Observing spain and the dutch republic: mercantilism as national benchmarking.

OBSERVING SPAIN AND THE DUTCH REPUBLIC: MERCANTILISM AS NATIONAL BENCHMARKING.

We could add that mercantilism further developed – during the 1600’s and 1700’s – in reaction to the successes of the Dutch Republic and Colbert’s France.
Economics as a science was therefore not born in wealthy and successful areas – in Venice or in the Dutch Republic, where wealth only seemed ‘natural’ – but inthe poorer cities and nation-states (Laspeyres 1863/1961) that were trying to understand what factors had created the few ‘islands’ of wealth in an otherwise poor Europe (some were islands in more than one sense, which is part of the clue).
Europe – 1550. Everyone Knew that huge amounts of gold and silver flowed into Spain from the Americas. The gold and silver ended up elsewhere, in natios thatgenerally had no mines. Spain became increasingly indebted to foreign bankers after about 1550, and gradually lost its financial independence.
Spanish industries, which had previously been competitive in European markets, like silk, iron and steel, died out. The country was de-industrialized and flooded with imports, which caused the species that flowed in from the American colonies to leave thecountry at the same speed, or even faster.
Josiah Child, a governor of the British East India Company and one of the more famous mercantilists, encapsulates this benchmarking attitude to economic policy by arguing ‘If we intend to have the Trade of the World, we must imitate the Dutch, who make the worst as well as the best of all manufactures, that we may be in a capacity of serving all Markets,and all Humors’ (Child 1693:90).
The case of Delft brings together, in the very same productive-scientific cluster, the sectors and elements that, in the German tradition, are seen as being the important driving forces of capitalism, all in an interwoven whole:
• The quest for military power, in this case through the navy, as in Werner Sombart’s ‘War and Capitalism’ (Sombart 1913a).
• Thequest for luxury, in this case art, as in Sombart’s ‘Luxury and Capitalism’s (Sombart 1914b).
• The quest for scientific knowledge, as in Sombart’s ‘Modern Capitalism’ (Sombart 1902/1928).
These three forces interact in creating serendipitous economic development in Delft, and a profession curiously uniting the three seemingly unrelated fields – maritime warfare, art and scientific development – isthat of the producer of glass lenses, the lens grinder.
The enormous diversity of economic activities was observed and commented on by all contemporary economists who wrote about the Dutch Republic.
A community of milk producers and a nation of banana producers have very little to sell to each other. By emulating Dutch economic structure, rather than Dutch economic policies necessarily, and byavoiding the pitfalls of Spain, the mercantilists revealed their conviction in common economic principles:
• Economic development is activity-specific, created by some economic activities, such as manufacturing, rather than others such as agriculture, where stagnant productivity, diminishing returns, and monoculture without synergies oftenmost reigned.
• Economic development is a synergicprocess: the greater the division of labour and the number of professions, the greater the wealth (already very clear in Serra 1613).
• The targeting, support, and protection of manufacturing were argued in terms of
a) its ability to create wealth
b) its ability to create employment
c) its ability to solve balance of payment problems
d) its ability to increase the velocity of circulation of money• Starting in the 1700’s, great emphasis was put on the beneficial synergies between manufacturing and agriculture: only where there was manufacturing, was there successful agriculture (Justi in Germany, Galiani in Italy, Hume in England).
The mercantilists are generally accused of not having a ‘model’ for development. In our view, the model comes out clearly and consistently both across time...