MERCANTILISM

FACTORS SHAPING MERCANTILISM

• ECONOMIC FACTORS:
Importance of trade (available form of gold and
silver).

POLITICAL FACTORS:
Renaissance, feudalism came to and end,
emergence of strong nations.
•  Religious Factors:
The Reformation Movement against the Roman
Catholic Church, challenged the authority of the
Pope.
 
• Cultural Factors:
Renaissance gave a new light of learning to the
people, worldly life was more important than
the heavenly life.
•  Scientific Factors:
Great improvements and inventions were made,
invention of printing press helped the spread of
new ideas and knowledge.
 WHAT IS
MERCANTILISM?
 TO SECURE A NATION’S
POLITICAL AND ECONOMIC
SUPREMACY
ENCOURAGES STATE INTERVENTION IN THE MARKET
IN CONTRAST OF
FREE TRADE
REDUCTION OF TARIFFS AND FAIR FREE TRADE
BULLIONISM
Accumulation of precious metals (precious metals like gold and
silver)

FAVORABLE BALANCE OF
TRADE
Export more and import less
 Business
1200

1000

PROFIT
800

600

400

200

0
REVENUES EXPENSES
MORE IMPORTS

LESS IMPORTS
 ROLE OF
COLONIES
 MOTHER
COUNTRY Manufactured goods

raw materials

COLONIES COLONIES
PAQUIBOT TAMBUYAT OMANDAM
MANUFACTURED GOODS
$
 MOTHER
COUNTRY

COLONIES COLONIES
The Triangular-Slave Trade
 THE GOAL:

DOMESTIC
MANUFACTURING
CREATE AS MANY PRODUCTS AS WE CAN
SELF-SUFFICIENCY
ABLE TO RUN OUR OWN ECONOMY
 THE MEANS:

ECONOMIC REGULATION
LIMIT FOREIGN AND DOMESTIC COMPETITION
PROTECTIONISM
ECONOMIC POLICY OF RESTRAINING TRADE BETWEEN STATES

TARIFFS, RESTRICTIVE QUOTAS, AND A VARIETY OF OTHER

GOVERNMENT REGULATIONS

ENCOURAGE EXPORTS AND SELF-SUFFICIENCY

GOVERNMENT INCENTIVES

HANDS-ON
APPROACH
WE PUT OUR HANDS IN THE ECONOMY AND CONTROL IT
 Government Incentives
• SUBSIDIES
CASH PAYMENTS

• MONOPOLIES
EXCLUSIVE RIGHTS

• PROTECTIVE TARIFFS
STOPS FOREIGN COMPETITION
 PREFERRED INDUSTRIES
• LUXURY GOODS
• SHIPPING
• ARNAMENTS
  

THE ECONOMIC
ASSUMPTIONS OF
MERCANTILISM:
 1. There is a finite amount of wealth in the world

• National wealth is measured in precious

metals
• The assumption here is that there is a finite or
limited amount of wealth in the world
• For a mercantilist, there is a limited amount of
gold and silver
• Get as much as possible
2. A nation can only grow at the expense of other nations

Zero-sum game

England
France

BOTH SIDES GAIN

POSITIVE SUM
GAME
FOOD
STEEL
 3. FAVORABLE BALANCE OF TRADE

• Exports must exceed imports

• Send out more goods than we take in
• Collect that silver and gold (bullion)
• Rather than somebody imports more
MERCANTILIST
Antonio Serra, c. 1580 - ?
• Often hailed as the “first Economist”

• Nothing is known about Serra, only his published tract “Breve

Trattato(1613)”

• Serra addresses the economic condition of Naples, the causes

of shortage of coins

• Serra’s tract was written as an antidote to Marc’ Antonio di

Santis, Bullionist
• In the first part of treatise, Serra explains the causes of wealth of
nations. He noted certain factors like Accidental Divine Providence and
the four critical factors of prosperity.

• In the second part of treatise, Serra noted, the flow of precious metal is
due to Balance of trade, and had little to do with the mechanics on how
individual traders got paid.

• In the third part of treatise, he believes that the promotion of the

production and export of high-value manufactured goods will be the
key to improving the terms of trade and reversing the outflow of
money.

• The first to analyze and understand fully the concept of balance of

trade for both visible goods and invisible services and capital
movements.
Thomas Mun , c.1571-1641
• East India Company Official

• The Founder of Traditional English Mercantilism

• Many people blamed the East India Company for the

economic downturn of England

• He defended himself and the company in his little pamphlet

“England’s Treasure by Foreign Trade”, written c. 1630. “That
trading companies need to export cash in order to conduct
their trading activities overseas, which will brings in more
cash in the end.”
• "Although a Kingdom may be enriched by gifts received, or by purchase
taken from some other Nations, yet these are things uncertain and of
small consideration. The ordinary means therefore to encrease our wealth
and treasure is by Forraign Trade, wherein wee must ever observe this
rule: to sell more to strangers yearly than wee consume of theirs in
value."  (1664: ch.2)

• The trade balance of a nation as a whole, and not the individual activities
of any particular trading companies, that determine whether gold and
silver flows in or out of a nation.
 
• Promote devaluation and assist the charter companies (who, as importers
of raw materials and exporters of more valuable finished goods. were
instrumental in inducing an influx). 

• However, Mun doubted that rising prices was a good policy. 

Jean Baptiste Colbert, 1619-1683.
• French finance minister under King Louis XIV of France from 1661 to
1683

• Carried out an economic program reconstruction that helped make

France to be a Dominant power in Europe

• Getting rid of some of the crippling Medieval restrictions, rationalizing

administrations and making fiscal burden more equitable

• The expansion of commerce (and the maintenance of favorable

balance of trade) was the key to State wealth

• Colbertisme
• Colbert doted on his charter companies, set up
chambers of commerce, redirected capital to
export and import-substitution industries, set up
a protective system of tariffs and duties, blocked
foreigners from trading in French colonies, etc.  

• He was not interested in internal commerce,

which in his view did nothing for State wealth

• He recognized the need for good internal

transportation network
 CRITICISMS
• They gave too much importance to gold and silver and neglected the importance of other
commodities.

• They exaggerated the importance of commerce and undermined the usefulness of agriculture
and other branches of human history.

• They were wrong in believing that a favorable balance of trade was the only source of
prosperity.

• Their belief that the gain of one nation was necessarily the loss of another was wrong.

• Their ideas regarding ‘utility’ and ‘value’ were vague and abstract.

• Their ideas about capital and interest were imperfect.

• They lacked broad-mindedness.

 DECLINE

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.
• It was realized that the wealth of all nations could be
increased simultaneously by efficient utilization of
natural resources and through the progress made in
science and technology.
MERCANTILISM