Mercantilism

Definition

Mercantilism is an economic theory and practice that emphasizes the role of the state in managing the economy to enhance national power, primarily through accumulating wealth via trade and colonial expansion. This system promotes protectionist policies, such as tariffs and subsidies, to achieve a favorable balance of trade, where exports exceed imports. It connects closely to the historical context of global economic systems, highlighting how states have interacted economically and politically over time.

5 Must Know Facts For Your Next Test

1. Mercantilism was dominant from the 16th to the 18th century, influencing European powers like England, France, and Spain in their colonial pursuits.
2. The mercantilist doctrine encouraged nations to amass gold and silver as a measure of wealth, leading to intense competition among states.
3. Mercantilism often involved government intervention in the economy, including establishing monopolies and granting exclusive trading rights to certain companies.
4. Critics of mercantilism argued that it limited free trade and innovation, laying the groundwork for later economic theories like classical liberalism.
5. The decline of mercantilism coincided with the rise of capitalism in the late 18th century, which favored free markets over state control.

Review Questions

• How did mercantilism influence the economic policies of European nations during its prominence?
  • Mercantilism significantly shaped the economic policies of European nations by promoting protectionist measures aimed at enhancing national power. Countries adopted tariffs to limit imports while subsidizing domestic industries to ensure a favorable balance of trade. This led to increased colonial expansion as nations sought new markets and resources to accumulate wealth, driving competition between powers for global dominance.
• Analyze the impact of mercantilism on international trade relations during the 16th to 18th centuries.
  • During the 16th to 18th centuries, mercantilism profoundly impacted international trade relations by prioritizing national interests over cooperative trade. Countries engaged in fierce competition for colonies and trading posts to control resources and markets, often leading to conflicts. The focus on export-led growth meant that nations were more concerned with gaining trade surpluses than fostering open trade relations, which created tensions among competing powers.
• Evaluate how the transition from mercantilism to capitalism changed the landscape of international economic relations.
  • The transition from mercantilism to capitalism transformed international economic relations by shifting from state-controlled economies to market-driven systems. As capitalism emphasized free trade and minimal government intervention, countries began to adopt policies that encouraged competition and innovation. This change facilitated a more interconnected global economy, where international cooperation became essential for trade growth, contrasting sharply with the mercantilist approach that emphasized nationalistic control over economic resources.

Related terms

Protectionism: An economic policy that restricts imports to protect domestic industries, often through tariffs and quotas.

Balance of Trade: The difference between a country's exports and imports, indicating the economic relationship with other countries.

Colonialism: The practice of acquiring control over foreign territories, often for economic exploitation and settlement.