Early Modern Europe: Mercantilism

Mercantilism

Economic theory recommending a country export more than it import

• Intuitive logic: we want to be sellers and not buyers in the market

There is only so much money in the world, you either have it or someone else does

Money and goods need to flow

• You must always be liquid in order for mercantilism to work

The state takes a stronger interest in economics and private business, sets economic policies

• top down policy, hard to run small businesses

• Mercantilism is part of state centralization

renaissance and rise of mercantilism

The Renaissance was an era of economic innovations

• Multi-branch banks with transferable balances & credit

  • The idea of credit was novel (as opposed to loans)

• Double-entry book keeping revolutionizes accounting

  • For every transaction, you are taking account of the debits and credits: you know exactly where money has come from and is going

  • Reflects the Renaissance obsession with symmetry

Innovations make it easier to track your exact exports and imports (credits and debits)

• loans from high interest → credit for accumulating interest

  • debit: money goes out

  • credit: money goes in

• Theory that the strongest economic theory is one in which you have more exports than imports

Early English Mercantilism

Traditionally, the English crown levied duties on tonnage and poundage: every tun (cask) of wine imported and every pound of imported or exported merchandise

• This was the extent of the Crown’s involvement with trade, which was generally treated as a private business matter

Queen Elizabeth I adopts mercantilism

• “We must always take heed that we buy no more from strangers than we sell them, for so should we impoverish ourselves and enrich them.” – Thomas Smith

  • Rising xenophobia in England during Henry VIII’s reign due to foreign merchants making a lot of money in England; this remains a point of contention well into the seventeenth century

    • period of rising xenophobia: foreign merchants undermine local economies and make money off the people

Elizabeth I commissioned are merchant navy and continued her father’s policy of having English trading vessels staffed by a majority-English crew

• lots of privateering

later english mercantilism

Peak period of mercantilist policy was 1640 – 1660

Imperial connections: increasing English exports would hurt other colonial competitors, especially Spain

• English colonial policy (the conquest of Jamaica, expansion into the Carolinas, etc.) was a deliberate attempt to compete and undermine other colonizers

Navigation Acts: a series of legislative acts that protected English fisheries and trade, promoted English shipbuilding, and regulated trade with other countries and English colonies

Key English exports: textiles (especially wool)

Key colonial exports: tobacco, sugar, cotton, ginger, cocoa beans, indigo and other dyes

dutch republic

Dutch political configuration after Westphalia

• Dutch Republic consisted of 7 states, each had a regent

  • Each of the states had its own interests and they sometimes competed: the Dutch Republic is an exception to the trend of state centralization

    • each regent had representatives that got together into state general assembly

• The Republic was governed by the States General (an assembly), who voted for a single executive leader called the Stadtholder (the title means ‘steward’)  The Netherlands does not have a king until 1815

Economic policy as common ground  the most important people in the Dutch Republic were businesspeople who had funded the wars against Spain

• Expanding shipping capacity & domestic canals and roadways

• Mercantilist policy

Rise of the stock exchange in Amsterdam: opportunity to invest in Dutch merchant companies and commodities

Dutch Golden Age 1609 - 1713

Why did the Dutch Golden Age happen?

• Already the most productive agricultural region of Europe

• Economic policy

• Relative toleration

  • Attracts crypto-Jewish and converso merchants who boost the economy

  • After Revocation of the Edict of Nantes (1685), Huguenots also move to the Dutch Republic

  • Centre for print of controversial material (which tends to sell well)

Features of the Dutch Golden Age

Economic strength meant more money in middle-class hands, which leads to a boom in art commissions and the rise of the Dutch Master

• people spend more money (have more money)

Already a center of the Northern Renaissance

Dutch Masters pay attention to urban and domestic scenes and testify to the uptake of colonial commodities

dutch east india company

Chartered 1602 as the amalgamation of existing companies to compete with English monopoly companies

• Run by the Lords Seventeen (Heeren XVII), major shareholders who represented the Dutch states

• Quasi-militarized: empowered to take military action, issued with uniforms and armaments, etc.

