Mercantilism is a nationalist economic policy that is designed to maximize the exports and minimize the imports for an economy. In other words, it seeks to maximize the accumulation of resources within the country and use those resources for one-sided trade.
121-474: The concept aims to reduce a possible current account deficit or reach a current account surplus, and it includes measures aimed at accumulating monetary reserves by a positive balance of trade , especially of finished goods . Historically, such policies might have contributed to war and motivated colonial expansion . Mercantilist theory varies in sophistication from one writer to another and has evolved over time. Mercantilism promotes government regulation of
242-442: A Jesuit college, working for a Parisian banker; as well as working for the father of Jean Chapelain . Before the age of 20, Colbert had a post in the war office, a position generally attributed to the marriage of an uncle to the sister of Secretary of War Michel Le Tellier . Colbert spent some time as an inspector of troops, eventually becoming the personal secretary of Le Tellier. In 1647, through unknown means, Colbert acquired
363-590: A growing money-supply . Fiat money and floating exchange rates have since rendered specie concerns irrelevant. In time, industrial policy supplanted the heavy emphasis on money, accompanied by a shift in focus from the capacity to carry on wars to promoting general prosperity. England began the first large-scale and integrative approach to mercantilism during the Elizabethan Era (1558–1603). An early statement on national balance of trade appeared in Discourse of
484-898: A "reckless fiscal policy or a consumption binge." China's financial system favors the accumulation of large surpluses while the United States carries "large and persistent current account deficits" which has created a trade imbalance. The authors note that, Moreover, in practice, private capital often flows from developing to advanced economies. The advanced economies, such as the United States ... run current account deficits, whereas developing countries and emerging market economies often run surpluses or near surpluses. Very poor countries typically run large current account deficits, in proportion to their gross domestic product (GDP), that are financed by official grants and loans. Jean Baptiste Colbert Jean-Baptiste Colbert ( French: [ʒɑ̃.ba.tist kɔl.bɛʁ] ; 29 August 1619 – 6 September 1683)
605-527: A certain extent, mercantilist doctrine itself made a general theory of economics impossible. Mercantilists viewed the economic system as a zero-sum game , in which any gain by one party required a loss by another. Thus, any system of policies that benefited one group would by definition harm the other, and there was no possibility of economics being used to maximize the commonwealth, or common good. Mercantilists' writings were also generally created to rationalize particular practices rather than as investigations into
726-438: A country and entering abroad countries) or decreasing imports (goods coming from a foreign country into a country). Firstly, this is generally accomplished directly through import restrictions, quotas, or duties (though these may indirectly limit exports as well), or by promoting exports (through subsidies, custom duty exemptions etc.). Influencing the exchange rate to make exports cheaper for foreign buyers will indirectly increase
847-569: A country's current account records the value of exports and imports of both goods and services and international transfers of capital . It is one of the two components of the balance of payments , the other being the capital account (also known as the financial account). Current account measures the nation's earnings and spendings abroad and it consists of the balance of trade , net primary income or factor income (earnings on foreign investments minus payments made to foreign investors) and net unilateral transfers, that have taken place over
968-404: A given period of time. A country is said to have a trade surplus if its exports exceed its imports, and a trade deficit if its imports exceed its exports. Positive net sales abroad generally contribute to a current account surplus ; negative net sales abroad generally contribute to a current account deficit . Because exports generate positive net sales, and because the trade balance is typically
1089-417: A given period of time. The current account balance is one of two major measures of a country's foreign trade (the other being the net capital outflow ). A current account surplus indicates that the value of a country's net foreign assets (i.e. assets less liabilities) grew over the period in question, and a current account deficit indicates that it shrank. Both government and private payments are included in
1210-457: A member of the Académie française ; and proposed one very characteristic rule with the intention of expediting the great Dictionary , in which he had a great interest: no one could count as present at any meeting unless he arrived before the hour of commencement and remained till the hour for leaving. In 1673 Colbert presided over the first exhibition of the works of living painters; and he enriched
1331-491: A nation's economy for the purpose of augmenting and bolstering state power at the expense of rival national powers. High tariffs , especially on manufactured goods, were almost universally a feature of mercantilist policy. Before it fell into decline, mercantilism was dominant in modernized parts of Europe and some areas in Africa from the 16th to the 19th centuries, a period of proto-industrialization . Some commentators argue that it
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#17328686608971452-412: A new and wider significance, in which its aim and ideal became both national and imperialistic. The connection between communism and mercantilism has been explored by Marxist economist and sociologist Giovanni Arrighi , who analyzed mercantilism as having three components: "settler colonialism, capitalist slavery, and economic nationalism," and further noted that slavery was "partly a condition and partly
1573-502: A patron, however highly ranked, but had to agree in this case for reasons of diplomacy between France and the Holy See . While in France, Bernini also sculpted a marble portrait bust of Louis XIV (Versailles palace). However the relations between the two strong-willed men, Colbert and Bernini, proved melodramatically stormy. Bernini's Louvre design was ultimately rejected. Colbert himself became
1694-560: A policy focusing on the unification of French trade. His régime improved roads and canals. Pierre Paul Riquet (1604–1680) planned and constructed the Canal du Midi under Colbert's patronage. To encourage overseas trade with the Levant , Senegal , Guinea and other places, Colbert granted privileges to companies, but, like the noted French East India Company , all proved unsuccessful. Colbert took much interest in art and literature. He possessed
