Michael Marshall

May 1999
From Mercantilism to The Wealth of Nations

By Michael Marshall
The Age of Discovery gave rise to an era of international trade and to arguments over economic strategies that still influence the policies of commerce.

Michael Marshall is executive editor of The World & I.
We live in an era when continual economic growth is almost considered a birthright, at least in the developed world. It has become the benchmark of the health of a society, guaranteeing an ever-expanding prosperity. The current president of the United States even finds that his extensive misbehavior is overlooked by a majority of Americans because he happens to be presiding over an extended period of economic growth and optimism.
If annual growth drops below
That situation would not change until after the Industrial Revolution, when clothing from the Lancashire cotton industry in the north of England found a market in Asia. Even then problems remained. The economic reason for the shameful opium trade in the early and mid-nineteenth century, when opium grown in India was exported illegally to China, was to earn exchange to pay for tea without having to export silver.

Silver was not without problems. So much of it flowed into Europe in the sixteenth century that it caused serious price inflation. The Spanish economy, in particular, was considerably disrupted, a significant factor in Spain's gradual decline. During the seventeenth century, from a peak around 1600, the supply of silver began to decrease. The demand for goods from Asia, however, did not. The result was a net outflow of silver bullion from Europe, a shrinkage of the money supply, and as a result, economic recession.

No economic theory existed at the time, and no contemporary thought argued that governments should not regulate such matters affecting national wealth in the national interest. So they did. The ad hoc system of tariffs and other measures influencing trade and manufactures that came to be known as mercantilism began to
They also developed financial instruments to ease the flow of trade and extend the use of credit. Most notably, they established the Bank of Amsterdam, a public bank that offered a source of capital very different from the government funding of chartered companies that had marked the enterprise of discovery and trade in the sixteenth century.

Colbert built up a merchant marine to rival that of the Dutch and ensure that French trade was carried in French ships. Under his direction the merchant fleet grew from a mere 60 ships of 300 tons or more to over 700 ships of that size. He provided for the protection of French maritime commerce by building up the French navy from 20 ships to 250 by the time of his death in 1683.

He always viewed commerce as an instrument of national policy, and merchants had little say in his decisions. This was unlike the situation in England, where various merchant groups formed influential lobbies on the Crown's commercial policies. The prizes of commerce remained for him a zero-sum game: France's gain must be someone else's loss. He created a successful glass industry in Paris by inviting Venetian glassblowers to teach their skills. He later boasted that the successful royal mirror factory that resulted was depriving Venice of one million livres a year.

Commerce and