Mercantilism

Definition

Mercantilism is an economic theory and practice that emerged in the 16th to 18th centuries, emphasizing the role of government in managing the economy to increase national wealth through trade and accumulation of precious metals. It connects closely to ideas about state power, colonialism, and the regulation of commerce during the Enlightenment, where nations sought to maximize exports and minimize imports to achieve a favorable balance of trade.

5 Must Know Facts For Your Next Test

1. Mercantilism was prevalent from the 16th to 18th centuries and was characterized by a strong governmental control over the economy.
2. The theory suggested that national strength could be maximized by limiting imports via tariffs and maximizing exports, leading to greater reserves of gold and silver.
3. Colonial expansion was encouraged under mercantilist policies, as colonies provided raw materials and markets for manufactured goods.
4. Mercantilist thought influenced European powers' competition for overseas territories during the Age of Exploration and colonization.
5. The decline of mercantilism in the late 18th century gave way to classical economics, which advocated for free trade and reduced government intervention.

Review Questions

• How did mercantilism shape government policies regarding trade during its prominence?
  • Mercantilism significantly shaped government policies by promoting protectionist measures aimed at boosting national wealth. Governments enacted tariffs on imports to discourage foreign competition while subsidizing exports to encourage domestic production. This interventionist approach sought to ensure that more gold and silver flowed into the country than flowed out, reflecting a nationalistic perspective on economic power.
• In what ways did mercantilism contribute to the development of colonial empires in Europe?
  • Mercantilism played a crucial role in the establishment and expansion of colonial empires by incentivizing European powers to acquire territories rich in resources. Colonies were viewed as essential for providing raw materials necessary for manufacturing in Europe, while also serving as captive markets for finished goods. This relationship not only facilitated economic growth in the mother countries but also perpetuated systems of exploitation and dependence within the colonies.
• Evaluate the transition from mercantilism to classical economics and its impact on global trade practices.
  • The transition from mercantilism to classical economics marked a significant shift in global trade practices, moving away from heavy government intervention towards advocating for free trade. Classical economists argued that unrestricted trade leads to increased efficiency, innovation, and wealth creation. This new perspective encouraged international competition and cooperation, ultimately reshaping economic relationships worldwide and laying the foundation for modern capitalism.

Related terms

Protectionism: An economic policy of restricting imports from other countries through tariffs and other trade barriers to protect domestic industries.

Colonialism: The practice of acquiring control over another country or territory, often for economic gain and resource extraction, which was integral to mercantilist strategies.

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