Mercantilism and the Economics of State Formation 1 Keith Tribe Schmoller’s linkage of ‘mercantilism’ with the process of state-building typified by eighteenth-century Prussia was first elaborated in a series of articles published between 1884 and 1887 under the title “Studien über die wirtschaftliche Politik Friedrich des Großens und Preußens überhaupt von 1680-1786”. 2 Opening this series with a review of the existing literature, Schmoller remarked that Roscher’s approach to the economic policy of Friedrich II was marked by the prevailing certainties of nineteenth-century economics. Roscher identified and evaluated policies by reference to the economic rationality of Friedrich’s explicit pronouncements on economic matters. It was assumed in this approach that a policy decision based upon rational and coherent economic principles would necessarily have rational economic effects unless distorted by some exogenous factor. Given the existence of rational economic principles, “successful” policies thus resulted from rational decisions plus unimpeded execution; while “unsuccessful policies” suffered from countervailing distortions not part of the policy process itself. 3 This rationalist approach to economic policy-making obviated the need to examine the objectives and actual performance of Prussian economic administration independently of the economic principles articulated by the Prussian monarch. 4 In contrast to this approach, Schmoller sought to develop the rationality of policy from a study of the organisation of economic life, shifting the emphasis away from statements of economic principle towards the actual process of economic organisation. This represented a step forward in the historical understanding of economic evolution, and was to provide the model upon which the new economic history of, among others, Ashley and Cunningham was built. However, there was a cost attached to Schmoller’s innovative approach, for he introduced the term ‘mercantilism’ to represent the principle of unity - state formation - underlying the apparent geographical and substantive diversity of urban, territorial and state economic policy. 1 In Lars Magnusson (ed.) Mercantilism, Kluwer, Boston 1993 pp.175-86. 2 Twelve separate articles in this series occupied over five hundred pages of the Jahrbuch für Gesetzgebung, Verwaltung und Volkswirtschaft Bde.8-11 (1884-1887). 3 I should perhaps make it clear that this gloss on Roscher’s approach to economic theory and policy is my own, not Schmoller’s. I provide it at this point so that the argument developed below can be better understood. 4 “Ein Blick auf die Literatur”, Jahrbuch für Gesetzgebung, Verwaltung und Volkswirtschaft Bd.8.1 (1884) pp.5-6, referring to Roscher’s “Ueber die volkswirtschaftlichen Ansichten Friedrichs des Großen”, published in 1866.