The word ‘mercantilism’ is a term that most economists would define as a theory; this is based on the idea that the world’s total wealth was static and strongly supported government intervention in regulating trade through commercial (protectionist) policies to protect domestic firms and economic growth. If executed effectively, it should result in a country’s GDP increasing whilst producing a trade surplus.
The Effects of Mercantilism on the Netherlands
When looking back at history, the theory of ‘mercantilism’ was first executed by the Dutch (even before the theory was created). Whilst Britain and France experienced the benefits of mercantilism towards the early 18th-century and beyond, the Dutch benefits started from as early as the mid-16th century right up until the early-18th century, after the French and British started copying the methods taken by the Dutch.
The 17th and 18th centuries were considered the ‘golden years’ for economic prosperity in the Netherlands, as “the long-distance trading system of Europe was transformed from one largely conducted through the Netherlands, with the Dutch as universal buyer-seller and shipper, to one of multiple routes and fierce competitiveness” (‘Netherlands - Dutch Civilization in the Golden Age (1609–1713)’, n.d.). This surprised other European countries as “the Netherlands was a tiny country which had only come into existence in the 1580s after a revolt against its Spanish Hapsburg rulers” (Fonseca, n.d.), promptly went from being known as a population filled with “poor, sleepy fishing villages” (Fonseca, n.d.) to arguably the most powerful and richest country in the world, “with an empire that stretched across the globe, from Nagasaki to New Amsterdam, from the Artic Circle to South Africa” (Fonseca, n.d.).
One reason for this was they became the first country that identified making a trade surplus as their main objective for trade; this is when the value of exports exceeds the value of imports. They achieved this by exporting expensive manufactured goods (i.e., guns, tools, wine, salt) whilst importing cheap raw materials (i.e., wool, fur). Furthermore, they introduced commercial (protectionist) policies to help aid their positive balance of trade; this involves the government using policies to help control the level of international trade to protect their domestic firms and economy. These policies include tariffs, quotas, embargoes and subsidies; for example, in 1667, the Dutch banned “the import of French brandy and raising tariffs on silk and linen” (Findlay and O'Rourke, 2009, p.246) in retaliation to the French increasing tariffs on the majority of Dutch goods; in particular, “tariffs on fine woolen cloth and linen were doubled and on refined sugar raised by 50%, while duties on whale oil were quadrupled and on tobacco were raised as much as sevenfold” (Findlay and O'Rourke, 2009, p.245).
The early effects of imposing these commercial acts were mostly positive; with high levels of economic activity taking place. The tariffs quotas caused high levels of tax revenue to be generated by the Dutch government; some of these extra funds were then redistributed back into the economy through subsidies to colonial manufacturers in the Netherlands and abroad (i.e., Dutch East India Company) as well to aid their naval army. This resulted in the country having stronger monopoly power in the sea-trade market; this meant that they could control the price and quantity for which the market sold the good, causing profits to be protected. In addition, the subsidies allowed colonial manufacturers to develop new products that other countries were willing to pay high prices for. Furthermore, the investment caused the Dutch naval army to become the most powerful in the world during the mid-17th century, as “it is estimated that Dutch shippers and merchants owned three-quarters of the commercial ships in Northern Europe” (‘Mercantilism and the Navigation Acts’, 2019).
The standards of living in the Netherlands generally improved during early economic success; this is because a majority of citizens were either “sailors, shipbuilders, fishermen” (‘Netherlands - Dutch Civilization in the Golden Age (1609–1713)’, n.d.), meaning that they were most likely involved in the high levels of trade that was happening. This is evident with the Netherlands having the highest GDP per capita in Europe during the 17th century at an estimated $1381; however, the Netherlands had the highest rate of income tax during this time, thus the workers couldn’t fully reap money they made during their dominance.
However, in the late 17th century to early 18th century, France and Britain caught onto the commercial policies that made the Dutch successful to help their empire and economy grow. This harmed the Dutch dominance on the sea-trade market and naval army as they started to lose their monopoly power in the trading scene whilst the British and French empires were growing exponentially, faster than the original Dutch Empire. This led to conflict arising with the countries, which caused to wars break out. These consequences were severe as this resulted in the Dutch losing the majority of their colonies during this period; notably, New Amsterdam to the British during the Second Anglo-Dutch War in 1664 and South African colonies during 1795 as the British occupied the Cape Colony.