1815-738: A reduction in borrowing by the national government. A current account deficit is not always a problem. The Pitchford thesis states that a current account deficit does not matter if it is driven by the private sector. It is also known as the "consenting adults" view of the current account, as it holds that deficits are not a problem if they result from private sector agents engaging in mutually beneficial trade. A current account deficit creates an obligation of repayments of foreign capital, and that capital consists of many individual transactions. Pitchford asserts that since each of these transactions were individually considered financially sound when they were made, their aggregate effect (the current account deficit)
1936-609: A reference resource produced by the Central Intelligence Agency that collects data and publishes online open reports comparing the current account balance of countries . According to World Factbook , "[c]urrent account balance compares a country's net trade in goods and services, plus net earnings, and net transfer payments to and from the rest of the world during the period specified. These figures are calculated on an exchange rate basis." The top ten on their list of countries by current account balance in 2014 were: On
2057-638: A remarkably fine private library, which he delighted to fill with valuable manuscripts from every part of Europe and the Near East where France had placed a consul. He employed Pierre de Carcavi and Étienne Baluze as librarians. Colbert's grandson sold the manuscript collection in 1732 to the Bibliothèque Royale . Colbert founded a number of institutions: He reorganised the Academy of Painting and Sculpture which Mazarin had established. Wishing to increase
2178-545: A result of the success of settler colonialism." In France, the triangular trade method was integral in the continuation of mercantilism throughout the 17th and 18th centuries. In order to maximize exports and minimize imports, France worked on a strict Atlantic route: France, to Africa, to the Americas and then back to France. By bringing African slaves to labor in the New World, their labor value increased, and France capitalized upon
2299-634: A significant influence on the trade balance, and by extension, on the current account. An overvalued currency makes imports cheaper and exports less competitive, thereby widening the current account deficit (or narrowing the surplus). An undervalued currency, on the other hand, boosts exports and makes imports more expensive, thus increasing the current account surplus (or narrowing the deficit). Nations with chronic current account deficits often come under increased investor scrutiny during periods of heightened uncertainty. The currencies of such nations often come under speculative attack during such times. This creates
2420-507: A single area of the economy. Only later did non-mercantilist scholars integrate these "diverse" ideas into what they called mercantilism. Some scholars thus reject the idea of mercantilism completely, arguing that it gives "a false unity to disparate events". Smith saw the mercantile system as an enormous conspiracy by manufacturers and merchants against consumers, a view that has led some authors, especially Robert E. Ekelund and Robert D. Tollison, to call mercantilism "a rent-seeking society". To
2541-479: A straightforward, common-sense system whose logical fallacies remained opaque to people at the time, as they simply lacked the required analytical tools. The second school, supported by scholars such as Robert B. Ekelund , portrays mercantilism not as a mistake, but rather as the best possible system for those who developed it. This school argues that rent-seeking merchants and governments developed and enforced mercantilist policies. Merchants benefited greatly from
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#17328686608972662-486: A vicious circle where precious foreign exchange reserves are depleted to support the domestic currency, and this forex reserve depletion – combined with a deteriorating trade balance – puts further pressure on the currency. Embattled nations are often forced to take stringent measures to support the currency, such as raising interest rates and curbing currency outflows. Action to reduce a substantial current account deficit usually involves increasing exports (goods going out of
2783-430: A wide variety of fields. The authorities established new industries, protected inventors, invited in workmen from foreign countries, and prohibited French workmen from emigrating. To maintain the character of French goods in foreign markets as well as to afford a guarantee to the domestic consumer, Colbert had the quality and quantity of each article fixed by law, punishing breaches of the regulations by public exposure of
2904-522: Is a net lender to the rest of the world, while a negative current account balance indicates that it is a net borrower from the rest of the world. A current account surplus increases a nation's net foreign assets by the amount of the surplus, and a current account deficit decreases it by that amount. A country's balance of trade is the net or difference between the country's exports of goods and services and its imports of goods and services, excluding all financial transfers, investments and other components, over
3025-422: Is absorbing (absorption = domestic consumption + investment + government spending) more than that it is producing. This can only happen if some other economies are lending their savings to it (in the form of debt to or direct/ portfolio investment in the economy) or the economy is running down its foreign assets such as official foreign currency reserve. On the other hand, if an economy
3146-436: Is also sound. A deficit implies we import more goods and services than we export. The current account equals: The current account is essentially exports – imports (+net international investment balance) If one has a current account deficit, in a floating exchange rate this must be balanced by a surplus on the financial / capital account. The balance of payments (BOP) is the record of a country's monetary transactions with
3267-460: Is considered to have written one of the first treatises on political economy with his 1613 work, A Short Treatise on the Wealth and Poverty of Nations . Mercantilism in its simplest form is bullionism , yet mercantilist writers emphasize the circulation of money and reject hoarding. Their emphasis on monetary metals accords with current ideas regarding the money supply, such as the stimulative effect of
3388-413: Is driven by the desire of international investors to acquire US assets (see Ben Bernanke , William Poole links below). However, the main viewpoint undoubtedly remains that the causative factor is the current account and that the positive financial account reflects the need to finance the country's current account deficit. Current account surpluses are facing current account deficits of other countries,
