Mercantilism

Published Oct 25, 2023

Definition of Mercantilism

Mercantilism is an economic theory and practice that emerged in Europe during the 16th to 18th centuries. It promotes economic policies focused on maximizing a nation’s exports and accumulating wealth through trade surpluses. According to mercantilism, a country’s economic success is measured by the amount of gold and silver it possesses. This theory emphasizes protectionism, colonialism, and the use of tariffs and quotas to restrict imports and encourage domestic production.

Example

During the mercantilist era, European powers established colonies in various regions around the world to secure sources of raw materials and captive markets for their manufactured goods. These colonies were designed to serve the home country’s economic interests by providing cheap resources and a guaranteed market for its exports.

For example, consider the relationship between Britain and its American colonies. Britain imposed strict trade regulations on the colonies, such as the Navigation Acts, which required colonial goods to be shipped only on British vessels and sold exclusively in British markets. This ensured that the colonies primarily served as suppliers of raw materials and buyers of British manufactured goods, contributing to Britain’s economic advantage.

Additionally, mercantilist policies enabled countries to accumulate precious metals, particularly gold and silver, through a favorable balance of trade. This meant exporting more goods than importing, resulting in a trade surplus and a net inflow of precious metals. The accumulation of gold and silver was seen as a measure of a nation’s wealth and power.

Why Mercantilism Matters

Mercantilism played a significant role in shaping the economic policies of many European powers during the age of exploration and colonization. While mercantilism has largely been replaced by more liberal economic theories, its historical significance lies in its influence on colonial expansion, trade practices, and the development of protectionist policies.

Understanding mercantilism helps us comprehend the economic motivations behind historical events, such as the establishment of colonies and the conflicts arising from competing mercantilist interests. It also highlights the contrast between mercantilism and modern economic theories, such as free trade and globalization. By studying mercantilism, we can gain insights into the evolution of economic thought and the impact of different economic ideologies on societies throughout history.