Mercantilism

Definition

Mercantilism is an economic theory and practice that dominated European trade from the 16th to the 18th centuries, emphasizing the importance of accumulating wealth, particularly gold and silver, through a favorable balance of trade. This system encouraged countries to export more than they import, leading to the establishment of colonies and trade monopolies to secure resources and markets. It played a crucial role in shaping early modern economies and international trade policies.

5 Must Know Facts For Your Next Test

1. Mercantilism viewed the world economy as a zero-sum game where one nation's gain was another's loss, leading to intense competition among European powers.
2. The theory promoted state intervention in the economy, with governments playing a significant role in regulating trade and industry to enhance national wealth.
3. Colonial expansion was a critical component of mercantilism, as countries sought new markets and resources to support their economies.
4. Mercantilist policies often included tariffs and regulations aimed at protecting domestic industries from foreign competition.
5. The decline of mercantilism in the late 18th century coincided with the rise of capitalism and free trade principles advocated by economists like Adam Smith.

Review Questions

• How did mercantilism influence the establishment of colonial empires in Europe?
  • Mercantilism significantly influenced the establishment of colonial empires as European nations sought to expand their wealth and resources. By establishing colonies, countries could access raw materials and new markets for their manufactured goods, thus creating a favorable balance of trade. This drive for expansion led to competition among European powers, resulting in the formation of vast colonial networks that were essential for fulfilling mercantilist policies.
• Discuss the role of state intervention in economic practices under mercantilism and its impact on trade.
  • Under mercantilism, state intervention played a vital role in shaping economic practices, as governments actively regulated trade to achieve national goals. This included implementing tariffs to protect domestic industries, granting monopolies to certain companies, and controlling colonial trade routes. Such interventions aimed to ensure that wealth flowed into the nation while limiting imports, ultimately fostering an environment of competition among European powers and affecting international trade dynamics.
• Evaluate the transition from mercantilism to capitalism in relation to changing economic theories and practices in Europe.
  • The transition from mercantilism to capitalism marked a significant shift in economic thought and practice during the late 18th century. As critiques of mercantilist policies emerged, particularly from thinkers like Adam Smith who argued for free trade and market-driven economies, European nations began embracing capitalist principles that emphasized individual entrepreneurship and minimal government intervention. This evolution not only changed trade dynamics but also laid the groundwork for modern economic systems, illustrating how shifting ideologies can reshape global commerce.

Related terms

Balance of Trade: The difference between the value of a country's exports and imports, where a positive balance indicates more exports than imports.

Colonialism: The practice of acquiring control over foreign territories, often establishing settlements and exploiting resources for the benefit of the colonizing country.

Trade Monopolies: Exclusive control over a commodity or service in a market, often granted by governments to promote national interests.