Mercantilism

Definition

Mercantilism is an economic theory that emphasizes the role of the state in managing the economy to increase national wealth through a positive balance of trade. It promotes governmental regulation of a nation's economy for augmenting state power at the expense of rival national powers. This approach prioritizes the accumulation of gold and silver, fostering colonial expansion and establishing a network of markets and shops to facilitate trade.

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. Under mercantilist principles, nations sought to establish colonies that could provide raw materials and serve as exclusive markets for finished goods.
3. Mercantilism encouraged the creation of a network of markets and shops where local goods could be sold, fostering both local economies and national wealth.
4. The theory posits that national strength is directly related to economic strength, leading governments to intervene heavily in markets.
5. Critics of mercantilism argue that it leads to protectionist policies that can stifle competition and innovation within the economy.

Review Questions

• How did mercantilism shape the role of markets and shops in early modern economies?
  • Mercantilism significantly influenced markets and shops by encouraging states to create structured systems for trade that prioritized domestic production and exportation. Governments implemented regulations that favored local merchants over foreign competitors, ensuring that markets were primarily supplied with domestically produced goods. This led to the proliferation of local shops that not only served as retail outlets but also as hubs for promoting national goods, ultimately enhancing economic independence.
• Evaluate the impact of mercantilist policies on colonial expansion during the 17th and 18th centuries.
  • Mercantilist policies had a profound impact on colonial expansion, as European powers established colonies primarily to enhance their wealth through resource extraction and controlled markets. Colonies provided raw materials that were scarce in Europe while serving as guaranteed markets for manufactured goods. This not only fueled European economies but also intensified rivalries among nations competing for overseas territories, leading to significant geopolitical shifts during this period.
• Assess how mercantilism laid the groundwork for modern economic theories and practices.
  • Mercantilism laid important groundwork for modern economic theories by introducing key concepts such as state intervention in the economy and the significance of trade balance. While later economic theories like capitalism emerged as critiques of mercantilism's restrictions, many principles from mercantilist thought, including protectionism and trade regulation, continue to influence current debates around globalization and national economic policies. By highlighting the importance of market control and resource management, mercantilism shaped the evolution of economic thought into contemporary practices.

Related terms

Balance of Trade: The difference in value between a country's imports and exports, where a positive balance indicates more exports than imports.

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

Trade Regulation: Government policies that control or limit the exchange of goods and services across borders to protect domestic industries and promote national interests.