3509-409: Is running a current account surplus it is absorbing less than that it is producing. This means it is saving. As the economy is open, this saving is being invested abroad and thus foreign assets are being created. Normally, the current account is calculated by adding up the 4 components of current account: goods, services, income and current transfers. A country's current account can be calculated by
3630-757: Is sometimes called Colbertism . Under Colbert, the French government became deeply involved in the economy in order to increase exports. Protectionist policies were enacted that limited imports and favored exports. Industries were organized into guilds and monopolies, and production was regulated by the state through a series of more than one thousand directives outlining how different products should be produced. To encourage industry, foreign artisans and craftsmen were imported. Colbert also worked to decrease internal barriers to trade, reducing internal tariffs and building an extensive network of roads and canals. Colbert's policies were quite successful, and France's industrial output and
3751-537: Is still practised in the economies of industrializing countries, in the form of economic interventionism . With the efforts of supranational organizations such as the World Trade Organization to reduce tariffs globally, non-tariff barriers to trade have assumed a greater importance in neomercantilism . Mercantilism became the dominant school of economic thought in Europe throughout the late Renaissance and
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3872-564: The Corn Laws under Robert Peel in 1846 symbolized the emergence of free trade as an alternative system. Most of the European economists who wrote between 1500 and 1750 are today generally described as mercantilists; this term was initially used solely by critics, such as Mirabeau and Smith, but historians proved quick to adopt it. Originally the standard English term was "mercantile system". The word "mercantilism" came into English from German in
3993-580: The Euro crisis by many Keynesian economists, such as Yanis Varoufakis , Heiner Flassbeck , Paul Krugman and Joseph Stiglitz . Since 1989, the current account deficit of the US has been increasingly large, reaching close to 7% of the GDP in 2006. In 2011, it was the highest deficit in the world. New evidence, however, suggests that the US current account deficits are being mitigated by positive valuation effects . That is,
4114-631: The French East India Company had access to foreign markets, so that they could always obtain coffee , cotton , dyewoods , fur , pepper , and sugar . He acted to create a favorable balance of trade and increase colonial holdings . As there was slavery in the colonies, in 1682, Colbert commissioned the beginning of a project that would become the Code Noir in 1685, two years after his death. In addition, he founded France's merchant navy ( marine marchande ), becoming Secretary of State of
4235-554: The Louvre with hundreds of pictures and statues. He gave many pensions to men of letters, among whom we find Molière , Corneille , Racine , Boileau , P D Huet (1630–1721) and Antoine Varillas (1626–1696); and even foreigners, as Huygens , Carlo Roberto Dati the Dellacruscan . Evidence exists to show that by this munificence he hoped to draw out praises of his sovereign and himself; but this motive certainly does not account for all
4356-455: The corporation system, each industry remained in the hands of certain privileged bourgeois ; while the lower classes found opportunities of advancement closed. He did, however, wisely consult the interests of internal commerce. Unable to abolish the duties on the passage of goods from province to province , he did what he could to induce the provinces to equalize them. Currency exchange rates still remained between these provinces despite
4477-558: The early modern period (from the 15th to the 18th centuries). Evidence of mercantilistic practices appeared in early modern Venice , Genoa , and Pisa regarding control of the Mediterranean trade in bullion . However, the empiricism of the Renaissance , which first began to quantify large-scale trade accurately, marked mercantilism's birth as a codified school of economic theories. The Italian economist and mercantilist Antonio Serra
4598-475: The economy back from the brink of bankruptcy . Nevertheless, despite his best efforts, France grew increasingly impoverished because of the King's excessive spending on wars. Having introduced a measure of order and economy into the workings of the government, Colbert called for the enrichment of the country by means of commerce. Through Colbert's dirigiste policies, France fostered manufacturing enterprises in
4719-599: The guilds . The Académie des sciences was founded in 1666 at his suggestion; he was a member of the Académie française from 1 March 1667 to his death, where he occupied the 24th seat, to which Jean de La Fontaine was later elected. His son Jean-Baptiste Colbert, Marquis de Seignelay (1651–1690), succeeded him as Navy Secretary. Colbert's father and grandfather were merchants in his birthplace of Reims , France . He claimed to have Scottish ancestry. A widespread (but unconfirmed) belief exists that he spent his early youth at
4840-447: The 18th century. In 1690, Locke argued that prices vary in proportion to the quantity of money. Locke's Second Treatise also points towards the heart of the anti-mercantilist critique: that the wealth of the world is not fixed, but is created by human labor (represented embryonically by Locke's labor theory of value ). Mercantilists failed to understand the notions of absolute advantage and comparative advantage (although this idea
4961-533: The American and British systems of free-trade, thus stretching the system into the 19th century. However, many British writers, including Mun and Misselden , were merchants, while many of the writers from other countries were public officials. Beyond mercantilism as a way of understanding the wealth and power of nations, Mun and Misselden are noted for their viewpoints on a wide range of economic matters. The Austrian lawyer and scholar Philipp Wilhelm von Hornick , one of
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5082-554: The Balance of Foreign Trade is the Rule of Our Treasure ), which Josiah Child ( c. 1630/31 –1699) then developed further. Numerous French authors helped cement French policy around statist mercantilism in the 17th century, as King Louis XIV (reigned 1643–1715) followed the guidance of Jean Baptiste Colbert , his Controller-General of Finances from 1665 to 1683 who revised the tariff system and expanded industrial policy. Colbertism
5203-510: The Common Wealth of this Realm of England , 1549: "We must always take heed that we buy no more from strangers than we sell them, for so should we impoverish ourselves and enrich them." The period featured various but often disjointed efforts by the court of Queen Elizabeth (r. 1558–1603) to develop a naval and merchant fleet capable of challenging the Spanish stranglehold on trade and of expanding
