Mercantilism - Explained
What is Mercantilism?
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Table of ContentsWhat is Mercantalism?How does Mercantilsm Apply?The Underlying Principles of MercantilismAcademic Research on Mercantilism?
What is Mercantalism?
Mercantilism is an economic theory that holds that a nation's wealth can increase when the government regulates the nation's wealth by maximizing exports and reducing imports. Mercantilism was developed in the 16th and 18th centuries. This economic theory maintains that the government should get more involved in international trade by regulating it benefit domestic or local products and businesses.
Back to: ECONOMIC ANALYSIS & MONETARY POLICY
How does Mercantilsm Apply?
According to mercantilist theorists, wealth is static, hence, nations can amass as much wealth as they can accommodate. The mercantilism theory is one that states that government should buy less from foreign countries and sell more of its products outside the country, that means, export rates should be higher than import rate. Although, it was between 16th and 18,th century that mercantilism was utilized, if started gaining prominence the 1500s. As an economic theory, it focuses on the impacts of government regulations on a nation's wealth. According to mercantilist theorists, favorable amount of wealth can be amassed by a nation through certain policies and regulations on trade. Government should facilitate trade with other nations in a way that will favor the export of domestic products more than the import of foreign products. Britain utilized mercantilism in the 17th century, so also nations like France, Portugal, and Spain. Aside from an increase in exports, a nation can also accumulate wealth by collecting precious metals, such as gold and silver.
The Underlying Principles of Mercantilism
Central to mercantilism is the belief that strong nations can accumulate wealth and create a world economy through regulations that will be favorable to local markets and domestic products. These theorists believe that since wealth is static, the level of supply of a nation determines its wealth. This means that high exports and reduced imports will translate into a buoyant balance of trade. Mercantilism is also based on the idea that the amount of precious metal (gold or silver) owned by a nation determines its economic well-being. Crucial to mercantilist theorist is the believe that every nation must strive for economic independence by having regulations that aid exports of goods. Nations should also promote agriculture because if there is enough food in the nation, there will be less import of foods. Mercantilism advocated increase in exports and decrease in imports and this led to the adoption of many trade restrictions in the British colonies. However, these trade restrictions are injected into the economy by a Mercantile minority who amassed wealth at the detriment of others in the community. This was highly unacceptable for the liberals minds, the interpretation of the German school of historical economists further worsened the matter. The trade restrictions that were developed as a result of mercantilism beliefs in the early British colonies only benefitted a minority, these trade restrictions were regarded as a conspiracy of a mercantile minority. This is contrary to belief of liberalists which led to certain reactions from historians in the English colonies.