CHANAKYA NATIONAL LAW UNIVERSITY, PATNA

This final draft is submitted in the partial fulfilment in

World History for the completion of B.A. LL.B course.

TOPIC: MERCANTILISM

SUBMITTED TO: -

Dr. PRIYA DARSHINI

FACULTY OF WORLD HISTORY

SUBMITTED BY:

AKSHITA THAPA
ROLL NO. 2106
B.A LLB, 3RD SEMESTER

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 DECLARATION

I hereby declare that the work reported in the B.A.LL.B (Hons.) Project Report entitled
“Mercantilism” submitted at Chanakya National Law University, Patna is an authentic
record of my work carried out under the supervision of DR. PRIYA DARSHINI. I have not
submitted this work elsewhere for any other degree or diploma. I am fully responsible for the
contents of my Project Report.

(Signature of Candidate)
Akshita Thapa
Roll no. 2106
B.A. LL.B.
Chanakya National Law University

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 ACKNOWLEDGEMENT

A project is a joint endeavor which is to be accomplished with utmost compassion,

diligence and with support of all. Gratitude is a noble response of one’s soul to kindness
or help generously rendered by another and its acknowledgement is the duty and joyance.
I am overwhelmed in all humbleness and gratefulness to acknowledge from the bottom of
my heart to all those who have helped me to put these ideas, well above the level of
simplicity and into something concrete effectively and moreover on time.

This project would not have been completed without combined effort of my revered World
History teacher Dr. Priya darshini, whose support and guidance was the driving force to
successfully complete this project. I express my heartfelt gratitude to her. Thanks are also
due to my parents, family, siblings, my dear friends and all those who helped me in this
project in any way. Last but not the least; I would like to express my sincere gratitude to
our teacher of World History for providing us with such a golden opportunity to showcase
our talents. Also this project was instrumental in making me understand more about the
innovation and economic growth and the factors affecting it.

Moreover, thanks to all those who helped me in any way be it words, presence,
encouragement or blessings.

- Akshita Thapa

- 3rd Semester

- B.A LL.B(Hons.)

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 Contents

DECLARATION .............................................................................................................................. 2
ACKNOWLEDGEMENT ................................................................................................................. 2
INTRODUCTION............................................................................................................................. 4
RISE OF MERCANTILISM ............................................................................................................. 6
MERCANTILIST THEORY ............................................................................................................. 8
THE IMPACT OF MERCANTILISM ............................................................................................. 10
CRITICISM OF MERCANTILISM ................................................................................................ 12
DECLINE OF MERCANTILISM ................................................................................................... 15
CONCLUSION ............................................................................................................................... 17
BIBLIOGRAPHY ........................................................................................................................... 18

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 INTRODUCTION

Mercantilism was an economic system of trade that spanned from the 16th century to the 18th
century. Mercantilism is based on the principle that the world's wealth was static, and
consequently, many European nations attempted to accumulate the largest possible share of
that wealth by maximizing their exports and by limiting their imports via tariffs. First
popularized in Europe during the 1500s, mercantilism was based on the idea that a nation's
wealth and power were best served by increasing exports, in an effort to collect precious
metals like gold and silver.
The dominant system of economic thought that prevailed in Europe from 16th to 18th Century
was Mercantilism. It was known by different names in different countries. In England it was
called as commercial system or mercantile system because it emphasised the importance of
commerce and free trade. It was also known as “Restrictive system” because its practical
policies consisted of numerous restrictions and regulations on commerce. 1

In France it was known as “Colbertism” after the name of Colbert, the Finance Minister of
Louie the XIV. In Germany and Austria it was called “Cameralism”. It was also known as
“Bullionism” because of the importance given to gold and silver. 2

It can be said that mercantilism denotes economic nationalism for the purpose of building a
wealthy and powerful state. ADAM SMITH coined the term “mercantile system” to describe
the system of political economy that sought to enrich the country by restraining imports and
encouraging exports. This system dominated Western European economic thought and
policies from the sixteenth to the late eighteenth centuries. The goal of these policies was,
supposedly, to achieve a “favourable” balance of trade that would bring gold and silver into
the country and also to maintain domestic employment. In contrast to the agricultural system
of the physiocrats or the laissez-faire of the nineteenth and early twentieth centuries, the
mercantile system served the interests of merchants and producers such as the British East
India Company, whose activities were protected or encouraged by the state.

