Philosophy of Society

Philosophy of Economics (Economic Theory)

Mercantilism

The first school of political economy was mercantilism, a term derived from the Latin "mercari," meaning "to trade." This designation itself indicates that the proponents of this school regarded trade as the primary source of a nation's wealth. By the late 15th century, European nations had embarked on vigorous trading endeavors, and with the discovery of the New World, trade expanded to unprecedented scales, bringing immense quantities of gold and silver to Europe. Concurrently, the establishment of manufactories filled the market with a plethora of goods that required sale. These economic transformations captured the attention of policymakers and scholars, prompting a fundamental examination of the principles underlying economics, thereby giving rise to the first formal economic doctrine: mercantilism. Its origins can be traced back to England, from where this doctrine spread to France, Spain, and across Europe. Key figures in the formation of this doctrine included Thomas Mun (1571—1641), a director of the East India Company, and the French Minister of Finance, Jean-Baptiste Colbert (1619—1683). Mercantilism is founded on several key theses:

• The wealth of a nation and state is fundamentally equated with money; thus, the goal of economic activity should be the accumulation of as much money as possible.
• Since money enters the state through trade, trade is the principal source of wealth for both the state and its citizens. Therefore, the state's primary efforts should focus on the development of trade.
• The state must actively intervene in the economy, doing everything possible to ensure that money flows into the country and remains there. To this end, the governments of European nations, particularly England and Spain, prohibited the export of money from their territories and restricted the import of foreign goods. For instance, merchants trading in England were not allowed to export the money they earned but were instead compelled to purchase English goods for export. In 1650, the English Parliament prohibited foreigners from trading within the country without special permission. This governmental interference in the economy is referred to as protectionism.

Mercantilism underwent two distinct stages of development:

• Monetarism or Mercantilism of the Monetary Balance—this early form of mercantilism (15th-16th centuries) is characterized by the view that money (coins) constitutes the foundation of wealth. During this period, strict protectionist measures were enacted, with rigorous limitations on the export of gold and silver, alongside restrictions on imports.
• Mercantilism of the Commodity Balance—this later stage (16th-17th centuries) continued the practice of stringent protectionism but shifted the emphasis from money to goods. While governments no longer prohibited the export of gold and silver, they closely monitored the trade balance, ensuring that exports exceeded imports. Merchants exporting finished products were granted subsidies and benefits, while high tariffs were imposed on imports.

By the 17th century, mercantilism was gradually supplanted by other, more effective economic theories; however, its elements frequently re-emerged. Mercantilism laid the groundwork for protectionism, which became a cornerstone of the policies of figures like Napoleon in France and Peter the Great in Russia. While most economists of the 18th to 20th centuries criticized protectionism for hindering free trade, some contemporary economists, including the South Korean Ha-Joon Chang (born 1963), argue that without protectionism and state support, the economies of underdeveloped countries will struggle to develop.