The economic system of mercantilism did not appear like that in the social functioning of the Renaissance. It was built gradually by the states, which sought above all to promote their economic expansion and forged a dominant position in the world. The mercantilism comes from the emergence of the merchant towns and states. The merchant towns have spawned their own evolution, and protect themselves with walls and canals. Thus, the economy and the population has been better able to control, which means with a better-established power. Yet the economy was limited, so then, the states needed something that allowed them to increase this process of increasing power.
That’s where the mercantilism came in, a system that promoted government regulation of the economy of the territory. The crown had a lot of fiscal needs which were always an important and generally a determining influence on the course of trade legislation. That’s why the merchants gave money to the state in exchange of protection, it’s a balance.The system benefited from a favourable balance of trade, with exports of expensive manufactured goods and the import of cheap raw material such as metal, to keep a high stock and therefore a good competitiveness on the market.
Mercantilism answers the four main questions of economics, which are, what should we produce, how much should we produce, how should we produce and who should consume? It is to these questions that Jean Baptiste Colbert responded as minister of finance of Louis XIV (17th century) king of France. He has
The mercantilist concept of Colbert was familiar: encourage export and keep gold within the country so that it could fill the coffers of the state; and so France could get self-sufficiency (Oxford University Press, 2019). Colbert’s idea is to process cheap raw materials through domestic industries and resell them abroad. In short, the objective being to make trade surpluses. To create the French industrial fabric, Colbert goes as far as recruiting foreign workers to start in sectors where France has little experience. It sets up state monopolies. In 1664, he set up a customs tariff to protect French industries and even subsidized national companies to help them cope with foreign competition. In 1673, he was the main actor in the creation of the loan fund that would allow the state to finance its expenses (Colbert, 1665).
Among its expenses, one can note the development of the infrastructures of the country like the roads and naval constructions, which are essential to develop mercantilism. In order to promote domestic manufacture and to control, who is producing, how much they producing, the government set in place incentives in order to create this mercantilist economy. This is a «Hands-on» Approach, it consists to do subsidies, in order to encourage someone to produce a certain thing, then set monopolies with exclusive rights and also protective tariffs, taxes on imports, this stop foreign competition. The all point is to eliminate risk in this process and also to know where is the money and it is use.
When you think about Versailles, Louis XIV tried to show case a lot of French manufacturing, a lot of thing that is government encourage to be made right there in France, like the industry of luxury goods. This is the industry that Louis and Colbert try to promote through mercantilism. The states were integral to the development of mercantilism which were also called State-building.
One of the main characteristics of absolutist states is the systematic policies to promote economic production and commerce. That is why economic system of mercantilism is very closely linked to the political system based on absolutist states. Your goal as a state is to have the most gold as possible which explains why all these political economic changes were allowed, because they reinforced the lords’ stumbling position and above all the growing power of the monarchs. In this case, there are new processes that have been put in place, for the ascension of absolutist states, like the strengthening of centralized government over contiguous territories, which allows a better socio-economic control. There has been a strengthening of law, order and security.
All these changes benefit the merchants, who can practice their activity fully and even intensify with a favourable balance of trade. It seems that progress is making progress because the expansion of economic activities which has been taking place between towns has soared the population which is enlarged, but which did not themselves produce a food surplus. This a new society with bakers, artisan, artist and much more (Rothbard, 1970). This is entirely beneficial to the markets because it creates more merchandise, more competitiveness, and therefore a better economic return. So there is also a profound change in society that has developed more complex social forms that are more diverse. A new society in the image of the states that can be called modern nation-state.
To use the same example; Colbert, thanks to the enormous economic profit generated by mercantilism, brought together artists and intellectuals in academies, which he supported by subsidizing them and granting them government projects (Rothbard, 1970). The Academy was reinforced by Colbert, he imposed strict rules on artists so that their work was conventional, orderly, and always in the service of the king. This illustrates the fact that the main functions of mercantalism are to maintain domination over the peasantry and also the nobles. It solidify the king/state’s authority by centralising the economies of the state.
However, the success of Absolutist states was largely dependent on warfare, wars helped to promote territorial consolidation, centralisation, differentiation of the instruments of government and monopolisation of the means of coercion. Thanks to that one nation can oppose another, that is what Colbert said to Louis XIV (1969); “This country does not flourish only in itself, but also by the sanction it inflicts on neighbouring nations” (Rothbard 1970). All of these things were fundamental processes of state-formation. The merchants provide kings with money, which was used to support their armies and conquests. This clearly shows that mercantilism is especially beneficial to kings or monarchs.
This led to colonization, which was very quickly one of the main sources of wealth of the states that possessed it. It is also for this reason that Colbert gave priority to the overseas territories, with regard to trade, he encouraged the creation of trading companies. The result is the establishment of trading posts: Pondicherry and Chandernagor on the coast of India, a stop at Goree, Senegal, a new colony at the mouth of the Mississippi, Louisiana (Homant I. 2019). Mercantilism has thus allowed some States to have a stake in part of the world’s resources and to profit from it within the States themselves. At the same time, Colbert developed the war navy, necessary to protect the commercial fleet. Moreover, the new society that had developed during the last centuries made good colonists for the colonies, in which they represented their countries.
This essay demonstrates that the economic system of mercantilism is as important as the states for the good health (wealth) of nations who grew rich thanks to it. The states put in place policies to secure and make a favourable balance of trade, to allow the trade to develop over a long term, while increasing their absolute power. This enterprise was a real socio-economic success because it allowed colonization with the creation of compagnies, like East India Company ship. Colonization means a massive expansion of power of the political entities setting up new international trade routes. Mercantilism is therefore the tool of the absolute power of States.