MERCANTILE THEORY- ITS EVOLUTION AND THE HISTORIOGRAPHY OF MERCANTILISM

DOYLE

Mercantilism, empire and their enemies

1. Mercantilism- term came after the policy- used to describe eco policy in the
seventeenth and eighteenth century- used to describe the way in which nation
states sought to build their economies- positive steps taken by state to improve
prosperity- material matters too grave to be left to natural law- governments
intervened to maximize state wealth- wealth was treasure, gold i.e bullion-
initially their store was to be augmented by preventing outflow and ensuring
inflow- to sell more than is consumed- to have favorable balance of trade-
manufactures encouraged for this purpose- foreign imports were discouraged as
was foreign carriage of goods- thus one states gain was another state's loss- war
was simply an alternative economic policy- the ideal mercantilist state would be
self sufficient- thus they aimed to establish foothold in a variety of fields, while
confining the benefits of each to their own nationals- colonies were meant to
fulfill this self sufficiency in the mother country- the benefits the colonies
received from this contact such as the protection of trade and guaranteed
European markets, were purely incidental.

2. According to Doyle, the commercial measures of the English and the French state
stimulated the rise in productivity. British industry received enormous stimulus
from the exclusive markets in Ireland and the thirteen colonies. When the time
came for takeoff mercantilist restrictions might well have prevented the launch;
however they were, according to Doyle, instrumental in taking England up to this
point.

EGERTON

1. The motives that encouraged Europeans to colonize were according to Egerton

Wealth and Missionary zeal. The second died quickly, wealth became the focus
2. The most abundant and visible source of wealth was found in Spanish American
possessions- bullion. However the Spanish were unable to use the bullion profitably,
and though Spanish policy tried to control external interference and tried to stifle
 the flow of bullion out of the country their efforts were unsuccessful. As Thomas
Mun notes, “gold and silver are so scarce in England that they are forced to use base
copper money.” And then later emphasizes the necessity for proper use of bullion
saying, “Treasure is obtained by a necessity of commerce.”
3. It is likely, as had been suggested by Egerton, that mercantilist policy that followed
through Europe was a lesson learnt from Spanish wastefulness. Mun was the first to
propagate mercantilist policy through England. The golden rule was that of
favorable balance of trade and as has been described by Adam Smith, "the title of
Mun’s book, England’s Treasure in Foreign Trade, became the fundamental maxim of
political economy.” Exports had to be higher than imports and for this,
manufacturers had to be encouraged. The focus according to egerton was the
producer and not the consumer. (the same critique was leveled by Smith.)

The mercantile system had an inalienable link with trade.

WILSON

1. The word mercantilism was used for the first time by Adam Smith, in the wealth of
nations. He coined it since he felt it was a system created by merchants to serve
mercantile ends
2. For smith the economic crime of the system is the accumulation of wealth, since they
confused wealth with money, thus governments accumulated gold and silver
3. Thomas Mun had claimed that the flow of money was governed by the balance of
trade and thus the primary objective must be a favorable balance of trade.
4. However soon there was, in Wilson’s words, an erroneous obsession with a
favorable balance of trade. Soon these errors spread outwards from England and the
obsession for favorable balance grew through Europe
5. Smith argues against the accumulation of wealth, advocating paper money and
credit aa substitutes even during times of emergency
6. TWO GREAT ENGINES through which mercantilism was to enrich countries through
an advantageous balance of trade were:
a. To encourage exports or rather to encourage exports of manufactures and
discourage the export of raw material
b. To discourage imports of manufacture and encourage imports of raw material
This was ensured through government interference. These policies however did
not benefit the entire populace. Only selected industries received impetus and
this was opposed to the nature of universal law and equality

CLOUGH

1. THE THEORY OF MERCANTILISM

 a. Every group of individuals striving to a set of common ends constitute society-
each society creates its own economic theory to progress the society- the theory,
as it is built for, creates changes within the society
b. The major factors that affected economic theory in early modern times include
i. The growing amount of wealth
ii. The increasing usage of money
iii. The expansion of trade
iv. The acquisition of colonies
v. The rise of nation states
c. The dominant economic theory between 1500 and the eighteenth century was
that of mercantilism. Clough believes that this name was an error as the theory
had little to do with trade and more with state control of economic affairs. It was
the theory and practice of economic state building and the use of state to
enhance the interests of policy makers.
d. However people soon grew bitter because of excessive state control and due to
red , by the eighteenth century mercantilism had been exchanged with laissez
faire principles, a belief in letting natural laws govern the economy and a belief in
individual rather than state prosperity.

THE REACTIONS AGAINST MERCANTILISM

WILSON

1. ATTACK ON MERCANTILISM
I. Emerged during the latter half of the eighteenth century
II. Came from two quarters
a. From a school of philosophers who believed that it was an offense
against the natural order to interfere with economic affairs
b. From merchants who believed that the regulations harmed their
own interests
2. Conclusion
I. Mercantilism didn’t come only from the top but from a variety of
positions and was in itself varied in nature
II. The ends too varied from immediate profit of individuals and pockets
of princes to the power of state and the welfare of the people
III. Moreover the duality of power and wealth, economic and political
power has been emphasized.
IV. One cannot judge mercantilist thought by later ideas.
V. It was however based on materialism and it is possible that the
comparable material progress of the west can be attributed to it,
 VI. Mercantilist century- 1660- 1760, was in western Europe the age of
economic expansion

