Mercantilism

Definition

Mercantilism is an economic theory that emphasizes the role of government in managing the economy to increase national wealth, primarily through the accumulation of gold and silver, and a favorable balance of trade. It promotes government intervention in economic activities, prioritizing exports over imports and seeking to achieve trade surpluses as a means to enhance national power.

5 Must Know Facts For Your Next Test

1. Mercantilism dominated European economic thought from the 16th to the 18th centuries, influencing colonial policies and international trade practices.
2. Under mercantilism, countries sought to become self-sufficient by establishing colonies that provided raw materials and markets for finished goods.
3. Governments employed various measures, including tariffs and trade monopolies, to control commerce and maintain a favorable balance of trade.
4. Mercantilist policies often led to intense competition among nations for resources, contributing to conflicts and wars during this period.
5. Critics of mercantilism argued that it stifled free trade and economic growth, paving the way for later economic theories like capitalism and free-market economics.

Review Questions

• How did mercantilism influence government policies regarding trade during its prominence in Europe?
  • Mercantilism significantly influenced government policies by encouraging intervention in trade to boost national wealth. Governments imposed tariffs on imports and provided subsidies for exports to create a favorable balance of trade. This approach aimed at accumulating precious metals like gold and silver, leading nations to prioritize economic strategies that secured trade surpluses. As a result, governments actively regulated commerce and pursued colonial expansion as a means to access raw materials and expand markets.
• What role did colonialism play in the implementation of mercantilist policies in Europe?
  • Colonialism was integral to mercantilist policies as European powers sought new territories for resource extraction and market expansion. Colonies provided essential raw materials that could be processed into finished goods, which were then exported back to the colonies or other markets. This system allowed European nations to maximize their trade surpluses while ensuring that economic benefits flowed back to the mother country. The competition for colonies often fueled rivalries among nations, making colonial expansion a central aspect of mercantilist strategy.
• Evaluate the long-term effects of mercantilist policies on global trade patterns and economic thought.
  • The long-term effects of mercantilist policies on global trade patterns included the establishment of complex trade networks and increased competition for resources among nations. While mercantilism promoted national interests, it also laid the groundwork for later economic theories by revealing the limitations of state control over commerce. The criticism of mercantilist practices led to the emergence of free-market ideas, significantly shaping modern economics. The legacy of mercantilism can still be observed today in some protectionist policies and debates about government intervention in trade.

Related terms

Balance of Trade: The difference between the value of a country's exports and the value of its imports.

Protectionism:

Economic policy that restricts imports through tariffs and quotas to protect domestic industries.

Colonialism: The practice of acquiring control over foreign territories, often for economic exploitation, which was key to mercantilist strategies.