Answer

A) MERCANTILIST OR IMPERIALIST ?

Between 1500 and 1750, powerful European nations like England, France, Portugal, Spain
captured the unorganized world all around the globe and made their own colonies. Their
economic approach with a self-centered mother nation’s welfare and progress with their
colonies tuned to support the same was the age of Monarchism.  The term Merchantism was
coined by the Marquis de Mirabeau in 1763, and was popularised by Adam Smith in 1776.

Mercantilism is an economic theory which holds that the prosperity of a nation depends upon
its supply of capital, so that the global volume of trade is "unchangeable." Capital,
represented by bullion (gold, silver, and trade value) held by the state, is best increased
through a positive balance of trade with other nations (exports minus imports). Mercantilism
suggests that the ruling government should advance these goals by playing a protectionist
role in the economy, by encouraging exports and discouraging imports, especially through the
use of tariffs. The economic policy based upon these ideas is often called the mercantile
system. The core of a  mercantilist nation is the Ruler (King/Queen/Emperor). The
mercantilist always have a primary stress in warfare and territory protection.

NOTE : Protectionism is the economic policy of restraining trade between nations, through
methods such as high tariffs on imported goods, restrictive quotas, a variety of restrictive
government regulations designed to discourage imports, and anti-dumping laws in an attempt
to protect domestic industries in a particular nation from foreign take-over or competition.

NOTE : It is interesting to find that the mercantilist nation is was almost equal to the
principle of  a diametrically opposite “communism”, where the core of the nation is a few
elected repesentatives. The other principles are the same. The communists called the
Mercantilists as Imperialists.

Mercantilism was at its height in the 17th and 18th centuries. Although the economic policies
adopted in the nations of Europe were not identical, they shared sufficient common
characteristics to consider each country's economic system as being of the same type. The
objective of these policies was to maximise the nation's wealth. Wealth was defined in terms
of gold; not the way Adam Smith defined it, which is the nation's ability to produce. Gold
could be acquired either through a trade surplus or the obtaining of gold-bearing territory.
Mercantilism involved the using the power of the state throughout the economy to enrich the
state. Therefore, a mercantilist economy is a managed economy, with the prices of
commodities are fixed by a ruler and his close associates, than based on market demand, and
forced on the mother nation as well as in the colonies.

B) COLONIAL SUPPORT

England, France, Holland, and Spain all restricted their colonies' foreign trade. Subsidies and
other assistance was employed to encourage the colonies to produce raw materials; while
their right to produce manufactured goods that would compete with those produced by the
mother country was restricted. The reason for doing this was to make the nation self-
sufficient while enjoying the benefits of specialisation. (Most colonial manufacturing took
place in the Middle Colonies.)

Colonies, by providing raw materials not found in the mother country and increasing the size
of the domestic market made both substantial self sufficiency and specialization possible.
Self-sufficiency reduced imports; thus making possible or making a larger trade surplus,
which would add to the nation's gold stock. Specialisation increased the nation's productivity.

C) NEOMERCANTILISM

Neomercantilism is a term used to describe a policy regime which encourages exports,

discourages imports, controls capital movement and centralises currency decisions in the
hands of a central government.

By 1880 the United States passed the British Empire in economic strength becoming first
ahead of Germany who was second in strength due to Bismarcks’ adherence to
neomercantilist policies like those in the United States. (Bismacks was an European
statesman of the 19th century. As Minister-President of Prussia from 1862 to 1890, he
engineered the Unification of Germany. From 1867 on, he was Chancellor of the North
German Confederation. When the German Empire was declared in 1871, he served as its first
Chancellor).

NOTE : The central control shifted from a King/Queen/Emperor to an elected parliamrnt.

The objective of neo-mercantilist policies is to increase the level of foreign reserves held by
the government, allowing more effective monetary and fiscal policy. This is generally
believed to come at the cost of lower standards of living of the concerned nation . This
offered the advantages to the government in question of having greater autonomy and control.

China, Japan and Singapore are described as neo-mercantilist. It is called "neo" because of
the change in emphasis from classical mercantilism on military development, to economic
development. It also accepted  a greater level of price fixing based on market.

After 1900, Britain was unable to remain an effective hegemon (major power), having
followed its "free trade" philosophy since the 1840's, but the United States was still pursuing
policies of its American School rooted i. three reports, (Hamilton 1755- 1804.  Was an
American politician,  leading  statesman,  financier and political theorist. One of America's
foremost  constitutional lawyers).

