What was the most important principle of mercantilism?

Although the term mercantilism encompasses the diverse trade practices followed by European states from the sixteenth until the late eighteenth century, its core assumptions may be summarized: that wealth is an absolutely indispensable means to achieve geopolitical power; that such power is valuable as a means to acquire or retain wealth; that wealth and power constitute the dual ends of national policy; and that these two ends are compatible and, indeed, complementary. English commercial writer Charles Davenant claimed that, in "matters of empire, whoever is the cause of another's advancement is the cause of his own diminuition" (Davenant 1704, pt. 1, p. 205). A nation could not remain, in his view, "unarmed, sit still and suffer another country to enlarge its dominions" (Davenant 1704, pt. 1, p. 205). Mercantilism, then, refers to the collection of policies designed to keep the state prosperous through economic regulation.

EARLY TRADE POLICIES

The keystone of the mercantilist system was the complex network of regulations controlling the trade of colonies with each other and with the mother country, the chief object being to secure monopoly and prevent competitor nations from enjoying the produce of, and trading with, one nation's colonies. As another English seventeenth-century writer, Josiah Child, noted: "If [colonies] are not kept to the rules" then the "benefit of them would be wholly lost to the nation" (Child 1688, pp. 177-178). England's Navigation Act of 1651 set the pace and tone of interimperial trade relations. It represented a genuine departure from past policy. Designed originally to eliminate the Dutch as the principal shippers of English imports, the Navigation Act signaled a new attitude toward government regulation, and put the power of the state squarely behind national economic development. It forbade the importation of plantation commodities from Africa, America, or Asia, except on ships owned and operated by English subjects.

Under the terms of its 1696 amplification, foreign agents or states were forbidden from engaging in any facet of colonial trade, articles could not be shipped from the colonies to foreign nations, and colonial imports were limited to goods shipped from England, thus creating a monopoly. The term monopoly was applied to any trade where there was a legal or legally sanctioned restriction on entry. The goal was to free England from its reliance on foreign commodities and to give English manufactures a free hand in its dominions. Every other European empire endeavored to create a closed, monopolistic trading system in order that all benefits of colonization would accrue to itself alone, rendering the empire self-sufficient and economically independent of the rest of the world. If the attempt by every nation to create a monopoly by excluding the merchants of all other nations from its colonies was one pillar of the mercantile system, the attempt to exclude all merchants other than those of a single privileged company was the second.

After trade legislation, the privileged (sometimes referred to as monopoly or chartered) commercial company was the second mainspring of mercantilism in the seventeenth and eighteenth centuries. Companies were forged out of the cooperation of state power and market-oriented entrepreneurship. Their creation entailed the delegation of government authority and property rights to the company in an overseas dominion. In exchange for rights of sovereignty and exclusive economic access to a colonial territory, such companies were required to construct forts and garrisons to protect against the depredations of indigenous inhabitants, to provide naval power and protection from aggression by other European nations, and to conduct diplomatic relations with indigenous rulers. Louis XIV's reforming minister in the late seventeenth century, Jean Baptiste Colbert, had viewed companies as effective in colonial trade where the traffic was not well established and long sea voyages and financial risks were involved. Other nations followed suit and by the end of the seventeenth century the globe was divided into rival empires of trade.

CHANGING ATTITUDES

Just before the turn of the eighteenth century, attitudes toward the mercantilist trading system began to change. Whereas the mercantilists maintained that a nation could develop economically only by outstripping and impoverishing its neighbors in a zero-sum world, new political writers began to rethink trade, the sources of wealth, and the bases of geopolitical power. In France, a group of political economists called Physiocrats contended that all wealth derived from agriculture and argued for the virtues of laissez-faire, or free trade. Two leading Physiocrats, François Quesnay and Marquis de Mirabeau, in their widely circulated 1763 tract Rural Philosophy, asserted that nations that adopted agriculture "sooner or later came to enjoy the benefits of society, of union, of population, of good and equitable laws, and of the appropriate arts and skills" whereas the others had "grown old in a state of barbarism" (Meek 1973, p. 110).

Although many of the French economists were connected to the world of imperial administration, Baron Turgot urged Louis XVI to contemplate an unimperial future, calling for the West Indian sugar islands to become independent states, connected to France only by the bonds of identity of origin, language, and customs. More radically, Abbé Raynal urged European nations to relinquish colonial monopoly and to remove "every obstacle … that intercepts a direct communication" (Paquette 2004b, p. 206) between the Americas and all of Europe. Raynal contended that privileged companies never recovered the money and rights advanced to them through the duties they levied. For Raynal, the world historical purpose of commerce was to corrode relentlessly the fences of colonial fiefdoms until it produced a universal society without national boundaries. The trend away from privileged companies in France culminated in the 1769 suspension of the Compagnie des Indes.

