Mercantilism

Definition

Mercantilism was an economic theory and practice that emerged in Europe during the 16th-18th centuries. It was based on the belief that a country's wealth and power were derived from the accumulation of precious metals, such as gold and silver, and the maintenance of a positive trade balance through the regulation of commerce and the colonies.

5 Must Know Facts For Your Next Test

1. Mercantilism encouraged the colonies to be sources of raw materials and markets for finished goods, while restricting their ability to manufacture their own products.
2. Mercantilist policies often involved the use of monopolies, subsidies, and navigation acts to control trade and commerce.
3. The goal of mercantilism was to maintain a positive balance of trade, which would result in the accumulation of precious metals, primarily gold and silver, within the home country.
4. Mercantilism was a key factor in the colonial rivalries between European powers, as they competed for control of trade routes, resources, and colonies.
5. The economic theories of Adam Smith and the rise of free-market capitalism eventually led to the decline of mercantilism in the late 18th and 19th centuries.

Review Questions

• Explain how mercantilism influenced the economic relationship between European colonial powers and their colonies.
  • Under mercantilism, European colonial powers sought to maintain strict control over their colonies, which were viewed as sources of raw materials and markets for finished goods. Colonies were often prohibited from manufacturing their own products, and were required to export their raw materials to the home country and import finished goods. This allowed the colonial powers to maintain a positive balance of trade and accumulate precious metals, which was the primary goal of mercantilism.
• Describe the role of mercantilism in the colonial rivalries between European powers.
  • Mercantilism was a key driver of the colonial rivalries between European powers, as they competed for control of trade routes, resources, and colonies. Each country sought to maintain a positive balance of trade and accumulate precious metals, which led to the implementation of protectionist policies, the establishment of monopolies, and the use of navigation acts to control commerce. This competition for economic dominance was a major factor in the Wars for Empire that took place during the 17th and 18th centuries.
• Analyze the decline of mercantilism and its impact on the global economy.
  • The decline of mercantilism was largely due to the economic theories of Adam Smith and the rise of free-market capitalism. Smith's ideas, which emphasized the benefits of free trade and the invisible hand of the market, challenged the core principles of mercantilism. As countries began to embrace more liberal economic policies, the strict controls and protectionist measures associated with mercantilism became less viable. This shift towards free trade and globalization had a significant impact on the global economy, as it opened up new markets, increased competition, and fostered economic growth and development in many parts of the world.

Related terms

Protectionism: The economic policy of protecting domestic industries from foreign competition through tariffs, quotas, or other restrictions on imports.

Balance of Trade: The difference between a country's imports and exports, representing the net flow of goods in and out of the country.

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