Mercantilism and physiocratic economic theory compared

Mercantilists vs. Physiocrats

Between the 16th and the 18th centuries, the states of Western Europe were torn between two economic philosophies, that of mercantilism and the physiocrat's doctrine, the former of which dominated the latter in terms of the actual policies of the most powerful nations of these centuries such as Great Britain and Spain. The main difference between these the economic doctrines of mercantilism and physiocratism were the levels of government control these two philosophies endorsed.

Mercantilism equated a high level of government control with prosperity and the future of the state. (Rempel, 2005) Physiocratism stressed a lack of government control as key to allowing the agricultural sector within a nation to flourish. Thus physiocratism wished to enhance the prosperity of the rural populace rather than the aristocratic populace in control of governing the land as the 'key' to a successful economy.

Physiocratism stressed the need to increase the net product of the nation rather than to enhance the nation's prosperity through military efforts to gain control of colonial powers and to provide a venue for its considerable amount of exported goods, as was key in mercantilism. ("Physiocrats," The New School, 2005) Hence mercantilism can be defined as an effort to achieve economic unity and political control through economic regulation primarily by ensuring a favorable balance of trade. (Rempel, 2005)

One of mercantilism's core philosophies was bullionism, the belief that the economic health of a nation could be measured by the amount of precious metal, gold, or silver, ensuring a strong currency and a strong balance of trade. It also stressed the need for a vigorous effort to colonize other nations, to produce captive markets for the manufacturing exports. Only government-regulated commerce could produce a favorable balance of trade, said mercantilism's advocates, and in general, tariffs should be as high as possible on imported manufactured goods and low on imported raw material. (Rempel, 2005)

Physiocrats believed that the wealth of a nation lay not in its stocks of gold and silver, but rather in the size of its net product of goods. Thus, government policy should be geared to maximizing the value and output of the agricultural sector by increasing that sector's producing of net goods. Manufacturing, the Physiocrats argued, "took up as much value as inputs into production as it created in output, and consequently created no net product." So, rather than enhancing the exporting and manufacturing sector of the economy, the Physiocrats stressed that the government should facilitate agricultural producing by building systems of transportation, drainage, and aiding farmers, but otherwise not interfere with the economy. Mercantilism did support some domestic production but mainly because farmers provided a base for taxation, and the money necessary to fuel the conquests abroad.

It was not that physiocrats thought commerce and manufacturing were bad. But the physiocrats feared that the government would attempt to dominate the economy monopolistic charters, controls and protective tariffs if it made supporting these sectors its primary policy. ("Physiocrats," The New School, 2005) Also, they feared that the mercantilist stress on military conquest would divert the government's focus from real issues at home affecting the populace.