DOYLE

3. However mercantilism had a number of critics.

a. Colbert was scarcely dead before a set of French writers critiqued his policies
as the source of ruin and misery that coincided with Louis II’s last great wars.
The critique was largely that interference in what was the ‘natural law’ of
economic life, had led the state to bring disaster
b. In England writers like Child, North, Davenant denounced reflationary tariffs
against foreign competitors as misconceived attempts to maintain a favorable
balance of trade.
c. Half a century later full scale alternatives to mercantilism were suggested.
Mercantilism was the product of the depression of the seventeenth century
when resources seemed limited and when these were overcome, expansion
continued and liberal policies were favored. Hume took the lead in exposing
the hollowness in orthodoxies of the time. He pointed out that the true
wealth of the nation lay in its people and its industry and not in its store of
bullion. All restrictions on trade were harmful as trade stimulated economic
activity. Free trade would stimulate higher prices and higher prices, higher
productivity thus resulting in abundance.
d. Physiocrats similarly emphasized the avoidance of protective tariffs. They
highlighted the role of agriculture and its necessity in the development of a
country. Amongst them were gournay and quesnay and turgot. They created
vast propaganda and were partly successful in implementing their views.
However some critics, most prominently Adam Smith, realized that an
overemphasis on agriculture while ignoring industry would simply retard the
ongoing path to progress.
e. SMITH- Inquiry into the nature and causes of the wealth of nations(1776)- had
visited France's physiocrats. According to him however, the true basis for
wealth was labor and the division of labor, i.e specialization in an
environment of free trade, thus every state specialized in what it could
produce, using to the best of its resources and acquired the rest from outside.
This would occur naturally according to Smith as long as there wasn’t outside
interference. He denounced the controls of mercantilism as this outside
interference which was built on the greed of merchants and sought profits at
the expense of the country. He argued that British prosperity had been
created despite rather than because of mercantilism. He even emphasized the
 harm in regulating trade to and from the colonies saying that the same
industries in whose favor these oppressive measures were conceived would
fall under the burden of the measures. He condemned the apparatus of
overseas empires, without even being aware of the fact that English control in
America was dwindling. In this view the mother country derived nothing but
loss from the management of colonies. The revolution occurred in the year
Smith’s book was published, 1776 and by the time he died, American trade
was flourishing, seeming to prove his theories right.
f. Smith's ideas were by no means the first of their kind. Josiah Tucker had been
propounding the same ideas even before the seven years war through
pamphlets saying that a separation between Great Britain and her colonies
would benefit both sides.
g. Another critic who stated the same ideas was Raynal, whose History of the
two indies(1770) was an essential in his time. The book had a number of
contributions and was in its own way an irrevocable text of European activity
and its disastrous effects upon the world.

Recent events favored the critics, however other overseas colonies showed
no change. England’s hold over India only grew stronger.Condemnation of
British subjugation, its miserable and oppressive system of slavery etc. were
seen during the eighteenth century. Slave trade was criticized during this
period raising hopes of the abolition of slave trade in the eighteenth century
No sooner had the statesman began considering the wisdom of colonization
when malthus’s gloomy forecasts regarding overpopulation began to renew
the fervor in favor of colonies. Everyone had read Smith but were
unconvinced that free trade would bring an end to the world’s problems.
And the success of Great Britain seemed to vindicate all that mercantilists
had stood for.

CLOUGH

7. SMITH'S CRITIQUE OF MERCANTILISM

a. He believed that mercantilism was a conspiracy contrived by a minority to
encourage their own interests.
b. Mercantilism, according to him, pretended to regulate trade in order to obtain a
favorable balance but its real objective was obtaining a monopoly of the home
markets for certain manufacturers.
c. Moreover for Smith industry must be keyed to favor the consumer and any
benefit to the producer must be only insofar as it does not harm the consumer.
 Mercantilism however it biased towards the producer and his needs, the ultimate
objective is production and not consumption

MERCANTILISM IN ENGLAND

CLOUGH
2. MERCANTILISM OF ENGLAND
a. Where Spain was concerned with bullion and the Netherlands with the favorable
balance of trade, England and France were concerned largely with PRODUCTION
both industrial and agricultural. Having no colonies to derive bullion from and
did not have the trading opportunities of the dutch they were forced to focus on
production
b. Thus in England we see all manner of devices being used to foster industry under
Lord Burghey, secretary of state and Lord treasurer.
i. He focused on the production of ammunitions to give England a literal
advantage
ii. He gave monopolies by patent letters
iii. He gave foreign workers metallurgical trades to encourage them to come
to England and teach their arts to the English
iv. Tried to preserve forests along the sea coast to allow for timber for
shipbuilding
v. Encouraged production of flax, hemp and the making of canvas
vi. Insisted that protestant England eat fish on Friday so that the fishing
industry, the training ground for sailors, was not impaired.
vii. With the Whigs coming into power in the seventeenth century business
interests were given importance and moreover viewing the success of the
dutch the English comprehended the importance of trade as an
accompaniment to industry. Thus they enacted the navigation laws of
1651, 1660, 1663, 1673
a. No goods produced in Africa, America or Asia, could be brought into
England (save from india) in anything but an English ship with an
English captain and an English crew
b. Goods produced in Europe had to be brought into england in English
ships or in the ships of an english colony, or in the ships of the country
where the goods were produced
c. They laid higher duties on goods brought to England on non-english
ships.
d. Certain goods produced in an English colony were to be sent only to
an English colony or to England e.g. sugar, tobacco, cotton, indigo,
ginger and dye woods.
 e. Goods imported from English colonies had to be imported from
English ports in English ships
viii. The purpose of these laws was not accumulation of bullion but instead
was the favorable balance of trade.
ix. In 1621, THOMAS MUN, director of the company wrote A discourse of
trade from England into the indies which was followed by England’s
treasure from foreign trade or the balance of our trade is the rule of our
treasure.He argues here for the use of bullion for the purpose of trade
rather than pulling it up- a large number of his countrymen were won
over.
a. Sir William Petty- Political Arithmetic- contends that the real sources
of wealth are land and labor
b. Nicholas Barber- discourse on trade (1690), discourse on making
money lighter (1696)- shows how a useful stock of goods serves a
country better than a store of bullion
c. Sir Josiah Child- Governor of the east india company – Discourse on
trade- Supply of gold and silver within state is of no importance. Low
interest rates are necessary for investment which causes movement of
the economy
d. Charles Davent- Inspector general of imports and exports, Tory-
Discourses on the public revenues and trade of England (1698)- Real
value of money is contained in it being a medium of exchange and
therefore in it being allowed to serve its appointed function.
IN THE LIGHT OF THESE ARGUMENTS< ENGLAND ADOPTED
ALMOST FREE TRADE OF BULLIO IN 1663.
x. A number of measures were undertaken to forward indigenous industry,
amongst these was the exportation of woolens at a loss, the banning of
import of calicoes, while allowing their production at home. Customs
duties were raised, such policies enabled industrial growth and inevitably
led to to the industrial revolution
xi. However a number criticized England's trading and industrial policy. Sir
Josiah Child claimed that economic laws were nonsensical and made by
gentlemen who couldn’t run their own estates. David Hume attacked the
idea of accumulation of bullion, stating that this would lead to price rise
and that a favorable balance of trade should not be directed towards
further accumulation of bullion. He emphasized instead the necessity for
movement of goods through trade and favored measures that improved
multilateral trade between nations.
xii. GREATEST CRITIC ADAM SMITH- WEALTH OF NATIONS (1776)
 a. Marked break between mercantilism and laissez faire theory
b. Smith was opposed to Mercantilism- to bullionism, favorable balance
of trade, imposition of tariffs and colonial monopolies
c. He believed the measure of a country's wealth was the goods it
produced or obtained through trade.
d. He believed in the Division of labor i.e specialization. At the
individual level this would mean that the individual would produce
what he was best at producing and what he was more suited to
producing rather than trying to cater for all his needs and then would
obtain the rest through trade.
e. He favored the same specialization at the international level for the
complete utilization of the world’s resources. This goal would require
the economy to be controlled by natural laws of demand and supply
rather than by governmental control.
f. Smith’s doctrines were agreed with, however only much later In the
nineteenth century