It was the Scot Adam Smith who coined the terms mercantile system, which he used derisively. In The Wealth of Nations (1776), Smith contended that the fundamental error of the mercantilists was their confusion of wealth with money. Since they believed, mistakenly, that a favorable balance of trade was the primary means of acquiring wealth and money, they had been unable to conceive of the advantages to be derived from foreign trade. Similarly, he explained that the exclusion of foreign competition from the colonial trade might indeed have raised profits, but that this apparent advantage was offset by an accompanying rise in prices that subjected the nation to "an absolute and relative disadvantage in every branch of trade of which she has not the monopoly" (Smith 1976, vol. 2, p. 592). The mercantile system, then, "rendered less secure" the long-term prosperity of the colonial power because "her commerce, instead of running in a great number of small channels, has been taught to run principally in one great channel" (Smith 1976, vol. 2, p. 604).

Even before the appearance of Smith's treatise, the British Navigation Acts had been loosened somewhat by the creation of free ports in the British Caribbean in 1766. These were designed, primarily, to allow silverladen vessels from Spanish ports to enter Britain, essentially making the de facto smuggling de jure. Such a reduction in restrictions was preceded by the Dutch free port at St. Eustatius (1737), the Danish example in St. Thomas and St. John (1763), French experiments in Martinique and Guadeloupe (1763–1765), and the Spanish Caribbean in 1765. The powers wielded by the British East India Company came under similar scrutiny, though the company was not dismantled. British statesman Edmund Burke observed with dismay that it did not seem to be only a company formed for the extension of British commerce, but in reality a delegation of Britain's sovereignty deployed to the East.

This late-eighteenth-century skepticism presaged further attacks on the various components of the mercantile system by the classical political economists of early-nineteenth-century Britain: David Ricardo condemned colonial trade restrictions on free trade grounds, arguing that the existence of such exclusive colonial markets neither affected profits nor were necessary for the employment of the mother country's surplus capital. James Mill opposed such colonial monopoly on utilitarian grounds, claming that the mother country was gaining at the expense of the colonies, thereby decreasing the sum of overall public welfare of the empire as a whole.

SHIFTS IN MERCANTILISM

Although the reservations voiced by the Physiocrats and Adam Smith were ascendant after 1760, some European powers clung to, and benefited from, the reinvigoration of the mercantile system. In Portugal, the powerful reforming prime minister, the Marques de Pombal, derided "all business which is done in foreign countries [as] insecure and very contingent" because the "ambition and greed inspired in other countries gives rise to frequent attempts to impede or usurp [that commerce]" (Carvalho e Melo 1986, p. 42). None of these dangers, Pombal reasoned, "threatens commerce which is conducted with colonies," potentially a "secure and perpetual" relation so long as the "exclusion of foreigners" and "care in watching over the colony's commerce and fertilizing it each day more in order to sprout new branches" (Carvalho e Melo 1986, p. 42) were maintained.

Trading companies became the basic building block in his grand design upon his rise to power in 1755 and were realized most fully in Brazil. In creating the companies of Grão Pará and Maranhão, Pombal sought to develop new export commodities (such as cotton and rice) and encourage the growth of colonial manufactures. These companies, which did not survive Pombal's political fall, were abolished in 1778 and 1779 and a freer trade between Portugal and northern Brazil was established. The companies had failed to achieve their economic objectives: Less than one-quarter of the shipments to the colonies were composed of national manufacturers while Portuguese textiles represented only 30 percent of total dispatched to the empire.

ABBÉ RAYNAL

Born in Saint-Geniez, France, on April 12, 1713, Guillaume-Thomas-François Raynal is noted for his influential writings on slavery in the New World. Educated by the Jesuits, Raynal initially joined the Roman Catholic order and worked at the Parisian parish of Saint-Sulpice. Abbé Raynal, as he is more commonly known, eventually left the Jesuits and started a writing career, beginning with a popular work on the history of the Netherlands and another on the history of the English Parliament.

