Mercantilism

Definition

Mercantilism is an economic theory that emphasizes the importance of government regulation of a nation's economy to augment state power at the expense of rival national powers. This idea was prevalent from the 16th to the 18th centuries and was closely linked to colonial expansion and trade policies that favored the accumulation of wealth through a positive balance of trade.

5 Must Know Facts For Your Next Test

1. Mercantilism led to the establishment of colonial empires as European powers sought to control resources and markets in other regions.
2. Countries adopted mercantilist policies by granting monopolies to specific companies, allowing them to control trade routes and resources.
3. The theory promoted protectionist measures, such as tariffs on imports, to protect domestic industries and ensure a favorable balance of trade.
4. Mercantilism directly influenced naval power, as stronger fleets were needed to protect trade routes and colonies from rival nations.
5. The decline of mercantilism in the late 18th century paved the way for the rise of capitalism, emphasizing free trade and individual economic freedom.

Review Questions

• How did mercantilism influence the policies of European powers during the Age of Exploration?
  • Mercantilism significantly influenced European powers during the Age of Exploration by driving them to expand their territories and establish colonies. Countries sought to accumulate wealth through a favorable balance of trade, which meant exporting more than they imported. This led to fierce competition among nations to acquire colonies rich in resources, ultimately shaping trade networks that would serve their economic interests while diminishing rivals' opportunities.
• What role did mercantilist policies play in the development of trade monopolies during this period?
  • Mercantilist policies were crucial in establishing trade monopolies as governments granted exclusive rights to certain companies for trading specific goods. These monopolies allowed countries like Spain, Portugal, England, and the Netherlands to dominate key markets, control resources, and suppress competition. By regulating trade through these monopolies, mercantilist states aimed to maximize profits and ensure economic supremacy over their rivals.
• Evaluate the impact of mercantilism on colonial economies and their relationship with their European mother countries.
  • Mercantilism profoundly impacted colonial economies by structuring them around the needs and interests of their European mother countries. Colonies were often forced to produce raw materials that were then sent back to Europe for processing and sale, limiting their own economic development. This relationship fostered dependency, as colonies relied heavily on their mother countries for finished goods while being unable to develop diverse local economies. The systemic exploitation under mercantilism laid foundational tensions that would later fuel movements for independence.

Related terms

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

Balance of Trade: The difference in value between a country's imports and exports over a certain period, with a positive balance indicating more exports than imports.

Trade Monopoly: The exclusive control over the trade of a particular good or service, often established by a government or powerful corporation.