5324-560: The Communauté des habitants in 1643. These were the first corporations to operate in what is now Canada. In England, mercantilism reached its peak during the Long Parliament government (1640–60). Mercantilist policies were also embraced throughout much of the Tudor and Stuart periods, with Robert Walpole being another major proponent. In Britain, government control over the domestic economy
5445-515: The Dutch from the Spanish Empire . The culmination of all of these policies led to Spain defaulting in 1557, 1575, and 1596. During the economic collapse of the 17th century, Spain had little coherent economic policy, but French mercantilist policies were imported by Philip V with some success. Ottoman Grand Vizier Kemankeş Kara Mustafa Pasha also followed some mercantilist financial policies during
5566-719: The Measures of Trade, but that the Spring and Original of it, in all nations is the Natural or Artificial Product of the Country; that is to say, what this Land or what this Labour and Industry Produces." The critique that mercantilism was a form of rent seeking has also seen criticism, as scholars such as Jacob Viner in the 1930s pointed out that merchant mercantilists such as Mun understood that they would not gain by higher prices for English wares abroad. The first school to completely reject mercantilism
5687-603: The Navy in 1669. His effective market reforms included the foundation of the Manufacture royale de glaces de miroirs in 1665 to supplant the importation of Venetian glass , which was forbidden in 1672 as soon as the national glass manufacturing industry was on sound footing. Also encouraging the technical expertise of Flemish cloth manufacturing in France, he founded royal tapestry works at Gobelins and supported those at Beauvais . He issued more than 150 edicts to regulate
5808-440: The Navy ; he also gained appointments as minister of commerce , of the colonies , and of the palace . In short, Colbert acquired power in every department except that of war. A great financial and fiscal reform now claimed all his energies. Not only the nobility, but many others who had no legal claim to exemption, paid no taxes; the bulk of the burden fell on the rural poor. Supported by the young king Louis XIV , Colbert aimed
5929-403: The New World. Adam Smith , David Hume , Edward Gibbon , Voltaire and Jean-Jacques Rousseau were the founding fathers of anti-mercantilist thought. A number of scholars found important flaws with mercantilism long before Smith developed an ideology that could fully replace it. Critics like Hume, Dudley North and John Locke undermined much of mercantilism and it steadily lost favor during
6050-485: The US assets overseas are gaining in value relative to the domestic assets held by foreign investors. The net foreign assets of the US are therefore not deteriorating one to one with the current account deficits. The most recent experience has reversed this positive valuation effect, however, with the US net foreign asset position deteriorating by more than two trillion dollars in 2008, down to less than $ 18 trillion, but has since risen to $ 25 trillion. This temporary decline
6171-603: The West Indies), as well as becoming exclusive markets. European power spread around the globe, often under the aegis of companies with government-guaranteed monopolies in certain defined geographical regions, such as the Dutch East India Company or the Hudson's Bay Company (operating in present-day Canada ). With the establishment of overseas colonies by European powers early in the 17th century, mercantile theory gained
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#17328686608976292-449: The adoption of the very Machiavellian realpolitik and the primacy of the raison d'état in international relations . The mercantilist idea of all trade as a zero-sum game, in which each side was trying to best the other in a ruthless competition, was integrated into the works of Thomas Hobbes . This dark view of human nature also fit well with the Puritan view of the world, and some of
6413-439: The balance of payments. Also, currency wars , a phenomenon evident in post recessionary markets is a protectionist policy, whereby countries devalue their currencies to ensure export competitiveness. Secondly, adjusting government spending to favor domestic suppliers is also effective. Less obvious methods to reduce a current account deficit include measures that increase domestic savings (or reduced domestic borrowing), including
6534-446: The best policies. Mercantilist domestic policy was more fragmented than its trade policy. While Adam Smith portrayed mercantilism as supportive of strict controls over the economy, many mercantilists disagreed. The early modern era was one of letters patent and government-imposed monopolies ; some mercantilists supported these, but others acknowledged the corruption and inefficiency of such systems. Many mercantilists also realized that
6655-399: The calculation. It is called the current account because goods and services are generally consumed in the current period. The current account is an important indicator of an economy's speed. It is defined as the sum of the balance of trade (goods and services exports minus imports ), net income from abroad, and net current transfers. A positive current account balance indicates the nation
6776-505: The confiscated goods of an uncle, Pussort. In 1648, he and his wife Marie Charron, received 40,000 crowns from an unknown source; and in 1649 Colbert became the councilor of state, i.e. a political minister. In 1657, he purchased the Barony of Seignelay . Colbert was recommended to King Louis XIV by Mazarin. While Cardinal Mazarin was in exile, Louis's trust in Colbert grew. In 1652 Colbert
6897-461: The core of the mercantile system was the "popular folly of confusing wealth with money", that bullion was just the same as any other commodity, and that there was no reason to give it special treatment. More recently, scholars have discounted the accuracy of this critique. They believe Mun and Misselden were not making this mistake in the 1620s, and point to their followers Josiah Child and Charles Davenant , who in 1699 wrote, "Gold and Silver are indeed
7018-403: The current account is the main causal factor, with capital and financial accounts simply reflecting financing of a deficit or investment of funds arising as a result of a surplus. However, more recently some observers have suggested that the opposite causal relationship may be important in some cases. In particular, it has controversially been suggested that the United States current account deficit
7139-411: The delinquent and destruction of the goods concerned, and, on the third offense, by the pillory . Colbert prohibited the production of certain products that might have suited consumers, and the time-consuming supervision he imposed on commercial enterprises may have acted as a hindrance to improvement. Other parts of Colbert's schemes have met with less equivocal condemnation. By his firm maintenance of
