Ques. Describe the principles of Mercantilism. How did England implement them in the 17th century?

Ans. The term ‘mercantilism’ broadly refers to the principles that guided the economic policies of European states in the seventeenth and eighteenth century. The word ‘mercantilist’ and ‘mercantilism’ were unknown in the seventeenth century and the ‘mercantile system’ only acquired meaning after the publication of Adam Smith’s book – The wealth of Nations. According to the mercantilist theory, governments needed to mould economic policy in such a manner as to attain maximum amount of wealth i.e. gold and silver bullion. Wealth could be increased by a favourable ‘balance of trade’ which in other words meant that the exports had to be more than the imports of commodities. An ideal mercantilist state would be totally self-sufficient with a vast amount of bullion to support its financial base. One of the most important principles of mercantilism was that colonies existed solely for the benefit of the mother country. Mercantilism as a means of national development had become immensely popular in France, Portugal, Spain and especially England. Throughout the seventeenth century, politics and economics in England were closely intertwined as legislations reflected the popularity of ‘mercantilist’ thought.

In keeping with mercantilist principles, governments introduced tariffs to protect their domestic products. A lot of effort was made to increase the production of certain commodities. Once a surplus of commodities was achieved, they were sold to other nations in exchange for bullion. Colonization in New England and the East increased rapidly as colonies were seen as economically advantageous. They supplied the mother country with cheap raw material and served as markets for their manufactured goods. Also known as the ‘colonial compact’, mercantilist colonial theory meant that colonies should trade only with the mother country and that they should produce and sell only what the mother country wanted. In general, there were two sets of principles followed by the different colonial powers. In some cases, focus was only on colonial production and in some cases there was actual settlement by Europeans in foreign land. Mercantilism led to stiff competition between European nations which resulted in a number of wars. At the centre of Anglo French rivalry was a competition for more colonies and more wealth.

The debate on the impact of mercantilism began with Adam Smith’s critique. Smith rejected the over-protective mercantilist economy and proposed the idea of free markets in a laissez faire economy. He argued that in a mercantile system, the interest of the consumer was always sacrificed to that of the producer. He further stated that private mercantile interest was crushed and that monopolies had ruined the economy. He stressed on the importance of free trade and specialisation in the production of a certain commodity. A country’s comparative advantage in producing a commodity on an international scale would lead to the utilisation of the world’s resources in the best possible manner. If this doctrine were followed, not only England’s economy, but that of the entire globe would be improved. To attain this goal, he argued, all nations would have to allow minimum government interference in their economies.

Stephen B. Clough argues that mercantilism in both theory and practice was economic state building and the use of the state to enhance the interests of a certain merchant class. Charles Wilson is of the view that government intervention in the economy did not benefit the nation as a whole and only benefited a particular section at the expense of others. Along with criticism, an alternate program was also suggested by historians. Hume said that the true wealth of the country lay in its people and in its industry, not in its stock of precious metals. In France, the physiocrats argued that the true basis of all wealth was land and agriculture.

Nonetheless some historians do not completely agree with Smith and believe that mercantilism did lead to economic growth. William Doyle for instance argues that the commerce of France and England was stimulated by protective measures in the seventeenth century. French textile production and metallurgy certainly benefited from Colbert’s paternalism and protection. British economy grew by leaps and bounds due to exclusive guaranteed markets in Ireland, India and the thirteen American colonies. According to Doyle, these protective state policies helped in preparing the pre-conditions for the industrial revolution. Charles Wilson points out that to judge mercantilist thought by the criteria of later economic logic is to misconceive its character. He further says that the reason why the west was economically more powerful than the east was because mercantilism led to economic expansion. Gustav Schmoller argued that in the mercantilist age, territorial economic policy was replaced by a national economic policy.