Mercantilism is an economic policy that is designed to maximize the exports and minimize the
imports for an economy. It promotes imperialism, tariffs and subsidies on traded goods to

1
The Library of Economics and Liberty. "Mercantilism." Accessed Oct 30, 2020
2
"Mercantilism", The Oxford Encyclopedia of Economic History, Oxford University Press

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achieve that goal. The policy aims to reduce a possible current account deficit or reach a current
account surplus, and it includes measures aimed at accumulating monetary reserves by a
positive balance of trade, especially of finished goods. Historically, such policies frequently
led to war and motivated colonial expansion. Mercantilist theory varies in sophistication from
one writer to another and has evolved over time.

Mercantilism was dominant in modernized parts of Europe, and some areas in Africa from the
16th to the 18th centuries, a period of proto-industrialization, before it fell into decline, but
some commentators argue that it is still practiced in the economies of industrializing
countries, in the form of economic interventionism. It promotes government regulation of a
nation's economy for the purpose of augmenting state power at the expense of rival national
powers. High tariffs, especially on manufactured goods, were almost universally a feature of
mercantilist policy.

The most important economic rationale for mercantilism in the sixteenth century was the
consolidation of the regional power centres of the feudal era by large, competitive nation-states.
Other contributing factors were the establishment of colonies outside Europe; the growth of
European commerce and industry relative to agriculture; the increase in the volume and breadth
of trade; and the increase in the use of metallic monetary systems, particularly gold and silver,
relative to barter transactions.

During the mercantilist period, military conflict between nation-states was both more frequent
and more extensive than at any other time in history. The armies and navies of the main
protagonists were no longer temporary forces raised to address a specific threat or objective,
but were full-time professional forces. Each government’s primary economic objective was to
command a sufficient quantity of hard currency to support a military that would deter attacks
by other countries and aid its own territorial expansion.

Shipping was particularly important during the mercantile period.3 With the growth of colonies
and the shipment of gold from the New World into Spain and Portugal, control of the oceans
was considered vital to national power. Because ships could be used for merchant or military
purposes, the governments of the era developed strong merchant marines. During the
mercantilist era it was often suggested, if not actually believed, that the principal benefit of
foreign trade was the importation of gold and silver. According to this view the benefits to one

3
https://corporatefinanceinstitute.com/resources/knowledge/economics/mercantilism/

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nation were matched by costs to the other nations that exported gold and silver, and there were
no net gains from trade.

RISE OF MERCANTILISM

First popularized in Europe during the 1500s, mercantilism was based on the idea that a nation's
wealth and power were best served by increasing exports, in an effort to collect precious metals
like gold and silver.

Mercantilism replaced the feudal economic system in Western Europe. At the time, England
was the epicenter of the British Empire but had relatively few natural resources. To grow its
wealth, England introduced fiscal policies that discouraged colonists from buying foreign
products, while creating incentives to only buy British goods. For example, the Sugar Act of
1764 raised duties on foreign refined sugar and molasses imported by the colonies, in an effort
to give British sugar growers in the West Indies a monopoly on the colonial market.

Similarly, the Navigation Act of 1651 forbade foreign vessels from trading along the British
coast and required colonial exports to first pass through British control before being
redistributed throughout Europe. Programs like these resulted in a favorable balance of
trade that increased Great Britain's national wealth.4

Under mercantilism, nations frequently engaged their military might to ensure local markets
and supply sources were protected, to support the idea that a nation's economic health heavily
relied on its supply of capital. Mercantilists also believed that a nation's economic health could
be assessed by its levels of ownership of precious metals, like gold or silver, which tended to
rise with increased new home construction, increased agricultural output, and a strong
merchant fleet to provide additional markets with goods and raw materials.