The Effects of Mercantilism on France
Although the Dutch were the first country to execute the ‘mercantilist’ theory effectively, when looking into the birth of the name ‘mercantilist’ and its explained theory, we have to give credit to the French, particularly Jean-Baptiste Colbert. This idea came along after being baffled by the Dutch early economic success due to the size of the country and limited resources they had. He then created a plan (inspired by the Dutch) to export as much wealth from their colonies whilst minimizing spending.
Just like the Dutch, the French government decided to subside multiple colonial businesses associated with the French and their colonies (an example of a commercial policy). This started with French investing in the fishing market, with the fishermen of Normandy and Brittany exploiting “the cod fisheries of the Grand Banks off Newfoundland” (Findlay and O'Rourke, 2009, p.247), which played a major role in allowing them to serve “the large domestic market in France” (Findlay and O'Rourke, 2009, p.247), whilst “relying on plentiful supplies from the Bay of Biscay to salt the ‘green’ fish that they caught at sea” (Findlay and O'Rourke, 2009, p.247), so the product didn’t go to waste. Also in 1608, Samuel de Champlain founded a fort at Cape Diamond which was in-between the banks of the St. Lawrence and Quebec; this fort laid the foundation for them to enter the highly-lucrative fur-trade market, as well as other high-profitable markets like brandy and firearms in Canada and the sugar market in the Caribbean. Furthermore, the French government also subsidized their naval army, as Colbert saw the size of the Dutch naval army and wanted to match it. Increased ships meant increased levels of trade as there was an increase in the number of goods that could be transported from the ships and allowed them to create a cabotage law which started “that all colonial products be sent directly to France on French ships” (DuPlessis, 2003, p.373).
Another commercial policy taken from the Dutch is to impose tariffs on goods from rival countries and their colonies. For example, “In 1664 Colbert raised tariffs on Dutch exports to France, moderately in most cases, but more heavily on refined sugar and spices to encourage the newly created French East and West India Companies” (Findlay and O'Rourke, 2009, p.245), with the purpose of this to eliminate Dutch competition through making importing foreign goods more expensive. This in turn should force their colonies to buy French-produced goods as they turned out to be cheaper compared to the Dutch, thus allowing them to generate extra tax revenue which could be used to help aid their naval army and economy.
The early effects of these protectionist policies were mainly positive, as similar to the Dutch with the sea-trade market, the French were able to gain monopoly power in the fur trade market. This is because the demand for animal fur was high during the early 17th century; furthermore, with the transportation costs of fur being low it allowed them to generate high levels of profit. Another market that the French were flourishing under the mercantilist era was the sugar business. For instance, one of the French colonies in the Caribbean (Saint Domingue) “accounted for 40 percent of French foreign trade” (DuPlessis, 2003, p.375). This was due to them being responsible for “two-fifths of world sugar production and half the world’s coffee” (DuPlessis, 2003, p.375); likewise, this allowed them to gain increased monopoly power in the sugar market. Overall, this caused France to become one of the most powerful trading countries by the mid-18th century, as just like animal fur, sugar was high in demand and valuable at the time. Moreover, standards of living in France improved as more people living in France could afford better goods and living conditions; overall increasing economic growth from the late 17th century to the mid-18th century.
However, by the late 18th century (1789), the country was experiencing an economic disaster as the government were facing huge debts. This was compounded by the Seven Years’ War (1756-1763) and the American Revolution (1775-1783), in which they lost colonies in North America and Asia; particularly Canada to the British and the state of Louisiana to Spain in the Seven Years’ War. Besides, they were experiencing natural disasters through bad weather which led to poor harvest. This all led to levels of taxation and consumers standards of living to fall creating France to go broke, leading to the French Revolution (1789-1799).
The Effects of Mercantilism on Britain
Just like France, Britain too envied the early success that the Dutch were experiencing in terms of trading and economic growth. This inspired them to also colonize other nations, with one of their first thirteen American colonies (Jamestown, Virginia) in 1607 which was followed by their first island in the Caribbean (Saint Kitts) in 1623, in which those colonies were used as bases for their sea-trade empire (similar to the French colonizing Cape Diamond).
For the empire to be up and running, the British government had to subside their colonial businesses involved in this market. An example of a firm that the British government subside during this time was East India Company (EIC), as they were involved in the triangular trade. This involved Britain exporting textiles and manufactured goods to America and returning tobacco, rice, and silk from America, and sugar, molasses and wood from the West Indies.
