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Max Planck Encyclopedia of Public International Law [MPEPIL]

Mercantilism

Philipp Reinhold

From: Oxford Public International Law (http://opil.ouplaw.com). (c) Oxford University Press, 2015. All Rights Reserved.date: 18 August 2019

Subject(s):
Tariffs — Unilateral acts

Published under the auspices of the Max Planck Foundation for International Peace and the Rule of Law under the direction of Rüdiger Wolfrum.

A.  Introduction

The term ‘mercantilism’ is widely used, though its concrete meaning is far from clear. It is assumed that the term goes back to Adam Smith (1723–1790) who criticized in his famous book ‘The Wealth of Nations’ a certain type of commercial policy described by him as the ‘mercantile system’. However, it is argued that the representatives of this commercial policy did not follow a specific dogmatic conception and therefore the term mercantilism does not represent a system at all (Blaich [1973] 1 ff). The most common definition was given by the Swedish historian Eli Heckscher (1879–1925), who wrote the most famous contribution on the subject. He saw mercantilism as a ‘phase in the history of economic policy’ common to all countries in Europe between the Middle Ages and the period of ‘laissez faire’ (Heckscher [1932] vol I 1 ff). It can be described as a period of transition between the 16th and the 18th centuries, with varying starting and ending points due to different political pre-conditions among the European countries.

An essential characteristic of this historical phase is a state of mind and a political direction striving for the unification of power and structures. The State as a political entity is moved to the centre, forcing back the previous fragmentation (often described as ‘particularism’) and the transnational structures (‘universalism’) of the Middle Ages. The economy was seen as ‘static’, which means that mercantilists believed in a limited quantity of wealth. Against this background, they saw the striving for prosperity as a zero-sum game. Any improvement was believed to be only possible at the expense of someone else. One reason for this thinking was the use of trade balances. Mercantilists aimed for a positive balance of trade, which means that there should be more exports than imports. In this context, they were convinced that a favourable balance of trade is only achievable by one country to the extent that it is offset by another country’s unfavourable balance. In the words of Josiah Child (1630/31–1699), an English merchant and politician, trade should be ‘so managed that other nations who are in competition with us for the same, may not wrest it from us, but that ours may continue and increase, to the diminution of theirs’ (Child 175 f). Money was seen as a medium of exchange that should be kept in circulation to serve its function. In this regard, the limited amount of money was seen as a problem that should be solved by the means of trade policy. Mercantilists favoured the import of raw materials and the export of manufacturing products in exchange for cash or bullion. At the same time, they tried to prevent primary commodities from being exported to other countries.

The relationship between the rising European states makes the era of mercantilism relevant from an international law perspective. Singular states developed a specific commercial policy that aimed for a trade surplus in relation to domestic as well as foreign markets. Competing nations on the other hand were to be prevented from achieving those commercial gains. In this context, it is important to emphasize that European imperialism and colonies around the world (Colonialism) represented an important element of the recurrent conflicts between the European states of that time. Those conflicts involved political and economic rivalry, often leading to hostilities involving armed confrontations. Armed conflicts were accompanied by trade measures aiming to weaken the enemy. In doing so, the European states employed trade measures that can still be observed today. At the same time, those political and economic disputes were addressed by sophisticated diplomatic means (Diplomacy) and treaty-making. All in all, the mercantilist era represents the beginning of a comprehensive trade policy which shall be at the centre of this contribution.

B.  Mercantilism and Public International Law

In principle, mercantilism is associated with an ambitious economic policy aimed at domestic economic growth. In concrete terms, domestic production first had to be established or expanded and then shielded from foreign competition. This shielding latter was to be achieved through a protectionist trade policy. At the same time, successful foreign trade was the prerequisite for creating prosperity. As it was described by the merchant and writer Thomas Mun (1571–1641):

Behold then the true form and worth of forraign Trade, which is, The great Revenue of the King, The honour of the Kingdom, The Noble profession of the Merchant, The School of our Arts, The supply of our wants, The employment of our poor, The improvement of our Lands, The Nurcery of our Mariners, The walls of the Kingdoms, The means of our Treasure, The Sinnews of our wars, The terror of our Enemies (Mun 119).

However, it needs to be emphasized that prosperity was not to be calculated economically, but was based on the central interest of the state, which was represented by the respective ruler. This means that the state’s interest in power outweighed economic efficiency.

