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during the 16th, 17th, and 18th cent., based on the premise that
national wealth and power were best served by increasing
exports and collecting precious metals in return. It superseded
the medieval feudal organization in Western Europe, especially
in Holland, France, and England. The period 15001800 was
one of religious and commercial wars, and large revenues were
needed to maintain armies and pay the growing costs of civil
government. Mercantilist nations were impressed by the fact
that the precious metals, especially gold, were in universal
demand as the ready means of obtaining other commodities;
hence they tended to identify money with wealth. As the best
means of acquiring bullion, foreign trade was favored above
domestic trade, and manufacturing or processing, which
provided the goods for foreign trade, was favored at the
expense of the extractive industries (e.g., agriculture). State
action, an essential feature of the mercantile system, was used to
accomplish its purposes. Under a mercantilist policy a nation
sought to sell more than it bought so as to accumulate bullion.
Besides bullion, raw materials for domestic manufacturers were
also sought, and duties were levied on the importation of such
goods in order to provide revenue for the government. The
state exercised much control over economic life, chiefly through
corporations and trading companies. Production was carefully
regulated with the object of securing goods of high quality and
low cost, thus enabling the nation to hold its place in foreign
markets. Treaties were made to obtain exclusive trading
privileges, and the commerce of colonies was exploited for the
benefit of the mother country. In England mercantilist policies
were effective in creating a skilled industrial population and a
large shipping industry. Through a series of Navigation Acts
England finally destroyed the commerce of Holland, its chief
rival. As the classical economists were later to point out,
however, even a successful mercantilist policy was not likely to
be beneficial, because it produced an oversupply of money and,
with it, serious inflation. Mercantilist ideas did not decline until
the coming of the Industrial Revolution and of laissez-faire .
Henry VIII, Elizabeth I, and Oliver Cromwell conformed their
policies to mercantilism. In France its chief exponent was Jean
Baptiste Colbert.
Navigation Acts
Navigation Acts, in English history, name given to certain
parliamentary legislation, more properly called the British Acts
of Trade. The acts were an outgrowth of
Mercantilism , and followed principles laid down by Tudor and
early Stuart trade regulations. They had as their purpose the
expansion of the English carrying trade; the provision from the
colonies of materials England could not produce, and the
establishment of colonial markets for English manufactures.
The rise of the Dutch carrying trade, which threatened to drive
English shipping from the seas, was the immediate cause for
the Navigation Act of 1651, and it in turn was a major cause of
the First Dutch War . It forbade the importation of plantation
commodities of Asia, Africa, and America except in ships
owned by Englishmen. European goods could be brought into
England and English possessions only in ships belonging to
Englishmen, to people of the country where the cargo was
produced, or to people of the country receiving first shipment.
This piece of Commonwealth legislation was substantially
reenacted in the First Navigation Act of 1660 (confirmed 1661).
The First Act enumerated such colonial articles as sugar, tobacco,
cotton, and indigo; these were to be supplied only to England.
This act was expanded and altered by the succeeding Navigation
Acts of 1662, 1663, 1670, 1673, and by the Act to Prevent
Frauds and Abuses of 1696. In the act of 1663 the important
staple principle required that all foreign goods be shipped to the
American colonies through English ports. In return for
restrictions on manufacturing and the regulation of trade,
colonial commodities were often given a monopoly of the
English market and preferential tariff treatment. Thus Americans benefited when tobacco cultivation was made illegal within
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LESSON 5:
MERCANTILISM
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Laissez-faire
Laissez-faire [Fr.,=leave alone], in economics and politics,
doctrine that an economic system functions best when there is
no interference by government. It is based on the belief that the
natural economic order tends, when undisturbed by artificial
stimulus or regulation, to secure the maximum well-being for
the individual and therefore for the community as a whole.
Formulations of the Doctrine.
Historically, laissez-faire was a reaction against Mercantilism , a
system of commercial controls in which industry and trade,
especially foreign trade, were merely seen as means of strengthening the state. Navigation laws, trade monopolies, taxes, and
paternalistic regulations of all kinds bore heavily upon the rising
class of merchants in the period of European colonial expansion. It was on behalf of this class that the French physiocrats ,
pioneer economists in the 18th cent., first formulated the
principles of laissez-faire. With the physiocrats, state noninterference became a cardinal teaching; they especially opposed the
taxation of commercial pursuits.
Opposition to mercantilism and state paternalism also motivated Adam Smith, father of classical economics, whose name
more than any other is connected with British laissez-faire
doctrines. Smith believed that individual welfare rather than
national power was the correct goal; he thus advocated that
trade should be free of government restrictions. When
individuals were free to pursue self-interest, the invisible
hand of rivalry or competition would become more effective
than the state as a regulator of economic life. Smith did not
believe in laissez-faire in an absolute sense; he found a place for
government activity in public works, such as the building of
canals and docks to facilitate trade, and in the regulation of
foreign commerce to protect certain home industries.
In the hands of Jeremy Bentham the doctrine of laissez-faire
became a philosophy of individualism and of utilitarian ethics,
and John Stuart Mill brought it to what was probably its
highest point. The strong individualism of the theory naturally
appealed to the factory owners and merchants of the.
Industrial Revolution , whose attempts to transform society
along capitalistic lines were often hampered by old laws and the
opposition of landed interests.
The so-called Manchester school of economics, especially
Richard Cobden and John Bright, popularized the doctrines of
free trade and laissez-faire which, after initially being considered
radical doctrines, were becoming the accepted theory of classical
economics. Cobden and Bright, both successful businessmen,
brought laissez-faire into the arena of politics: they secured the
repeal of the corn laws mercantilist import duties that raised the
price of food needed by the industrial workersand they
opposed even the minimal provisions of the factory acts that
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was ceded to the Dutch and a trade treaty modified the French
restrictive tariffs in favor of the Dutch. By a subsequent treaty
with Spain, Louis received Franche-Comt and a chain of
border fortresses in return for evacuating the Spanish Netherlands. By a treaty with the Holy Roman emperor (1679), France
was confirmed in possession of Freiburg and a part of
Lorraine.
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