History of Economic Thought
September 6, 2012
The Mercantilist School

1. What Was the Historical Background of the School?

Mercantilisms were a group of writers and thinkers who prevailed in Europe after the decline of feudalism in the early 15th century and the beginning of the Industrial revolution in 1780 (Mathur). The use of money expanded and trade increased within each country and between countries (Brue Grant 13). The focus was on the economic competition, they believed that politics must control economics. The Europeans explored and extended the sphere of commerce part due to the development of navigation (Brue Grant 13). The primary objective of the Mercantilism was to increase the power of the nation state. The more gold a nation had the richer and more powerful it became. Intense rivalry and competition among states began. Mercantilists believed the way for a nation to become rich and powerful was to export more than it imported. “The mercantilist school superseded feudal concepts, encouraged nationalism, gave new dignity and importance to the merchant, and justified a policy of economic and military expansion” (Brue Grant 13).

2. What Were the Major Tenets of the School?

The main principles of the Mercantilism School are as follows:

Wealth was power, and therefore the objective of the country was to maximize its wealth through the possession of gold and silver it possessed. (Brue Grant 14). Trade policy tended to be to import raw materials, and export finished goods. They believed if the country sells more than it buys, then the foreigners should pay by sending gold and silver and the wealth of the country therefore increases. The government did all in its power to promote the nation’s exports by subsidies and imposed taxes and prohibitions on imports. Nationalism was driven for militarism to win and hold colonies or engage in conquest (Reynolds). As a result international trade was a “zero-sum game” where countries could only benefit at the expense of other countries. There were minimal rules, acquisition of gold and silver was a “favorable balance of trade,” or by any other means including robbery and hijacking of ships to steal any cargos of gold and silver.
3. Whom Did the School Benefit or Seek to Benefit?
The Mercantilist School benefited those with power such as: the merchant capitalists (business owners), joint stock companies, kings, queens, monarchs, and government officials. (Brue and Grant 16). The Mercantilist School sought to benefit rent-seeking behavior (Brue and Grant 16). Rent seeking behavior are profits beyond those that are necessary to keep merchant capitalist engaged in trade (Brue and Grant 18). Laws made it difficult for new producers and merchants to compete successfully against other producers,” (Brue and Grant 18). Mercantilist promoted the maximum exports implied the necessity of self-sacrifice of the general population.
4. How Was the School Valid, Useful, or Correct in Its Time?
The Mercantilist School was valid, useful, or corrected by the rapid growth of commerce, (Brue and Grant 18). Spain, Holland, and Britain were able to rule the world at different times using these policies (Reynolds) This required money in circulation, and banking was insufficiently developed to produce it, (Brue and Grant 18). Bullion was used to hire and maintain soldiers, build ships, buy allies, and bribe enemies instead of wars being fought on a pay-as-you- go system, (Brue and Grant 18). Mercantilists knew precious metals made tax collection easier, meaning that prices would rise, if the quantity of money increased as trade expanded, (Brue and Grant 19). Interest rated and promoted business would decrease as the amount of gold and silver increased, (Brue and Grant 19).

5. Which Tenets of the School Became Lasting Contributions?
The primary lasting contribution of the Mercantilist was the emphasis of the importance of international trade (Brue and Grant 19). They expanded the internal market, promoting the free movement of goods unhampered by tolls, establishing uniform laws and taxes, and protecting people and goods in transit within and between countries (Brue and Grant 20). Indirectly they permanently influenced attitudes toward the merchant, promoted nationalism, privileged chartered trading companies, and helped transform the economic organization of Europe by bringing in new products, providing outlets for manufactured goods, and furnishing incentives for the growth of capital investment (Brue and Grant 19).
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Major contributors of the Mercantilism School include:
Thomas Mun (1571-1641), a successful businessman, a director of East India Trading Company (Brue and Grant 20). He believed that if the total exports were greater than the total imports, the drain of species from a country in any one-trade area did not matter. Mun wrote A Discourse of Trade from England into the East Indies (1621) and England’s Treasure by Forraign Trade (written about 1628, published 1664) (Reynolds). He proposed the answer to enriching the kingdom lied in the surplus of exports. He argued England wastelands should be cultivated (Brue and Grant 20). These exports were to be carried in English ships to gain insurance and freight charges. He believed trade “amongst ourselves will not enrich the commonwealth” (Reynolds).
Gerard Malynes (1586-1641), a merchant and master of the Mint (Reynolds). In his publication The Ancient Law-Merchant he expressed several mercantilist ideas including that trade was once too low for aristocracy (Brue and Grant 24). He expresses the idea that regulations of goods by government were necessary to ensure quality exports. His pamphlets include: “A Treatise on the Canker of England’s Commonwealth,” (1601), “The Maintenance of Free Trade,” (1622), “The Centre of the Circle of Commerce,” (1623), and “Lex Mercatoria,” (1622) (Reynolds). He favored exchange control and opposed “usury”. He believed more money would increase prices and stimulate business as well as the regulation of quality of goods was necessary (Reynolds).
Charles Davenant, a Parliament member, dealt with issues including taxes, imports and exports (Brue and Grant 24). Davenant was known for blending the old with the new. He was often called an “enlightened mercantilist” who foreshadowed more of the argument of laissez-faire than other influential mercantilist (Brue and Grant 24). He also was known as an Orthodox mercantilist. Davenant favored a trade surplus because he thought that when the quality of money increased, interest rates fall, land values rise, and taxes increase. He argued that a kingdom can reap the benefit of the entire value of an exported product if it is made from domestic raw materials (Brue Grant 25). He enlightened to say wealth of a country was what it produces, not its gold or silver.
Jen Baptiste Colbert (1619-1683), an architect of “Colbertism” in France (Reynolds). Colbert was a bullionist who believed that the strength of a state depends on its finances, collection of taxes, and tax revenues in turn are greatest if money is abundant (Brue, Grant 26). Colbert wanted to facilitate internal trade, uniform weights and measures, opposed tolls on internal trade, and mandatory labor on roads (Brue, Grant 27). He felt one nation could become richer only at the expense of another. He favored a large, hard-working, and poorly paid population. He also believed the state should enforce child labor (Brue and Grant 27).
Sir William Petty (1623-1687) favored free trade, and a large population (Reynolds). He suggested that people, otherwise unemployed, should be employed working on roads, making rivers navigable, planting trees, building bridges, mining and manufacturing (Brue and Grant 28). He felt a larger population would increase returns to government, which would in turn reduce unit costs of governing a larger population (Brue and Grant 28). Petty was one of the founders of the science of statistics. He recommended the sale of surplus gold abroad to prevent harm at home (Brue and Grant 29). His example works are: “Political Arithmetik,” (1676), and “Quantulumcunque Concerning Money,” (1682) (Reynolds).

Works Cited

Brue, Stanley L., and Grant, Randy R.,“The Mercantilist School.” The Evolution of Economic Thought. Mason, OH: Thomson/South-Western, 2007. Print.

Mathur, Vijay K., “A revival of mercantilist thought among conservatives.” Standard-Examiner 4 November 2011. Web. 6 Sep. 2012. http://www.standard.net/stories/2011/11/04/revival-mercantilist-thought-among-conservatives
Reynolds, Larry. “Mercantilism An Outline.” Boise State University, 2000. Web 7 Sep. 2012. http://web1.boisestate.edu/econ/lreynol/web/PDF_HET/MERCANTILIST.pdf