Mercantilism

Definition

Mercantilism is an economic theory that emphasizes the importance of a strong central government to regulate the economy, maximize exports, and accumulate precious metals like gold and silver. It played a crucial role in shaping trade policies and economic practices in Europe, particularly during the transition from medieval economies to early modern capitalism.

5 Must Know Facts For Your Next Test

1. Mercantilism became prominent in Europe from the 16th to the 18th centuries as nations sought to enhance their power and wealth through trade.
2. This economic theory led to increased government involvement in economic affairs, including protectionist policies and tariffs to promote domestic industries.
3. Mercantilism encouraged colonization as European powers sought new markets for their goods and sources for raw materials, significantly impacting global trade patterns.
4. The theory viewed international trade as a zero-sum game, where one nation's gain was seen as another nation's loss, promoting competition among states.
5. Criticism of mercantilism grew in the late 18th century, paving the way for classical economics and theories advocating free trade, particularly by economists like Adam Smith.

Review Questions

• How did mercantilism influence European trade practices during its peak?
  • Mercantilism significantly shaped European trade practices by promoting policies that favored exports over imports. Governments implemented tariffs and restrictions on foreign goods while subsidizing local industries to boost production. This led to fierce competition among European nations for colonies and control over trade routes, ultimately reshaping global commerce during this period.
• Discuss the impact of mercantilist policies on colonial relationships between European powers and their colonies.
  • Mercantilist policies fundamentally altered colonial relationships by establishing a system where colonies existed primarily for the benefit of their mother countries. European powers imposed strict regulations on trade, compelling colonies to export raw materials while importing finished goods exclusively from the parent nation. This not only stifled colonial economic independence but also intensified conflicts as colonies sought greater autonomy and economic freedom.
• Evaluate how the decline of mercantilism influenced economic thought in early modern Europe and contributed to the rise of classical economics.
  • The decline of mercantilism marked a significant shift in economic thought as critiques emerged regarding its restrictive nature and flawed assumptions about trade. Thinkers like Adam Smith advocated for free market principles, arguing that open competition would lead to greater prosperity than state-controlled economies. This transition laid the groundwork for classical economics, which prioritized individual enterprise and the benefits of unrestricted trade, ultimately shaping modern economic theory.

Related terms

Bullionism: An economic theory that holds that the wealth of a nation is measured by its stock of precious metals, leading to policies favoring the accumulation of gold and silver.

Navigation Acts: A series of laws enacted by England to regulate colonial trade, ensuring that commerce benefited the mother country and adhered to mercantilist principles.

Colbertism: A form of mercantilism named after Jean-Baptiste Colbert, the finance minister under King Louis XIV of France, which emphasized state intervention in the economy to promote industry and trade.