The national policies of self-confident countries in the competition for power and prosperity held a considerable potential for conflict. Trade policy was also used in this context to finance wars and to weaken other states during violent conflicts. The conflicts also extended to the colonies as a sales market and a source of raw materials. Overall, the period between the 16th and 18th centuries was marked by countless violent wars and clashes between the powers of Europe. Trade policy in this respect was an instrument of state power politics.

Against this background, the presentation of the political and legal aspects of mercantilism needs to be divided into two categories, of which the first one includes the national economic policy whereas the second category addresses trade policy as a means of diplomacy.

1.  National Policy

The rise of state power, the fight for its increase, and the basic economic foundations of that time formed a specific economic policy by the European states, the main purpose of which was to establish a strong national production that was intended to create wealth by the means of trade. This interdependence of the domestic economy and trade is reflected in a division of policy measures. On the one hand, there is a policy of promotion, recruitment, and state-controlled or partly founded production. On the other hand, there is the attempt to gain an advantage over foreign competitors through trade policy measures. Both policy areas are compounded by the attempt to create a homogeneous economic area. In this respect, the European rulers and their advisers often made use of measures that could already be found in the Middle Ages such as export bans or statutes of staple. However, in the Middle Ages, unilateral actions followed a specific goal such as, eg, to keep gold and weapons inside the kingdom. In contrast, mercantilists included those actions in a comprehensive strategy.

The characteristic elements of the mercantilist economic policy can be well illustrated by the examples of England, France, and Prussia. These European states stand for different political, geographical, and economic starting conditions, under which the mercantilist approach finally emerged. England is seen as a case of early and strongly merchant-driven development, while France’s mercantilism was a product of absolutist governance. Prussia represents a relatively late development and is of particular interest because of its special geographical location and partial integration into the Holy Roman Empire (‘HRE’).

(a)  England

10  The English kingdom, probably partly because of its insular location, was already developed at an early stage as a more homogeneous economic area compared to the European continent. Early traces of an economic nationalism can be found already in the 14th century, in which Edward II (1284–1327) introduced an embargo towards Scotland (1323) and Edward III (1312–1377) tried to foster and protect English wool manufacture. However, those political measures were little regarded. The implementation of mercantilist economic policy depended largely on a centrally controlled organization of the entire country. For a long time, self-confident cities and princes were an obstacle in this respect. Over the years, however, the central power expanded and thus created the basic conditions for an overall economic strategy that had its greatest impact in the areas of wool trade, colonial policy, and maritime trade.

(i)  Wool Trade

11  Wool manufacture was England’s most important economic sector from the Middle Ages until the 19th century. Exports were dominated by this industry, which at the same time made the English economy susceptible to crises in the event of sales problems. Conflicts on the mainland, in particular the outbreak of the Thirty Years’ War, but also the so-called ‘price revolution’ due to the considerable silver inflows from the ‘New World’, put the English economy under considerable pressure from the 17th century onwards. In response, a commission, including the well-known mercantilists Thomas Mun and Edward Misselden (1608—1654), was convened to prepare policy proposals to overcome this crisis. The commission recommended a typical mercantilist two-tier solution. On the one hand there was to be a banning of wool exports. This was to provide the domestic industry with cheap raw materials and weaken competing Dutch production. Furthermore, English consumption was to be stimulated by numerous obligations to use English textiles (eg for sailing, official clothing, or burials).

12  The ban on the export of wool was imposed repeatedly during the 17th century and until 1696 even provided for the death penalty as a consequence of an infringement. Conversely, attempts were made to facilitate the import of raw materials as much as possible. The obligation to use English cloths, such as that reflected in a law introduced in 1667, according to which all the dead were to be wrapped in English fabrics, was accompanied by a ban on the import of foreign textiles. Such measures resulted in retaliation from other European countries. Particularly with France, England engaged itself in constant economic conflicts.