WILSON
The system in England
1. Despite the multiplicity of views regarding mercantilism, one common point
remains the notion of balance of trade.
2. Mercantilist thought was implemented in English state policy between the
16th and the 18th centuries.
3. The English idea of balance was probably drawn from Italian double entry
book keeping.
4. The discourse of the Commonwealth of this realm, England, insisted on the
necessity of selling more through foreign trade than what is bought. This as
stressed later by William Lambarde, would mean that the foreign nations
would have to pay England In gold and other precious metals.Precious metals
were useful since they were universally accepted, were imperishable and
could be broken into many pieces.
5. These thoughts were later emphasized by Thomas Munn in his England's
treasure by foreign trade, probably written as an answer to the economic
crisis and trade depression of the time.
6. Sir Matthew Decker reasserted this principle a century later in his essay
Essay on the causes of decline on foreign trade
7. Despite the danger of inflation through favorable balance which was
perceived even at the time, the dangers of an unfavorable balance were
perceived as graver.
 8. Mercantilist thought was not merely philosophical treatise and was
implemented closely by state during the 17th century. The economic crisis of
1622 necessitated this. The depression was in part a result of the failure of a
venture to cut off dutch finishing industry by taking English unfinished cloth
and finishing it inside. This failed disastrously
9. In order to deal with it, thinkers like Thomas Mun adumbrated a
considerable part of mercantilist policy
10. The six main precepts include
a. TO reserve English raw materials to the cloth industry by prohibiting
export
b. To injure the Dutch industry by preventing the English from carrying
supplies of Turkish or Spanish wool
c. To reduce need for imports and the drain on natural treasure by
developing manufactures
d. The fisheries were to be ousted from dutch control
e. Foreign merchants who imported English goods would be forced to use
their wealth in England
f. Goods imported must come either in English ships or in ships of the
nation exporting.

IMPLEMENTATION

11. These policies were a join strategy of attack on the dutch to oust them
12. England did not have many natural resources, the dutch had profited and
progressed entirely through artifice of mercantile measures. Thus
mercantilism in England found its thrust in Jealousy, Ambition and common
sense- prohibitions on export of raw cloth were repeated year after year.
Plans to pre-empt wool from other sources too were occasionally successful
13. New industries were encouraged as was indigenous growing of raw materials
such as linen and flax as well as the production of finished linen. Only by the
end of the century, through constant accumulation of knowledge and
development of indigenous industry, the English had a cloth industry to rival
the dutch
14. The English developed schemes for “waste grounds” to make use of all
resources. These were to be ‘drained and converted into a land of plenty’.
Soon the reclaimed land was to provide abundant sources of agricultural raw
material.
15. Another source of envy were the Dutch fisheries. The fishing was carried out
off the shores of England. The English understood the significance of the
 fisheries however were unable to imitate the Dutch skills of catching, drying
and salting fish.

