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Overview of mercantilism

  • Mercantilism is a set of policies that accompanied the rise of the modern state in Europe
  • State building spanned a few hundreds years from the 16th century and consisted in the evolution of fragmented political units into larger, centralised political entities
  • The process involved the formation of bureaucratic structures entrusted with public functions
    •  tax collection, justice, public finances, defence, infrastructure, etc.
  •  The form of the modern state varied considerably, ranging from absolutist monarchies to decentralised republics 
  • mercantilism expresses the nexus between POWER and PLENTY

    • PLENTY was needed to build military power

    • military POWER was often regarded as the most effective way to accumulate wealth 


Mercantilism was not...

  • a coherent body of theory ⟶ lack of economic rationale of most legisla0on
  • a coherent set of ideas/practices ⟶ there was a lot of variation from country to country 


Mercantilism and class

  • Knowledge of and familiarity with economic principles and technical matters were scant among rulers and their ministers
  • Mercantilist policies were tailored to the interests of the ruling classes and depended on the nature and composition of national elites 


Mercantilist policies elements

1.  bullionism ⟶ increase in the stock of gold and silver, obtained by securing colonies OR maintaining a trade surplus

2.  trade surplus

⟶ imposing taxes on selected imported goods
⟶ stimulating domestic production of manufactures, export bounties, monopolies, etc. 

3. Running large merchant fleets was an effective means to

• develop national trade
• earn revenues from foreign shippers

• flexibly enlarge the navy
• grow domestic marine expertise
• develop shipbuilding, etc. 

4. Navigation laws -reserving national trade for national ships or otherwise discriminating against foreigners 

5. Colonies, yet another means of acquiring bullion or trade supremacy 


Overview of Spain mercantilist era 

  • At mid-16th century Spain had large possessions in both Europe and Latin America
  • Potentially, this large empire was also economically powerful as it had
    • plenty of natural resources: bullion and other tropical commodities in Latin America +mineral ores in Europe
    • areas featuring a most advanced agriculture: the Netherlands, part of the Po Valley
    • areas where advanced manufacturing activities had developed: the Netherlands
  • Bad economic policies since mid-16 century, though, caused Spain to experience decline ⟶ lower living standards, famine and plague, depopula0on 


Causes of Spain's downfall

  • The primary goal of Spanish rulers was to consolidate Christian Europe ⟶ hence many religious and commercial wars involving huge physical and financial losses
  • Land property was highly concentrated in the hands of the nobility and the Church: up to 97% of the land held by 2-3% of the population
  • The tax rate was very high but many of the richest landowners were exempt and the burden was borne by the lower classes 
  • From mid-16th century, the huge inflow of silver from the Americas became a major source of state revenue
    • but the crown was unable to gain full control of it
    • and was forced to borrow to cover its enormous expenditures
  • In these circumstances, Spain experienced frequent fiscal crises through the 16th and 17th centuries
  • Unreasonable privileges granted to special interest groups proved detrimental to the larger economy
    • Mesta, the guild of sheep owners ⟶ harm to agriculture
    • Consulado, guild of wool merchants (Burgos) ⟶ harm to domestic producers 


Effects of Spain's downfall

negative effects of economic policies can best be seen in

  • cereal produc.on: price increases in the 16th century ⟶ price caps set by the crown ⟶ exploitation unprofitable, land use shifted to other crops ⟶ more serious shortages ⟶ free entry for foreign grain
  • cloth manufacturing: demand growth in Spain and the Americas was met by rigid supply ⟶ abolition of tariffs on foreign cloths and export prohibition ⟶ industry is ruined
  • As to the Spanish stance towards the American empire
    • discrimination against foreigners regarding trade and settlement
    • intra-colonial trade discouraged
    • local manufactures prohibited 


Overview of Dutch mercantilist area (politics)

The Dutch Republic differed substantially from other national experiences in two ways

  1. it did NOT have an absolutist regime but rather a decentralised political system
  2. •it relied on international trade to a far greater extent than most countries in continental Europe

As for the constitutional system, not only did the provinces enjoyed a lot of autonomy, but political elites were dominated by merchant interests 


Dutch economic mercantilist era in relation to shipping services

In the economic sphere, the strength of the Dutch rested esp. on shipping services:

• In the first half of the 17th century, up to 75% of shipping in the Baltic and North seas, the Bay of Biscay, and the Mediterranean was accounted for by the Dutch fleet

• Among Dutch exports, herrings were the most important item, followed by agricultural products such as butter, cheese, and industrial crops

• The shipbuilding and related industries also contributed to exports, as well as woollen cloths 


Commerce and industry in Dutch m. era

  • Manufacturing capabilities were greatly enhanced by the inflow of migrants seeking refuge from religious persecution ⟶ protestants fleeing the southern Netherlands and France in late 16th and 17th centuries
  • In commerce and industry, the Dutch had a relatively liberal attiude
    • the only industry subject to detailed regulation was herring fishery
    • all in all, guilds’ political power and control over production was far smaller than in many other European countries
    • just colonial trade was controlled by two private chartered companies under a monopoly regime 


What were the 2 constiutional developments that distinguished England from continental countries?