Mercantilism first emerged in the latter part of the Renaissance in about 1595 and didn’t fade
away until the late 1800s. Queen Elizabeth I, desperate to quell the powerful Spanish Empire,
ordered her Admiralty to reform foreign trade. Her reforms proved highly effective as England
would go on to become the most powerful imperial empire in world history. England exploited
the mercantilist economic system of importing precious metals and raw materials in exchange

4
https://www.investopedia.com/terms/m/mercantilism.asp

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for manufactured goods. The French would later mimic England’s economic system.
Mercantilist countries used the rule of law to attain a positive balance of trade through their
colonies. Stiff tariffs were imposed on imports and colonies were restrained in their ability to
manufacture goods. Instead they were forced to purchase products from their mother countries.
For example, gold and silver were extracted from the colonies and shipped to European
merchants, greatly enriching Europe. “The power of the state depended on the amount of gold
and silver in its coffers, because this international currency made it possible to build ships and
pay for armies.” (A Concise History of Economic Thought,Vaggi & Groenwerth, 2003).
Beginning in the 16th century, control over land, and trade routes became the most important
part of collecting wealth for the most powerful countries.

The growth of the mercantile system of Europe was largely spurred by the general discontent
people had with the Roman Catholic Church. Mercantilism was, to a large extent, spawned by
the Reformation.5 The lifestyle regulations imposed on Catholics allowed for very little self-
actualization; a source of great embitterment for the masses who were fed up with the feudal
system. Mercantilism brought upon the rise of the merchant class, a transfer of wealth that
brought with it a sense of hope for much of Europe. The spread of alternatives to hard-line
Catholicism like the Anglican Church coincided with the growth of mercantilism.

Mercantilism grew due to several reasons. At first, the Renaissance did not accept the religious
doctrine of Medieval Europe. It explained ‘Materialism’ as one of the mediums of human
happiness. So, everybody dreamt to lead a happy and prosperous life. This gave birth to
Mercantilism.

Secondly, the Fall of Feudalism was another cause for the rise of Mercantilism. With the fall
of feudalism, the fate of agriculture was doomed. This encouraged the small-scale industries.
The towns and guilds wanted the increase of these industries. They wanted to export the surplus
of these productions. This led to the rise of Mercantilism.

Thirdly, the Reformation Movement encouraged the merchants. The results of the Reformation
Movement carried on by Martin Luther in Germany and Henry VIII in England were far
reaching. They condemned the unnecessary intervention of Pope in Political and Economic
affairs except religion.

5
https://www.econlib.org/library/Enc/Mercantilism.html

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Martin Luther opposed the Pope so much so that he was issued ‘Bull of excommunication’ by
the Pope. However, Luther did not bend before it. In a similar vein Henry VIII of England did
not obey Pope and brought reformation in the Church of England. All these activities
encouraged the merchants to take up their business independently. This encouraged
Mercantilism.

Fourthly, the Guilds and Banking System gave great impetus for the growth of Mercantilism.
The guilds acted as distribution centres and exported the surplus to outside countries. This
encouraged the international trade which was well-regulated by the banking system. Thus,
Mercantilism grew out and out.

MERCANTILIST THEORY

Most of the European economists who wrote between 1500 and 1750 are today generally
considered mercantilists; this term was initially used solely by critics, such as Mirabeau and
Smith, but historians proved quick to adopt it. Originally the standard English term was
"mercantile system". The word "mercantilism" came into English from German in the early-
19th century. 6

The bulk of what is commonly called "mercantilist literature" appeared in the 1620s in Great
Britain.[17] Smith saw the English merchant Thomas Mun (1571–1641) as a major creator of
the mercantile system, especially in his posthumously published Treasure by Foreign
Trade (1664), which Smith considered the archetype or manifesto of the movement. Perhaps
the last major mercantilist work was James Steuart's Principles of Political Economy, published
in 1767.

Mercantilist literature also extended beyond England. Italy and France produced noted writers
of mercantilist themes, including Italy's Giovanni Botero (1544–1617) and Antonio
Serra (1580) and, in France, Jean Bodin and Colbert. Themes also existed in writers from the
German historical school from List, as well as followers of the American system and British
free-trade imperialism, thus stretching the system into the 19th century. However, many British
writers, including Mun and Misselden, were merchants, while many of the writers from other

6
Magnusson, Lars. Mercantilism: The Shaping of an Economic Language. London: Routledge, 1994.

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countries were public officials. Beyond mercantilism as a way of understanding the wealth and
power of nations, Mun and Misselden are noted for their viewpoints on a wide range of
economic matters.