(ii)  Colonial Policy and Chartered Companies

13  The economic conflicts with other European states were also closely related to English colonial policy. Colonies served England both as a source of raw materials and as a market. In particular, the import of raw materials from the colonies for processing and further export to other European countries played an increasingly important role. This maritime trade was to be carried out exclusively by England’s own merchant fleet. The presence on the seas and the transport of goods by ship were important political concerns from an early stage, also involving the story of chartered companies as the first generation of ‘national champions’, which combined governmental and entrepreneurial interests (Corporations in International Law). One of the most important trading companies was the English East India Company (‘EIC’), which received its charter on 31 December 1600 from Queen Elizabeth I. The charter set out a 15-year exclusive monopoly on trade to the East Indies, beyond the Cape of Good Hope and to the Straights of Magellan. The trading company exercised state power overseas, but in return had to distribute profits and later pay dividends. At the beginning, the EIC was not permitted to buy land or negotiate treaties different from those of its strongest competitor, the Dutch East India Company (Vereenigde Oost-Indische Compagnie; ‘VOC’). However, the EIC was supported by the English crown in this regard as can be demonstrated by the example of the English ambassador and representative of the commercial interests of the EIC, Sir Thomas Roe (1581–1644), who negotiated in 1615 a treaty with the Emperor of Mughal, Nuruddin Salim Jahangir (1605–1627), that provided for far-reaching privileges. In 1670, Charles II (1630–1685) granted the company the right to territorial acquisitions as well as the right to direct troops, to conduct diplomatic negotiations, and to exercise criminal as well as civil jurisdiction. In this regard, the company was equal to a governing body. In its battle for power and territorial dominion, the EIC was involved in a number of violent clashes. In particular, competition with the VOC was so aggressive that numerous violent conflicts broke out as a result, known as the four Anglo-Dutch Wars (1652–1654; 1665–1667; 1672–1674; and 1780–1784).

(iii)  Maritime Trade

14  One of the most impactful sets of national legislation with regard to maritime trade was the so-called ‘Navigation Acts’. The first navigation act dates back to 1381 and was passed under Richard II, who aimed to strengthen the English navy by ordering that any import or export would require transport on ships belonging to the ‘King’s subjects’. However, the majority did not follow this order and it therefore remained ineffective. In 1651 the Parliament of England enacted a new navigation act that prohibited foreign vessels from trading with America. Goods had to be transported on British ships or by British merchants. Between 1660 and 1663 a series of navigation acts was implemented by which foreign merchants were excluded from trading with America at all and colonial trade as a whole had to involve English ships. One of those acts, called the ‘Staple Act’ (1663), required that any good exported from Europe to America had to land in England first (Art. VI). The navigation acts represent the typical relationship between commercial policy and power politics in the mercantilist era. Josiah Child in defending the acts argued that ‘this Kingdom being an island, the defence whereof hath always been our Shipping and Seamen, it seems to me absolutely necessary that profit and power ought jointly to be considered’ (Child 114 f). The navigation acts were finally repealed in 1849 and 1854.

(b)  France

15  At the beginning of the 17th century, France was only a political unit. It was a populous and at the same time very poor and economically extremely fragmented country. Transport routes were in extremely poor condition. In addition, countless internal tariffs and tax levies prevented economic growth and exchange. In a country where four-fifths of the population were farmers, the internal barriers prevented a crop balance between the different regions, so that a general famine prevailed. From the foreign trade perspective, there was a lack of export goods comparable to those of England and there was no merchant fleet that could have avoided transport costs to the detriment of the French trade balance.

16  When in 1661 the famous statesman Jean-Baptiste Colbert (1619–1683) was appointed General Controller of Finance, France was also in an economic depression, in which there was a lack of money and investments. Until his death in 1683 Colbert shaped French economic policy in such an extensive manner that it was later referred to as ‘Colbertism’. However, the French form of mercantilism was not introduced by him, but by his predecessor Cardinal Richelieu (1585–1644). All in all, this French form was more centralistic and state-oriented than the English understanding. While English mercantilism was essentially based on merchants and was co-determined by them, French mercantilism was a product of the civil service and the political theory of absolutism.

(i)  Economic Policy under Cardinal Richelieu

17  Cardinal Richelieu was royal advisor between 1624 and 1642 and was himself under the influence of mercantilist thinkers of his time such as Barthélemy de Laffemas (1545–1611/1612) and Antoine de Montchrétien (1575–1621). Throughout his career, he was confronted with the problem of scarce state coffers, which he could not improve until his death. However, he pursued fiscal reforms that were intended to counter corruption and mismanagement in particular. In addition, he weakened the power of the guilds, supported the settlement of manufactures, and introduced state seals to carry out a more effective customs control.

18  Much of Richelieu’s political advice was summarized in an ‘ordonnance royal’, called ‘Code Michaud’, which was signed by Louis XIII (1601–1643) in 1629. Typical examples of his economic ideas in this context were the prohibition against French merchants from selling their company to foreigners (Art. 415), an import and sales ban on wool, linen, and serge (Art. 427) as well as the dependence of the permission to export grain on the domestic food situation (Art. 419).