In 1770 Raynal published the controversial six-volume Philosophical and Political History of the Settlements and Trade of the Europeans in the East and West Indies, which strongly condemned both the Roman Catholic Church and the French government. The fourth volume of the collection criticizes in detail the use and treatment of slaves in the North and South American colonies, and advocates the abolition of the slave trade. Raynal warned European leaders that if the slaves were not freed, bloody revolutions would soon commence, a prediction vindicated shortly thereafter by the Haitian slave rebellion of 1791.

Four years after its publication, the Philosophical and Political History was banned by the church, and in 1781 it was burned by the French public executioner, after which Raynal fled the country. Raynal was allowed to return in 1787, and two years later witnessed revolution in France, followed in 1794 by a formal decree eliminating slavery in the French colonies. Raynal died on March 6, 1796.

In the Spanish Empire, debates over colonial trade monopoly and privileged companies were particularly fierce. From the advent of its dominion in the New World, the Crown had zealously guarded its American dominions from foreign penetration. Until 1720 all ships had to pass through Seville, and between 1720 and 1765, through Cádiz. Foreign commercial ships were, in legislation at least, prohibited from entering Spanish American ports. Furthermore, in an attempt to guarantee markets for Spanish exports, the development of manufactures was strictly forbidden in the colonies. The early-eighteenth-century Spanish political economists, whose thought underpinned the changes that Spain imposed on the structure and functioning of its empire between 1759 and 1808, endorsed monopoly and trading companies: Geronimo Uztáriz attributed Spain's economic stagnation to the composition of its foreign and domestic trade and poor shipping facilities, both of which caused otherwise avoidable outflows of precious metals.

Spain had fallen behind its imperial rivals, but its plight was reversible. This realization unleashed the debate over the viability of Spain's mercantile system: On the one hand, Raynal's Spanish translator implored the reader to resist the French Abbé's siren call of liberty of commerce, warning that it often proved nothing but a chimera. On the other hand, in his 1794 preface to Wealth of Nations, Smith's translator mocked Britain for having granted trading companies sovereign power and the right to maintain garrisons and fortifications in overseas dominions. The so-called free trade decrees of 1765 and 1778 did away with some of the regulations constricting Spanish colonial commerce, represented the death knell of the Royal Havana Company, and seemed to prefigure a Smithian or physiocratic embrace of freer trade. Yet foreigners were still legally excluded from Spanish entrepôs and trading companies persisted: Less regulated trade did not prove to be the anticipated remedy for the deep-seated structural malaise brought on by belated industrialization and colonial undersupply. By the 1780s, such shortcomings of the new approach prompted the Crown to experiment with a combination of freer trade and regulated companies. A Philippines Company was empowered to conduct trade between Manila and the entire empire, as well as exclusive right to import slaves into Venezuela. In addition, widespread smuggling and Creole discontent conspired to render unworkable the mercantile system by the eve of Spanish American independence in 1808.

Although the trend was toward freer trade, it was hardly an inexorable and irreversible movement. Even in Britain, the old allegiance to the Navigation Acts, the bulwark of the mercantile system, persisted and even outpaced newfangled economic liberalism. One prominent writer accused Smith of not merely opposing monopoly, but favoring the "dismemberment of the empire" (Paquette 2004a, p. 200). Even when free trade was adopted in one area it sometimes proved to be a powerful inducement for protection in another, and the languages of these different systems mingled in the mouths of political writers and policymakers. Older views about the role of the state in international trade remained, as did the goals of economic self-sufficiency and the avoidance of reliance on foreign suppliers: In the aftermath of the American Revolution, English politician Lord John Sheffield famously remarked that "freedom of commerce is not a power granted to merchants to do what they please." Only after 1820 would liberal notions of wealth, trade, and empire fully take hold. When they finally did, they would underpin a new, nonmercantilist conception of colonialism: the imperialism of free trade.

see also Enlightenment Thought.

BIBLIOGRAPHY

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Blussé Leonard, and Femme Gaastra, eds. Companies and Trade: Essays on Overseas Trading Companies during the Ancien Régime. Leiden, Netherlands: Leiden University Press, 1981.

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Child, Josiah. A Discourse About Trade. London: 1668.

Crowley, John E. The Privileges of Independence: Neomercantilism and the American Revolution. Baltimore: Johns Hopkins University Press, 1993.

Davenant, Charles. Essays Upon Peace at Home, and War Abroad. 2 parts. London: 1704.

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Winch, Donald. Classical Political Economy and Colonies. Cambridge, MA: Harvard University Press, 1965.

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