The Austrian lawyer and scholar Philipp Wilhelm von Hornick, one of the pioneers
of Cameralism, detailed a nine-point program of what he deemed effective national economy
in his Austria Over All, If She Only Will of 1684, which comprehensively sums up the tenets
of mercantilism. 7

 That every little bit of a country's soil be utilized for agriculture, mining or manufacturing.
 That all raw materials found in a country be used in domestic manufacture, since finished
goods have a higher value than raw materials.
 That a large, working population be encouraged.
 That all exports of gold and silver be prohibited and all domestic money be kept in
circulation.
 That all imports of foreign goods be discouraged as much as possible.
 That where certain imports are indispensable they be obtained at first hand, in exchange
for other domestic goods instead of gold and silver.
 That as much as possible, imports be confined to raw materials that can be finished [in the
home country].
 That opportunities be constantly sought for selling a country's surplus manufactures to
foreigners, so far as necessary, for gold and silver.
 That no importation be allowed if such goods are sufficiently and suitably supplied at
home.

Other than Von Hornick, there were no mercantilist writers presenting an overarching scheme
for the ideal economy, as Adam Smith would later do for classical economics. Rather, each
mercantilist writer tended to focus on a single area of the economy. Only later did non-
mercantilist scholars integrate these "diverse" ideas into what they called mercantilism. Some
scholars thus reject the idea of mercantilism completely, arguing that it gives "a false unity to
disparate events". Smith saw the mercantile system as an enormous conspiracy by
manufacturers and merchants against consumers, a view that has led some authors, especially
Robert E. Ekelund and Robert D. Tollison, to call mercantilism "a rent-seeking society". To a

7
Viner, Jacob. Studies in the Theory of International Trade. New York: Harper and Brothers, 1937

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certain extent, mercantilist doctrine itself made a general theory of economics
impossible. Mercantilists viewed the economic system as a zero-sum game, in which any gain
by one party required a loss by another. Thus, any system of policies that benefited one group
would by definition harm the other, and there was no possibility of economics being used to
maximize the commonwealth, or common good. Mercantilists' writings were also generally
created to rationalize particular practices rather than as investigations into the best policies.[25]

Mercantilist domestic policy was more fragmented than its trade policy. While Adam Smith
portrayed mercantilism as supportive of strict controls over the economy, many mercantilists
disagreed. The early modern era was one of letters patent and government-
imposed monopolies; some mercantilists supported these, but others acknowledged the
corruption and inefficiency of such systems. Many mercantilists also realized that the inevitable
results of quotas and price ceilings were black markets. One notion that mercantilists widely
agreed upon was the need for economic oppression of the working population; labourers and
farmers were to live at the "margins of subsistence". The goal was to maximize production,
with no concern for consumption. Extra money, free time, and education for the lower
classes were seen to inevitably lead to vice and laziness, and would result in harm to the
economy.

The mercantilists saw a large population as a form of wealth that made possible the
development of bigger markets and armies. Opposite to mercantilism was the doctrine
of physiocracy, which predicted that mankind would outgrow its resources. The idea of
mercantilism was to protect the markets as well as maintain agriculture and those who were
dependent upon it.

THE IMPACT OF MERCANTILISM

The dominant economic philosophy of the period in Europe was mercantilism. This theory
proclaimed that it was the duty of the government to strictly regulate a state’s economy.
Mercantilists believed that it was crucial for a state to import more than it exported, since the
world’s wealth was limited. The possession of colonies (so a nation wouldn’t have to rely on
other nations for raw materials), tariffs, and monopolies were other mercantilist tactics of the
era. The American colonies were more than adequate from a mercantilist point of view, as they

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could provide crops such as tobacco and rice from the southern colonies and raw materials such
as lumber from the colonies of the north.

Charles II came to the throne in England in 1660 and desired to increase British trade at the
expense of its main trading rival, the Dutch. Charles influenced the British Parliament to pass
the Navigation Acts of 1660 and 1663. These bills had great influence on colonial trade. These
stated that certain products from the colonies, such as sugar, tobacco, and indigo, could only
be shipped to England; in an effort to help British merchants, the acts required that all goods
going from anywhere in Europe to the American colonics must pass through England first.

