We explain what mercantilism is, what its origin was and the pillars that make it up. Also, how it works and reviews about it.
What is mercantilism?
Mercantilism is understood as the set of political and economic ideas developed in Europe during the 16th, 17th and first part of the 18th centuries within the framework of monarchical absolutism.
These ideas proposed greater intervention of the State in the economy and the taking of a series of measures of protection of local production over foreign production in order to form nation-states that are as economically robust as possible.
Mercantilism stated that the wealth of nations was only achievable through a positive trade balance with respect to foreign countries, so it was 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: economic logic.
According to the latter, inherited to the Christian world from the ancient Greek philosophers (Thales of Miletus, Plato, Aristotle), loans and usury were against nature, a dehumanizing exercise; judgment in which Christians agreed, since such behavior incurred the sin of greed.
Mercantilism puts an end to this thinking and opens European monarchies to the capitalist system, born in Italy in the 14th century. It will be the model in vogue until its crisis at the end of the 18th century, giving way to the new physiocratic and liberal economic theories. It is estimated that At the beginning of the 19th century, mercantilism had completely disappeared. His resurrection attempts are labeled 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 appearance of nation-states and the Ancien Regime in Western Europe, opposing the State and its economic control to the spiritual powers of the Catholic Church.
Pillars of mercantilism
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 relationships between political and economic power What were previously separate instances began 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.
- Currency control 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, more than anything in terms of agriculture, mining and manufacturing. Likewise, the aim was to have a large and industrious population behind the currency.
- State interference in the economy The 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, difficult except in the case of raw materials scarce 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 (Von Hornick's nine 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.
- Prohibit exports of precious metals and keep the national currency in circulation.
- Hinder the import of foreign goods.
- Import necessary goods in exchange for other scarce goods and not for the payment of gold and silver.
- Limit imports to raw materials that are scarce 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, hoarded by the State, lost their commercial value and had to be rather be treated like any other scarce commodity.
Finally, mercantilism It was replaced in the 19th century by the theories of liberalism and the laissez-faire proposed by Adam Smith.
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