First posted on June 21st 2006

Narratives : Mercantilism, 17th-18th Century

By the early 17th century, a new political situation had evolved : the church had lost her position in the political balance of power, the latter thus being reduced to the bipolar system composed of monarch and parliament. Monarchs depended on parliament for episodic extraordinary taxation; if a monarch could become financially independent, there was no reason for him to call for parliament to convene, and a political situation called Absolutism would be the result.
The Dutch Republic had emerged as Europe's leading economy. The Republic hasd a positive trade balance with all European countries, mainly by selling items imported from overseas.

Mercantilist policies had, thus, several goals : (1) to fill the treasury box of the monarch, by an entire catalogue of measures, (2) to reduce the trade imbalance with the Dutch, or in a wider sense, to reduce imports and promote exports, (3) to improve the national economy in general with the ultimate goal to raise the country's revenue from taxes and import tariffs.

We may distinguish English Mercantilism; the Navigation Act (1651) was passed in order to discriminate against the Dutch. Import tariffs, such as the Corn Laws, were intended to protect the revenue of the English gentry rather than of the monarch/government. The Navigation Act was passed when England was without a king.

French Mercantilism, on the other hand, was a policy in the interest of the king, which largely happened to benefit the national economy. Royal revenue which had been usurped was reclaimed; the lists of persons exempt from taxation revised, corruption cut down. Land under intensive cultivation was extended (the enclosure was to turn extensively used common land into intensively cultivated land, thus produce higher yields). Import tariffs were to provide an incentive for domestic producers. Immigrant craftsmen, entrepreneurs were granted privileges such as exemption from military service for themselves and their male offspring, and seven years free of taxation. Roads were built or improved, canals constructed such as the Canal du Midi. Attempts were made to improve agricultural production (see under Agricultural Revolution). Most of all, if certain products could not be generated within the country (cane sugar, coffee, for example, one had to hiss the national flag on a place with the appropriate climate. Thus, Mercantilism lead to an active colonial policy.
Under Louis XIV., Mercantilist policy was very successful. Most of all, the colony of Sainte Domingue (modern Haiti) generated 40 % of the world production in sugar and coffee. Many other European monarchs strove to imitate Louis XIV.; his court and palace, his mercantilist economic policy and his style to rule absolute.
Superintendent of the Finances, Jean-Baptiste Colbert, is credited with the policies. They do continue the work of his rival and predecessor, Nicholas Fouquet.

Austrian Mercantilism : Cameralism. Austrian economists suggested monopolies to be run as state enterprises. In the 18th century this policy was implemented, but resulted rather in slowing down proto-industrial development.

In the 17th century, Mercantilist policy was successful because there were significant abuses in the taxation system to be terminated, industries to be developed in certain countries, the colonial plantation economy was still growing, the trade deficit with the Dutch Republic significant. In the 18th century, revenues ceased to continue to grow as strongly as they had in the past. Policies in order to generate quick cash used by monarchs in such a situation were the sale of monopolies and the introduction of a state-run lottery (suggested by Giacomo Casanova). While they generated some cash for the royal revenue, they were rather harmful to the national economy.
Frederick Augustus, Duke Elector of Saxony (= King Augustus the Strong of Poland), in his castle of Meissen, had two Alchimists work on the (re-) invention of porcelain - E.W. von Tschirnhaus and J.F. Böttger; production of Meissen Porcelain began in 1710.

Mercantilism was the first active state economic policy in history and contributed considerably to the development of a number of national economies. It promoted industries alternative to the medieval guild crafts, most notably the manufactures. Mercantilism was an early state-planned economic policy; the planners needed data for their plans - a population census, a cadastral survey, both begun in the 18th century.
Mercantilist economists believed in Bullionism, measuring the success of a national economy in the amount of gold and silver flowing in/out. They also identified the peasants, artisans and workers as the segment of society generating the national wealth, and therefore suggested the (absolute) rulers to pursue policies relieving the burden on the peasants (such as corvee labour), protecting them against abuse by the landed gentry. This resulted in the codification of law, in the state taking over the legal system, hitherto run (and used in their own interest) by the local gentry. Mercantilist economists also promoted a policy of religious toleration, as they regarded it beneficial for economic development.
The desire of monarchs to rule absolute required the services of financial experts - a good number of these were Jews, the Court Jews, for whom this provided an opportunity unseen in centuries to rise to positions of influence.

Article Jean Baptiste Colbert, Mercantilism, from Wikipedia

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