Merchantile Theory

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What Is Mercantilism, Define Mercantilism

Mercantilism is the name given to the economic literature and practice of the period between 1500 and 1750. Although mercantilist literature was produced in all the developing economies of Western Europe, the most significant contributions were made by the English and the French.

Whereas the economic literature of scholasticism was written by medieval churchmen, the economic theory of mercantilism was the work of merchant businessmen. The literature they produced focused on questions of economic policy and was usually related to a particular interest the merchant-writer was trying to promote. For this reason, there was often considerable skepticism regarding the analytical merits of particular arguments and the validity of their conclusions. Few authors could claim to be sufficiently detached from the issues to render objective analysis. However, throughout the mercantilistic period, both the quantity and the quality of economic literature grew. The mercantilistic literature from 1650 to 1750 was of distinctly higher quality; scattered throughout it are nearly all the analytical concepts on which Adam Smith based his Wealth of Nations, which was published in 1776. Every Person His Own Economist

The age of mercantilism has been characterized as one in which every person was his own economist. Since the various writers between 1500 and 1750 held diverse views, it is difficult to generalize about the resulting literature. Furthermore, each writer tended to concentrate on one topic, and no single writer was able to synthesize these contributions impressively enough to influence the subsequent development of economic theory. Perhaps this was because economics as an intellectual discipline had not yet found a home in the university; rather, it was largely studied by men of affairs who wrote pamphlets about the particular economic problems that concerned them.

Power and Wealth

Mercantilism can best be understood as an intellectual reaction to the problems of the times. In this period of the decline of the manor and the rise of the nation-state, the mercantilists tried to determine the best policies for promoting the power and wealth of the nation. Just as Machiavelli, the Italian statesman, political theorist, and author of The Prince (1513), had advised rulers about expedient political policies, the mercantilists advised them about the economic policies that would best consolidate and increase the power and prosperity of the developing economies.

The mercantilists proceeded on the assumption that the total wealth of the world was fixed. Using the same assumption, the scholastics had reasoned that when trade took place between individuals, the gain of one was necessarily the loss of another. The mercantilists applied this reasoning to trade between nations, concluding that any increase in the wealth and economic power of one nation occurred at the expense of other nations. Thus, the mercantilists emphasized international trade as a means of increasing the wealth and power of a nation and, in particular, focused on the balance of trade between nations. The goal of economic activity, according to most mercantilists, was production—not consumption, as classical economics would later have it. For the mercantilists, the wealth of the nation was not defined in terms of the sum of individual wealth. They advocated increasing the nation's wealth by simultaneously encouraging production, increasing exports, and holding down domestic consumption. Thus, the wealth of the nation rested on the poverty of the many. Although the mercantilists laid great stress on production, a plentiful supply of goods within a country was considered undesirable. High levels of production along with low domestic consumption would permit increased exports, which would increase the nation's wealth and power. The mercantilists advocated low wages in order to give the domestic economy competitive advantages...
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