Study Notes on Mercantilism

Mercantilism was an economic theory and practice that spanned from the 16th to the 18th century.
Promoted governmental regulation of a nation's economy for the purpose of augmenting state power.
Focused on achieving this power at the expense of rival national powers.

Based on the principle that the world's wealth was static.
A nation's wealth and power were best served by increasing exports.
European nations aimed to accumulate a large share of wealth by:
- Maximizing exports.
- Limiting imports via tariffs.

Mercantilism replaced the feudal economic system in Western Europe.
England was the epicenter of the British Empire with relatively few natural resources to grow its wealth.

Fiscal Policies:
- Engineered to discourage colonists from buying foreign products.
- Created incentives for colonists to buy only British goods.
Sugar Act of 1764:
- Raised duties on foreign refined sugar and molasses imported by the colonies.
- Aimed to give British sugar growers in the West Indies a monopoly on the colonial market.
Navigation Act of 1651:
- Forbade foreign vessels from trading along the British coast.
- Required colonial exports to first pass through British control before redistribution throughout Europe.

Resulted in a favorable balance of trade that increased Great Britain's national wealth.
Nations frequently engaged military might to protect local markets and supply sources.

Mercantilists believed a nation's economic health relied heavily on its supply of capital.
Economic health could be assessed by ownership levels of precious metals (gold or silver):
- Levels tended to rise with:
- Increased new home construction.
- Increased agricultural output.
- A strong merchant fleet providing additional markets with goods and raw materials.

Precious metals such as gold and silver were deemed indispensable to a nation's wealth.
If a nation did not possess mines or access to them:
- Precious metals should be obtained by trade.
Trade balances must be favorable (i.e., exports exceed imports).
Colonial possessions should serve dual roles:
- Markets for exports.
- Suppliers of raw materials to the mother country.
Manufacturing was forbidden in colonies, maintaining monopoly control of commerce by the mother country.
A strong nation was characterized by a large population, ensuring:
- A supply of labor.
- A market for goods.
- Soldiers for defense.

Human wants were to be minimized, particularly for imported luxury goods which could drain precious foreign exchange.
Sanctuary laws affecting food and drugs were passed to maintain low wants.
Thrift, saving, and parsimony were regarded as virtues, viewed as necessary for capital creation.

Mercantilism provided a climate favorable for the early development of capitalism by promising profit.

Advocates of laissez-faire criticized mercantilism:
- Argued there was no difference between domestic and foreign trade.
- Asserted all trade was beneficial to both the trader and the public.
- Maintained that money or treasure a state needed would adjust automatically; money could exist in excess.
- Denied the notion that a nation could grow rich only at another's expense, promoting the idea that trade is a two-way street.