Furthermore, like the French and Dutch, the British used tariffs and embargoes to protect their empire and profits. An example of an embargo imposed can be found in the first Navigation Act of 1651; it was written up with the purpose “to encourage British shipping and allow Great Britain to retain the monopoly of British colonial trade for the benefit of British merchants” ('Navigation Acts ***', n.d.). The purpose of this Act is that before the first navigation act, the British colonies were frequently trading with the Dutch due to their huge influence on international trade at the time, as “the Dutch operated the highly lucrative global ‘carrying trade’ around Europe” (‘Mercantilism and the Navigation Acts’, 2019); enabling them becoming arguably the most powerful country in the world by the mid-17th century. The British government hoped by forming this act, it would cause their colonies to trade less with the Dutch and only trade within their empire; however, the outcome wasn’t effective.
The reason being colonies largely ignored this commercial policy as they carried on trading with countries outside the empire particularly the Dutch (who mentioned earlier were Britain’s biggest rivals). Nevertheless, colonial manufacturers wanted to maximize the profits as it was estimated that the American colonies were generating £700,000 every year in profits until 1660. This continued trade with the Dutch caused tension to increase leading to the First Anglo-Dutch War in 1652, with the Dutch coming out victorious and the British failing to become the dominant nation in the sea-trade industry.
After the defeat, King Charles II decided that he need to create a revised edition of the Act, with its main purpose to retain as much money back to Britain as they possibly could from their colonies trading. This is because he realized that “simply banning the sale by the Dutch of fish in England when the national industry was still underdeveloped would be ineffective” (Findlay and O'Rourke, 2009, p.242); thus, introducing tariffs and duty tax on colonial goods (just like the Dutch and French). For instance, the 1660 navigation act stated that certain goods and commodities (i.e., sugar, tobacco, rice, cotton and wool) had to be shipped to Britain, from where they would be re-exported to customers. This was due to the high value and demand the goods generated, allowing the government to easily impose heavy tariff duty tax on those items knowing that they would still be brought.
Another revised edition, the 1663 Navigation Act (as known as ‘the Staple Act’) “stated that colonial exports (mainly American) had to be transported in English, or colonial, ships and that all colonial imports had to first pass through English ports” (‘Navigation Acts ***’, n.d.). This was done by British customs officers to control the amount of trade being performed by inspecting goods the colonial manufacturers were exporting to calculate how much tariff duty tax they would have to pay. Additionally, the levels of duty tax and tariffs increased for the British colonies; which is similar to the 1733 edition, as this imposed a heavy-duty tax on sugar from the West Indies. These effects were similar to the French colonies, as this forced British colonies to buy goods, i.e., sugar, from other British-based colonies instead of goods from other countries as their price turned out to be more expensive. This meant that levels of profit that the government generated were increasing (through tax revenues), causing Britain to slowly gain more monopoly power in the sea-trade market.
Unsurprisingly, the winners of these navigation acts were the British citizens involved in the sea-trade business; particularly the British monarchy. This is because like the French and Dutch, they received extra tax revenue through the tariffs and duty tax they were charging. This meant they were able to fund their naval army, to compete with the French and Dutch naval size; this would lay the foundation for them to become “the most successful economy in the world and the greatest military power” (Libecap, 2012) by the time their second empire was formed. Furthermore, standards of living did improve in Britain to a degree as, during the peak of the first empire, the total GDP was at an estimated $683.3 bn (£542.8bn), which ultimately led to economic growth.
However, the mercantilism-inspired acts imposed wasn’t all positive; with the colonial manufacturers being the most affected negatively. Unlike the French colonial firms, these British firms were experiencing high levels of production costs due to the large amounts of tariffs duty tax, as well as being limited with the quantity of trade they can do with Britain and their colonies it caused profits to fall. Furthermore, whilst the majority of Dutch citizens were involved in the empire meaning there was a greater distribution of wealth, the distribution of wealth in Britain was far less as there were fewer people involved with the sea-trade empire. This meant that general standards of living for those people didn’t massively improve. All of these factors led to rebellion and corruption within the colonies which “contributed to rising anti-British sentiment and the eventual outbreak of the American Revolution” (‘The Navigation Acts (article) | Khan Academy’, n.d.); in which the British lost all their colonies in America by the late 18th century.
Conclusion
To conclude, all of the protectionist (commercial) examples given in the essay could be considered as examples of mercantilism, due to the high levels of government’s intervention to aid the levels of international trade. In the 17th and 18th centuries, Britain, France and the Netherlands were all economic powerhouses in their own right. They had at least monopoly power in a particular market at one point during the specified period and all experienced a degree of suitable economic growth. However, it could be argued that in the long term the British turned out to be more successful in terms of economic growth compared to the French and Dutch due to the British quickly adapting in later centuries to having a larger empire compared to their original one.