Shaping Nations: Exploring the Definition and Impact of Mercantilism

Between 1400 and 1800 most of the states of Western Europe were heavily influenced by an economic policy known as mercantilism. No general definition of mercantilism is entirely satisfactory, but for the purposes of this paper it is thought of as a collection of policies designed to keep the state prosperous by economic regulation. Secondly, it was a series of economic controls intended to strengthen the military and colonies of a country, against other antagonistic empires. These two principles of mercantilism are interconnected, and they give an accurate view of the common attitude that shaped this time period. This concept has been coined as nation building.

Before this time period commerce was literally viewed as a sin. There was no moral/ethical allowance for merchants to make any profit from trade. This was reflected by the Churchs control over economic dealings. But the decline of the medieval feudal economy gave rise to nation-states, bringing forth a revolution in commercial activity. This revolution sparked new thinking in wealth accumulation. Instead of viewing money as a mortal sin, it was now seen as the main source of a nations wealth. No longer was the market viewed as an entity in its own right, independent of the state, but viewed as a political institution designed to serve the national interest. (Duchesne pp. 7) With the rise of the nation-state, there was awareness that the central government could become more powerful if they could accumulate more wealth through trade.

The driving force behind virtually all trade was the merchant. Merchants slowly adopted a doctrine called the balance of trade theory, which says that the source of wealth comes from selling more than one bought, especially in regards to other nations. Therefore, international trade was passionately pursued, to enhance the accumulation of wealth. As the economist Thomas Mun suggested, the domestic consumption of imports should be reduced while exports and re-exports should be increased. Domestic industries would then have to be encouraged to rework imported raw materials into finished goods to be exported. This reworking of foreign raw materials and their resale was another aspect of the cycle of trade.

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This brought merchants to fully understand their dependency on the government for policies surrounding import tariffs and export incentives. (Davies pp. 523-525) They needed the government to intervene to help reduce foreign imports of finished goods and in turn assist with domestic exports. In order for them to achieve this, they needed new legislation and the cooperation of the government. As governments and merchants began to work together, the nation-state began to slip into a period of protectionism, where imports were at times restricted altogether. This economic regulation of international trade was controlled by the government in its policies in order to build the national interests.

The balance of trade doctrine, now a political issue, was more of a monopolistic control of industry and trade than it was a free market institution. Economics and politics were now interdependent upon each other. Karl Polanyi referred to this as an embedded condition of the economy in relation to society. Trade was slowly being impacted by governmental policies, bringing economics and politics to be intertwined. As the nation-states trade routes began to increase and their interests abroad in colonies began to fill the treasury with gold, there was a need for physical protection. Just as the merchants realized they needed protection from foreign goods, so also did the state realize it needed protection from its envious enemies. With large amounts of money in the treasury, massive military build-up began to occur. Naval fleets and well equipped soldiers were assembled and enlisted to protect the nation from other countries who might attempt to pillage their assets. However, in order to pay for this growing military expense, the governments treasury required continued economic activity through trade revenue.

With merchants and governments cooperating together with the same goals in mind, politics quickly became embedded with economic prosperity. Just as merchants were dependent on the power of the monarch to protect their interests of trade, so was the monarch dependent on the merchants trade activity to increase the monarchys treasury. These newly married concepts of politics and economics were designed to keep the state prosperous by economic regulation, and to provide a constant inflow of income for governmental control that was intended to strengthen the military and colonies of a country, against its enemies. These two principles of mercantilism were embedded together and allowed for the building of the common interests of the nation state.

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