key term - Mercantilism

Definition

Mercantilism is an economic theory and practice that emerged in Europe during the 16th to 18th centuries, advocating that a nation's strength is directly related to its wealth, particularly in gold and silver. This theory promoted government regulation of the economy to enhance state power and wealth through a favorable balance of trade, where exports exceed imports.

5 Must Know Facts For Your Next Test

1. Mercantilism encouraged the establishment of colonies to provide raw materials and serve as markets for the mother country's goods.
2. It promoted tariffs and restrictions on imports to protect domestic industries and ensure a favorable balance of trade.
3. Mercantilist policies led to increased competition among European nations for colonies and resources, fueling imperialism.
4. The theory supported the idea that a nation should strive to be self-sufficient and minimize reliance on foreign goods.
5. Mercantilism began to decline in the late 18th century with the rise of free-market theories proposed by economists like Adam Smith.

Review Questions

• How did mercantilist policies influence the relationship between European powers and their colonies?
  • Mercantilist policies created a relationship where European powers viewed their colonies primarily as sources of raw materials and markets for their manufactured goods. Colonies were expected to export resources back to the mother country, which would then produce finished goods for sale both at home and in the colonies. This relationship ensured that wealth flowed back to Europe, enhancing the economic strength of the colonial powers while limiting the economic independence of the colonies.
• Evaluate the impact of mercantilism on trade practices in Europe during the 16th to 18th centuries.
  • Mercantilism had a profound impact on trade practices in Europe, as it led to increased state intervention in economic activities. Governments imposed tariffs on imported goods, created monopolies for certain industries, and enacted laws like the Navigation Acts to control colonial trade routes. This regulation aimed to ensure that wealth accumulated within the nation, but it also sparked rivalries and conflicts among European powers as they competed for resources and markets globally.
• Assess how the decline of mercantilism contributed to changes in global economic systems during the late 18th century.
  • The decline of mercantilism paved the way for new economic ideas such as capitalism and free trade, as articulated by thinkers like Adam Smith. As nations began to embrace these concepts, it shifted the focus from state-controlled economies to market-driven principles that prioritized individual entrepreneurship and consumer choice. This transition not only transformed economic interactions within Europe but also affected global trade patterns, leading to a more interconnected world economy that encouraged competition and innovation.

Related terms

Colony: A territory under the political control of a state, often established for economic exploitation and resource extraction.

Balance of Trade: The difference in value between a country's exports and imports, which mercantilism aimed to keep favorable by exporting more than importing.

Navigation Acts:

A series of laws enacted by England to regulate colonial trade, ensuring that commerce benefited the mother country under mercantilist policies.