Understanding Mercantilism
Mercantilism, an influential economic system from the 16th to the 18th century, was based on the principle of a static world wealth. Consequently, governments regulated trade to enhance their wealth and national power. European nations aimed to accumulate wealth by maximizing exports and minimizing imports through tariffs.
Key Takeaways
- Dominant Economic System: From the 16th to the 18th century, mercantilism was the prevailing economic theory.
- Wealth and Power Principle: Nations believed that increasing exports and reducing imports would bolster their wealth and power.
- Static Wealth Assumption: Mercantilism operated on the belief that global wealth was fixed and finite.
- Military Means: Nationalistic in nature, countries often used military strength to protect local markets and resources.
- Replaced by Free Trade: Mercantilism gave way to free-trade theories in the mid-18th century.
In-Depth Look at Mercantilism
Mercantilism is characterized by restrictive trade practices aimed at increasing a state’s wealth of gold and silver. Here are some primary aspects:
1. The Belief in Static Wealth: It was believed that financial wealth was limited, urging nations to secure as much of it as possible at the expense of others.
2. Increasing Gold Supply: Gold was synonymous with wealth and power, needed to fund armies, explorations, and colonial expansions.
3. Trade Surplus: Nations strove to increase exports over imports to retain wealth within the country.
4. Large Population Advantage: A large population provided labor supply, supported domestic industries, and maintained military strength.
5. Colonies for Wealth: Colonies were seen as sources for raw materials and additional wealth-building opportunities through monopoly trade.
6. Protectionism: By imposing tariffs and trade restrictions, nations ensured their economic policies favored national over international interests.
History of Mercantilism
First notable in 16th century Europe, mercantilism flourished as nations aimed to maximize export and limit import. England, for instance, imposed fiscal policies such as the Sugar Act of 1764 and Navigation Act of 1651, favoring national interests.
Mercantilism saw military use to protect markets, and nations often quantified wealth through ownership of gold and silver, directly influenced by agricultural output and merchant fleet strength.
Mercantilism Around the World
French Iteration: Jean-Baptiste Colbert, France’s Controller General of Finance, developed strategies to propel France’s economy through mercantilist principles. Despite some short-term gains, his policies became secondary to developing free-market theories.
British Colonial Policy: Britain’s grip on colonial trade led to widespread trade restrictions, an expansion of the slave trade, and economic disparities that eventually resulted in high inflation, taxes, and colonial unrest culminating in the American Revolutionary War.
Mercantilism Today
Contemporary policies still reflect mercantilist principles such as trade protectionism seen in the 2018 trade war initiated by President Trump with China. Russia and China employ state-regulated economic policies resembling mercantilism.
Conclusion
Mercantilism, a precursor to capitalism and free trade, significantly influenced global economic policies through protectionism and national-driven trade control, shaping the economic practices from its inception to the present day.
Related Terms: Colonialism, Imperialism, Protectionism, Capitalism, Trade Barriers.
References
- University of North Texas. “Mercantilist System”.
- UNESCO. “Archives of the Dutch East India Company”.
- The East India Company. “History”.
- University of Louisville. “ThinkIR: The University of Louisville’s Institutional Repository”. Page 3.
- National Parks Service. “Britain Begins Taxing the Colonies: The Sugar & Stamp Acts”.
- UK Parliament. “The Navigation Laws”.
- University of Washington. “Absolutism in Early Modern France: Mercantilism”.
- Château de Versailles. “Jean-Baptiste Colbert”.
- University of Northern Iowa. “The Economic Policies of Jean-Baptiste Colbert”. Page 23.
- National Park Service. “Slavery and Law in 17th Century Massachusetts”.
- U.S. Department of State, Office of the Historian. “Parliamentary taxation of colonies, international trade, and the American Revolution, 1763–1775”.
- The Wilson Center. “Chapter 3: Trade Agreements and Economic Theory”.
- Information Technology & Innovation Foundation. “China Ranks Worst on Global Mercantilist Index, Subverting Free Trade and Damaging Global Economy”.
- Congressional Research Service. “Trump Administration Tariff Actions: Frequently Asked Questions”.
