Mercantilism

Definition

Mercantilism is an economic theory and practice that emphasized the accumulation of national wealth through a favorable balance of trade. It was a dominant economic system in Europe from the 16th to the 18th century and was closely tied to the rise of European nation-states and colonialism.

5 Must Know Facts For Your Next Test

1. Mercantilism viewed the world as a zero-sum game, where one country's gain was another's loss, leading to intense competition for colonies and resources.
2. Mercantilist policies often included the use of tariffs, trade restrictions, and the promotion of exports over imports to maintain a favorable balance of trade.
3. Colonies were seen as valuable assets under mercantilism, as they provided raw materials, served as markets for finished goods, and generated wealth for the colonial power.
4. The desire to accumulate gold and silver was a key feature of mercantilism, as these precious metals were seen as a measure of a nation's wealth and power.
5. The American colonies were subject to mercantilist policies, which contributed to growing resentment and the eventual American Revolution.

Review Questions

• Explain how mercantilism influenced the economic policies and colonial relationships of European nations during the 16th to 18th centuries.
  • Mercantilism emphasized the accumulation of national wealth through a favorable balance of trade, which led European nations to implement protectionist policies, such as tariffs and trade restrictions, to promote exports and limit imports. This, in turn, fueled the competition for colonies, as colonies were seen as valuable assets that could provide raw materials, serve as markets for finished goods, and generate wealth for the colonial power. The desire to maintain a positive balance of trade and accumulate precious metals like gold and silver was a driving force behind the mercantilist economic system and the colonial policies of European nations during this period.
• Describe how the mercantilist policies imposed on the American colonies contributed to the growing resentment that led to the American Revolution.
  • The American colonies were subject to a variety of mercantilist policies imposed by the British, such as restrictions on colonial manufacturing, limitations on trade with other countries, and the requirement to ship certain goods exclusively to Britain. These policies were designed to maintain a favorable balance of trade for the British Empire and to ensure that the colonies served as a source of raw materials and a market for British goods. However, the American colonists increasingly resented these restrictions, as they felt they were being exploited for the benefit of the mother country. This growing resentment, coupled with other political and ideological factors, contributed to the American colonists' decision to declare independence and fight for their own economic and political autonomy during the American Revolution.
• Analyze the long-term impact of mercantilism on the development of the global economy and the eventual shift towards more free-market economic principles.
  • The mercantilist system, with its emphasis on protectionism and the zero-sum view of international trade, ultimately proved to be unsustainable and hindered the development of a truly global economy. As the limitations of mercantilism became more apparent, a shift towards more liberal, free-market economic principles began to emerge in the late 18th and early 19th centuries. Thinkers like Adam Smith challenged the mercantilist assumptions and advocated for the benefits of free trade, comparative advantage, and the 'invisible hand' of the market. This ideological shift, combined with the growing power of industrialized nations and the need for more open markets, eventually led to the gradual dismantling of mercantilist policies and the adoption of more free-market economic systems on a global scale. This transition played a crucial role in the expansion of international trade, the rise of multinational corporations, and the increasing interconnectedness of the world economy.

Related terms

Protectionism:

Policies designed to protect domestic industries from foreign competition through the use of tariffs, quotas, and other trade barriers.

Balance of Trade: The difference between a country's imports and exports, where a surplus is seen as favorable and a deficit as unfavorable.

Colonialism: The policy of a country or a people seeking to extend or retain its authority over other countries or peoples.