To get a clear understanding of the principles of mercantilism, one needs to have a closer look at developments in England during the 17th century. In England, the dominant economic thought was that a favourable balance of trade would lead to an influx of treasure. Thomas Mun’s book, ‘England’s Treasure by Forraign Trade’ became a bible for the mercantilists. Mun wrote that in order to increase the wealth of England, ‘we must sell more to strangers yearly than we consume of theirs in value’. This conception of the balance of trade was built into the economic legislations of the 17th century. The commission of 1622, linked mercantilist thought with policy for the first time. The six main aims of the commission were: 1) to reserve raw materials for the English cloth industry by prohibiting the export of wool, fullers earth, pipe clay, etc especially to Holland; 2) to injure Dutch competition by preventing English merchants from providing them with Spanish or Turkish wool 3) to reduce imports from Baltic by manufacturing linen, hemp and flex at home; 4) to oust the Dutch from using its fisheries 5) goods imported from abroad must come in English vessels; 6) foreign merchants and ships must spend the money they earned from imports on English goods. Clearly, it seems that an important aim of the English was to profit at the expense of the Dutch who mainly served as middlemen, brokers, refiners and finishers. They English tried to take advantage of the vulnerable position of the Dutch who had made their fortune through trade and shipping.

In England a lot of importance was given to production of munitions and ammunition so that it would become more powerful. Monopolies were given out through letters to those who would undertake the mining of sulphur and saltpetre. The sea coasts were secured to provide timber for ship building. In order to reduce competition from their rival, they fought the Dutch on a number of occasions and also formed trading companies like the English East India Company. The Navigation Acts of 1651, 1660, 1663 and 1673 aimed at cutting all competition. The acts provided that no goods produced in Asia, Africa or America could be brought into England except in English ships or in the ships of English colonies, captained by an Englishman and manned by an English crew. They imposed heavier custom duties on goods brought to England in foreign vessels than in English ships which was a clear blow to the Dutch carrying business. Colonies could trade certain goods like indigo, tobacco, sugar and cotton only with the mother country or other colonies. They placed special duties on some goods shipped from one colony to another, like sugar from Barbados to New England. Mun and Charles Davenant argued that rather than piling up bullion it should be used in trade. They said that money should be used as a medium of exchange. Consequently in 1663, the government adopted what amounted to almost free trade in gold and silver.

English colonial policy in the New World confirmed with the principles of the colonial compact. English colonial policy differed from others because of two reasons. Firstly, Englishmen went to North America as permanent settlers in fairly large numbers. Secondly, they began the production of those goods which made them commercial rivals of the English at one stage. In the early part of the 18th century the English government passed several acts such as the Woollens Act, Hat Act (1731) and Iron Act (1750) to control the commerce of its colonies. However these rules were not rigidly enforced. The relationship with its American colonies changed after the culmination of the seven years war with France in 1763. As a consequence of the war, England was in huge war debt and had gained control over a large part of America. The English decided that the colonies should pay a part of the costs of the conflict that was waged for their protection and should not interfere with English economic development. Consequently new taxes were levied and older restrictions on trade and manufacturing more strictly enforced. A series of legislations were passed which led to popular discontent in America: The stamp Act (1765) required stamps on all legal and commercial documents; the Sugar Act (1764) made the collection of duty on molasses more rigid; and the Townshend duties (1767) levied duties on colonial goods. Though these acts were repealed soon, the passing of the Tea Act in 1773 led to a strong reaction in the colonies. Americans who earlier considered themselves as equal British citizens revolted against these ‘discriminatory acts’. A Continental Congress comprising of members of all mainland colonies openly revolted against Britain and declared independence in July 1776. The American Revolution went on for seven more years till the Paris Treaty in 1783. Thus, England lost a colony that was to become the greatest economy of the world by a narrow policy that was derived directly from the colonial compact.

In England, the king, bureaucracy and the merchants were partners in this economic policy where all stood to gain. The King, government and bureaucracy saw in the expansion of mercantile prosperity the chance of a larger revenue for themselves. Merchants saw in the state, the helping hand necessary to aid and protect them.

Thus it can be argued that English economy in the 17th and 18th century was based on principles of mercantilism.

 

Bibliography

  1. Charles Wilson – Mercantilism
  2. Shepard B. Clough – European Economic History: The economic development of western civilization.
  3. George H. Nadel – Imperialism and Colonialism.
  4. William Doyle – The Old European Order.
  5. S. Anderson – Europe in the Eighteenth Century.