  1. absolutism was defeated in the 17th century and a constitutional monarchy emerged (⟶ Glorious Revolution, 1688-89)
  2. control over taxation and public finance, one of the most contentious issues, was eventually secured by the Parliament



What were the institutional developments that helped England distinguish itself?

Institutional developments in the financial system also greatly contributed to making England a different story from the continent

  • Bank of England, 1694
  • emergence of a market for government debt (and private securities), enabling the government to raise money at a far lower cost than its European counterparts 


Most important English economic policies during m.era

1.  Navigation Acts (1651, 1660)

• British imports and trade with British colonies were reserved for British ships

• imported goods were to be shipped directly from the country of origin

• British colonial goods needed to be shipped to Britain and re-exported rather than shipped directly to foreign countries

2.  Calico acts (1701, 1721)

• banned imports of cotton cloths from India; lobbied for by woollen producers ⟶ fostered development of the cotton industry 

• a form of economic protectionism, largely in response to India (particularly Bengal), which dominated world cotton textile markets at the time

=> Overall, England adopted:

•  mercantilist policies vis-à-vis its foreign partners

•  rather liberal policies in the domestic market

⟶ guilds increasingly lost power
⟶ entrepreneurial activity was relatively unhampered by regulation 


Why was France the paradigm of economic nationalism during the m.era?

To a great extent this is due to Jean-Baptiste Colbert (1661-1683), finance minister under Louis XIV (Colbert’s stated goal was to make France self-sufficient )

•  Colbert attempted to rationalise the administrative structure of the state, esp. with regard to controls over the economy but fell short of reforming the tax system

•  state fiscal needs were met with a mix of taxation, borrowing, and the sale of public offices (administrative, fiscal, and judicial) 

• The share of office sale in state revenue ranged between 10 and 15% 


Drawbacks of economic nationalism

• it diverted capital from productive use in commerce and manufacturing to public expenditure

•  it favoured wealth over merit and competence in the selection of civil servants

•  it generated corruption and low efficiency

•  it created enclaves of vested interests resisting reform aiming at greater homogeneity 

• France ability to raise taxes compared poorly w/ NL, GB 


French economic policies and its role in stimulating the economy

  • regulation regarding product quality and merchant’s activities, enforcement bodies
  • import duties to foster domestic manufactures and raise revenues
  • creation of guilds to improve quality standards and gain additional revenue sources
  • subsidies and privileges to royal manufactures producing luxury goods meant for court consumption and export
  • foundation of chartered trade companies


Why was Prussia most successful example of state-building?  

  • professional civil servants ⟶ effective fiscal administration
  • professional army ⟶ remarkable burden on state budget but extraordinary effectiveness in case of war; source of revenues from military allies
  • tight control over public expenditure
  • wise economic policies ⟶ monopolies to foster manufactures; protectionism; subsidies
  • to foreign skilled workers/settlers; productive exploitation of crown domains 

Agriculture was the only poorly performing sector 


Russia during mercantilist era

  • Russia rose to the status of a military power in the late 17th-early 18th centuries through a process of modernisation initiated by Peter the Great (tsar in 1682-1725)
  • Fiscal reform, armed forces, policies devised to attract foreign skills, state-owned enterprises in several industries
  • The economy stayed in a depressed condition esp. because of serfdom, low human capital, a regressive taxation system: after Peter’s death, many of his achievements were reversed
  • Tsarina Catherine (1762-96) heightened fiscal problems by having recourse to foreign loans and issuance of paper money 


Poland during m.era

  • Poland ceased to exist as an independent kingdom in 1795, when it was dismembered and its territory incorporated by Prussia, Austria, and Russia
  • Behind this unhappy end stood
    • political weakness ⟶ king was elected; parliament members individually held veto power over the assembly’s work
    • economic backwardness ⟶ land property highly concentrated; many nobles were poor; some 75% of the population were serfs; grain export fell in the 18th century due to increased production in west Europe