Resistance to the Navigation Acts came from both the Dutch and the American colonies. Three
commercial wars between the Dutch and the British took place in the late 1600s (with one
result being the ending of the Dutch monopoly over the West African slave trade). In New
England, many wanted to be able to continue to trade with the Dutch, who offered them better
prices for their goods. Edmund Randolph, the chief British customs official in Massachusetts
Bay, noted that colonial officials welcomed non-British traders, and he called upon the British
government to “reduce Massachusetts to obedience.” 8 In 1684 a British court ruled
that Massachusetts Bay colony had intentionally violated the Navigation Acts (as well as
restricting the Church of England). The charter of the colony was thus declared invalid, and
the colony was placed under direct British control. The Dominion of New England was created,
which revoked the charters of all the colonies from New Jersey to Maine and placed immense
powers in the hands of Sir Edmund Andros, the governor.

Similar feelings of resentment against the Navigation Acts developed in Virginia. The price of
tobacco dropped sharply after 1663, with many landowners blaming Royal Governor Sir
William Berkeley, who was thought to be profiting greatly from his position in Virginia. Some
land- owners joined in opposition to Berkeley under Nathaniel Bacon. In a dispute over policy
toward Native Americans (specifically, how the government could protect farmers against
Native American attacks) and how the colony would be governed, Bacon and his followers
took control of the colony and burned the city of Jamestown. Some historians view this revolt
as a rebellion of poor western farmers against the “eastern elite.” The rebellion ended in
October 1676 when Bacon and several of his followers died from dysentery. The results of
Bacon’s Rebellion were a limitation of the power of the royal governor by the Virginia gentry

8
https://www.thebalance.com/mercantilism-definition-examples-significance-today-4163347

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and an increase in the slave trade (some of Bacon’s supporters were former indentured servants;
the leaders of Virginia believed that African slaves would be much more docile.)

 Mercantilism led to the creation of monopolistic trading companies, such as the East
India Company and the French East India Company.
 Restrictions on where finished goods could be purchased led in many cases to
burdensome high prices for those goods.
 Commercial rivalry tended to result in military rivalry as well, notably during
the Anglo-Dutch Wars.
 Colonists seeking to get around the trade restrictions mandated by mercantilism
resorted to widespread smuggling.
 The constraints of mercantilism were a cause of friction between Britain and its
American colonies and were arguably among the elements that led to the American
Revolution.

CRITICISM OF MERCANTILISM

Mercantilist theories and practices have been criticised by many writers. The opposition
actually started towards the end of the 17th century. The storm of criticism against mercantilism
was particularly strong in France. The criticism against mercantilism reached its climax
towards the end of the 18th century when Adam Smith published his book “The Wealth of
Nations”, one fourth of which was devoted to this.

Adam Smith refuted the idea that the wealth of a nation is measured by the size of the treasury
in his famous treatise The Wealth of Nations, a book considered to be the foundation of modern
economic theory. Smith made a number of important criticisms of mercantilist doctrine. First,
he demonstrated that trade, when freely initiated, benefits both parties. Second, he argued that
specialization in production allows for economies of scale, which improves EFFICIENCY and
growth. Finally, Smith argued that the collusive relationship between government and industry
was harmful to the general POPULATION. 9 While the mercantilist policies were designed to

9
Digital History "Chapter 4 British Mercantilism and the Cost of Empire," Page 14. Accessed Oct 30, 2020.

12
benefit the government and the commercial class, the doctrines of laissez-faire, or free markets,
which originated with Smith, interpreted economic welfare in a far wider sense of
encompassing the entire population.

Broadly speaking, the following criticisms have been leveled against mercantilists and their
policies:

(1) They gave too much importance to gold and silver and neglected the importance of other
commodities.

(2) They exaggerated the importance of commerce and undermined the usefulness of
agriculture and other branches of human history.

(3) They were wrong in believing that a favourable balance of trade was the only source of
prosperity.

(4) Their belief that the gain of one nation was necessarily the loss of another was wrong.

(5) Their ideas regarding ‘utility’ and ‘value’ were vague and abstract.