7260-428: The different types of capital. The United States, for example, gleans a substantially larger rate of return from foreign capital than foreigners do from owning United States capital. In the traditional accounting of balance of payments, the current account equals the change in net foreign assets . A current account deficit implies a reduction of net foreign assets: If an economy is running a current account deficit, it
7381-448: The dominant economic ideology of all of Europe in the early modern period, and most states embraced it to a certain degree. Mercantilism was centred on England and France, and it was in these states that mercantilist policies were most often enacted. The policies have included: Mercantilism arose in France in the early 16th century soon after the monarchy had become the dominant force in French politics. In 1539, an important decree banned
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#17328686608977502-519: The early-19th century. The bulk of what is commonly called "mercantilist literature" appeared in the 1620s in Great Britain. Smith saw the English merchant Thomas Mun (1571–1641) as a major creator of the mercantile system, especially in his posthumously published Treasure by Foreign Trade (1664), which Smith considered the archetype or manifesto of the movement. Perhaps the last major mercantilist work
7623-518: The economy grew considerably during this period, as France became the dominant European power. He was less successful in turning France into a major trading power, and Britain and the Dutch Republic remained supreme in this field. France imposed its mercantilist philosophy on its colonies in North America, especially New France . It sought to derive the maximum material benefit from the colony, for
7744-410: The economy. The mercantilists saw a large population as a form of wealth that made possible the development of bigger markets and armies . Opposite to mercantilism was the doctrine of physiocracy , which predicted that mankind would outgrow its resources. The idea of mercantilism was to protect the markets as well as maintain agriculture and those who were dependent upon it. Mercantilist ideas were
7865-445: The enforced monopolies, bans on foreign competition, and poverty of the workers. Governments benefited from the high tariffs and payments from the merchants. Whereas later economic ideas were often developed by academics and philosophers, almost all mercantilist writers were merchants or government officials. Monetarism offers a third explanation for mercantilism. European trade exported bullion to pay for goods from Asia, thus reducing
7986-453: The exclusion of other European powers. The government protected its merchants—and kept foreign ones out—through trade barriers, regulations, and subsidies to domestic industries in order to maximize exports from and minimize imports to the realm. The government had to fight smuggling, which became a favourite American technique in the 18th century to circumvent the restrictions on trading with the French, Spanish, or Dutch. The goal of mercantilism
8107-406: The financial account, assets pertaining to international monetary flows of, for example, business or portfolio investments are noted. Absent changes in official reserves, the current account is the mirror image of the sum of the capital and financial accounts. One might then ask: Is the current account driven by the capital and financial accounts or is it vice versa? The traditional response is that
8228-573: The financial centre of Europe by being its most efficient trader, had little interest in seeing trade restricted and adopted few mercantilist policies. Mercantilism became prominent in Central Europe and Scandinavia after the Thirty Years' War (1618–48), with Christina of Sweden , Jacob Kettler of Courland , and Christian IV of Denmark being notable proponents. The Habsburg Holy Roman Emperors had long been interested in mercantilist policies, but
8349-411: The first blow at the man accused of being the greatest of the royal embezzlers, the superintendent Nicolas Fouquet . Fouquet's fall secured Colbert's own advancement. After the abolition of the office of superintendent and of many other offices dependent upon it, control of France's finances fell to a royal council. The sovereign functioned as its president, but Colbert, though only an intendant for
8470-503: The first four years, operated as its ruling spirit, enjoying as he did king's favor and confidence. His ruthlessness in the execution of his functions may have set a dangerous precedent, but it probably struck him necessary in that the council could not defer to individual interests. This way of administering his policies was particularly in evidence in his preparation and enforcement of his forestry ordinance of 1669 . When he had severely punished guilty officials, he turned his attention to
8591-420: The following formula: C A = ( X − M ) + N Y + N C T {\displaystyle CA=(X-M)+NY+NCT} Where CA is the current account, X and M are respectively the export and import of goods and services, NY the net income from abroad, and NCT the net current transfers. Better still a country can calculate its current account balance by simply adding
8712-412: The form of efforts to control trade. A wide array of regulations were put in place to encourage exports and discourage imports. Tariffs were placed on imports and bounties given for exports, and the export of some raw materials was banned completely. The Navigation Acts removed foreign merchants from being involved England's domestic trade. British policies in their American colonies led to friction with
8833-429: The government's fraudulent creditors. Here he had a simple way of operating. He repudiated some of the public loans and reduced the interest rate on others. The amount of the reduction was initially his own decision but ultimately that of a council he established to examine all claims against the state. Much more serious difficulties met his attempts to introduce equality in taxation among the various classes. Cutting back
8954-573: The growth of bullion at home. Queen Elizabeth promoted the Trade and Navigation Acts in Parliament and issued orders to her navy for the protection and promotion of English shipping. Authors noted most for establishing the English mercantilist system include Gerard de Malynes ( fl. 1585–1641) and Thomas Mun (1571–1641), who first articulated the Elizabethan system ( England's Treasure by Foreign Trade or
9075-412: The high-price country to the low-price country, and the balance of trade would reverse. Mercantilists fundamentally misunderstood this, long arguing that an increase in the money supply simply meant that everyone gets richer. The importance placed on bullion was also a central target, even if many mercantilists had themselves begun to de-emphasize the importance of gold and silver. Adam Smith noted that at