19  Richelieu, who was particularly interested in trade policy, tried to obtain favourable trading conditions through commercial agreements with Turkey, with Russia, and also with the Shah of Persia, and to combat piracy. In 1624 he concluded a trade agreement with the Republic of the Seven United Netherlands (‘Dutch Republic’), which provided for cooperation between the merchants of both parties in colonial trade (Treaty of Compiègne). Building on this, Richelieu repeatedly planned the foundation of powerful state-regulated trading companies, which were to receive far-reaching trade monopolies and privileges such as a free and partly exclusive right of establishment or tax privileges. However, these companies did not come into being.

(ii)  Economic Policy under Jean-Baptiste Colbert

20  Colbert, on the other hand, pursued a more aggressive and even more interventionist policy, in which the state was to penetrate every economic sector, while a constant economic war was to be waged externally. As a precondition to international competitiveness, Colbert saw a need for know-how. As a consequence he initiated the recruitment of qualified foreigners. Subsequently, he banned them from leaving the country. He tried to overcome the lack of willingness to invest through state dirigisme and the granting of comprehensive subsidies. New production methods were initially introduced by a state-owned factory. He also organized the trade in guilds to enforce quality standards. In 1664 Colbert founded a trade council, the so-called ‘Conseil du Commerce’, which was designed to influence domestic trade. He also deployed an army of factory inspectors to exercise control over national production.

21  One of the biggest obstacles to French economic development was the severe fragmentation of customs duties and a lack of transport routes. Colbert expanded the inland shipping routes, eg by building the ‘Canal du Midi’ (1681). One of his great reforms was a harmonization of different territorial tariffs by the customs decrees of 1664 and 1667. Some duties were repealed in their entirety. Although this was already a great achievement, Colbert did not succeed in making the whole of French territory a common customs zone.

22  The domestic measures were accompanied externally by an aggressive trade policy. On the one hand, export trade (especially textile and luxury goods) and the promotion of raw materials were supported by loans and subsidies. On the other hand, high import duties were designed to protect domestic production. For example in 1667, import duties were tripled, with an effect that was basically equivalent to that of an import ban.

23  At the same time Colbert built up his own French merchant fleet to put pressure on the Dutch transport monopoly and to strengthen its position in colonial policy and maritime trade. The central characteristic of the trading companies founded by Colbert, such as eg the French East India Company (1664), was their close ties to the French state. Their capital was procured by the king and high officials as well as partly pressed by force against individual merchants. The management of the companies was not taken over by merchants, but by officials. Merchants tried to prevent such participation if possible. The companies were run tightly and controlled in a similar way to provincial administrations or delegates abroad. In principle, the trading companies were given precise instructions as to which specific commercial or trade policy objectives were to be achieved. This supports the thesis that the organization of the state was not substantially different from the organization of companies (Stapelbroek 345 f).

24  In the first place, colonial policy and maritime trade were regarded as governmental responsibilities. However, the state’s efforts especially in the field of maritime trade were less successful than those of the private merchants who, as a result of the Ordonnance du Commerce’ (1673) and the associated regulation of French company forms, merged into corporations and allowed trade to flourish.

(c)  Prussia and the Holy Roman Empire

25  Prussia’s economic policy measures must be considered in two steps. The reason for this is that the territory was partly integrated into the HRE, from which a comprehensive economic policy in the sense of mercantilism also emanated after the end of the Thirty Years’ War (Westphalia, Peace of [1648]; Westphalian System; History of International Law, 1648 to 1815).

(i)  Economic Policy of the Holy Roman Empire

26  The Thirty Years’ War itself had devastated the whole area of the HRE in its structure and economic power. Industry was down, transport routes had been destroyed, agricultural products had become extremely expensive, and international trade relations had been dissolved. In this situation, the economic policy of the ‘perpetual’ imperial diet (Reichstag) in Regensburg was directed on the one hand towards the establishment of a competitive domestic industry as well as the creation of a domestic market, and on the other hand towards economic isolation from the outside world, in particular from the superior luxury industry of France.

27  The economic policy measures of the Reichstag represented a kind of supranational regulation for the territory within the Reich’s borders, which must be separated from the economic policy of the territorial states and were passed in the form of an imperial resolution (Reichsschluss). At first, the Council of the prince-electors (Kurfürstenkollegium) and the Council of the imperial princes (Reichsfürstenrat) voted on a legislative initiative, before the third council consisting of the imperial cities (Reichsstädte) had to decide afterwards. Finally, the emperor had to ratify the law, which subsequently came into force.

28  Already in the 16th century the Reichstag was called upon, for example, to enact a law banning the export of wool. Also the emperor was often called upon by cities or princes in view of the trade-restricting measures of others. However, these were selective measures and did not form part of a comprehensive economic concept. In a departure from this, the imperial resolution of 1671 was the first comprehensive law relevant to domestic and foreign trade. It was intended to abolish internal customs duties, stabilize price levels, abolish monopolies, improve transport routes including the provision of sufficient accommodation facilities, and establish equal tax treatment for traders in the Reich.

