RISE OF FRANCE AND

NETHERLANDS
The term ‘Mercantilism’ broadly refers to that group of
ideas and practices in the economic sphere by which the
nation states of Europe sought to increase its own power,
wealth and prosperity in the period from 1500 to 1800 A.D.
It was in a way the economic counterpart of political
absolutism. The measures used by governments to
influence their economies included tariff laws, industrial
regulation, trade wars, tax laws and currency
manipulation. Mercantilism contained many interlocking
principles and was not a unified principle or ideas.
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Maurice Dobb described mercantilism as ‘a system of state regulated
exploitation through trade…essentially the economic policy of an
age of primitive accumulation”. Eli Heckscher interprets the
economic policy of this period as a tendency towards the economic
unification of the nation state. Murray Rothbard, belonging to the
Austrian school of economics, described mercantilism as “a system
of statism which employed economic fallacy to build up a structure
of imperial state power, as well as special subsidy and monopolistic
privilege to individuals or groups favoured by the state. Thus,
mercantilism held exports should be encouraged by the government
and imports discouraged”.

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It may be noted here that the term was not in common use during
the prevalence of the system. To the men who lived at the time of
its prevalence it was less evidently a system with definite aims. It
was referred to as commercial system or mercantile system in
England. It was also known as ‘restrictive system’ because of
impositions of numerous restrictions and regulations on
commerce. In France it was known as ‘Colbertism’ after its
finance minister Colbert and in Austria it was called ‘Cameralism’.
It was also denoted as ‘bullionism’ because of the overemphasis
given to the possession of gold and silver by the nation states.

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 SALIENT FEATURES OF MERCANTILISM
The primary objective of the principles of mercantilism was to augment the power, wealth
and prosperity of a nation state by regulating the nation’s economy.
It was the economic counterpart of political absolutism.
Precious metals, such as gold and silver were deemed indispensable to a nation’s wealth. If
a nation did not possess mines or have access to it, precious metals should be obtained by
trade.
It was believed that trade balance must be favourable, ie, exports should exceed imports.
Since commerce helps a nation to export surplus goods and bring back bullion, it must be
aided. Merchants must be protected abroad, favourable treaties should be negotiated and
new markets opened up. For distant trade, the nations must aid and protect chartered
companies with monopolies. High tariffs should be imposed on exports and imports from
foreign countries.
It was believed that there was more or less a fixed volume of international trade and
policies of the state should be to get the largest share of it.
Each nation should attempt to be self-sufficient and in order to achieve it must produce
its own manufactured goods and encourage and develop its industries in a regulated
manner.
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Agriculture must be developed to reduce dependency on other nations for
food and raw materials like wool, flax, silk and hemp. This would in turn breed
strong and sturdy peasants who would supply the nation with soldiers and
sailors.
A nation state should aspire to be a formidable sea power to protect its foreign
trade and enhance the country’s prestige.
It encouraged acquisition of colonies. Colonial possessions should serve as
markets for exports and as supplier of raw material to the mother country.
Manufacturing was forbidden in colonies, and all commerce between colony
and mother country was held to be a monopoly of the mother country.
A strong nation, according to this theory, was to have a large population, for a
large population would provide a supply of labour, a market and soldiers.
Human wants were to be minimized, especially for imported luxury goods, for
they drained off precious foreign exchange. Sumptuary laws were to be passed
to make sure that wants were held low. Thrift, saving were regarded as virtues,
for only by these means could capital be created.
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 THE BACKGROUND OF THE RISE OF MERCANTILISM
Towards the close of the middle ages the idea of nationality became very distinct. The
renaissance, the fall of feudal nobility in Western Europe, the beginning of the age of
geographical exploration and the reformation that followed, greatly contributed to it. The
spirit of nationality made the nations conscious of themselves as separate political, religious,
and economic entities.

When a nation became fully developed in this way it became equally conscious of the
existence of other nations, and it was disposed to view them as potential enemies. The aim of
the nation was to preserve its independence. For this purpose the activity of its people in
every direction had to be regulated and controlled. The freedom of action which in later
times was regarded as the right of the individuals was subordinated to the necessities of the
state. Private interests could not be permitted to take precedence of considerations affecting
the well-being of the nation as a whole. The direction of direction of political and economic
affairs in the interest of the nation, which the circumstances of the time seemed to demand,
was impossible without an authority sufficiently strong to exercise control. This authority was
monarchial in character, and powerful despotism which prevailed in most countries of Europe
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from the 16th to 18th centuries favoured the rise of principles and ideas of mercantilism.
The Effects of
Mercantilism
on the
Netherlands

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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.

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The 17th and 18th centuries were considered the ‘golden years’ for
economic prosperity in the Netherlands, as “the long distance
grading 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.).
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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).
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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 powerin 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 threequarters of the
commercial ships in Northern Europe” (‘Mercantilism and the Navigation Acts’,
2019).
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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.

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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.
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The Effects of
Mercantilism
on France

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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.

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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).
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 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.

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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. 18
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).

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 EFFECTS OF MERCANTILISM
Mercantilism gave great impetus to imperialism of this era. Since colonies
were viewed as sources of gold and valuable essential commodities and
market, the nation states were keen to acquire as many colonies as
possible. The European powers, often under the aegis of monopolistic
companies, such as the Dutch East India Company or the British Hudson
Bay Company (Canada), carried out colonial activities around the globe.
Since colonies were regarded as existing for the benefit of their mother
countries, the colonized parts of North America, South America and Africa
were involuntarily involved with mercantilism and were required to sell
raw materials only to their colonizers and purchase finished goods only
from them.
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Its rigid notions of favorable trade balance often caused
commercial rivalry and even wars between nations. The
Anglo-Dutch wars and Franco-Dutch wars are a case in point.
Restrictions on where finished goods could be purchased led
in many cases to burdensome high prices for those goods.
The constraints of mercantilism caused friction between
Britain and her American colonies and were greatly
responsible for out-break of the American Revolution.
Adam Smith, a strong critic of the mercantilist policies,
opined that this type of economy has low rate of growth, the
wealth is concentrated in the hands of few, majority of
people have no development and the economic growth is
hampered. 21
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Presented By :
Sneha Jha (22/488)
Ashmi Thapa (22/504)
Lileng Ete (22/499)
Md. Labiduz Zaman (22/1604)
Srishti Shrivastava (22/468)