16. NAVIGATION LAWS

a. These were the chef d'oeuvre (masterpiece) of English mercantilist policy

b. The English colonies were important in that they could supply raw
material and other imports in order to prevent the English from needing
to import from other countries
c. However the dutch displaying their usual acumen had placed themselves
in between the colonial producer and the English buyer.
d. The Navigation law of 1652 looked to eliminate this
e. Laws were implemented again in 1660, 62 and 63, making administration
of these controls more efficient
f. Thus the movement of goods between English colonies and the mother
country were canalized
g. The attempts to conserve treasure were abandoned in favor of efforts to
ensure positive balance of trade
h. Thus forty years after mom had expostulate mercantilism , it came into
use. It's architect in England was Sir Geroge Downing
17. THE SIGNIFICANCE OF GLITTER
a. Balance of trade was created with a mind for treasure
b. Mercantilists did identify with treasure however, as even professor
Heckser concedes, they did not idolize it.
c. The question of how much importance they gave to precious metals must
depend upon what the uses were of the same at this time.
d. Smith’s critique was based on the fact that precious metal storage was not
important and that fears of a lack of precious metal were absurd
e. Wilson however insists that the necessity for a sound currency backed by
sufficient precious metal was not an absurd one. They required precious
metal most of all for trade. Particularly in the trade of spices. Though
there was paper money present, often trade into the more distant and
unworn routes into Asia and Africa, required the use of “capital in a solid
and ponderable form”.
f. Thus Wilson suggests that the desire for treasure may have been borne by
the particularly uncertain and violent climate of the time accompanied by
the lack of skilled measures of currency
 18. Mercantilism, according to Wilson Is not an undirected economic policy and
does not have only one end. The creation of mercantilist policy saw a
compromise between merchants like MUn and government officials like
Downing who colluded to achieve the dual interests of the merchants and the
state.
19. Kings and governments and bureaucrats saw in mercantilism the drawing of
revenues which allowed them and the citizens a more comfortable life
20. Merchants saw in it a protective hand for them- protection from pirates and
belligerents at sea and from foreign competition at home.
21. Incentives and bounties were provided to indigenous industries as well as to
skilled foreigners to encourage them to settle.

EGERTON

4. The mercantilist system was preceded by a medieval Europe which was largely a
disintegrated union of localities and chiefdoms. It was, according to egerton, the
work of the seventeenth century to up nationalist policies and unity. Mercantilism
was a system of commerce developed, according to egerton, to support this rise of
national policy. This national policy however distinguished between the nationality
of the motherland and the colony and here the seeds of disunity were sown. The
colonies were regarded henceforth as ‘foreign plantations. The mercantile system ,
or the colonial pact as it was called in France, restricted trade and commerce in a
number of ways. Each of them has been discussed by egerton

i. GOODS COULD ONLY BE IMPORTED OR EXPORTED FROM THE COLONY IN

SHIPS BELONGING TO THE MOTHER COUNTRY OR TO THE COLONY
This effort to secure the trade of England for English ships was attempted
many times as the numerous acts of parliament reinforcing the same
indicate. The dutch had secured the carrying trade for most English goods
between the motherland and the colonies. The English introduced the
Navigation act of 1651 to control the same. Every ship heading to
England, Ireland or the colonies or from these places had to be English
and had to have an English captain and an English crew. Moreover
European goods could not be imported into England or the colonies in
any but an English vessel or a vessel belonging to the country that
manufactured the goods. The intention was clear; the dutch did not
manufacture, this cut them off from the English carrying trade all
together.
ii. THE EXPORT TRADE OF THE COLONY WAS CONFINED TO A GREAT EXTENT
TO THE HOME MARKET
 English regulations regarding the export of products from the colony
compared favorably with those of other countries. Only certain colonial
products were limited in export to the mother country, these commodities
were referred to as enumerated articles and included; sugar tobacco,
cotton-wool, indigo, ginger, fustic or any other dyeing material. Later hides
and skins, naval stores were included amongst enumerated articles. The
non-enumerated products could be exported for many years to any part of
the world. By the time of George the second the export of all non-enumerated
articles was limited as well.
iii. THE GOODS OF THE MOTHER COUNTRY OBTAINED A TOTAL OR PARTIAL
MONOPOLY IN THE COLONIAL MARKET
The importation to the colonies was generous. Though many foreign goods
were first sent to the mother country before export to the colonies, there
were drawbacks placed even at the risk of underselling while exporting to the
colonies. However as has been stated by Adam Smith, before matters were
placed on a less indulgent footing, most foreign products could be obtained
cheaper in the colonies than in England.
iv. COLONIAL PRODUCTS RECEIVED PREFERENTIAL TREATMENT IN THE
MOTHER COUNTRY
Preferential duties were placed in England on the importation of foreign
sugar, tobacco and pig iron in order to encourage the same industries in the
colonies. With the same intention, cultivating tobacco had been strictly
forbidden in England. The manufacture of certain products was encouraged
by giving bounties upon their export to England. Of these the most important
bounties were given to the production of naval stores.
v. THE COLONIES WERE PREVENTED FROM SETTING ON FOOT
MANUFACTORIES SO AS TO COMPETE WITH HOME INDUSTRIES
Initially this would not have hampered due to the lack of labor and scarcity of
native industry. However there was certainly, early small scale manufacture
such as linen, wool and other cloths as well as for hats. For England the
woolen industry was a favorite and it prevented export of wool even from
one plantation to the other. In new England and new York, however the
scarcity of gold led to the encouragement of wool industry.

This essentially was the system of mercantilism in relation to the mother

country and its colony. The system was made to encourage the production of
raw material by the colony, to be processed by the mother country. However
this conception denied the equality of colonial Englishmen and Englishmen at
 home and thus caused a disparagement of patriotism. Despite the hampering
effects of the mercantile system these disowned, disenchanted colonies were
to rise to independence. The laws were evaded successfully until finally a
battle was born. The problems that America faced immediately after the war
were those of lawlessness. Quack establishments found monstrous growth.
Where the mercantilist system helped in the step from the medieval locality
to the Modern nation, it seemed it was stymied in conception when the next
step towards a grand marine empire may have been conceived.

