Mercantilism – Concept, origin, pillars and criticisms

We explain what mercantilism is, what was its origin and the pillars that compose it. Also, how it works and reviews about it.

Mercantilism seeks to form economically robust nation-states.

What is mercantilism?

Mercantilism is understood to be the set of political and economic ideas developed in Europe during the 16th, 17th and early 18th centuries, within the framework of monarchical absolutism.

These ideas proposed a greater intervention of the State in the economy and the taking of a series of measures of protection of local production over foreign, in order to form nation-states as economically robust as possible.

Mercantilism posited that the wealth of nations was only achievable through a positive trade balance with respect to abroad, so it was It is necessary to protect the local economy through strong State measures, leaving behind the economic logic that had prevailed in the West since the Middle Ages: chrematistics.

According to the latter, an inheritance to the Christian world from the ancient Greek philosophers (Thales of Miletus, Plato, Aristotle), loans and usury were against-nature, a dehumanizing exercise; A judgment in which the Christians agreed, since such conduct incurred the sin of avarice.

Mercantilism puts an end to this thought and opens the European monarchies to the capitalist system, born in 14th century Italy. It will be the model in vogue until its crisis at the end of the 18th century, giving way to the new liberal and physiocratic economic theories. It is estimated that by the beginning of the 19th century, mercantilism had disappeared altogether. His resurrection attempts are labeled as neomercantilism.

Origin of mercantilism

As has been said, mercantilism appears to introduce the European absolutist monarchies into capitalism, which had already emerged in Renaissance Italy, and it will be the prevailing economic theory throughout the Modern Age (16th to 18th centuries).

It will also mark the emergence of the nation-states and the Old Regime in Western Europe, opposing the state and its economic control to the spiritual powers of the Catholic Church.

Pillars of mercantilism

Export control gave the state a model for protecting the local economy.

The pillars of mercantilism were three economic principles, evaluated differently for each of the aspects and variants that this model represented in reality. These pillars were:

  • The relations between political and economic power. What were previously separate instances, came to have a relationship of control and reciprocity. The political power, represented by the absolutist monarchy, assumed its role in the economic management of society and decided to undertake the construction of a rich nation-state, which would have sufficient capital for its numerous projects.
  • Control of the currency. The unification of the internal market, the increase in population and the privilege of internal production went hand in hand with the defense of national capital, mainly in terms of agriculture, mining and manufacturing. Likewise, it was sought to have a large and industrious population behind the coin.
  • State interference in the economy. Control of exports (the export of raw materials was prohibited, but the rest of the production surpluses were widely exported) and especially of imports (tariffs, blocked with barriers, made difficult except in the case of scarce raw materials in the country), gave the State the steering wheel of a model of protection of the local economy.

How does mercantilism work?

The operation of mercantilism responds to nine fundamental principles (the nine Von Hornick rules), which were implemented differently and individually in each of the European nation-states, according to their needs and particularities. These principles are:

  • The use of the entire national territory for agriculture, mining and manufacturing.
  • Dedicate all the country’s raw materials to national industries, since manufactured goods are worth more than raw materials internationally.
  • Promote an abundant and hard-working population.
  • Ban precious metal exports and keep the national currency circulating.
  • Obstruct the importation of foreign goods.
  • Import the necessary goods in exchange for other scarce goods and not for the payment of gold and silver.
  • Limit imports to scarce raw materials in the country.
  • Sell ​​the surplus of manufactured production abroad, in payments of gold and silver.
  • Do not allow imports of goods produced and available in the country.

Criticism of mercantilism

Mercantilism had numerous detractors, who accused him of not understanding the benefits of trade and comparative advantage. Theorists such as David Hume denounced the impossibility of mercantilism to maintain a favorable trade balance all the time (greater exports than imports) and the excessive interest in precious metals such as gold and silver, which, when monopolized by the State, lost their commercial value and had to rather be treated like any other rare commodity.

Finally mercantilism was replaced in the nineteenth century by theories of liberalism and the laissez-faire proposed by Adam Smith.