How Did Mercantilism Work - Assignment Example

Mercantilism Name Institution Instructor Date How did mercantilism work? A distinct society emerged in the colonies by early 1750s and was united by the intellectual currents like the Enlightenment and the Great Awakening (McCusker, 2008). The colonies had distinct religious, social, and demographic characteristic, however, the developing economic and political upheaval strengthened their primitive sense of unity. In the 17th and 18th centuries, Europeans held the notion that a country needed strong power to exist, and that to be powerful a country had to be wealthy (McCusker, 2008). This idea was referred to as mercantilism. In order to gain wealth, a nation had to acquire colonies. Colonies served as constant source of Materials and provided markets for the manufactured products to the nation that owned them. For instance, colonists would cut down trees in their colonies, send the trees to England where craftsmen created furniture, paper, tools or barrels. Later, these products were transported to the colonies and sold to the colonist residing there. The revenue would be sent back to England. This procedure helped colonists to establish a favourable balance of trade. A country aimed at exporting more goods to other countries than it imported from them (Mendoza and Rouhnier, 2012). Marguis de Mirabeau come up with the term mercantilism in 1763, but Adam smith a political economist based in Scotland helped to popularize it in 1776 in his book called the wealth of nations (McCusker, 2008). Mercantilism is derived from two Latin words; merx meaning 'goods' and mercari, meaning 'to operate a trade'. Mercantilists practised bullionsim which can be described as a belief that a nation's wealth should be determined by the gold and silver reserves (Ferguson, 2001). Countries engaging in mercantilism sought to increase their wealth by increasing their supply of gold, silver, and trade value by taking part in a protectionist role in the economy. Protectionist role involved promoting exports and discouraging imports, particularly via use of tariffs. The mercantile systems portray a world where countries believed in rivalry and power and wealth were linked. During this period, the European's influential nations such as, England, France, and Spain believed that the quantity of gold and silver in the world was limited. To achieve these, countries engaged in war with competing countries; promote local manufacturers through monopolies as well as subsidies to produce more products internationally (Mendoza and Rouhnier, 2012). The country created and protected its own shipping and obtained colonies as a source of raw materials. Colonies provided goods such as grain, sugar and tobacco and this helped colonists to create jobs and industries in their home countries. The British began to control colonial trade to increase profits under the mercantilist system during early 1660s. The king banned direct exportations to competing countries. For instance, tobacco produced in Jamestown had to be transported to England first; it was taxed then sold off elsewhere. Production of tobacco in Virginia and Sugar in West Indies influenced England's rise to power. With time, the North American colonies started trading with the West Indies directly. They would supply colonials with horses, agricultural, food, and lumber products. The West Indies gave them gold, species, silver or money in exchange for the goods. The North Americans would then purchase manufactured goods In England. As years passed, the dependency existing amongst West Indies and North Americans become stronger, however England did not try to limit trade. The Dutch started trading in the Caribbean and North America (Ferguson, 2001). Identify its essential pillars The most essential pillar for mercantilism during the sixteenth century was the consolidation of the local power centres of the feudal by influential, competitive countries (Steele, 1998). Another factor that contributed to growth of mercantilism is the creation of colonies outside Europe. The development of European trade and agricultural industry, the growth of the commerce and the increase in the application of the metallic monetary system especially gold and silver helped to sustain mercantilism. There was creation of different types of policies. Locally, the government provided money to fund new industries, excluded new companies from guild rules and taxes, created monopolies over domestic and colonial markets, and given titles and pension to successful manufactures. The government imposed tariffs, quotas and banned the export of products that rivalled with domestic manufacturers to help boost trade. The government also banned the export of equipments and capital equipment as well as the emigration of skill labour. This prevented foreign nations as well as the home country colonies from competing in the manufacturing goods. The diplomats encouraged foreign producers to shift to the diplomats’ countries (Steele, 1998). In Britian, the government passed laws in parliament to enforce Mercantilism within the North American colonies. In 1650, the negation laws were passed and become prevalent among these acts. The original purpose of passing the laws was to control and prevent Dutch shippers from trading with the Colonists based in America (Steele, 1998). This ensured that profits made in the colonies inside the British Empire. It helped to maintain the British and colonial merchant marine and served as a significant reserve for the Royal Navy. The navigations laws were drafted to prevent trade between the colonies and England. This implied that the Americans had a chance to trade their goods with the English. The parliament passed other laws that prevented European goods being transported to the North American colonies to pass via England first. This enabled taxes to be collected and the British Intermediaries would be given their share of the profit. Another law specified that products like tobacco to be transported to England only, and not foreign countries. Virginia colony was affected by this ruling. Some of the richest tobacco farmers were forced into debt for many years. What were its strengths and weaknesses? Mercantilism resulted