MERCANTILISM IN FRANCE AND THAT IMPLEMENTED BY COLBERT

WILSON

3. FRANCE
a. Like the English the French feel a sense of competitive satisfaction over
their resources, and like the English they knew actual limits as well and
realized the importance of improving resources. Thus the following
measures were implemented
i. Aimed at importing raw materials. An edict of 1572 bans manufactured
importers

ii. Skilled foreigners were enticed to set up new industries especially those
which would increase stocks of gold and silver.

iii. Just as the English blamed the dutch, the French blamed the Italians for
the offense of draining away treasure. Industries such as the silk industry
which were to compete with Italy were given impetus

iv. There was a strong emphasis on drainage and reclamation of land

v. Monchreiten added thrust towards exploitation of fisheries

b. Colbert
 I. Under Colbert what were, according to Wilson “naïve inspirations of other
writers” were turned into effective and stringent regulations.
II. Colbert aimed at eradicating poverty in France
III. Trade was high in his scheme of things and along with the attack on the Italians
he added an attack on the dutch
IV. He believed in manufactures as the true source of wealth
V. He therefore set to develop skilled entrepreneurs and artisans
VI. Production was believed to be individual but was supervised to minute detail

Colbert was no pacifist and shared fully in schemes of ousting the Dutch and had
moreover the bureaucrats contempt for the businessman
Colbert saw himself as the servant of the king unlike the English mercantilists
who were most of them merchants. Colbert would, according to Wilson, have
been only minimally affected by the merchant's advice.
Curiously however France did not have direct and explicit focus on trade up till
much later
England had an inspector general of customs by 1696, France had one only half a
century later.

EFFECTS OF COLBERT”S SYSTEM

I. Encouraged technology, however in some industries such as cloth, the
guild system prevented entry of newer technology and thus resulted in
ossification.
II. Despite this france led the world in terms of volume of industrial
production, foreign commerce and domestic trade till 1763- this was
because of the vast resources france possessed
III. However it may also have been because of the methodical approach
instilled by the use of mercantilism.

CLOUGH

3. FRENCH MERCANTILISM
a. Initially the French too favored the policy of accumulation of bullion and
favorable balance of trade, forbidding the export of bullion
b. Yet the French realized early that national economic well being depended on a
nation's productive capacity and on the goods it could produce or acquire. Thus
in the sixteenth century production was advanced through subsidies and by
raising indigenous tariffs.
c. Soon a number of French theorists such as Jean Bodin criticized the amassing of
wealth on the ground that it resulted in an increase in prices. Theorists like
Bodin encouraged the development of agriculture and industry by state.
d. These mercantilist principles in France reached their climax with Jean Baptiste
Colbert (1619-1683). Was a son of a cloth merchant and became the economic
adviser to Louis XIV.
i. Staunch believer in productivity, opposed to bullionism which he said was
a narrow principle.
ii. Gave subsidies to industries to foster manufacturing
iii. Did his best to introduce new industries
iv. Forbade emigration of skilled workers
v. Encouraged early marriage to increase labor capacity
vi. Families with more than ten were exempted from paying taxes
vii. Conducted a severe campaign against beggary, indolence and charity
viii. Foreign Trade- believed the quickest way to increase share was to take
away from other states through combat. He knew that France's 500
merchant fleet paled when compared to the dutch 16,000 but encouraged
snatching this away from the dutch. Thus was pleased when Louis XIV
waged the first war against the dutch in 1669.
ix. In 1664 he set low tariffs for the ‘five great farms’ in central France; these
were soon raised due to peasant fears of external competition.
x. He founded the French east india company to compete with the English
and the dutch and attempted to colonize Canada
His efforts however weren’t a great success. Clough feels this was
because:-
i. He placed too much emphasis on luxury goods
ii. Economic planning suffer from military comquest, france wasn’t able to
handle the pressures of the two simultaneously
iii. Despite the development of the merchant marine france was to realize
prosperity through production and not through trade like the dutch or
snatching away of bullion like the Spanish
e. Colbert’s views were soon taken on by
i. The Neomercantalists
I. Among them were John Law, Francois Melon and Francois Vernon.
They believed that since money was the life blood of economic
activity there should be a very large supply of it to allow greater
exchange of goods and greater division of labor. This view was
untenable due to the limited use of means of exchange
ii. Others attacked government economic regulations.
 I. Among them Pierre le Pesant de Boisguilbert- believed in the
natural law of the economy and that it should be allowed free at all
times.
II. Another was Richard Cantillon an Irish banker in paris- attacked
favorable balance of trade on the same grounds as hume
iii. The physicists believed in the rule of nature. They were men impressed
by the focus on natural laws on physics and the anatomy expounded in
the works of Newton etc, felt the same natural laws should apply to polity,
society and economy
I. Dr. Francois Quensay- profoundly impressed by Newton believed
in natural laws for the economy. He set about to discover these
laws which he described in his Encyclopedie – he believed in
agriculture as the primary source of wealth. Agriculture
produced things, industry combined them and commerce moved
them around. This movement according to him had to be
governed by natural laws and not by state. He believed that man
should adopt the policy of Laissez faire
II. These ideas grew popular and were propagated and
implemented by the likes of Turgot, chief minister of France,
who abolished many old regulations and tried ousting guilds but
was removed from office before he could.
III. Thus in france traditional mercantilism came in for severe
critique

French colbertism was followed in a number of European

countries such as Russia and Germany until much later their
own indigenous physiocrats would critique them. The
application of Laissez faire theory was retarded however
because of the rapid advances of the English through the English
revolution.

