Mercantilism

Definition

Mercantilism is an economic theory and practice that emerged in Europe from the 16th to the 18th centuries, emphasizing the role of the state in managing the economy to increase national wealth, primarily through a positive balance of trade. This system advocated for government intervention in economic affairs, aiming to maximize exports while minimizing imports, which was believed to lead to national strength and prosperity.

5 Must Know Facts For Your Next Test

1. Mercantilism became prominent during the age of exploration when European powers sought to expand their empires and wealth through colonization.
2. The central belief of mercantilism is that national power is derived from economic strength, which can be achieved by accumulating wealth, especially gold and silver.
3. Under mercantilist policies, governments implemented tariffs and subsidies to protect domestic industries and promote exports.
4. Mercantilism encouraged the establishment of colonies, as these territories provided raw materials and markets for finished goods, benefiting the mother country.
5. The decline of mercantilism in the 18th century gave rise to classical economics and free trade theories, challenging the interventionist practices of earlier economic models.

Review Questions

• How did mercantilist policies influence European colonization during its height?
  • Mercantilist policies directly influenced European colonization by encouraging countries to acquire colonies that could supply raw materials and serve as markets for finished goods. Governments believed that establishing colonies would enhance national wealth through resource extraction and increased exports. This led to fierce competition among European powers for territorial acquisition, shaping global trade networks that prioritized the economic interests of the colonizing nations.
• Discuss the role of government intervention in mercantilism compared to modern free-market economies.
  • In mercantilism, government intervention was seen as essential for promoting national wealth and economic stability. States regulated trade through tariffs, subsidies, and monopolies to ensure a favorable balance of trade. In contrast, modern free-market economies emphasize minimal government involvement, believing that market forces should dictate trade and prices. This shift reflects a fundamental change in how economic success is perceived, moving from state control to individual entrepreneurial freedom.
• Evaluate the long-term impacts of mercantilism on global trade patterns and economic development.
  • The long-term impacts of mercantilism on global trade patterns include the establishment of colonial trade routes that connected Europe with Africa, Asia, and the Americas. These routes laid the groundwork for an interconnected global economy but also contributed to exploitation and economic disparities. As mercantilist practices declined in favor of free trade, many former colonies sought independence and self-determination, which reshaped political boundaries and economic relationships. The legacy of mercantilism continues to influence discussions about trade policies and economic development today.

Related terms

Balance of Trade: The difference between the value of a country's exports and imports, with a favorable balance indicating that exports exceed imports.

Colonialism:

The practice of acquiring control over foreign territories and exploiting them for resources and economic gain, often associated with mercantilist policies.

Protectionism: Economic policy aimed at shielding a country's domestic industries from foreign competition through tariffs and trade restrictions.