Power and Wealth Mercantilism

Power and Wealth

Mercantilism can best be understood as an intellectual reaction to the problems of the times. In this period of the decline of the manor and the rise of the nation-state, the mercantilists tried to determine the best policies for promoting the power and wealth of the nation. Just as Machiavelli, the Italian statesman, political theorist, and author of The Prince (1513), had advised rulers about expedient political policies, the mercantilists advised them about the economic policies that would best consolidate and increase the power and prosperity of the developing economies.

The mercantilists proceeded on the assumption that the total wealth of the world was fixed. Using the same assumption, the scholastics had reasoned that when trade took place between individuals, the gain of one was necessarily the loss of another. The mercantilists applied this reasoning to trade between nations, concluding that any increase in the wealth and economic power of one nation occurred at the expense of other nations. Thus, the mercantilists emphasized international trade as a means of increasing the wealth and power of a nation and, in particular, focused on the balance of trade between nations.
The goal of economic activity, according to most mercantilists, was produc­tion—not consumption, as classical economics would later have it. For the mercantilists, the wealth of the nation was not defined in terms of the sum of individual wealth. They advocated increasing the nation's wealth by simultane­ously encouraging production, increasing exports, and holding down domestic consumption. Thus, the wealth of the nation rested on the poverty of the many. Although the mercantilists laid great stress on production, a plentiful supply of goods within a country was considered undesirable. High levels of production along with low domestic consumption would permit increased exports, which would increase the nation's wealth and power. The mercantilists advocated low wages in order to give the domestic economy competitive advantages in interna­tional trade. Also, they believed that wages above a subsistence level would result in a reduced labor effort: higher wages would cause laborers to work fewer hours per year, and national output would fall. Thus, when the goal of economic activity is defined in terms of national output and not in terms of national consumption, poverty for the individual benefits the nation.