Mercantilism was the main economic idea underpinning British government policy on trade from the 16th to the 18th centuries. As such, it defined the nature, direction and systems used in commerce, especially overseas trading. It also lay behind Britain’s almost casual acquisition of colonies in the same time period. Huge, government-backed trading empires, like the East India Company, were the standard bearers of an accelerating drive to monopolise the most profitable markets for British goods, while blocking attempts by other countries to swing a greater share of trading wealth towards themselves.
Mercantilism is based on an economic theory that the total amount of wealth available at any one time is fixed. It is up to each country, therefore, to get and retain as large a share of that total as possible. Since export trade generates wealth, just as importing spends it, to accumulate more wealth requires weighting the balance between imports and exports in favour of exports. Imperialism looked to be a good way of ensuring a steady flow of exports, especially of high-value manufactured goods, while providing a correspondingly cheap source of the necessary raw materials. Other profitable trade imbalances were encouraged by protectionism: limiting imports of foreign goods which might compete with home-based manufacturing by imposing tariffs or trade embargoes.
Bullion is King
The method used in mercantilism to measure a country’s wealth and success is the amount of gold and silver bullion it has in its treasury. A country which has more bullion than another must be wealthier, more powerful and more secure; with greater freedom to impose its will on other, less successful states. Once again, the best way to ensue a strong holding of gold and silver bullion was to maximise exports and limit imports, thus creating a constant net inflow of foreign bullion to maintain or swell the country’s existing stocks. At a time when national currencies were linked to physical holdings of bullion, this seemed plain common sense. The richer you were, the more freedom you had to pursue further expansion, whether through conquest or seizure of lands and resources.
However, mercantilism was about more than accumulating stocks of bullion. By themselves, such stocks were of little practical use. It was what you did with the favourable balance of trade — the strong net inflow of wealth — which mattered most. What the great Georgian merchants wanted was freedom to use their wealth to create *more* wealth; to be able to invest their money how and where they wished, not have the government take it in taxes and duties, then use it in unproductive ways such as warfare or buying political alliances.
Mercantilist thinkers, starting in the 17th century with Sir William Petty, scientist, economist and inventor, were concerned with maximising employment and improving labour productivity. Using their capital in this way would, they argued, produce still greater wealth. Purchasers of goods created income for merchants and manufacturers, along with a source of livelihood for the poor. The miser who saved his money, and the government which wasted it on political patronage and overseas adventures, produced nothing for anyone.
In many ways, free trade, as championed by 18th-century thinkers like Adam Smith, seems to be the antithesis of the protectionist approach of the mercantilists. Yet even Adam Smith was not opposed to regulation or protectionism *per se*; his concern was how much should be used and under what circumstances. Too much regulation gave the government excessive power — and offered too many opportunities for rogue individuals to abuse it for personal gain. Some was needed, but it should always be kept to a minimum. Left alone, the naturally competing demands of a market economy would settle into a balanced state. Protecting employment and investing capital to increase wealth are neither unworthy nor unreasonable aims. Most of the good things of life — the arts, medicine, education, the sciences, enough leisure time and civilised living conditions — depend on creating a sufficient surplus of disposable wealth over essential expenditures. The free traders felt this was such an obvious goal for everyone involved in business there was no need for clumsy regulations to make it happen.
Our Georgian forefathers wanted to have their cake and eat it too; to be able to trade freely themselves *and* defend employment at home. In that sense, they had the same outlook as most people today. Where they differed from us most was in their definition of what kinds of trade were ethically acceptable.
Ethical Profits — or Just Easy Ones?
The slave trade to us is an abomination, yet a good many of the grand Georgian mansions and their exquisite contents we so admire were paid for, directly or indirectly, from the profits of that trade. The same goes for the sugar produced by the slaves. To us, there was too often gross exploitation of conquered peoples via imperial rule. Generally speaking, the Georgians saw opportunities for profit first and any ethical considerations some way behind. In the eyes of most churchmen of the time, God had given mankind the earth to use for its benefit. If that meant the powerful and technologically advanced called the shots, that was simply the natural order, just as the most powerful animal predators could not be expected to concern themselves with the feelings of their prey.
Is Mercantilism Discredited?
Only by theorists. Mercantilism as policy is alive and in robust health today. The current fuss about “trade wars” and the impositions of tariffs against “foreign dumping of goods” would seem completely normal to any 18th century merchant. Several modern countries are praised, even envied, for running trade surpluses, and there are few governments which do not make increasing net exports a major policy goal. Yet an economic policy that helps employment at home must either induce other countries to limit their exports or accept lower levels of employment in *their* economies. Free trade — a complete lack of protectionism — may be more efficient than protectionism, but of itself it does nothing to increase trading volumes or deal with the obvious problems of work being exported as goods are imported.
The Georgian merchants with their openly mercantile policies were trying to cope with exactly the same problems of unequal distribution of wealth as we are today — and without our supposed advantages of two-and-a-half further centuries of economic theorising and historical perspective. Maybe it’s time we viewed their efforts with more understanding and fewer automatic and superficial judgements.