The Spice Trade: Dutch expansion into the Indian Ocean (especially present-day Indonesia)

• Pushing the Portuguese out and taking over their forts and trading posts

  • Forming alliances with local rulers (often Muslim) to liberate them from Portuguese rule and demanding spice harvests in return

• Building spice monopolies, especially in cloves, cinnamon, and nutmeg

  • Most of what the Dutch transport out of the Indian Ocean is destined for other European buyers → mercantilism in action

• Using the superiority in numbers of the Dutch fleet to run blockades, sabotage shipping lines, and otherwise dominate the region

  • This includes resorting to violence against local populations who were uncooperative (e.g. the 1620 Banda Massacre)

french mercantilism

Mercantilism gradually grew in force from the 16th century onward, especially in terms of protectionism

• E.g. France bans imports of wool from Spain in 1539

Louis XIV and Colbert took an interest in mercantilism → Colbertisme

• The economy should serve the state: economic centralization

• Selling abroad, buying at home

• Competing with the Dutch economy with local production (implemented strict quality regulations)

  • France imports foreign craftsmen to head up production (contrast with England)

• Stimulating trade and colonization by incentivising traders to form companies

Outcomes of Colbertisme

• Centralizes French economy

• Creates clear quality standards for goods  we still see the effects to this day

• Stagnates innovation in manufacturing

• French economy & productivity grew  most powerful European economy

• The Dutch Republic remained the dominant traders of the age

triangle trade

Idea: trade commodities travel Europe → Africa to buy enslaved people, who are transported Africa  the Americas, where they are forced to produce colonial trade commodities which are shipped the Americas/Europe

Very centered on the Atlantic Ocean: How triangular is trade?

• Trade with the Indian Ocean World

• Land routes remain incredibly important

Part of the reason why French and Dutch economies are dominant in the 17th & 18th centuries is because they invest in overland infrastructure (canals and roads)

colonialism

Mercantilism also becomes colonial policy

Rise of the colonial extraction economy, which runs on enslaved labour

Some metropoles limit who their colonies can trade with

• Metropole: the parent state of a colony (e.g. Virginia is the colony; England is the metropole)

• E.g. England requires that all colonial commodities be shipped either to England or to other English colonies (at that point they can be exported)

  • The idea is to make sure the population in the metropole does not need foreign imports to obtain colonial commodities

Rise of government-sanctioned monopolies over geographic regions (e.g. Dutch East India Company) and over individual commodities (e.g. Dutch spice trade)

conflict

Mercantilism is a zero-sum game: either you are winning or your competitors are

Every client state is a potential competitor

Reliance on maritime trade leads to a naval arms race: who has the biggest fleet?

• 1650: the Netherlands

• 1750: Britain (the Netherlands is in 4th place)

Anglo-Dutch Wars (1652 – 54, 1665 – 67, 1672 – 74, 1780– 84)

Causes: trade & overseas colonies (in the Indian Ocean & Caribbean)

Franco-Dutch War (1672 – 78)

Dutch attempt to conquer the Netherlands, ultimately unsuccessful although France makes significant territorial gains in the Peace Treaty

decline of mercantilism

Undermined by Enlightenment-thinkers in the late 17th and 18th centuries

• John Locke: the wealth of the world is not fixed; wealth is created by human labour

• David Hume: a constant influx of money (bullion) into a country will cause inflation and decrease the value of that money, making it less and less cost-effective to export goods (especially to countries where prices remain low)

• Adam Smith: Money (bullion) is just another commodity; when we export goods, we import a different good

Adam Smith’s economics: inventor of capitalism

• 1776: The Wealth of Nations argues for a more deregulated economy → Britain hops on board, but the continent tends to prefer keeping the economy in the hands of the state