Mercantilist Policy

The religious wars of the 17th century have left Europe in a turmoil. Many regions economically had suffered from decades of warfare, from destruction, disease, emigration. Governments had to turn their focus from religious to economic affairs.
The DUTCH, after having conquered the wealthier of the Portuguese colonies, dominated overseas trade and enjoyed a huge trade surplus with almost any country in Europe. This as a mere trading nation, which did not produce most of the commodities they sold.

Other, larger states were not willing to accept this trade surplus. Frenchman COLBERT developed a set of political steps undertaken by the French state to challenge it :





attract new businesses by encouraging the immigration of people with know-how. This is encouraged by granting privileges such as tax-free status for the first 7 years, freedom from military service for sons and sons' sons etc.
reduce the flow of money out of the country by raising import tariffs
exclude unwelcome competition by administrative trickery, such as by the NAVIGATION ACT (Britain, Sweden)
if you can't produce a product in your country, try to encourage your merchants to produce it elsewhere under the French flag (i.e. in colonies : sugar in the Caribbean)
extend the land under intensive cultivation by turning pasture into farmland, drain swamps and lakes, regulate rivers
improve the intrastructure by building roads and canals
promote research with the aim to develop new technologies (porcelain)

The success was almost immediate. France restored old branches of industry and attracted new ones. Success invites imitation. Both absolutist and non-absolutist governments tried to stimulate the growth of their economies. Thus, increased state interference in the economy became ubiquitous
The object of mercantilism was to increase the state revenue. The effect of giving the economy incentives to grow was a means to achieve increased state revenues, not the goal of mercantilist policy. Here is another instrument of mercantilism, less positive on the development of the state economy :

(h) organize state lotteries, with a certain percentage of the ticket fees dealt out as winnings, the large remainder filling the state coffers.

The governments began to look at the economy as a science. They regarded their populace as a source of revenue and as a pool from which their armies were to be replenished; hence a large population was an asset. STATISTICAL BUREAUS were founded and began to take censuses. The land was systematically surveyed.
While many of the policies mentioned above were improvements, the policy to hand out MONOPOLIES to raise government revenue was detrimental, as the monopolies, because of lacking competition, had no incentive to rationalize and modernize and were often ineffective. Another obstacle to free competition within the country were the privileges of the gilds.
In absolutist states, however, monopolies could easily be withdrawn and privileges cancelled. This was but one of the reasons, why early enlightenment philosophers such as VOLTAIRE looked positively at absolute monarchy.

Mercantilism, for the next 130 years (1660-1790) was one of the leading economic philosophies. Only in the second half of the 18th century did it come in disrepute, when long-term monopolies had resulted in inefficiency and high prices and ADAM SMITH, in his Wealth of Nations attacked state interference in the economy (= Mercantilism).

Mercantilist Policy by Country



This page is part of World History at KMLA
Last revised on February 16th 2002

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