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Mercantilism

Mercantilism is an economic theory that advocates for self-sufficiency and a favorable balance of trade through government intervention and protectionist policies. Originating in 16th-century Europe, it emphasizes maximizing exports and minimizing imports to accumulate wealth, but has largely been replaced by market economy principles that recognize the benefits of trade. Present-day mercantilism, or neomercantilism, manifests in modern protectionist policies, such as tariffs and subsidies, particularly seen in recent US-China trade relations.

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5 views

Mercantilism

Mercantilism is an economic theory that advocates for self-sufficiency and a favorable balance of trade through government intervention and protectionist policies. Originating in 16th-century Europe, it emphasizes maximizing exports and minimizing imports to accumulate wealth, but has largely been replaced by market economy principles that recognize the benefits of trade. Present-day mercantilism, or neomercantilism, manifests in modern protectionist policies, such as tariffs and subsidies, particularly seen in recent US-China trade relations.

Uploaded by

louisee.gracem
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© © All Rights Reserved
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Mercantilism is one of the international trade theories.

Mercantilism is an economic theory that emphasizes self-sufficiency through a favorable balance of


trade. Mercantilist policies focus on the accumulation of wealth and resources while maintaining a
positive trade balance with other countries. By maximizing exports and minimizing imports, mercantilism
is also viewed as a form of economic protectionism.

Originating in 16th-century Europe, mercantilism is now viewed as a mostly outdated economic theory,
replaced by the supply and demand forces of the market economy. Present-day mercantilism commonly
refers to economic policies that restrict the importation of foreign goods.

History of Mercantilism

Originating in 16th-century Europe, mercantilism began with the emergence of the nation-state. The
dominant economic theory was that the global supply of wealth was finite, and it was in the nation’s
best interest to accumulate as much as possible. During that time, wealth was measured by a country’s
quantity of silver and gold. To accumulate more wealth, European countries, such as Britain and France,
would focus on maximizing their exports and minimizing imports, which resulted in a favorable balance
of trade.

For countries with a negative trade balance with a mercantilist country, the difference would be paid
back in silver or gold. To maintain a favorable trade balance, the early mercantilist countries would enact
imperialist policies by setting up colonies in smaller nations.

The aim was to extract raw material to send back to the home country, where it would be refined into
manufactured goods. The goods would then be resold to the colonies, allowing early mercantilist nations
to accumulate wealth through a positive trade balance.

Mercantilist Ideology

As an economic theory, mercantilism relies on government intervention to regulate international trade


and protect domestic industries. Mercantilist policies involve the protection of domestic corporations
through regulations and the promotion of trade surpluses. In the context of international trade, a
favorable trade balance is achieved through government regulations, such as tariffs and restrictions on
imports.

On the domestic side, mercantilist policies support domestic industries by establishing monopolies and
allocating capital to encourage growth. Such policies are a form of economic protectionism meant to
encourage self-sufficiency and are in direct opposition to the free-market economics of trade and
globalization.

From Mercantilism to the Market Economy

By the end of the 18th century, scholars, such as Adam Smith and David Hume, began to evaluate and
critique the merits of mercantilist theory. Contrary to established beliefs, the scholars realized that
wealth was not finite, but could be created through the productive allocation of labor.

Mercantilist policies also failed to account for the benefits of trade, such as comparative advantage
and economies of scale. When countries specialize in the production of goods for which they enjoy a
comparative advantage, trade can result in mutually beneficial deals. Such a realization resulted in the
emergence of the market economy, where prices and means of production were driven by the forces of
supply and demand.

Under a mercantilist system, the restriction of imports meant consumers obtained access to fewer goods
at higher prices. Under a system of free trade, consumers benefit from lower prices due to increased
competition and greater access to goods from across the world.

Present-Day Mercantilism

Although mercantilism is mostly viewed as an outdated economic theory, there has been an emergence
of mercantilist policies in recent times. Present-day mercantilism typically refers to protectionist policies
that restrict imports to support domestic industries. It can sometimes be referred to as neomercantilism.

Modern mercantilist policies include tariffs on imports, subsidizing domestic industries, devaluation of
currencies, and restrictions on the migration of foreign labor. Mercantilist policies can also explain the
recent escalation of tariffs and trade restrictions between the US and China.

Examples of Mercantilism

 England Navigation Act of 1651 prohibited foreign vessels engaging in coastal trade
 All colonial exports to Europe had to pass through English first and be re-exported to Europe
 Under British Empire, India restricted in buying from domestic industries and were forced to import
salt from the United Kingdom. Protests against this salt tasks, led to “Salt tax” revolt led by Gandhi
 In seventeenth Century France, the state promoted a controlled economy, with strict regulations
about the economy and labor market.

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