29  A remarkable example of the Reichstag’s economic policy in this context is the reintroduction of the ban on ‘corrosive colours’. These were more expensive than the new ‘indigo’ on the market and made the dyed fabrics less durable. However, while indigo had to be imported from abroad, ‘corrosive colours’ were produced locally. However, the Reichstag decided that the supply of cheap foreign raw materials would be more beneficial for the domestic manufacturing industry as a whole.

30  The legislation of the Reichstag against foreign competition is characterized in particular by restrictive measures against French trade. On the one hand, these measures were influenced by the warlike actions of Louis XIV (1638–1715), against whom war was declared on 24 May 1674. The so-called ‘imperial declaration of war’ was accompanied by economic measures such as a ban on the export of grain or horses (Declaration of War). As a result of another violent attack by France in 1688, the Reichstag passed an imperial resolution prohibiting any trade with the enemy. Economic policy measures were also used during the Spanish and Polish wars of succession (1702–1714 and 1733–1735). Apart from violent conflicts, many of the trade-restrictive measures pursued purely economic purposes. Overall, however, most of them failed after some time due to the strong resistance of imperial cities and principalities interested in foreign trade, or were ended by peace treaties.

(ii)  Economic Policy of Prussia

31  In Prussia, as well as in the HRE, mercantilist politics began only belatedly and were inspired by western European examples. A particular disadvantage of Prussia (formerly Brandenburg-Prussia) was the fact that the territory was highly fragmented and in some cases there was no direct land connection. This might exclude a unified economic area from the outset. Further disadvantages were the poverty of natural resources as well as the very small population, at the relevant time largely resulting from the Thirty Years’ War.

32  The circumstances did not represent good conditions for a successful economic development, as pursued by the Elector of Brandenburg Frederick William (1620–1688). In a first step, he therefore pursued a settlement policy that lasted for the entire period of Prussian mercantilism. In concrete terms, far-reaching rights and privileges were used to encourage foreigners to settle. The intention was to gain foreign know-how, together with skilled craftsmen and the like. In addition, transport routes were expanded and numerous manufactories were established in favourable locations, which were to produce products such as sheet metal or scythes for export.

33  With the participation of private capital, trading companies such as the Brandenburg-African Company (‘BAC’) (1682) were founded. Brandenburg-Prussia thus entered the colonial trade very late. The company received the exclusive right to trade in West Africa, to open its own bases and to conclude its own contracts with locals in the name of the elector. The company had its own troops, which it was allowed to use for defensive battles. It also had its own jurisdiction and was represented by the elector at European courts. In addition, the BAC received the right to settle on the Caribbean island of St Thomas in an area as large as 200 slaves could manage and the right to trade by a contract with Denmark (1685). However, the Prussian overseas trade was not up to the competition of the established European countries and never played a strong and lasting role.

34  The development of the domestic industry was accompanied by import prohibitions and export bans on raw materials such as iron, salt, or copper. In particular, the domestic wool manufactories were to be protected by import and export bans and promoted by inspections and other control measures, as provided for in the ‘Manufacturers’ Edict’ of 1687. A fundamental problem of the import restrictions on textiles, however, was that they conflicted with unmet domestic needs, and there were not enough customs stations and officials to ensure countrywide enforcement. The result was, on the one hand, simple disregard and, on the other, intensive smuggling of goods. Nevertheless, Frederick William created a tax system, in particular by the ‘Excise Order’ of 1684, which provided for the first time a comprehensive registration of a multiplicity of goods by city officials.

35  In addition, so-called ‘Commercien Collegien’ were formed that were similar to the authorities introduced by Colbert. They consisted of privy councillors (Geheimräte) and merchants. They had administrative powers and at the same time exercised jurisdiction in commercial and maritime matters. Such facilities represented a typical mercantilistic appearance, which showed a clear intent for economic planning.

36  Frederick I (1657–1713), who became the first king of Prussia in 1701, subsequently came to be regarded as the founder of Prussian mercantilism. He continued the political initiatives of his predecessor, but combined them with a comprehensive state structure and a considerable expansion of the military, which thus became an important economic factor in its own right. This was accompanied by a tightening of legislation. Countless instructions made detailed specifications for almost every aspect of life. The export of domestic woolsimilar to Englandwas banned under threat of the gallows. In general, customs duties were increased and ranged between 25% and 100%.

