Asher Sisneros

Asher K. Sisneros

Thomas E. Woods, Jr.

Western Civilization Since 1493

September 27, 2024

Mercantilist theory was born during the 16th century, and it came to dominate global trade policy in Europe by the 17th century. Colbert’s policies under King Louis XIV propelled Mercantilism to its highest point in French history. Similarly, the Navigation Acts under Oliver Cromwell exemplified English Mercantilism. It had varying degrees of success through the 17th century, but by the Industrial Revolution, Mercantilism finally started to fade. 

Mercantilism presupposes that for every winner, there is a loser; and one man’s profit is another man’s loss. Thus on a geopolitical level, one nation’s profit is another nation’s loss. It is only natural that from this line of reasoning, a nation must export more goods than it imports to remain solvent. The Mercantilist solution is for the State to artificially restrict imports via tariffs and promote exports via subsidies. The renowned economist Adam Smith refutes this presupposition in The Wealth of Nations and makes three rebuttals: 

1. When trade is freely initiated, both parties benefit; 
2. Specialization (i.e., division of labor) in production causes economies of scale, which increases global efficiency; 
3. Government involvement in industry is destructive to the entire population.¹

Nevertheless, Smith did not make this case until the 18th century, during the decline of Mercantilist policies. In the 17th century, monarchs and economists did not widely acknowledge the mutual benefits of trade. Thus macroeconomic policy was not determined by pursuing market efficiency; rather, it was about the State’s accumulation of gold. 

Even more importantly, the nature of warfare was changing and became directly dependent on financial resources. It seems doubtful that monarchs (and merchants) of the era had completely innocent intentions. As Professor Lewis Haney says, “[T]he object of Mercantilism was not so much to increase the wealth of the nation as to add to its power.”² Warfare was changing during this time. On the innovative front, flintlock muskets and bayonets evened the playing field somewhat and made warfare less about brute strength. Moreover, major powers started to maintain standing armies at all times, instead of calling an army together after a declaration of war.³ These standing armies, in addition to the huge naval fleets, were incredibly expensive. To quote Haney: 

By the seventeenth century, warfare was vastly changed. Formerly there had been [a] hasty expedition, a pitched battle, and the issue was settled by courage; but … as … eminent Mercantilist states, the whole art of war seemed … reduced to money, and that prince who could best find money to feed, clothe, and pay his army, not he who had the most valiant troops, was surest of success and conquest.⁴ 

This evolution of warfare had two major ramifications. Firstly, it gave monarchs and princes a greater incentive to accumulate gold. To maintain their sovereignty, princes needed victory on the battlefield. To attain victory, they needed financial resources. Thus a shift in the direction towards economic surplus should not be surprising. For example, the Navigations Acts imposed heavy tariffs on trade from the American colonies, giving England more revenue and therefore a strong military. Secondly, the State as an institution benefited from granting monopoly privileges to various merchants because those merchants provided the State with additional funding.⁵ Thus it was a circular cycle, especially in France, where certain industries and individual actors were given unfair privileges, and those actors then funded France. This practice was not unique to France, but Colbert epitomized the cronyism. To quote Haney, once again: 

Industrial democracy … was far from existing. The most significant immediate result … is, perhaps, the voice in public affairs that was given to the merchant—the representative of “big business” in those days.⁶

Irrespective of the “intentions” of Mercantilist philosophers, their policies did not result in economic prosperity for all classes. Instead, most of the classes suffered from the trading restrictions and monopolies. Under no circumstances have monopoly privileges ever benefited the overall economy, and only one class benefited from Mercantilism: the aristocracy. 

Concluding points: 

1. Contrary to the Mercantilist theory, cooperative trade benefits all parties. 
2. On paper, Mercantilism was about the health of the economy. In actuality, it was about the monarchy’s accumulation of power. 
3. To pay for costly wars, monarchs needed funding from aristocrats. 
4. Aristocrats demanded monopoly privileges in exchange for military funding. 
5. In the end, all won, except the working class.

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1. Laura LaHaye, Mercantilism, par. 9, https://www.econlib.org/library/Enc/Mercantilism.html ↩︎
2. Lewis H. Haney, History of Economic Thought, (New York, New York: The Macmillan Company, 1949), p. 116 ↩︎
3. LaHaye, Mercantilism, par. 3 ↩︎
4. Haney, Economic Thought, p. 118 ↩︎
5. LaHaye, Mercantilism, par. 1, 4
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6.  Haney, Economic thought, p. 117 ↩︎