Mercantilism

Definition

Mercantilism is an economic theory that emphasizes the importance of a nation’s wealth as a means to increase its power, primarily through the regulation of trade and the accumulation of precious metals. It advocates for a positive balance of trade, where a country exports more than it imports, and believes that government intervention is essential in the economy to promote national interests and enhance state power.

5 Must Know Facts For Your Next Test

1. Mercantilism was prevalent from the 16th to the 18th centuries, shaping European economic policies during this period.
2. Under mercantilist policies, colonies were often established to provide raw materials and serve as exclusive markets for the mother country.
3. Governments would often impose tariffs on imported goods to discourage consumption of foreign products and encourage domestic production.
4. The accumulation of gold and silver was seen as essential for national strength, leading to policies that favored mining and trade that resulted in precious metal inflow.
5. Mercantilism laid the groundwork for modern economic theories and practices by emphasizing the role of the state in economic affairs.

Review Questions

• How did mercantilism influence trade relationships between European powers and their colonies?
  • Mercantilism significantly shaped trade relationships by prioritizing the economic interests of colonial powers over those of their colonies. European nations established colonies primarily to extract resources and create exclusive markets for their goods, limiting colonies' ability to trade with other nations. This created a dependency on the mother country for both economic stability and supplies, reinforcing a system where trade benefited the colonial powers at the expense of their colonies.
• Discuss the role of government intervention in promoting mercantilist policies during the 16th to 18th centuries.
  • Government intervention was central to mercantilism, as states sought to regulate their economies to achieve favorable trade balances. This included implementing tariffs, granting monopolies, and establishing colonies. By controlling trade routes and resources, governments aimed to maximize exports while minimizing imports, effectively using legislation to promote national wealth. Such policies were believed necessary not just for economic gain but also for maintaining national security and power in a competitive international landscape.
• Evaluate the long-term effects of mercantilism on modern economic systems and international relations.
  • The long-term effects of mercantilism can be seen in contemporary economic systems that still reflect its principles, such as protectionist policies aimed at supporting local industries. Additionally, mercantilism set the stage for ongoing competition among nations for resources and markets, which continues today in various forms like trade wars and economic sanctions. The legacy of mercantilism also informs debates about globalization versus nationalism, as countries navigate their roles in an interconnected world while striving to protect domestic interests.

Related terms

Balance of Trade: The difference between the value of a country's exports and imports, which is critical in mercantilism for achieving economic self-sufficiency.

Colonialism: The practice of acquiring full or partial political control over another country, often involving the exploitation of resources and markets to enhance the mother country's wealth.

Protectionism: Economic policy aimed at restricting imports from other countries through tariffs and regulations to support domestic industries.