37  A centralization of inland tariffs, on the other hand, was not achieved until the 19th century (Zollverein [German Customs Union]), so that border tariffs generally remained in place despite further territorial integration. First of all, there did not seem to be sufficient interest in abolishing the various transit duties and stationary charges for the purpose of achieving further economic equality. Another obstacle to comprehensive customs reforms was the existence of numerous nongovernmental customs privileges, which would have had to be abolished or acquired.

38  Frederick I lacked a serious interest in colonial politics and maritime trade. As a result, these areas came to a standstill during his reign.

39  The strict customs and protection policy was also continued by Frederick II (1712–1786). He adhered to import restrictions even when domestic industry was unable to meet domestic demand. Different from Frederick William, however, he could rely on much more effective enforcement within the Prussian state. Frederick II promoted the development of his own industry, for example, with general tax exemptions, export subsidies, privileges, and special tax benefits for raw materials. Unlike his predecessors, he dreamed of complete independence from foreign products. He also switched from import duties to extensive import bans to counter circumvention. He was also more aggressive towards surrounding territories and started economic wars against Saxony and the Habsburg dominions between 1753 and 1755.

40  Like his predecessor, Frederick II did not succeed in creating a reasonably homogeneous economic area. Customs duties remained uneven and territories west of the Weser were treated as foreign countries from an economic point of view.

41  Frederick II was more interested in overseas trade. However, his efforts faced superior European competition. Prussia also had a weak position in trade negotiations, as there was already an equal treatment of foreigners and natives when it came to sea tariffs.

2.  Agreements on Trade

42  Retaliative measures were often taken against unilateral actions like high import or export duties by means of countermeasures from the countries affected (Economic Sanctions; Boycott; Blockade). This escalation of trade conflicts is described by the term ‘trade war’ (Economic Warfare). During the 16th and 18th century European states found themselves constantly in conflict with each other, leading to recurrent trade wars that were often accompanied by armed disputes. Market foreclosure and trade wars could be relaxed only by means of trade agreements between the competing nations, which came into existence in different forms.

(a)  Commercial Treaties

43  One way to reach an agreement on trade relations was through commercial treaties. Commercial treaties, defined as ‘treaties of public international law for the purpose of regulating conditions of, and establishing mutual rights to, trade and other commercial activities among the parties’ (Oesch para. 1), already existed before the mercantilist era, eg between groups of Italian city-States as well as the Hanseatic League. They can even be traced back to ancient times (History of International Law, Ancient Times to 1648). During the 16th and the 18th centuries, they became part of a comprehensive trade strategy. However, they were often breached as a consequence of trade or territorial conflicts. In this regard, trade agreements became a diplomatic tool.

44  One famous example of a typical commercial treaty during the mercantilist era, is one of the three ‘Methuen Treaties’ (1703) that were concluded between the British Kingdom and the Kingdom of Portugal. They are named after the English diplomat John Methuen (1650–1706), who negotiated the treaties together with his son Paul Methuen (1672–1757) on behalf of the British crown. The commercial treaty, which was signed 27 December 1703, allowed for English traders of woollen cloth to enter Portugal free of duty (Art. I) and made Portuguese wines imported into England subject to a third less duty than wines imported from France (Art. II). The contract is typically mercantilistic in that it is not about reciprocity, but about gaining the greatest advantage over the other side from one’s own point of view. This is different from the idea of granting privileges to each other, which still prevailed in the late Middle Ages.

(b)  Peace Treaties

45  Apart from commercial treaties, trade-related agreements often formed a part of peace treaties, or they were concluded as a separate treaty on the occasion of peace negotiations. Those trade agreements included concessions such as free access to ports, equal treatment (States, Equal Treatment and Non-Discrimination), and customs agreements, as well as the permission to trade with colonies. The connection between peace negotiations and trade agreements might be underlined by a statement of the British economist and politician Charles Davenant (1656–1714), who wrote: ‘Tho’ by the way I think Nations are always in a State of War between whom there is no Commercial Treaty settled’ (Davenant 79).

46  There are a couple of examples of peace negotiations that involved trade-related agreements. One example is the Treaty of Breda (1667) by England, the United Provinces (Netherlands), France, and Denmark–Norway, which brought an end to the second Anglo-Dutch War (1665–1667) and lifted the prohibitions of the English navigation acts for Dutch ships (S Musa ‘The Peace of Breda (1667)’ (22 June 2015) Oxford Historical Treaties <https://opil.ouplaw.com/page/peace-ofbreda> (28 May 2019)).