SPAIN

WILSON

4. SPAIN
 I. In Spain there was a mounting body of taxation that drowned any
economic measures that were taken.
II. Spain, according to Wilson is an example of how fiscal necessity and
private privilege frustrated mercantilist policy
III. Only in the 1720’s were voices raised, asking for imitation of English
and dutch mercantilist principle
IV. BY now there was little hope for the businessman who was an
untouchable in Spanish society
V. Under Charles II a mercantilist policy was followed, the results
however were negligible, Spain remained obstinately traditional

CLOUGH

a. SPAIN
i. These principles were firmly established with spain
ii. All commerce with the new world declared a national monopoly
iii. Casa de Contratacion to keep foreigners at bay regulated the flow of trade
between a few ports- Vera Cruz and Porto Bello in New Spain and
alternatingly Cadiz and Seville in Spain
iv. Licenses were required for access to the new world and these were not
provided to muslims and jews
v. Ships sailed in fleets to the new world and carried with them interlopers
to prevent piracy
vi. Great pains were taken to prevent currency from leaking out through
payments, to foreign countries
vii. However the accumulation of bullion was not a boon and raised prices.
So apathetic was spain's plight that when involved in conflicts it did not
have the money to buy what was required for victory
viii. Several treaties were signed giving trading privileges to other countries
A. Treaty of Munster (1648) dutch given trading privileges in the west
indies
B. Treaty of Utrecht (1713) English given monopoly of slave trade to
Spanish colonies
ix. Thus this strain of mercantilism was ineffectual and did not bring
prosperity to Spain as it focused on the accumulation of bullion and not
on the production of goods.
PORTUGAL
CLOUGH

4. MERCANTILISM OF SPAIN AND PORTUGAL

b. Use of political control over economy apparent in middle ages- control was
required to prevent famine and other emergency, to hire mercenaries for was, to
assist business and to further the guild system,
c. Such control worked well into the middle ages, as even the guild system carried
on in france etc., till the time of the French revolution
d. Moreover we see the development and integration of nation states such as
Portugal
e. PORTUGAL
i. Formed by a set of princes
ii. Soon trade route to the east discovered
iii. Royal claim on trade route- aim of royalty was to ensure bullion through
favorable balance of trade
iv. Portugal established certain basic precepts of mercantilism
A. Colonies were to be a state monopoly
B. All trade regulated so that the metropolitan country had an excess of
imports over exports
C. National wealth measured by the amount of bullion the state had

NETHERLANDS

WILSON

5. THE DUTCH
a. In the Netherlands, the merchants having replaced a dangerous monarchy
ensured that none came to replace it. The dutch were governed instead by
a loose and decentralized administration of merchants. This was
disadvantageous militarily, as was seen in the wars against England, such
as the one in 1652- but the powerful trading classes remained convinced
that this was the ideal form of government for their needs.
b. Thus to a large extent mercantilism was not appropriate or necessary for
the dutch situation
c. However towards the end of the seventeenth century we see a battle
arising between the mint masters and the traders
The republic moreover had to rely on policy rather than on force to defend itself

CLOUGH

5. NETHERLANDS
a. Dutch built an economic empire from trade
b. They traded raw materials and indigenous goods with Baltic goods
c. They also gained commerce from the transportation of goods
d. After the split of the Spanish occupied Netherlands into the northern
Netherlands and the southern Belgium, the Netherlands, now debarred
from eastern trade, sought direct trade with the east, establishing a well
spread colonial empire there.
e. The Netherlands levied almost no customs on imports, realizing that free
trade was favorable for them
f. They remained dominant with these policies till the 1770s
g. The dutch unlike the Spanish and portuguese realized that hoarding of
bullion served no purpose and focused instead on movement of bullion,
realizing that export of bullion was necessary to acquire goods
h. However, like the Spanish and the Portuguese, the Dutch wanted to keep
the benefits of eastern trade to themselves. Thus the dutch east india
company was given monopoly of trade in the east indies. In other areas
though the dutch established companies they were willing to forgo
monopoly
i. Their inevitable decline was not at the hands of inefficient trade but in
fact due to inept military
j. From the middle of the seventeenth century the dutch faced the constant
onslaughts of the british, the French and the portuguese
k. They left brazil in 1661, new Netherlands in 1667 and Ceylon during the
napoleonic wars
l. The east india company dissolved in 1798 due to excessive control
m. Duluth trading supremacy lasted for little more than a century.

OTHERS

WILSON

6. PRUSSIA
 The whole structure of mercantilism was soon under attack from
philosophers, and even merchants, however countries with late remnants of
feudalism found it convenient to use in order to move quickly to a developed
economy

I. In Prussia too, Frederick the Great emphasizes the importance of

maintaining currency within the country through manufacture and trade.
II. In Prussia, even more than France the stimulus came clearly from state
III. Under able administrators like von Heinitz and von Hagen an industry
was coaxed into being and a variety of trade and industry achieved
IV. Much of it disappeared after Jena, the seeds were sown by Friedrich, but
they germinated much later.

MERCANTILIST PRINCIPLES IN THE COLONIES AND THE COLONIAL RIVALRY LEADING UP

TO THE AMERICAN CIVIL WAR

6. MERCANTILISM AND COLONIAL SCIENCE

a. Mercantilism on colonies
i. Regarded colonies as very useful
ii. Colonies according to mercantilists must exist exclusively for the mother
country- the colonial compact
a. Trade between homeland and colony should be reserved for the
motherland
b. Commerce should be carried out in ships of the state or the colonies
concerned
c. Colonies should buy as many homeland produced goods as possible
d. They should produce and sell only to satisfy the needs of the mother
country
TWO SETS OF MERCANTILIST COLONIAL PRINCIPLES
i. ONE SET APPLIED TO CASES WHERE COLONIAL PRODUCTION
WAS DEVELOPED TO A POINT THAT PROVIDED ARTICLES FOR
TRADE
a. Mainly in the east and Spanish America
b. In the seventeenth and eighteenth centuries with all
america
ii. THE SECOND WAS A SET OF PRINCIPLES DEVELOPED FOR
THE SETTLEMENT BY EUROPEANS WITH ACTUAL ECONOMIC
DEVELOPMENT
a. Concerned primarily with America and specifically with the
west indies
b. And also with English occupied America

I. PORTUGUESE IN THE EAST

They discovered a new trade route to the east, thus
cutting of Italian monopoly on spices. They
attempted to establish their own by setting up bases
and controlling a few natives. The organization was
carried out by Albuquerque. Their monopoly was
broken by the Dutch who learned the route by
sailing Portuguese vessels.

