The Idea Behind Mercantilism

THE IDEA BEHIND MERCANTILISM

1. Introduction:

There was emergence of an economic thought between early 15th century to mid-18th century that is called mercantilism. It was a cry against the medieval thought and practice in France and other parts of Europe. The society was prevailing under pre-Newtonian thought about science. There was an enormous amount of ritual practice, unconscious faith and no scientific approach about any incident whatsoever in the day-to-day casual life of human beings. There was a feudalistic political structure. At the start of 15th-century, people had started realizing the importance of economic aspects of their problem. The main idea of mercantilism was to increase the overall wealth of the nation. That transformed in multiple other benefits – nationalism was increasing, people shifted towards productive works and much more. According to Lekachman, “Mercantilism was a battle against medieval thought and practices.”

2. Why Mercantilism?

Before 1500, there was very little or almost negligible trade happening between countries. Economies were working on the principles of self-sufficiency. Goods were produced for consumption, not trade. Exchange of money was in little use. Hardly any of the countries introduced paper money at that time. After 1500, things changed dramatically. Especially after the publication of Bacon and Thomas Moore, there was seen a difference in the mental attitude of people towards life and trade in general. Biblical thoughts introduce us to the philosophy of another life, but these authors broke their silence and took a scientific (fused with materialistic) approach towards the natural phenomenon. That was the cause for the classical philosophy, “Eat drink and be merry.” As a result, trades expanded rapidly, money-economy came into existence and barter system was replaced. Economic school of thoughts developed.

3. The transition from Feudalism to Capitalism

• The feudal system of ages: Feudalism stands for the system of political organization prevailing mostly in Europe from the 9th to about 15th century having as its basis the relation of Lord to Vassal with all land held in fee and as a chief characteristics homage, the service of tenants under arms in court, wardship, and forfeiture. It was a hierarchy system which started from the peasant and ended with the king. There were lords who were the administrators and their business was to deliver justice to all. Serfs were to protect the lands. The whole working of feudalism was based on a philosophy, “Strong protects the weak.” The production process was done by quills. They were highly restricted and high-cost firms. Then transition took place; the two-field system was replaced by the three field system. It means rice or wheat in field one, oats, beans, peas in field two and three. The world population doubled between 1000-1500. Three field system was necessary to feed that amount of population. As a result, more oats caused more fodder. This replaced oxen with horses, and they were more productive than oxen. Finally, output had been increased.
• Increase in Long Distance Trade:  Due to the results of the above-said actions, surplus was generated in the economy. Trading within the nation did not seem so much profitable now. This gave a rise to international trade. New sea routes were being discovered. Columbus discovered a whole new world – the USA. Trading partners were increasing as there was a larger chance of profitability in the international trade.
• Putting out Systems: In the early days, merchants were only capable of producing raw materials and the production process was done by quills. The payments to merchants were very low. And quills were high-cost firms. After the evolution of these things, merchant became stronger. And eventually, they owned buildings, raw materials, tools, and labours. The major objective of merchants was to obtain a larger profit. That caused an automatic technical solution which converted high-cost firms into low-cost firms.
• The decline of Manorial System: Manorial stands for an estate under a lord enjoying a variety of rights over land and tenants including the right to hold court. This had been demolished due to the rise of the merchant class. They understood this point that if they wanted to survive then they had to take an active participation in the production process. The main cause of this was black death, a plague that happened between 1398 to 1412. It had claimed 1.5 million lives. And another was 100 years’ war (1337-1453). The consequences were unfortunate for the countries involved, they had to suffer a great loss of wealth and life. Due to this, scarcity of labour rises. Labour became costly due to the shortage. Moreover, lords had no other options than to become liberals.
• Creation of working class: There was an evolution of working class in those days. People migrated to cities from villages. A new philosophy occurred, ‘raise sheep for wool’. It means doing something of anything just for cash.
• Accumulation: Those people who were involved in trade or commerce of any kind concentrated on gold capital. Merchants were sharply focused to occupy the lands near cities. Landlords were the main players in the process of capital accumulation because they had huge sizes of lands.
• Great price inflation: There was a large influx of gold from Africa. They sent them manufactured goods instead of the huge amount of gold. Prices were going up but the cost didn’t. This raised the profit of the merchant class and they started investing in new businesses and hence new employment opportunities were eventually created. Great price inflation helped a lot to maintain the pace of trade.
• The emergence of Nation-state: Before 1500, there was feudalistic system and no any concept of a nation-state. When trade took place there was a conscience generated in everyone to make their nation stronger. It means to produce as much as it was possible. At that time the parameter of the wealthiest country was the possession of gold it has. The idea of nation-state helped them a lot.

Conclusion:

These are the ideas behind mercantilism not what is mercantilism. The evolution of mercantilism, emergence of thoughts and structural changes are mentioned above. In the simplest possible way, these ideas are the bridge over which a train called mercantilism passed. The scientific ideas developed in that period, scepticism has taken the place of rituals and occults. There was a drastic change which happened in that era.

At last, I would like to thank Mark Thoma for without his lectures, it was impossible to write an informative article about mercantilism.