The Five Principles of Mercantilism

a) The welfare of a national economy depends upon the increase of population. 

Commerce and industry could develop if there was additional population.  An increase in population was a condition for a higher state of economic life.  In order to have a prosperous economy, there must be an increase in population. Adam Smith said in the Wealth of Nations that in order for an economy to grow, there must be a growth in productive labor (the amount of goods and serviced produced.) Societies with high productive labor tend to have economies that grow. Labor is the ultimate source of value. As more and more people enter the workforce, production will increase, thus stimulating growth in the economy. Larger populations also lead to more potential consumers and larger markets. 

b)  The national economy also depends upon the increase of the mass of precious metals in the country. 

The expansion of the mass of money was a condition of the transition to a higher state of economic development.  Adam Smith said that if one person or a country had a large quantity of gold or silver that would not necessarily imply that it is wealthy or worth a lot.  A country needs to produce goods/services in order to generate wealth.  To just accumulate gold and silver serves no purpose; it must be circulated in order to be considered wealth.  Smith also states that hoarded money is bad for the economy; it must serve as a medium of exchange within the society unless it is self-sufficient. 

c)  Foreign trade is to be as active as possible.   

This is the only way for countries without silver and gold mines, such as France and England to obtain a means of exchange.  Attracting gold provided the domestic economy with the technical conditions necessary for a higher form of economy.  For the mercantilists, foreign trade is extremely important because their entire economy was based on the acquisition of gold and silver.  For example, since England did not have any gold/silver mines.  Foreign trade is important in that you can import items which you need and are not capable of producing within your own country and export excess goods to other countries, thus allowing you to stimulate the economy and need the needs of consumers.   

d)  Commerce and industry are more important branches of national economy than agriculture. 

A transition for a natural to exchange economy is present, as well as a transition from subsistence to a profit economy.  The branches of economic life were assessed based on its stages of development.  Commerce because it was free was most valued, followed by industry which was beginning to escape from guild regulations.  Last was agriculture, which was governed by feudalism and traditionalism.  As countries develop, their economy is based primarily on agriculture and mining.  However, as they grow they venture into secondary products such as manufacturing and industrial activity.  According to economist Arthur Lewis, in order for manufacturing and industrial sectors to grow, food has to be kept relatively inexpensive.  Because there is limited land, it is virtually impossible for the agricultural sector to grow rapidly.  Lewis also says that each worker adds less to the agricultural sector--diminishing marginal productivity.  More people tend to flock to industrial and manufacturing jobs because wages tend to be higher.  In agriculture because of the surplus of labor, income is at a level of subsistence.  An advantage of industry is its ability to create products that can be traded abroad, thus encouraging foreign trade and improving the economy. 

e)  The state is called upon to foster the national welfare by an appropriate policy.   

Trade policies are needed in larger, more uniformed economic territories.  It is imperative to expand the import of expensive manufacturing commodities and support exports.  The state should institute economic policies to look out for the best interest of the consumer.  If there were no rules/regulations, then merchants would be able to create monopolies and charge consumers whatever price they wanted.  After all, the main goal is to accumulate as much gold/silver as possible.  Tariffs should be in place to encourage more exports than imports.  Importing more than you are exporting is not beneficial to the economy.  Also, there should be laws pertaining to the wage rate.  There should be a minimum wage which employees can pay workers.  It has been proven that if an employee is not satisfied with his/her job then he or she will not work as hard as they are capable of.