9196-542: The homeland, with a minimum of colonial investment in the colony itself. The ideology was embodied in New France through the establishment under Royal Charter of a number of corporate trading monopolies including La Compagnie des Marchands, which operated from 1613 to 1621, and the Compagnie de Montmorency, from that date until 1627. It was in turn replaced by La Compagnie des Cent-Associés , created in 1627 by King Louis XIII, and
9317-409: The import of woolen goods from Spain and some parts of Flanders . The next year, a number of restrictions were imposed on the export of bullion. Over the rest of the 16th century, further protectionist measures were introduced. The height of French mercantilism is closely associated with Jean-Baptiste Colbert , finance minister for 22 years in the 17th century, to the extent that French mercantilism
9438-446: The income account is negative, the country is paying more than it is taking in interest, dividends, etc. The various subcategories in the income account are linked to specific respective subcategories in the capital account, as income is often composed of factor payments from the ownership of capital (assets) or the negative capital (debts) abroad. From the capital account, economists and central banks determine implied rates of return on
9559-406: The indebtedness of which towards abroad therefore increases. According to Balances Mechanics by Wolfgang Stützel this is described as surplus of expenses over the revenues. Increasing imbalances in foreign trade are critically discussed as a possible cause of the financial crisis since 2007. The existing differences between the current accounts in the eurozone is considered to be the root cause of
9680-472: The inevitable results of quotas and price ceilings were black markets . One notion that mercantilists widely agreed upon was the need for economic oppression of the working population; laborers and farmers were to live at the "margins of subsistence ". The goal was to maximize production, with no concern for consumption . Extra money, free time, and education for the lower classes were seen to inevitably lead to vice and laziness, and would result in harm to
9801-563: The inhabitants of the Thirteen Colonies , and mercantilist policies (such as forbidding trade with other European powers and enforcing bans on smuggling) were a major irritant leading to the American Revolution . Mercantilism taught that trade was a zero-sum game, with one country's gain equivalent to a loss sustained by the trading partner. Overall, however, mercantilist policies had a positive impact on Britain, helping to transform
9922-501: The largest component of the current account, a current account surplus is usually associated with positive net exports. In the net factor income or income account, income payments are outflows, and income receipts are inflows. Income are receipts from investments made abroad (note: investments are recorded in the capital account but income from investments is recorded in the current account) and money sent by individuals working abroad, known as remittances , to their families back home. If
10043-650: The late-18th century after the East India Company annexed the Mughal Bengal , a major trading nation, and the establishment of the British India through the activities of the East India Company, in light of the arguments of Adam Smith (1723–1790) and of the classical economists . French economic policy liberalized greatly under Napoleon (in power from 1799 to 1814/1815). The British Parliament's repeal of
10164-421: The market resources produced by slave labor. Mercantilism as a weapon has continued to be used by nations through the 21st century by way of modern tariffs as it puts smaller economies in a position to conform to the larger economies goals or risk economic ruin due to an imbalance in trade. Trade wars are often dependent on such tariffs and restrictions hurting the opposing economy. The term "mercantile system"
10285-525: The merchant classes. When the king resolved to make all France Roman Catholic and revoked the Edict of Nantes , he followed him and urged his subordinates to do all they could to promote conversions . Colbert had nine children, including : His policies inspired those of Alexander Hamilton , the first treasury secretary of the United States. Six ships of the French Navy bore his name: In literature,
10406-515: The money supply and putting downward pressure on prices and economic activity. The evidence for this hypothesis is the lack of inflation in the British economy until the Revolutionary and Napoleonic Wars, when paper money came into vogue. A fourth explanation lies in the increasing professionalisation and technification of the wars of the era, which turned the maintenance of adequate reserve funds (in
10527-420: The most important economic work done in Europe was by the medieval scholastic theorists. The goal of these thinkers was to find an economic system compatible with Christian doctrines of piety and justice. They focused mainly on microeconomics and on local exchanges between individuals. Mercantilism was closely aligned with the other theories and ideas that began to replace the medieval worldview. This period saw
10648-582: The most stridently mercantilist legislation, such as the Navigation Ordinance of 1651, was enacted by the government of Oliver Cromwell . Jean-Baptiste Colbert 's work in 17th-century France came to exemplify classical mercantilism. In the English-speaking world, its ideas were criticized by Adam Smith with the publication of The Wealth of Nations in 1776 and later by David Ricardo with his explanation of comparative advantage . Mercantilism
10769-480: The nation into the world's dominant trading power and a global hegemon . One domestic policy that had a lasting impact was the conversion of "wastelands" to agricultural use. Mercantilists believed that to maximize a nation's power, all land and resources had to be used to their highest and best use , and this era thus saw projects like the draining of The Fens . The other nations of Europe also embraced mercantilism to varying degrees. The Netherlands, which had become
10890-522: The new world. In the long run, Spain's economy collapsed as it was unable to adjust to the inflation that came with the large influx of bullion. Heavy intervention from the crown put crippling laws for the protection of Spanish goods and services. Mercantilist protectionist policy in Spain caused the long-run failure of the Castilian textile industry as the efficiency severely dropped off with each passing year due to
11011-446: The number of the privileged proved impossible, but Colbert firmly resisted false claims for exemption and lightened direct taxation by increasing indirect taxes, from which the privileged could not escape. At the same time, he undertook improvements to the way taxes were collected. Colbert's relentless hard work and thrift made him an esteemed minister. He achieved a reputation for improving the state of French manufacturing and bringing
