A French seaport painted by Claude Lorrain around 1639, at the height of mercantilism

Mercantilism is a national economic policy that is designed to maximize the exports of a nation. Mercantilism was dominant in modernized parts of Europe from the 16th to the 18th centuries[1] before falling into decline, although some commentators argue[2] that it is still practiced in the economies of industrializing countries in the form of economic interventionism.[3]

It promotes government regulation of a nation's economy for the purpose of augmenting state power at the expense of rival national powers. Mercantilism includes a national economic policy aimed at accumulating monetary reserves through a positive balance of trade, especially of finished goods. Historically, such policies frequently led to war and also motivated colonial expansion.[4]

Mercantilist theory varies in sophistication from one writer to another and has evolved over time. High tariffs, especially on manufactured goods, were an almost universal feature of mercantilist policy. Although mercantilism and protectionism are applied through the same economic measures, mercantilism is an offensive policy aimed at accumulating the largest trade surplus, while protectionism is a defensive policy aimed at reducing the trade deficit and restoring a trade balance in equilibrium to protect the economy.[5][6] However, they both aim to reduce a possible current account deficit or reach a current account surplus.

With the efforts of supranational organizations such as the World Trade Organization to reduce tariffs globally, non-tariff barriers to trade have assumed a greater importance in neomercantilism.

Merchants in Venice


Mercantilism was the dominant school of economic thought in Europe throughout the late Renaissance and early modern period (from the 15th to the 18th century). Mercantilism encouraged the many intra-European wars of the period and was arguably responsible for European expansion and imperialism—both in Europe and throughout the rest of the world—until the 19th century or early 20th century.[citation needed]

Evidence of mercantilistic practices appeared in early modern Venice, Genoa, and Pisa regarding control of the Mediterranean trade of bullion. However, as a codified school of economic theories, mercantilism's real birth was marked by the empiricism of the Renaissance, which first began to quantify large-scale trade accurately.[6]

Mercantilism in its simplest form is bullionism, yet mercantilist writers have emphasized the circulation of money and reject hoarding. Their emphasis on monetary metals accords with current ideas regarding the money supply, such as the stimulative effect of a growing money supply. Fiat money and floating exchange rates have since rendered specie concerns irrelevant. In time, the heavy emphasis on money was supplanted by industrial policy, accompanied by a shift in focus from the capacity to carry on wars to promoting general prosperity. Mature neomercantilist theory recommends selective high tariffs for "infant" industries or the promotion of the mutual growth of countries through national industrial specialization.[citation needed]

England began the first large-scale and integrative approach to mercantilism during the Elizabethan Era (1558–1603). An early statement on national balance of trade appeared in Discourse of the Common Weal of this Realm of England, 1549: "We must always take heed that we buy no more from strangers than we sell them, for so should we impoverish ourselves and enrich them."[7] The period featured various but often disjointed efforts by the court of Queen Elizabeth to develop a naval and merchant fleet capable of challenging the Spanish stranglehold on trade and of expanding the growth of bullion at home. Queen Elizabeth promoted the Trade and Navigation Acts in Parliament and issued orders to her navy for the protection and promotion of English shipping. A systematic and coherent explanation of balance of trade was made public through Thomas Mun's argument England's Treasure by Forraign Trade, or the Balance of our Forraign Trade is The Rule of Our Treasure. It was written in the 1620s and published in 1664.[8]

These efforts organized national resources sufficiently in the defense of England against the far larger and more powerful Spanish Empire, and in turn paved the foundation for establishing a global empire in the 19th century.[citation needed] The authors noted most for establishing the English mercantilist system include Gerard de Malynes and Thomas Mun, who first articulated the Elizabethan system, which in turn was then developed further by Josiah Child. Numerous French authors helped cement French policy around mercantilism in the 17th century. This French mercantilism was best articulated by Jean-Baptiste Colbert (in office, 1665–1683), though policy liberalized greatly under Napoleon.

Many nations applied the theory, notably France, which was the most important state economically in Europe at the time. King Louis XIV followed the guidance of Jean Baptiste Colbert, his controller general of finances (1665–1683). It was determined[by whom?] that the state should rule in the economic realm as it did in the diplomatic, and that the interests of the state as identified by the king were superior to those of merchants and of everyone else. The goal of mercantilist economic policies was to build up the state, especially in an age of incessant warfare, and the state should look for ways to strengthen the economy and to weaken foreign adversaries.[9]

In Europe, academic belief in mercantilism began to fade in the late 18th century, especially in Britain, in light of the arguments of Adam Smith and the classical economists.[10] The repeal of the Corn Laws by Robert Peel symbolized the emergence of free trade as an alternative system.

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