47  Another example is the Peace of Nijmegen (1678), which ended several interrelated wars among France, the Dutch Republic, Spain, Brandenburg, Sweden, Denmark, the Prince-Bishopric of Münster, and the Holy Roman Empire (R Lesaffer ‘The Wars of Louis XVI in Treaties (Part V): The Peace of Nijmegen (1678–1679)’ (19 October 2018) Oxford Historical Treaties <https://opil.ouplaw.com/page/peace-of-nijmegen> (28 May 2019)). On this occasion, France and the Dutch Republic concluded a separate ‘Treaty of Commerce and Navigation’ (Treaties of Friendship, Commerce and Navigation) by which France ended its trade restrictions towards the Dutch. Both parties concluded a comparable treaty in the course of the Peace of Ryswick (1697), which ended the Nine Years’ War between France on the one side and Spain, England, the Dutch Republic, and the Holy Roman Empire on the other side, and involved a series of peace agreements among the parties.

48  Another famous example is the Peace of Utrecht (1713–1715), which involved several European states including Spain, Great Britain, France, Portugal, Savoy, and the Dutch Republic (R Lesaffer ‘The Peace of Utrecht and the Balance of Power’ (11 November 2014) Oxford Historical Treaties <https://opil.ouplaw.com/page/utrecht-peace/The-Peace-of-Utrecht-and-the-Balance-of-Power> (28 May 2019)). This treaty ended the War of the Spanish Succession (1700–1713/14). The parties concluded different peace treaties that referred only very briefly to their commercial relationship (eg Arts VII and VIII of the peace treaty between France and Great Britain or Arts VIII, IX, X, XV of the treaty of peace and friendship between Spain and Great Britain). In addition, some of the states concluded a treaty of navigation and commerce. Those agreements referred to aspects such as equal treatment (Art. X of the treaty between France and Great Britain), the types of goods that were allowed to enter the country (Art. V), or the level of customs and duties (Arts V, VI, VIII, IX, X).

49  Sometimes the states just revived provisions of previous trade agreements. In the course of the peace of Utrecht, France and the Dutch Republic concluded a treaty on navigation and commerce that simply reproduced articles of the Treaty of Nijmegen and the Treaty of Ryswick. On the other hand, there were more individualistic approaches like the treaty between France and Great Britain. In general, it was common to simply reaffirm previous agreements or to repeatedly include particular provisions. Overall, however, it should be noted that these agreements were often limited in time.

(c)  Marriage Treaties

50  Another example of trade agreements as an instrument of power politics involved marriage treaties. As an element of the marriage treaty between England and Portugal leading to the marriage of Charles II of England and Catherine of Braganza (1661), English merchants obtained the right to access in relation to the Portuguese colonies (Art. XII).

C.  Mercantilism Today

51  Mercantilist policies are not dead. Although the peak of mercantilism was followed by a period in which the economic advantages of free trade were emphasized and some of mercantilism’s basic assumptions were rebutted by modern economic research, the state-oriented and highly political perspective on external economic relations survived and is still vivid today. In addition, economic theories of strategic trade policy showed that government intervention can lead to strategic advantages for domestic companies and thereby increase prosperity (Krugman [ed]). At the same time, a comprehensive industrial policy that promotes the domestic economy has become the norm. On the other hand, however, a great number of economic integration measures (Economic Integration, Comparative Analysis) have taken place since the Second World War at the latest.

1.  World Trade Order

52  In the run-up to the Second World War, a global tariff escalation led the world into a deep economic crisis, thus creating a climate that at least greatly favoured the subsequent armed conflicts. Against the background of these experiences, the states sought to reorganize international economic relations after the end of the war. At the Bretton Woods Conference (1944), the International Monetary Fund (IMF) and the World Bank (World Bank Group) were created. In addition, there was the idea to establish an International Trade Organization (‘ITO’) that would shape world trade in the future. These far-reaching plans, however, failed because of the conflicting interests of the states involved. Instead, the General Agreement on Tariffs and Trade (‘GATT’), which was originally designed as a temporary multilateral agreement to protect tariff concessions until the planned ITO came into force, served as the legal framework for world trade relations until 1995 (General Agreement on Tariffs and Trade [1947 and 1994]). This agreement represents a turning point in the attempt to bind state power in favour of international economic freedom. Altogether, the plans for the ITO and the resulting GATT system were the first comprehensive counter-movement to mercantilist trade policy.

