Mercantilism

Definition

Mercantilism is an economic theory and practice that emerged in Europe during the 16th to 18th centuries, emphasizing the importance of accumulating wealth, primarily gold and silver, through a positive balance of trade. This approach encouraged nations to maximize exports while minimizing imports to build a strong economy, which was especially significant during the age of exploration and colonial expansion.

5 Must Know Facts For Your Next Test

1. Mercantilism was driven by the belief that national strength could be maximized by limiting imports via tariffs and maximizing exports.
2. European powers established colonies as sources of raw materials and markets for their finished goods, reinforcing mercantilist policies.
3. Mercantilism often led to competition and conflict among European nations as they sought to control trade routes and access to resources.
4. The economic practices under mercantilism contributed to the development of trading companies, which played a key role in international trade.
5. Criticism of mercantilism in the late 18th century led to the rise of free-market theories, advocating for less government intervention in trade.

Review Questions

• How did mercantilism influence trade practices during the age of exploration?
  • Mercantilism significantly shaped trade practices during the age of exploration by driving European powers to establish colonies and control trade routes. Colonies were seen as essential for providing raw materials that could be exported back to Europe for manufacturing. This approach not only fueled competition among nations but also led to the exploitation of colonized regions for economic gain, reinforcing the mercantilist idea that a nation's wealth and power were tied to its trade surplus.
• Evaluate the role of colonialism in advancing mercantilist policies among European nations.
  • Colonialism was integral to advancing mercantilist policies as it allowed European nations to access new resources and markets. By establishing colonies, countries like England, Spain, and France could secure a steady supply of raw materials while simultaneously creating exclusive markets for their manufactured goods. This symbiotic relationship between colonialism and mercantilism not only increased national wealth but also reinforced the dominance of European powers over global trade networks.
• Assess the long-term implications of mercantilism on global trade dynamics as economies transitioned towards free-market principles.
  • The long-term implications of mercantilism on global trade dynamics are significant, as its practices laid the groundwork for modern economic systems. The focus on state control over trade created an environment ripe for exploitation and rivalry among nations. However, as criticisms mounted against mercantilist principles in favor of free-market theories, there was a gradual shift toward more liberalized trade policies. This transition not only redefined international relations but also encouraged globalization, shaping how countries interact economically today.

Related terms

Balance of Trade: The difference in value between a country's exports and imports, where a favorable balance indicates that exports exceed imports.

Colonialism:

The policy or practice of acquiring full or partial political control over another country, occupying it with settlers, and exploiting it economically.

Navigation Acts: Laws passed by England in the 17th century that regulated colonial trade and enabled England to collect taxes from its colonies, reflecting mercantilist principles.