It  embraced in the 1860's under Abraham Lincoln’s presidential rule (1809 – 1865 was the
16th President of the United States. March 4, 1861 – April 15, 1865), and Germany was
following Bismarck's policies based on List's "National System," (List, August 6, 1789 -
November 30, 1846, was a leading 19th Century German economist who believed in the
"National System"). American  economic practices - allowing both powers to continue their
dominance in world economics and power. Germany chose to use its strength to pursue a
“balance of power” with the British Empire leading indirectly to World War I, whereas the
United States refrained from European power struggles through its foreign policy of
“isolationism” or non-interventionism in foreign conflicts.

But the first world war (1914-1918) diluted this poilcy of the mercantilist by creating a need
to join the rich nations (England, France, Spain, Portugal and the nations on the west) to fight
a common-enemy.  Neo is not New, but  a “modified old”. It was coined by the economists
after 1914, because it had different characteristics than Mercantilism.
The world war 2 (1939-1945) further diluted the Neomecantilism,  as all the powerful nations
with their colonies have to fight 2 common enemies – Germany and Japan.

D) BOTTOMLINE

Mercantilism is the economics of  a ruler based merchant (like England’s East India
company). The prices are forced and  products are fixed,  Self development rules over
economic development with national protection.

Neomercantilism is a half diluted Mercantilism, where the nations with elected

representatives take a lead, decide the prices based on market and orient production towards
the demand.  Economic development of nation and joit work between nations are dominant.

After the end of World war 2 (1945), both the above are non-existant and replaced by
Capitalism, Communism, Conservatism, Democratism, Republicanism, Socialism etc….

With Regards.
DR.VSRS.
Book Store – http://www.lulu.com/drvsrs
Website    -  http://www.drvsrs.com
Further Information : Sear with "www.google.com" on key words "mercantilism,
neomercantilism"  

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 Robert Hanzel
 Andreas Moser
 Dr.VSR.Subramaniam
  Warren D. Miller, CFA, CPA, ASA

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Dr.VSR.Subramaniam

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Basically a B.Sc (Physics) from the University of Madras, India. Started the career in
production engineering under German and Italian experts. MBA in Management from IIM,
Ahmedabad (India). Ph.D (Management) from the University of Bomaby (the first ever
awarded in this subject). Headed the computer centres of Multi nationals; "Data Processing
expert" of the Commonwealth, London (To implement World Bank and UNDP Computer
softwares); "Consultant Adviser" to the Caribbean Development Bank (CDB), Barbados.
Associated with Nobel Laureate in Economic Science-1979, Arthur Lewis (Past President of
CDB) & 4 more on his introduction. Visiting professor to many universities. A Trained ISO
9001:2000 Quality Auditor. Over 40 years of combined experience in Accounts, Computer
Software, Economics, Engineering, Management, Science, Technology, Research &
Development and Qulaity systems. Author of over 60 Application Research papers. Currently
a free-lance consultant in ISO Quality Systems, Socio-Economic development acceleration,
Innovative software designs. Can answer any question in Theoritical/Applied-economics with
an in-depth and innovative dimension. I DO NOT ANSWER : 1. STATISTICAL data &
analysis. 2. PRIVATE questions, as they do not appear for PUBLIC view & search 3.
Examination & Project report oriented questions. Website http://www.drvsrs.com

Experience

Experience in the area Over 40 years in Industrial, Service and Economic development
sectors. Socio-economic development oriented expertise (1982-86). With Commonwealth
Fund for Technical Cooperation, London as a "Data Processing Expert". With Caribbean
Development Bank, Barbados (UNDP,World bank set up) as a "Cnsultant Adviser". See
"http://www.drvsrs.com/drvsrs.htm" and "http://www.drvsrs.com/publication.htm". National
& International awards. R & D Author at http://ideas.repec.org/e/psu50.html and
http://www.ssrn.com/author=360079

Organizations
Intellectual Consultants. A proprietory Research and Development unit under the theme
"Innovation. Information & New Concepts"

Publications
See at http://www.drvsrs.com/publication.htm & http://dvsrs.com/store/page2.html

Education/Credentials
See full details at http://www.drvsrs.com/drvsrs.htm (1) D.Litt in Computer Science - 1983.
World University, USA. (2) Ph.D - 1975. First management doctorate awarded by the
University of Bombay, India, after the inception of the subject. (3) MBA – 1966. IIM,
Ahmedabad. India. First batch. 4) B.Sc - 1959. Physics. University of Madras, India

Awards and Honors

Biography is listed in International Who is Who of Intellectuals (UK), Men of Achievement (
UK ), Men of Distinguished Contributions (USA). National and International awards and
Citations.

Past/Present Clients
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