(6) Their ideas about capital and interest were imperfect.

(7) They lacked broad-mindedness.

But at the same time, we should not completely criticize the mercantilist doctrines and
theories. While studying their ideas, one should not overlook the circumstances and problems
of their times. Mercantilism was essentially a product of its age. It is no doubt true that they
erred at places. But as Haney has remarked “they are far from a mass of absurdities”. Thus
the mercantilist system had its own weaknesses.

As an economic policy it lacked universal application. As a body of doctrines, it could not

provide right guidance to statesmen of the time. They confused the means and the ends by
overemphasizing the importance of bullion. Further, in their zeal to increase the total
productivity of the nation, they regarded wealth and labour as the ultimate goal of human
existence.

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Mercantilists were not only practical administrators and traders, they also put forward such
ideas which led to the development of various economic theories in modern times. Dr. Smith
has rightly pointed out, “It is the mercantilists and not Smith, who are the spiritual
predecessors of modern economics”. Mercantilism implied a general view of society which is
often overlooked. They developed a sort of macro-economic approach to the problems of the
society.

The mercantilists emphasised the need for maximising exports not only with the idea of
accumulating gold and silver, but with the hope that a prosperous export sector would
provide more employment. Even the emphasis of the mercantilists on more money can be
justified on economic grounds. They were aware of the dynamic functions of money.

An increase in the supply of money would result in lowering the rate of interest which would
serve as an inducement to invest. Knut Wicksell developed his theory of interest with the
mercantilist ideas as the basis. Keynes also admired some of the mercantilist ideas. The
mercantilists were aware of the fact that money is not merely a medium of exchange but a
store of value.

Keynes noted that the mercantilists were concerned with the economic system as a whole and
they were interested in securing optimum employment of the resources. Keynes approved
two mercantilist ideas – more money for business expansion and more money for lowering
the rate of interest.

Mercantilism paved the way for many western nations for their transformation from
‘commercial capitalism’ to ‘industrial capitalism’. The mercantilists ideas are powerful even
today. In the words of Eric Roll, “Down to the present day they all reappear from time to time
in various guises as symptoms and weapons of economic conflict.

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 DECLINE OF MERCANTILISM

Mercantilism declined due to many reasons. Under the influence of the teachings of Smith,
policy of plenty began to replace the policy of power. The development of banking reduced
the importance of bullion and coins. Further, the expansion of market economy showed that
real estates, factories and machinery were more important items of wealth than gold and
silver.

The economic growth that took place during the Industrial Revolution made the society to
rely on competition. It was realised that the wealth of all nations could be increased
simultaneously by efficient utilisation of natural resources and through the progress made in
science and technology.

Mercantilism began to fade in the 18th century, ending not with a bang, but with a whimper.
Adam Smith, a Scottish Oxford graduate, was a revolutionary economist in the mid to late
1700s who was responsible for coining the term mercantilism. One of Smith’s major points of
contention with mercantilism, as was outlined in The Theory of Moral Sentiments, was his
distaste for heavy-handed governmental control of the economy. Smith, who despised
mercantilism invented the metaphor, “invisible hand” which stood for a natural, self-regulation
that functioned because of the essential tenets of a free-market economy: self-interest,
competition, economic characteristics he believed were possible without governmental
intervention. In 1776, Smith wrote in Wealth of Nations: “It is not from the benevolence of the
butcher, the brewer or the baker, that we expect our dinner, but from their regard to their own
self interest. We address ourselves, not to their humanity but to their self-love, and never talk
to them of our own necessities but of their advantages.”

Democracy and free trade destroyed mercantilism in the late 1700s. American and French
revolutions formalized large nations ruled by democracy. They endorsed capitalism.