II. THE DUTCH IN THE EAST

The Dutch east india company established their
sway over java, Sumatra, the Moluccas and parts of
new guinea and borneo. They lost this to the English
in 1824 as well as Ceylon which they lost to the
English in 1796. They administered east india trade
through a joint stock company with monopolistic
privileges. THEY WERE CONCERNED EXCLUSIVELY
WITH TRADE RATHER THAN WITH SETTLEMENT
AND ECONOMIC DEVELOPMENT. They established
trading stations and tried to get goods into them for
trade. When they wanted a product, they paid high
prices for it and when production went up cut prices
to the bone. THEY WERE NOT CONCERNED WITH
ECONOMIC DEVELOPMENT OF THEIR COLONIES
BUT ONLY WITH COMMERCE.
 They, like the Portuguese, were faced with
encroachments by states which had greater
productive capacity at home and more military
strength, like England and france. They did not
succeed immediately in breaking the Dutch hold, but
they did get established in India. Both England and
France endeavored to create natural monopolies.
However French efforts were soon to be reduced to a
few isolated colonies.

III. THE WEST- SPAIN

Policies were initially like those in the east, Spain’s
primary objective was extraction of Bullion and not
settlement. Spain, as we have seen, developed strict
rules regarding the movement of commodities,
especially gold, through trade and ensured the
movement only between the motherland and the
colony.
Over time Spain did develop some colonial produce
to support the activities being carried out. However
the control remained even on these commodities.
This meant that Spain sent a precious few fleets out
to trade, thus resulting in vast quantities of goods
being warehoused, and increasing the expense on
storage and transport. Thus the colonial producers
were forced to trade with Dutch and English
smugglers. New Englanders carried on brisk
business with the indies and the dutch broke
through the Spanish colonial blockade that for a time
they had a monopoly on Spanish Cocoa trade. And
the English in 1713 was nothing more than a formal
recognition of activities that had been carried on for
a long time illegally.
By 1740, Spanish had gotten sufficiently weak to
liberalize their policy entirely. The number of ships
sailing increased, in 1765 trade was opened for all
Spaniards , in 1775 they could trade to a number of
ports in South America and in 1789 to all in mexico.
In 1778 the fleet system of sending ships was
 abolished. This increased trade in the Spanish
Americas. Spain however was not to benefit from it.
In the nineteenth centuries most American colonies
fought for and won their independence.

IV. PORTUGUESE IN THE WEST

Portuguese in brazil- made large grants of estates to
nobles, large fiefs along the coastline and extending
indefinitely inside. The focus was initially sugar,
which brought in the negro slave trade. Later as they
pushed inwards gold and diamonds were
found.Brazil accounted in the eighteenth century for
nearly 80 % of total gold and diamonds produced.
It paid little attention to its colonies, maintaining the
‘colonial compact’. However with the loss of eastern
commerce and the finding of gold and diamonds the
Portuguese focused on brazil. They made both
diamond and gold trading a crown monopoly. They
were however unable to keep out foreigners due to
the lack of military strength. The colony declared its
independence in 1822.

V. DUTCH IN THE WEST

Similar policies as the east. They Acquired trading
colonies, with the purpose of carrying on trade with
the natives and of having bases where they could
conduct a smuggling business with the colonies of
other powers. No emigration in large numbers,
showed relatively little enthusiasm for colonial
agriculture, other than sugar. Their main activity
was trading with Spanish colonists to whom they
brought slaves and in New Amsterdam their primary
function was trading with the Indians from whom
they got furs in return for rum. However the
punching of enterprise resulted in trouble with
foreign powers. They were soon forced out of Brazil,
New Amsterdam and Guinea by the English.
VI. FRENCH COLONIES
 They understood the importance of colonies early,
claiming Louisiana and Canada and grabbing some
of the ess firmly held west Indian islands. They
abided strictly by the policies of colonial compact.
The French in the east and in the west attempted to
develop their holdings by the creation of monopoly
companies. The companies however had little
success. The French west india company was
liquidated by 1672 and even the Canada company
and the Company of france had brief lives. Their
main handicaps were the lack of capital investment
and the lack of French emigration. From the third
quarter of the seventeenth century the French
colonial policy was steered at every turn by the
French government.
Over time they were successful with getting
production underway. Tobacco and sugar were
grown with success so much so that the French
islands became the veritable sugar bowl for france
and large parts of Europe. At acadia, they developed
a thriving fish trade and in Canada fur trade. In
Louisiana too they had attractive prospects with the
establishment at the Mississippi delta in 1713. By
1787 french trade in the new world was three times
its trade in the east and one fifth of its total
commerce.
Losses- However national rivalries soon pulled
France down. They surrendered Acadia in 1713 to
the English; gave away Louisiana to their ally spain
to compensate for the loss of Florida in the seven
years war; Canada was given to the English in 1763
(they retained two small islands off the coast); Haiti
was lost during the Napoleonic period to native
revolutionaries. They fell victim to national
jealousies.
VII. ENGLISH COLONIES
Their policy was also built on Colonial Compact. The
navigation act of 1651 and subsequent measures
reserved shipping between England and English
colonies for the English. England also paid bounties
to industries in its colonies that supplied England
with goods it lacked.

However the English colonial policy differed from its

rivals and predecessors on two scores
a. Englishmen went to colonies in north America as
permanent settlers in large numbers- population
of 2 million in 1776
b. These people developed production of goods to
which they were accustomed to in the new world
rather than just colonial products.