11132-440: The pioneers of Cameralism , detailed a nine-point program of what he deemed effective national economy in his Austria Over All, If She Only Will of 1684, which comprehensively sums up the tenets of mercantilism: Other than Von Hornick, there were no mercantilist writers presenting an overarching scheme for the ideal economy, as Adam Smith would later do for classical economics. Rather, each mercantilist writer tended to focus on
11253-479: The power struggle between Colbert and Fouquet is one of the main plotlines of Alexandre Dumas, père 's novel The Vicomte of Bragelonne , the second sequel to The Three Musketeers . Dumas paints Colbert as an uncouth and ruthless schemer who stops at little, in contrast to the more refined Fouquet, counselled by Aramis , but also as a visionary patriot. Colbert's statue stands outside the Assemblée nationale . It
11374-488: The prestige of the image of France and the French royal family, Colbert played an active role in bringing the great Italian architect-sculptor, Gian Lorenzo Bernini , to Paris (June–October 1665), in order to design the new East Facade of the Louvre. This was a striking coup and caused a sensation because Bernini, the most famous artist in all of Europe, had never before (or after) consented to travel any significant distance to meet
11495-456: The production being held at a specific level. Spain's heavily protected industries led to famines as much of its agricultural land was required to be used for sheep instead of grain. Much of their grain was imported from the Baltic region of Europe which caused a shortage of food in the inner regions of Spain. Spain limiting the trade of their colonies is one of the causes that led to the separation of
11616-518: The proposal that suggested seizing part of the wealth of the clergy . In his hatred of idleness, he ventured to suppress no less than seventeen fêtes , and he had a project for reducing the number of persons devoted to clerical and monastic life by increasing the age for taking vows . He showed himself initially unwilling to interfere with heresy , for he realised the commercial value of the Huguenots (French Protestants), who were well represented among
11737-431: The prospect of war) into a more and more expensive and eventually competitive business. Mercantilism developed at a time of transition for the European economy. Isolated feudal estates were being replaced by centralized nation-states as the focus of power. Technological changes in shipping and the growth of urban centers led to a rapid increase in international trade. Mercantilism focused on how this trade could best aid
11858-466: The reign of Ibrahim I . Russia under Peter I (Peter the Great) attempted to pursue mercantilism, but had little success because of Russia's lack of a large merchant class or an industrial base. Mercantilism was the economic version of warfare using economics as a tool for warfare by other means backed up by the state apparatus and was well suited to an era of military warfare. Since the level of world trade
11979-471: The rest of the world. Transactions are either marked as a credit or a debit. Within the BOP there are three separate categories under which different transactions are categorized: the current account, the capital account and the financial account. In the current account, goods, services, income and current transfers are recorded. In the capital account, physical assets such as a building or a factory are recorded. And in
12100-540: The same list the bottom ten countries by current account balance in 2014 were In a 2012 article published by the International Monetary Fund (IMF) the authors argue that a current account deficit with higher investments and lower savings may indicate that the economy of a country is highly productive and growing. If there is an excess of imports over exports there may be problems in terms of competitiveness. Low savings and high investment can also be caused by
12221-446: The splendid, if in some cases specious, services that he rendered to literature, science and art. Colbert worked incessantly hard until his final hours. Work was his religion; he once pondered whether it was better to rise early and work or retire very late and work. He concluded that rising early and retiring late would be the ideal combination. Towards the end of his life he suffered from stomach aches, which caused him much distress. He
12342-470: The states. Another important change was the introduction of double-entry bookkeeping and modern accounting. This accounting made extremely clear the inflow and outflow of trade, contributing to the close scrutiny given to the balance of trade. New markets and new mines propelled foreign trade to previously inconceivable volumes, resulting in "the great upward movement in prices" and an increase in "the volume of merchant activity itself". Prior to mercantilism,
12463-572: The taxes paid by the people reached the King. The paper also contained an attack on Nicolas Fouquet . The postmaster of Paris, a spy of Fouquet's, read the letter, leading to a dispute which Mazarin attempted to suppress. In 1661, Mazarin died and Colbert "made sure of the King's favor" by revealing the location of some of Mazarin's hidden wealth. In January 1664 Colbert became the Superintendent of buildings ; in 1665 he became Controller-General of Finances ; in 1669, he became Secretary of State of
12584-507: The trade balance (exports minus imports) is generally the biggest determinant of the current account surplus or deficit, the current account balance often displays a cyclical trend. During a strong economic expansion, import volumes typically surge; if exports are unable to grow at the same rate, the current account deficit will widen. Conversely, during a recession, the current account deficit will shrink if imports decline and exports increase to stronger economies. The currency exchange rate exerts
12705-493: The value of the visible balance of trade to that of the invisible balance of trade. the visible balance of trade is the sum total of the differences of all the imports and export of all tangible goods while the invisible balance of trade is the total gotten from the difference between exports and imports of services. A nation's current account balance is influenced by numerous factors – its trade policies, exchange rate, competitiveness, forex reserves, inflation rate and others. Since
12826-467: The vast and decentralized nature of their empire made implementing such notions difficult. Some constituent states of the empire did embrace mercantilism, most notably Prussia , which under Frederick the Great had perhaps the most rigidly controlled economy in Europe. Spain benefited from mercantilism early on as it brought a large amount of precious metals such as gold and silver into their treasury by way of
