History Optional Paper- 2 Solution – 1988: Q.5 (a)

Q.5 (a) “Attempts to put mercantilist doctrine into practice characterized the history of most of the nations of Western European in the 16th and 17th centuries.” Comment. 


Mercantilism is the main economic system used during the sixteenth to eighteenth centuries mostly in Western European nations. Adam Smith, the ‘Father of Economics’ had first used the word ‘Mercantilism’ in his famous book ‘Wealth of Nations’. He coined the term “mercantile system” to describe the system of political economy that sought to enrich the country by restraining imports and encouraging exports. The main goal was to increase a nation’s wealth by imposing government regulation concerning all of the nation’s commercial interests. It was believed that national strength could be maximized by a “favorable” balance of trade that would bring gold and silver into the country and also to maintain domestic employment.

Most of the mercantilist policies were the outgrowth of the relationship between the governments of the nation-states and their mercantile classes. In exchange for paying levies and taxes to support the armies of the nation-states, the mercantile classes induced governments to enact policies that would protect their business interests against foreign competition.

Mercantilist policies took many form:

  1. In Domestic policy, governments would provide capital to new industries, exempt new industries from guild rules and taxes, establish monopolies over local and colonial markets, and grant titles and pensions to successful producers.
  2. In trade policy, the government assisted local industry by imposing tariffs, quotas, and prohibitions on imports of goods that competed with local manufacturers. Governments also prohibited the export of tools and capital equipment and the emigration of skilled labor that would allow foreign countries, and even the colonies of the home country, to compete in the production of manufactured goods.

Outcome of Mercantilism:

  1. The consolidation of the regional power centers of the feudal era by large, competitive nation-states.
  2. The establishment of colonies outside Europe;
  3. The growth of European commerce and industry relative to agriculture;
  4. The increase in the volume and breadth of trade;
  5. The increase in the use of metallic monetary systems, particularly gold and silver, relative to barter transactions.
  6. During the mercantilist period, military conflict between nation-states was both more frequent and more extensive than at any other time in history. The armies and navies of the main protagonists were no longer temporary forces raised to address a specific threat or objective, but were full-time professional forces. Each government’s primary economic objective was to command a sufficient quantity of hard currency to support a military that would deter attacks by other countries and aid its own territorial expansion.

Examples of Mrcantilism:

  1. Shipping was particularly important during the mercantile period. With the growth of colonies and the shipment of gold from the New World into Spain and Portugal, control of the oceans was considered vital to national power. Because ships could be used for merchant or military purposes, the governments of the era developed strong merchant marines. In France, Jean-Baptiste Colbert, the minister of finance under Louis XIV from 1661 to 1683, increased port duties on foreign vessels entering French ports and provided bounties to French shipbuilders.
  2. In England, the Navigation Act of 1651 prohibited foreign vessels from engaging in coastal trade in England and required that all goods imported from the continent of Europe be carried on either an English vessel or a vessel registered in the country of origin of the goods. Finally, all trade between England and its colonies had to be carried in either English or colonial vessels. The Staple Act of 1663 extended the Navigation Act by requiring that all colonial exports to Europe be landed through an English port before being re-exported to Europe.
  3. Navigation policies by France, England, and other powers were directed primarily against the Dutch, who dominated commercial marine activity in the sixteenth and seventeenth centuries.

End of Mercantilism:

The replacement of mercantilism did not come until Adam Smith published The Wealth of Nations in 1776. Adam Smith refuted the idea that the wealth of a nation is measured by the size of the treasury in The Wealth of Nations, a book considered to be the foundation of modern economic theory. Smith made a number of important criticisms of mercantilist doctrine. First, he demonstrated that trade, when freely initiated, benefits both parties. Second, he argued that specialization in production allows for economies of scale, which improves efficiency and growth. Finally, Smith argued that the collusive relationship between government and industry was harmful to the general population. While the mercantilist policies were designed to benefit the government and the commercial class, the doctrines of laissez-faire, or free markets, which originated with Smith, interpreted economic welfare in a far wider sense of encompassing the entire population.

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