53  The GATT itself did not contain any provisions on institutional structures, since the basic concept of the agreement was that the parties should meet regularly for trade rounds and discuss tariff reductions. At the same time, however, interest in more far-reaching organizational structures grew in subsequent years. Thus, in a pragmatic way, an Intersessional Committee, a Secretariat, and finally a Council emerged as institutional elements of an order that could ultimately be regarded as a de facto international organization. At the same time, a form of dispute settlement was established which can be seen as the first comprehensive attempt to settle trade disputes peacefully. In addition to the regular exchange and the system of dispute settlement introduced by the GATT, an important differentiation from the trade policy of mercantilism was the possibility for other states to accede to the GATT, as well as the equal application of its rules, commonly referred to as ‘GATT à la carte’, though this practice diminished over time (Jackson 70).

54  The following years were marked by progressive economic integration, which quickly revealed the inadequacies of the GATT system. One important problem that became apparent early on was the replacement of tariff concessions by non-tariff barriers to trade (unilateral trade measures). At the same time, a restriction on non-tariff measures would mean a deeper intervention into national industrial policy and thus ultimately into sovereignty. After many years of negotiations, the states finally agreed on a comprehensive reform in the course of the so-called Uruguay Round that led to the establishment of the World Trade Organization (WTO), which became the successor of the GATT system as the first official international organization for world trade. As a result, a fixed institutional structure was established. In addition, the parties extended the scope of the rules and strengthened the dispute settlement mechanism (World Trade Organization, Dispute Settlement).

55  In its basic concept, the WTO legal order pursues an anti-mercantilist objective, since the legal provisions above all simply prohibit restrictions on trade without replacing them with an individual state’s strategic trade policy. By this, the WTO follows the principle of negative integration in the sense of the negative concept of freedom [Hayek 13 ff]. Ultimately, however, the current WTO order did not lead to a fundamental change to a system of subjective economic freedom, since the norms of WTO law cannot be asserted by the single individual independently of his home state. State interests have also led to a number of exceptions.

56  At present, the progressive integration of world trade has already reached a political deadlock for some time (Doha Round). Simultaneously, developments are increasing that indicate a return to strong state and thus political dominance in the global economy, which seems to be directly or indirectly resorting to ideas of a limited amount of prosperity. A growing use of trade defence measures and major infrastructure initiatives as well as a sharp increase in bilateral and plurilateral trade agreements (Free Trade Areas; Regional Trade Agreements) should be mentioned in this regard.

57  Many measures of modern trade policy can thereby be described as ‘neomercantilistic’ (Heckscher vol II 310). The term was originally used to describe the fact that economic freedom, after a short period of liberalism towards the end of the 19th century, was again replaced by economic nationalism. The impression that this development seems to be repeating itself leads on the whole to the conclusion that mercantilism in its original form, as well as in each of its further developments, is inseparably connected with the role of the state.

2.  European Union

58  Another process of integration that needs to be mentioned in this context is the European Union (‘EU’) (European Union, Historical Evolution; European Integration). Compared to other forms of regional cooperation like the Association of Southeast Asian Nations (ASEAN) or the Common Market for Eastern and Southern Africa (COMESA), it is the most successful and far reaching integration project to date. Starting with the concentration on coal and steel (European Coal and Steel Community [ECSC]), it has succeeded on the one hand in creating a common internal market and a customs union. This means that there is almost complete freedom of movement for goods, people, services, and capital as well as a common border tariff. A special feature is that Union citizens are able to assert their economic freedoms against the states before the European courts (European Union, Court of Justice and General Court). Thus, unlike at the WTO level, there exists a genuine subjective right that focuses on the acting individual. Beyond this, Union law intervenes in state industrial policy, as is shown for example by state aid law (Arts 107, 108 Treaty on the Functioning of the European Union [‘TFEU’]). Compared to the situation of Europe in times of mercantilism, the difference could not be greater.

59  At the same time, and this in turn shows a certain parallel to the formation of states in the 16th and 17th centuries, the EU is setting itself apart from the world outside. On the one hand, it takes over parts of industrial policy by promoting the European economy through Union aid or other supporting instruments. Moreover, the Lisbon Treaty most recently provides for far-reaching representation in trade matters (Art. 207 TFEU). By this, the EU became an independent actor in the area of international trade. As a member of the WTO, the EU participates in trade negotiations and, in areas such as agriculture, forms its own counterweight to further liberalization of world trade. It also uses trade defence instruments of its own. Finally, the EU concludes a large number of free trade agreements and pursues strategic interests such as those embodied in the ‘Raw Materials Initiative’. This shows the possibility of a (neo-)mercantilist trade policy on a supranational level.

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