Mercantilist policies are intricately associated with the historical military and commercial expansion of Europe which in turn profoundly shaped global development patterns with effects still felt today.
It has become common to note the failure of neoclassical economics to explain economic divergence between countries and regions. In recent years this has frequently been attributed to some countries developing or capturing industries with increasing returns; i.e. that the agglomeration effects typical of increasing returns industries are sensitive to slight differences in initial conditions that over time lead to further agglomeration and thus increasing divergence rather than convergence between regions and countries (Romer 1986, Krugman and Venables 1995, Fujita and Thisse 2002).[1]
Just as the lack of short-term convergence among modern economies can be attributed to the capturing of increasing returns-to-scale activities, many believe Europe (and its settler colonies) did this on a long-term, global scale as well, in a global division of labor at the country and world-regional level. In the economic history literature this process is sometimes explained in other language, i.e., that Europe deindustrialized its colonies e.g., in dependency theory in general, and works such as Amin 1976, Forbes and Rimmer 1984, and Alam 2000. This long-term, increasing returns perspective is interesting because it can be seen as (regarding reasons proposed for the ‘great divergence’ in levels of development that economic historians now tell us happened mainly in the last few centuries[2]) merging or at least compatible with both many recent mainstream economic observations related to regional economics, agglomeration, and increasing returns-to-scale activities (‘new’ trade theory) and aspects of important heterodox arguments (Marxist/dependency theories, some Austrian economics, and much evolutionary economics – related to competition, for example).
How, then, did European states rise in the international division of labor? A frequent answer is that European expansion – ‘trading-post’, colonial, and imperial expansion [3] – was a crucial cause for many reasons including through windfall effects on Europe’s place in world trade (emphasized, for example, by Blaut 1993 and Frank 1998), its effects on avoiding material limits to European growth (e.g., Pomeranz 2000) and its influence on European institutional development (e.g., Acemoglu et. al. 2005).
The State System and Mercantilist Policies
This answer, though, only serves to raise another question: Why, then, was Europe so aggressive at and successful in expansion? Perhaps one of the most commonly shared answers, besides the global exchange of diseases favorable to Eurasians, especially in the Americas,[4] is that the European state system and the competition that it fostered both caused the competitive and therefore aggressive expansion and increased the chances it would be successful, as earlier state competition had increased the technological, military, and bureaucratic capability of European states vis-à-vis non-European states. Indeed, of all of the factors viewed as important to European development, Europe’s state system is probably the most widely agreed upon factor: In a recent comprehensive review of the role of the state in ‘the rise of the West’ P.H.H. Vries notes ‘There is hardly a text on the rise of the West in which reference to [the European state system] and its positive effects is not made’ (2002, 68) and goes on to list a wide range of scholars from many political orientations: Arrighi (1994), Baechler (1995), Baechler and Mann (1988), Braudel (1979), Cosandey (1997), Crone (1989), Gellner (1988), Goldstone (1991), Hall (1985), Huang (1999), Jones (1981), Landes (1998), Mann (1986a and 1986b), McNeill (1982), Pomeranz (2000), Powelson (1994), Rosenberg and Birdzell (1986), Sanderson (1995), Wallerstein (1974, 1980, 1989), Weiss and Hobson (1995), and Wright (2000).
Even scholars critical of arguments that seem to privilege the West or capitalism emphasize the importance of the state system in Europe’s unique development trajectory. For example, Anthony Giddens writes that ‘However much one might distrust the nature of the contrast drawn between Europe and the “despotic” East by Montesquieu and his contemporaries, there is no question that the character of Europe, as a series of socio-political formations, differed over the long term from the imperial societies of Meso-America, the Near and Far East. During the sixteen hundred years or so which succeeded the disintegration of “its” empire, Rome, Europe did not experience the rise of another imperial society in its midst…Europe was a “state system” for the whole of this period’ (Giddens 1981, 183). The fact that these scholars disagree on so many other points related to development yet are in basic agreement concerning the centrality of the European state system to Europe’s unique development trajectory suggests that there is indeed something important about this factor.
All of the above authors argue in part or entirely that:
- The military technology and capacity of European states (particularly vis-à-vis non-European regions) was enhanced through war or the threat of war. This would become highly relevant once colonization became a competition between European states.
- The bureaucratic capacity of European states was enhanced through war or the threat of war.
- Political competition led to economic and territorial competition, exploration, and expansionist policies.
- State competition (and a large number of states and high degree of trade) increased the chances that early trading-post and colonial (and later imperial) expansion would occur in the first place.
The competitive policies towards technological development, trade and acquisition of raw materials for manufacturing were sometimes ill-defined and erratic, but nevertheless the very real policy among European states starting as early as the 1500s and lasting for centuries (Reinert 1994, 1995, 1998). These policies can broadly be described as (or said to define) mercantilism (and colbertism and cameralism in the French and German traditions, which would also strongly influence Japan, the US, and other nations); as Schmoller describes the mercantilist system: ‘The essence of the system lies not in some doctrine of money, or of the balance of trade; not in tariff barriers, protective duties, or navigation laws; but in something far greater: – namely in the total transformation of society and its organizations, as well as of the state and its institutions, in the replacing of a local and territorial economy by that of the national state’ (Schmoller 1896 from Reinert 2004, 10).
Next Post: “Mercantilism – Rejected by both the Left and the Right: Part II of Mercantilism and the Rise of the West“
NOTES
[1] ‘In technical papers written between 1983 and 1986, Krugman observed that the received wisdom about free trade was substantially wrong…“Instead, trade seems to reflect arbitrary or temporary advantages resulting from economies of scale or shifting leads in close technological races.” In some cases, Krugman added, comparative advantage can be created. By strategically intervening to capture advantage in industries with technological dynamism, nations could produce spillover benefits for their economies….This revisionism was explosive. It came to be known as the “new view” of trade.’ (Kuttner 1996, para. 7-8).
[2] It is now generally accepted that much of the divergence between Europe and other advanced economies occurred since the industrial revolution, with Europe no more or even less developed than much of Asia prior to the industrial revolution. This suggests that the divergence is less due to ‘internal’ or basic sociocultural differences between world regions but rather to more recent processes inherent in worldwide industrialization. However, arguments have been made that the industrial revolution itself is due to earlier, more innate differences between Europe and other regions; Jones 1981 and 1988, among others, use the language of ‘internalist’ and ‘externalist’ views of European development.
[3] See Curtin 1989 and 2000 for the important yet often ignored distinctions between stages and types of European expansion.
[4] And – often overlooked – especially unfavorable in Africa, greatly changing both the nature and the timing of African/European interaction compared to other regions (Curtin 1989).