Their colonial population considered itself equal to

the population in the motherland and undertook
development that was to rival the English. The
English tried to control this development and this
led to resentment.

The Americans were particularly successful at ship

building, having vast stores of timber and oak for the
frames. This led directly to the development of
shipping and american carriers, particularly those in
New England developed a lively shipping business
and a flourishing fishing fleet and whaling industry.
They developed trade in fish at New England, trade
in flour from the mid-atlantic and sugar and
molasses from the west indies. The latter were
refined in America and then taken to England as
rum. Tobacco and cotton from Virginia, South
Carolina and Georgia were carried back to England
and supplies were brought back for these
commodities.

In all trade, except to India, colonial vessels were

treated as English Ships. However colonial interests
in America were affected sharply by certain acts
extracting high levies on industries in America that
 were challenging English industries. Amongst these
were;-

a. Molasses act of 1733- heavy duty levied on sugar

going to the colonies on grounds that colonial
sugar refining and rummaking were hurting
England’s interests. The colonies were also
prevented from importing Spanish or French
west indian sugar and molasses.
b. Woolens act of 1799- Forbade transportation of
wool yarn or woolen textiles from one colony to
the other.
c. Hat act of 1731 forbade export of hats from one
colony to another
d. Iron act of 1750- forbade export of manufactured
iron and steel though pig iron imports to England
were still permitted
e. Moreover after the seven years war of the French
and the Indians, the English demanded payment
for their services.
f. New taxes were levied and the restrictions on
colonial trade were imposed with some rigidity.
Such measures led to great bitterness, though it
is known that the Americans profited greatly
from the privileges enjoyed by being part of the
empire.
American commerce did suffer after the
revolution as they no longer had access to
English trading pasts. Yet they were to become
the greatest economy of the new world, and a
lost opportunity for England.

ENGLAND AND AMERICA

5. The mercantilist system was preceded by a medieval Europe which was largely a
disintegrated union of localities and chiefdoms. It was, according to egerton, the
work of the seventeenth century to up nationalist policies and unity. Mercantilism
was a system of commerce developed, according to egerton, to support this rise of
national policy. This national policy however distinguished between the nationality
of the motherland and the colony and here the seeds of disunity were sown. The
colonies were regarded henceforth as ‘foreign plantations. The mercantile system ,
or the colonial pact as it was called in France, restricted trade and commerce in a
number of ways. Each of them has been discussed by egerton

vi. GOODS COULD ONLY BE IMPORTED OR EXPORTED FROM THE COLONY IN

SHIPS BELONGING TO THE MOTHER COUNTRY OR TO THE COLONY
This effort to secure the trade of England for English ships was attempted
many times as the numerous acts of parliament reinforcing the same
indicate. The dutch had secured the carrying trade for most English goods
between the motherland and the colonies. The English introduced the
Navigation act of 1651 to control the same. Every ship heading to
England, Ireland or the colonies or from these places had to be English
and had to have an English captain and an English crew. Moreover
European goods could not be imported into England or the colonies in
any but an English vessel or a vessel belonging to the country that
manufactured the goods. The intention was clear; the dutch did not
manufacture, this cut them off from the English carrying trade all
together.
vii. THE EXPORT TRADE OF THE COLONY WAS CONFINED TO A GREAT EXTENT
TO THE HOME MARKET
English regulations regarding the export of products from the colony
compared favorably with those of other countries. Only certain colonial
products were limited in export to the mother country, these commodities
were referred to as enumerated articles and included; sugar tobacco,
cotton-wool, indigo, ginger, fustic or any other dyeing material. Later hides
and skins, naval stores were included amongst enumerated articles. The
non-enumerated products could be exported for many years to any part of
the world. By the time of George the second the export of all non-enumerated
articles was limited as well.
viii. THE GOODS OF THE MOTHER COUNTRY OBTAINED A TOTAL OR PARTIAL
MONOPOLY IN THE COLONIAL MARKET
The importation to the colonies was generous. Though many foreign goods
were first sent to the mother country before export to the colonies, there
were drawbacks placed even at the risk of underselling while exporting to the
colonies. However as has been stated by Adam Smith, before matters were
 placed on a less indulgent footing, most foreign products could be obtained
cheaper in the colonies than in England.
ix. COLONIAL PRODUCTS RECEIVED PREFERENTIAL TREATMENT IN THE
MOTHER COUNTRY
Preferential duties were placed in England on the importation of foreign
sugar, tobacco and pig iron in order to encourage the same industries in the
colonies. With the same intention, cultivating tobacco had been strictly
forbidden in England. The manufacture of certain products was encouraged
by giving bounties upon their export to England. Of these the most important
bounties were given to the production of naval stores.
x. THE COLONIES WERE PREVENTED FROM SETTING ON FOOT
MANUFACTORIES SO AS TO COMPETE WITH HOME INDUSTRIES
Initially this would not have hampered due to the lack of labor and scarcity of
native industry. However there was certainly, early small scale manufacture
such as linen, wool and other cloths as well as for hats. For England the
woolen industry was a favorite and it prevented export of wool even from
one plantation to the other. In new England and new York, however the
scarcity of gold led to the encouragement of wool industry.

This essentially was the system of mercantilism in relation to the mother

country and its colony. The system was made to encourage the production of
raw material by the colony, to be processed by the mother country. However
this conception denied the equality of colonial Englishmen and Englishmen at
home and thus caused a disparagement of patriotism. Despite the hampering
effects of the mercantile system these disowned, disenchanted colonies were
to rise to independence. The laws were evaded successfully until finally a
battle was born. The problems that America faced immediately after the war
were those of lawlessness. Quack establishments found monstrous growth.
Where the mercantilist system helped in the step from the medieval locality
to the Modern nation, it seemed it was stymied in conception when the next
step towards a grand marine empire may have been conceived.