to the rise of Nation state. During the mercantilism period, feudal institutions were weakened due to the increased use of cash and a great dependence on exchange within the economy (Steele, 1998). Mercantilism theory argues that there is a specific quantity of wealth in the globe and that it is in a country's best interest to amass it. A country can obtain power by using wealth. To achieve wealth, a country needs to produce and export more products that it imports. The products are sold at a profit so as to create wealth. Mercantilism rise was a response against the economic issues whereby the countries did not have power to guide their economies. Every city levied its own taxes on products passing through its borders. The Modern period resulted to rise of powerful countries such as, Holland, France, Spain and England. The period was characterized by constant warfare. The nations needed money to finance the ever-growing armies and navies. Conquering of colonies was very appealing during this period in order to get raw materials. In England, Mercantilism resulted to development of a skilled labour force and the development of a big navy and merchant marine. Conversely, mercantilism resulted to inflation and separation in the colonies. Spain managed her empire's trade and industry powerfully. England tried to apply the same technique. Mercantilist policies applied during the era of Elizabeth persisted in the 17th century under the reign of Sturts and Oliver Cromwell (McCusker, 2008). Elizabeth laws were essential in discouraging idleness, to reward industrial businesses with monopolies and to manage the trade through navigation. German mercantilism purpose was to increase the economic influence of the country through internal regulation. The mercantilist focused on increasing the national revenue and they were referred to as cameralists. France portrayed the most thoroughgoing mercantilism. Jean Baptist Colbert was the chief Minister of Louis XIV from 1661 to 1683 (McCusker, 2008). He was a great advocate of economic policies. On the contrary, he was a practical politician interested in the wellbeing of the middle class people. He banned the export of money, levied huge taxes on foreign produces, and awarded liberal prizes to promote French shipping. The military conflicts between countries become more recurrent and more extensive in the mercantilist era than any other period in history. The armies and navies who used to be temporary forces who were supposed to handle a particular threat become full-time expert forces. The key economic objective of all the governments was to control adequate amount of money to sustain a military that would help to fight other rival countries and protect its own territorial expansion. Mercantilist polices were the result of the association between the country government and their mercantile classes. In order for the mercantile to pay levies and taxes to sustain the armies, the mercantile forced the governments to pass policies that would safeguard their interests against the foreign traders (McCusker, 2008). What arguments do liberals have against mercantilism? Liberalism differs with mercantilism. Economic liberalism theorists advocated for minimal interferences of government in country's economy. However, liberalism is not against the country's provision of a few essential public goods with what comprises public goods originally viewed as very limited scope. Liberalism theories started in 18th century. They argued that if people were left to trade on their own, it would result o harmonious and more equal community society of ever-growing wealthy. This led to a capitalist economic system during the 18th century era and eventually the collapse of the mercantilist system (Magnusson, 1994). The basic of classical economic liberalism is formed by private and individual contracts. For example, Adam Smith stated that the government had a duty to provide good infrastructure, canals, schools, and health facilities that cannot be effectively executed by private institutions. According to Adam Smith, the good must be paid proportionally to their consumption (Magnusson, 1994). He advocated retaliatory tariffs to help sustain free trade, and copyrights and patents to promote innovation. Robert Cox conducted research that showed the significance of innovation and its great implications on free market. Liberalism argued that the government considers large businesses interests, changing the market to favour them and these leads to inefficient outcomes. Liberalist argued that a market economy should be based on a free price system but the government should offer competitive markets and social welfare programs to manage social inequalities as a result of the free-market. Liberalist supported the idea of giving equal opportunities to reduce private monopoly and therefore avoid infringing liberty of individuals (Magnusson, 1994). The mercantilists had shortcomings. They sacrificed the interests of colonists to those of the home nation. The colonists did not have much power over their own government. The colonies were exploited mercilessly. No colonial commercial system exercised liberalism in the 18th century. As the colonial commerce expanded, some colonist started to dislike the Navigation Acts. On their perspective, the laws only favoured the English traders. Some of the colonists thought that if they ignored the Navigation Laws and smuggled goods they would make more money (Jacob, 1991). Liberals argued that price variations and deflation were caused by trade rules which prohibited ‘normal’ foreign markets from developing. References Ferguson, N., (2001). The cash Nexus: Money and power in the Modern world, 1700-200(New York: basic books. Jacob, V., (1991). Essays on the Intellectual History of Economics. Princeton, NJ: Princeton University Press Magnusson, L., (1994). Mercantilism: The Shaping of Economic Language. London: Routledge, 1994. Mendoza, j., and Rouhnier, S., (2012). Economists at Eurocite Brussels. McCusker J., (2008) British Mercantilist policies and the American colonies: Hardback ISBN: Steele, G., (1998). The Money Economy: Mercantilism, Classical Economics, and Keynes' 'General Theory: American Journal of Economics and Sociology. Read More