Adam Smith ended mercantilism with his 1776 publication of "The Wealth of Nations." He
argued that foreign trade strengthens the economies of both countries. Each country specializes
in what it produces best, giving it a comparative advantage. He also explained that a
government that put business ahead of its people would not last. Smith's laissez-faire
capitalism coincided with the rise of democracy in the United States and Europe. His writings

15
were the basis of “laissez-faire” capitalism, in which industry is free from the shackles of
government. Smith believed in the natural order of the economy, whereby, rather than have the
government fix prices and regulate trade, the economy should be a self-sufficient machine that
dictates the price of commodities. “When the price of any commodity is neither more nor less
than what is sufficient to pay the rent of the land, the wages of the labour, and the profits of the
stock employed in raising, preparing, and bringing it to market, according to their natural rate,
the commodity is then sold for what may be called its natural price.” (Adam Smith, Wealth of
Nations, 1776) The brilliance of Smith was not in his ability to produce revolutionary economic
theories of his own; his greatness was embodied in his ability to assemble existing concepts
into a system.

In 1791, mercantilism was breaking down, but free trade hadn't yet developed. Most countries
still regulated free trade to enhance domestic growth. U.S. Treasury Secretary Alexander
Hamilton was a proponent of mercantilism. He advocated government subsidies to protect
infant industries necessary to the national interest. The industries needed government support
until they were strong enough to defend themselves. Hamilton also proposed tariffs to reduce
competition in those areas.

Fascism and totalitarianism adopted mercantilism in the 1930s and 1940s.1 0 After the stock
market crash of 1929, countries used protectionism to save jobs. They reacted to the Great
Depression with tariffs. The 1930 Smoot-Hawley Act raised tariff rates up to 60% on 900
imports. When other countries retaliated, global trade fell 65 percent, prolonging
the depression.

The fundamental problem with mercantilism is its refusal to account for the value of all
economic activity. Maintaining a positive balance of trade is not the only indicator of
economic health. To the contrary, as has been proven in the United States meteoric growth
despite a negative balance of trade since the 1970s, a positive balance of trade means very
little, and often leads to inflation. Mercantilism, though largely debased today, played an
essential role in the rise of the middle class.

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 CONCLUSION

Mercantilism paved the way for many western nations for their transformation from
‘commercial capitalism’ to ‘industrial capitalism’. The mercantilists ideas are powerful even
today. In the words of Eric Roll, “Down to the present day they all reappear from time to time
in various guises as symptoms and weapons of economic conflict”. Mercantilism laid the
foundation for today's nationalism and protectionism. Nations felt they lost power as a result
of globalism and the interdependence of free trade.

The Great Recession aggravated a tendency toward mercantilism in capitalist countries. For
example, in 2014, India elected Hindu nationalist Narendra Modi. In 2016, the United States
chose populist Donald Trump for the presidency. Trump's policies follow a form of neo-
mercantilism.

Trump advocates expansionary fiscal policies, such as tax cuts, to help businesses. He argues
for bilateral trade agreements that are between the two countries. If he could, he'd
enforce unilateral agreements. They allow a stronger nation to force a weaker nation to adopt
trade policies that favor it. Trump agrees that multilateral agreements benefit corporations at
the expense of individual countries. These are all signs of economic nationalism and
mercantilism. Mercantilism opposes immigration because it takes jobs away from domestic
workers. Trump's immigration policies followed mercantilism. For example, he promised to
build a wall on the border with Mexico.

In 2018, mercantilist policies in the United States and China launched a trade war. Both sides
threatened to increase tariffs on each other's imports. Trump called for China to open its
domestic market to U.S. companies. In return, China requires them to transfer their technology
to Chinese companies. Trump also wants an end to some Chinese subsidies. China is
assisting 10 industries prioritized in its "Made in China 2025" plan. These include robotics,
aerospace, and software. China also plans to be the world's primary artificial intelligence centre
by 2030.

China is doing this as part of its economic reform. It wants to shift from a total command
economy that relied on exports. It realizes it needs a domestic-driven mixed economy. But it
has no plans to abandon its adoption of mercantilism.

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 BIBLIOGRAPHY

BOOKS:-

1. ‘A Short History of Mercantilism’ by J.W. Horrocks

2. ‘Mercantilism: The Shaping of an Economic Language’ by Lars Magnusson

3. ‘Mercantilism’ by Eli Filip Heckscher

WEB SOUCES:-

 https://www.thebalance.com/mercantilism-definition-examples-significance-today-
4163347

 https://corporatefinanceinstitute.com/resources/knowledge/economics/mercantilism/

 https://corporatefinanceinstitute.com/resources/knowledge/economics/mercantilism/

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