Mercantilism

Definition

Mercantilism is an economic theory and practice that emphasizes the importance of accumulating wealth, primarily gold and silver, through a positive balance of trade, especially in finished goods. This concept shaped the policies of European nations during the early modern period, encouraging colonization and competition for resources, which influenced global trade patterns and international relations.

5 Must Know Facts For Your Next Test

1. Mercantilism became the dominant economic theory in Europe from the 16th to the 18th centuries, influencing trade policies and colonial expansion.
2. Nations implemented mercantilist policies by establishing colonies that could provide raw materials and serve as markets for finished goods, thus promoting a favorable balance of trade.
3. Governments often imposed tariffs and regulations to protect domestic industries from foreign competition and ensure a flow of wealth into the country.
4. The system contributed to the rise of powerful nation-states, as economic strength became closely tied to military power and global influence.
5. Criticism of mercantilism emerged in the late 18th century, leading to the development of classical economics, which argued for free trade and minimal government intervention.

Review Questions

• How did mercantilist policies shape European colonial practices during the early modern period?
  • Mercantilist policies significantly influenced European colonial practices by driving nations to acquire territories that could provide essential raw materials while creating markets for their finished goods. This led to intense competition among European powers, resulting in the establishment of colonies in the Americas, Africa, and Asia. The goal was to maximize wealth and maintain a favorable balance of trade, reinforcing national power through economic dominance.
• Evaluate the impact of mercantilism on the development of global trade networks in the early modern era.
  • Mercantilism played a crucial role in developing global trade networks by prioritizing the establishment of colonies and trading posts across continents. As European powers sought to control trade routes and resources, they created intricate connections that facilitated the exchange of goods, ideas, and cultures. These networks laid the groundwork for future economic relationships and significantly reshaped global commerce, making it more interconnected than ever before.
• Discuss how critiques of mercantilism contributed to shifts towards free-market economics in the late 18th century.
  • Critiques of mercantilism emerged as thinkers like Adam Smith argued that government intervention stifled economic growth and innovation. They promoted free-market economics, emphasizing that competition and consumer choice should drive trade rather than restrictive tariffs and regulations. This ideological shift laid the foundation for modern capitalism, encouraging policies that favor open markets and reduced state control over economic activity.

Related terms

Balance of Trade:

The difference between a country's exports and imports, with a favorable balance occurring when exports exceed imports.

Colonialism:

The practice of acquiring and maintaining colonies or territories for economic gain and political control.

Bullionism:

An economic policy that prioritizes the accumulation of precious metals as a measure of national wealth.