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Mercantilism: Monopoly Revenues & Regulation - Leonard P. Liggio, Literature of Liberty, Summer 1982, vol. 5, No. 2 [1982]

Edition used:

Literature of Liberty: A Review of Contemporary Liberal Thought was published first by the Cato Institute (1978-1979) and later by the Institute for Humane Studies (1980-1982) under the editorial direction of Leonard P. Liggio.

Part of: Literature of Liberty: A Review of Contemporary Liberal Thought, 20 vols. 19781-982

About Liberty Fund:

Liberty Fund, Inc. is a private, educational foundation established to encourage the study of the ideal of a society of free and responsible individuals.


Mercantilism: Monopoly Revenues & Regulation

Robert B. Ekelund, Jr. and Robert D. Tollison

  • Auburn University

“Mercantilism as a Rent-Seeking Society.” in Mercantilism as a Rent-Seeking Society: Economic Regulation in Historical Perspective. College Station: Texas A & M University Press, 1981, Chapter 1.

The prevailing paradigm about mercantilism (1500–1776) views it as either a web of economic fallacies and statist “central tendencies” or as a very sensible idea for a historical period which sought to consolidate state power. Heckscher's Mercantilism (1934) spans both variants of this paradigm. But a new paradigm is now needed to explain mercantilism in the light of the insights advanced by the Buchanan-Tullock public choice approach and by the “economics of regulation” approach. The older paradigm emphasizes certain regulatory implications flowing from a balance-of-trade and specie-accumulation objective, which, in turn, hastened the objective of creating the nation-state. The newer paradigm challenges this interpretation: The exact reverse is, in fact, the case: “the balance-of-trade objective was nothing more than the by-product of the interplay of numerous self-interested parties who were seeking rents from monopolization in these early nation-states.”

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By rent seeking the authors mean seeking revenues by buying and selling monopoly and cartel (guild) privileges. The “supply of and demand for monopoly rights through the machinery of the state is seen as the essence of mercantilism.” The government interest group found that such revenues supplemented its tax revenues. Merchants and others (on the “demand side”) sought such monopoly rights to escape competition and thus earn monopoly “rents.”

The rent-seeking model is more useful in explaining developments in the mercantile economies than the usual specie-accumulation interpretation. The rent-seeking paradigm accounts for the emergence and decline of the social order of mercantilism in England and France in terms of individual behavior motivated by seeking “rent” in the face of varying institutional constraints rather than in terms of the irrationality or error in the social order of mercantilism. Mercantilism is viewed as an inclusive system of economic regulation, which was designed by the give-and-take of interest groups contending within specific institutional frameworks (such constraints as property rights, the degree of competition for political power, and the rule of law) to provide revenues for the nation-state and monopoly rents for successful projectors of monopoly schemes. The varying institutional frameworks (such as the differing structures of property rights, the degree of political competition, and the development of the rule of law) helped determine the incentives which led away from regulation to the free market in England, but not in France.

The precursors of this new “polinomic history”—the paradigm that combines positive economics and politics in its focus—include Adam Smith (with his emphasis on economic motivation and class interests in accounting for human choice), Frederic C. Lane (who investigated organized violence and its effects upon the economic motives and behavior of Renaissance governments in exacting tribute from merchants for protection), and the analysis of public choice and the economics of regulation. A detailed bibliography contains a useful survey of such sources for the new paradigm of rent seeking. The authors are convinced that a cogent explanation of the rise or fall of mercantilism and the origins of a more laissez-faire social order must appreciate the role of institutions in the course of economic history. Centralized political administration and weak private property rights, making for an effective system of rent seeking, may overregulate and retard the emergence of a free market as happened in France in contrast to the more liberal political economy of England.