Mercantilism: Origin, Operation And Characteristics

We explain what commercialism is and what its main characteristics are. In addition, its origin, principles and the passage to liberalism.

What is mercantilism?

Mercantilism was a set of economic and political ideas that took place in Europe from the 16th century to the middle of the 18th century. Its main characteristic was the preponderant role of the State over the economy .

Mercantilist ideas held that the importance of a State was measured by its economic power , so the accumulation of national wealth was the main objective of this doctrine. The countries made reserves in gold and silver because both metals were considered the most precious of all riches and it was believed that the greater the amount of gold and silver, the greater the power for the country.

One of the main objectives of mercantilism was to protect local industry from foreign productions, so exports were encouraged and imports were discouraged in order to increase national wealth. For this, strategies such as customs duties, subsidies and other control mechanisms were used. In addition, the mercantilist doctrine encouraged the work of the land and the production of manufactures.

Origin and representatives of mercantilism

Mercantilism emerged in Europe in the 16th century after the end of the Middle Ages and with the beginning of the Modern Age . The end of the feudal system had given rise to the first structures or forms of capitalism , with the development of the bourgeoisie and absolutist monarchies that joined forces to achieve economic power against other nations.

The rise of mercantilism was related to the discovery of new lands, trade routes and new technologies that led to an increase in production. The conquest of some territories, such as the American continent , endowed European countries with precious metals that they obtained from the colonies.

Mercantilism did not develop as a theory nor did it have so many theoretical guidelines, but it had among its main representatives:

• Antonio Serra (1568 - early 17th century) . He was an Italian philosopher who introduced the term balance of payments and advocated the incentive to exports.
• Thomas Mun (1571-1641) . He was an English economist defender of mercantilist ideas regarding the increase in exports and the decline in imports.
• Edward Misselden (1608-1654) . He was an English economist and one of the developers of the concept of the balance of trade.
• Jean Baptiste Colbert (1619 - 1683) . He was minister to King Louis XIV of France and promoted an economic system based on protectionism and the development of local industries.

Characteristics of mercantilism

Some of the main characteristics of mercantilism were:

• Preponderant role of the State . The State played a leading role within the mercantilist doctrine because it was a sovereign and controlling entity. Its objective was to regulate the entire market and private property for economic organization.
• Wealth and national interest . The economic objective of every nation was to accumulate the greatest amount of wealth, and for that, countries used different strategies to become economically sound and politically powerful states.
• Obtaining precious metals . Mercantilism coincided with the discovery of new territories on continents such as America. The European countries used the precious metals obtained from the colonies to increase their power. Another way to gain power was to promote exports to obtain money from other nations through commercial exchange.
• Trade balance . Mercantilism sought to encourage exports and discourage imports in order to obtain, through commercial exchange, the greatest amount of wealth for the nation. To discourage imports, customs duties were imposed.
• Navigation and commerce . Mercantilism promoted navigation and commerce as bases for the strengthening of the national economy.
• Population growth . For mercantilism, population growth was essential since, in this way, more labor was generated to be able to sustain (with low wages) this economic model. Mercantilism spread through the employment of serf and slave labor and was the beginning of mass production.

Operation of mercantilism

To understand the ideas that guided the operation of mercantilism, one of its defenders, Philipp von Hornigk, wrote the nine principles that should guide the economy of a nation. These principles are:

• That every corner of the soil in a country is used for agricultural practices or other manufacturing activities.
• That all the raw materials found in a country are used to make manufactured products.
• That the population of a country is large and hard-working.
• That the gold and silver of a country remain in it and are not removed from there under any circumstances.
• That everything possible be done to avoid imports of foreign products.
• That the imports that are really necessary are obtained in exchange for other products and not for gold or silver.
• That these imports are raw materials and that the finished product is produced in the country.
• That all existing means be used to sell the surplus of finished products to other countries.
• That the imports of products that already exist in the country be prohibited.

Criticism of mercantilism and the move to liberalism

Towards the end of the 18th century, mercantilist ideas were not entirely solid and were not quite convincing . This was one of the reasons why mercantilism gradually fell in different countries and gave way to more solid and well-founded economic theories. Among his detractors was the Scottish economist and philosopher David Hume, who argued that it was impossible for a country's trade balance to be maintained positively for an unlimited time.

For his part, the Scottish philosopher Adam Smith laid the foundations for classical economics and in his work The Wealth of Nations of 1776 he criticized mercantilism and defended the idea of free trade without state intervention. For Smith, the dynamics of supply and demand would be those that regulate trade and the economy.

The weakening of mercantilist ideas gave way to the development of a liberal economy in which the State stopped intervening and being part of the economic process and gave way to the free market.

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