Mercantilism

Old sailing ship Summary:

Mercantilism is an economic system older than Capitalism. It is based on the belief that wealth comes from the ownership of limited natural resources, and it was designed by a man to enrich the king.

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Mercantilism

At first people did not know they could or should devise an economic system. They would simply barter for what they needed. My wheat for your sheep. Your gold for my road.

Kings learned they needed gold to pay for an army. The bigger and better the army, the more gold they paid. When the gold was gone, they lost the army. Therefore they needed a greater influx of gold than they spent. Spain brought home a lot of gold from the New World, and they built a strong army. France wanted to do something to counter Spain.

In the seventeenth century Ambassador Jean Baptiste Colbert (1619-1683) of France observed which economic practices brought in more gold for the king. He then described to King Louis XIV an economic system which we call Mercantilism. It was designed so the country would import more gold than it exported, and export more goods than it imported. The profit would go to the king. You can see it is impossible for every country to import more gold then it exports; somebody has to lose in that deal, and it is usually the weaker countries that lose. Mercantilism became official, and was adopted quickly among strong nations.

Mercantilism is based on the belief that wealth is the ownership of limited resources. Therefore the richer one person is, the poorer someone else is. It demands a person or policy be clever, crafty, and strong in order to survive. It is designed to enrich the king, the strongest of all, who has enough money to hire clever and crafty men.

The framers of mercantilism did what seemed right and proper. It seemed there were two great truths in that day: wealth comes from gold and the sun revolves about the earth. The leaders merely dealt with "the way things are." Furthermore, the king owned the country, therefore the economic system should and must be controlled by the king and benefit the king. There was nothing evil in the intent with which mercantilism was designed. Colbert simply used the wisdom of the day to benefit the country he loved. But as it turns out, anything that benefits one person by impoverishing another is evil whether the participants realize it or not.

Although it started with gold as the standard of wealth, it easily became apparent that any natural resource will substitute for gold: silver, copper, lumber, spice and oil, to name a few. However, the belief that wealth comes from limited resources is as wrong and as damaging as the belief that the sun revolves about the earth every 24 hours. It seems obvious that the sun rises in the east and sets in the west but in fact the earth rotates from west to east. Because the Mercantilist theory appears to be evident, it is used today by almost all the countries. It is designed to bring wealth and power to the rulers, in order that they may rule the country as they see fit.

Mercantilism is based on the idea that wealth comes from natural resources. That is, gold. The more gold you have, the richer you are. Since gold is a finite resource (there's just so much on planet Earth, and no more), it is theoretically possible for one person to own all the gold, all the wealth. It would also be true (if mercantilism were correct) that the more wealth you have, the less someone else can have.

Today Mercantilists recognize other resources also produce wealth, such as trees, oil, uranium, and so on. They have gone from the concept of "gold" and "natural resources" to "money". The idea now is that there is a finite amount of money. The more you have, the less someone else can have. Every dollar you have deprives a poorer person of that dollar. That's just the way things are; you can't change it, so don't worry about it. Even Jesus said, "You always have the poor with you."

You can see how this economic belief influences a person's religion and his politics. If every dollar you have is a dollar someone else cannot have, then rich people are sinful; they have deprived the poor of basic necessities. "The rich get richer and the poor get poorer." A conscientious citizen would vote for the political party that promises to punish the rich and return the money to the poor. Politicians would capitalize on the fear, frustration and anger of the population by promising to take back the money they had lost and return it to them. For some reason this method of redistribution never seems permanently to change the poverty of its recipients but rather it boxes them in. Instead of teaching the recipients that wealth comes from proper expenditure of their own efforts, it teaches them that wealth comes from the government. Unfortunately, the government never has enough money to provide for them, because it can not have enough money.

In the world of international trade, according to Mercantile theory, it is important that a country's trade be designed to bring more gold into the country (into the king's coffers) than what goes out. Therefore we have protective tariffs and are concerned about the "balance of trade."

The problem with Mercantilism is that it supposes wealth is drawn from finite natural resources and therefore is limited. The logical result is, the more wealth one person has, the less wealth another person can have. The truth is, wealth is unlimited, and it is not based solely on natural resources. Besides that, natural resources are continually changing. What was a natural resource in one age (e.g. whale oil) is not a natural resource in another age.

Mercantilism was formed by a theory. The study of the way economics and money really work soon demonstrates the error of Mercantilism. It cannot ultimately be successful and benefit the people.