12947-566: The world" – produces quarterly reports on its 34 member nations comparing statistics on balance of payments and international trade in terms of current account balance in billions of US dollars and as a percentage of GDP. For example, according to their report the current account balance in billions of US dollars of several countries can be compared, The report also compares countries on services balance, exports of services, import of services, goods balance, export of goods and imports of goods in billions of US dollars. The World Factbook ,
13068-465: Was James Steuart 's Principles of Political Economy , published in 1767. Mercantilist literature also extended beyond England. Italy and France produced noted writers of mercantilist themes, including Italy's Giovanni Botero (1544–1617) and Antonio Serra (1580–?) and, in France, Jean Bodin and Colbert . Themes also existed in writers from the German historical school from List, as well as followers of
13189-477: Was a French statesman who served as First Minister of State from 1661 until his death in 1683 under the rule of King Louis XIV . His lasting impact on the organization of the country's politics and markets, known as Colbertism , a doctrine often characterized as a variant of mercantilism , earned him the nickname le Grand Colbert ( [lə ɡʁɑ̃ kɔl.bɛʁ] ; "the Great Colbert"). A native of Reims , he
13310-425: Was appointed Intendant of Finances on 4 May 1661. Colbert took over as Controller-General of Finances , a newly created position, in the aftermath of the arrest of Nicolas Fouquet for embezzlement, an event that led to the abolishment of the office of Superintendent of Finances . He worked to develop the domestic economy by raising tariffs and encouraging major public works projects, as well as to ensure that
13431-478: Was asked to manage the affairs of the Cardinal while he was away. This new responsibility would detach Colbert from his other responsibility as commissaire des guerres . Although Colbert was not a supporter of Mazarin in principle, he would defend the cardinal's interests with unflagging devotion. Colbert's earliest recorded attempt at tax reform came in the form of a mémoire to Mazarin, showing that less than half of
13552-504: Was based on the principle that the state should rule in the economic realm as it did in the diplomatic, and that the interests of the state as identified by the king were superior to those of merchants and of everyone else. Mercantilist economic policies aimed to build up the state, especially in an age of incessant warfare, and theorists charged the state with looking for ways to strengthen the economy and to weaken foreign adversaries. In Europe, academic belief in mercantilism began to fade in
13673-437: Was due primarily to the relative under-performance of domestic ownership of foreign assets (largely foreign equities) compared to foreign ownership of domestic assets (largely US treasuries and bonds). The Organisation for Economic Co-operation and Development , OECD – an international economic organisation of 34 countries, founded in 1961 to "promote policies that will improve the economic and social well-being of people around
13794-530: Was far less extensive than on the Continent , limited by common law and the steadily increasing power of Parliament. Government-controlled monopolies were common, especially before the English Civil War , but were often controversial. With respect to its colonies, British mercantilism meant that the government and the merchants became partners with the goal of increasing political power and private wealth, to
13915-482: Was only fully fleshed out in 1817 by David Ricardo ) and the benefits of trade. Hume famously noted the impossibility of the mercantilists' goal of a constant positive balance of trade. As bullion flowed into one country, the supply would increase, and the value of bullion in that state would steadily decline relative to other goods. Conversely, in the state exporting bullion, its value would slowly rise. Eventually, it would no longer be cost-effective to export goods from
14036-479: Was reduced to eating moist bread dipped in chicken broth for his meals. By 64 he was bedridden and died seven days after his birthday. The surgeons who examined him found that he had been suffering from kidney stones . A huge stone was found in his urinary tract , which would explain his pain. Colbert played a subordinate role in the struggle between the king and the papacy over royal rights concerning vacant bishoprics , and he seems to have sympathised with
14157-410: Was rejected by Britain and France by the mid-19th century. The British Empire embraced free trade and used its power as the financial center of the world to promote the same. The Guyanese historian Walter Rodney describes mercantilism as the period of the worldwide development of European commerce, which began in the 15th century with the voyages of Portuguese and Spanish explorers to Africa, Asia, and
14278-580: Was the physiocrats, who developed their theories in France. Their theories also had several important problems, and the replacement of mercantilism did not come until Adam Smith published The Wealth of Nations in 1776. This book outlines the basics of what is today known as classical economics . Smith spent a considerable portion of the book rebutting the arguments of the mercantilists, though often these are simplified or exaggerated versions of mercantilist thought. Current account (balance of payments) In macroeconomics and international finance ,
14399-572: Was to run trade surpluses to benefit the government. The government took its share through duties and taxes, with the remainder going to merchants in Britain. The government spent much of its revenue on the Royal Navy , which both protected the colonies of Britain but was vital in capturing the colonies of other European powers. British mercantilist writers were themselves divided on whether domestic controls were necessary. British mercantilism thus mainly took
14520-402: Was used by its foremost critic, Adam Smith , but Mirabeau (1715–1789) had used "mercantilism" earlier. Mercantilism functioned as the economic counterpart of the older version of political power : divine right of kings and absolute monarchy . Scholars debate over why mercantilism dominated economic ideology for 250 years. One group, represented by Jacob Viner , sees mercantilism as simply
14641-724: Was viewed as fixed, it followed that the only way to increase a nation's trade was to take it from another. A number of wars, most notably the Anglo-Dutch Wars and the Franco-Dutch Wars , can be linked directly to mercantilist theories. Most wars had other causes but they reinforced mercantilism by clearly defining the enemy, and justified damage to the enemy's economy. Mercantilism fueled the imperialism of this era, as many nations expended significant effort to conquer new colonies that would be sources of gold (as in Mexico) or sugar (as in
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