw goods to products which were then shipped back to the colonies. ECON-220

Colonial Mercantilism With the culmination of the French and Indian War in 1763, the British were victors in the world struggle for commercial supremacy and their policies of mercantilism changed. The British began to enforce their mercantilist policies, which led to intensified animosity between the English and their colonies. The mercantillists argued that a large population was a form of wealth, making it possible to create bigger markets and armies. ECON-220

Background Questions: State and explain some of the general characteristics of mercantilism. How did these policies affect the colonies? To what extent do nations today practice mercantilism? ECON-220