What is Mercantilism?
Mercantilism was a dominant economic idea and policy in Europe from the 1500s to the 1700s. It sought to enhance a country’s riches and influence by controlling trade and favoring exports over imports. Mercantilism also assumed that the world had a fixed amount of wealth and that gold and silver were crucial for a country’s success. Mercantilism was frequently linked to colonialism and absolute monarchy.
History of Mercantilism
Origins: Mercantilism came into being with nation-states' emergence and overseas commerce's growth. It was founded on the notion that the world had a limited wealth and nations had to vie for a bigger portion of it. The main indicator of wealth was the quantity of treasured metals, such as silver and gold, that a nation owned.
Policies: Mercantilist policies aimed to achieve a positive trade balance, meaning more exports than imports, by enforcing tariffs, subsidies, monopolies, and other constraints on foreign goods and rivals. Mercantilist nations also tried to obtain colonies and raw materials from other regions and stop bullion outflow from their territories.
Criticism: Classical economists, such as Adam Smith and David Hume, opposed Mercantilism, who claimed that the amount of metals did not constrain wealth but by the efficient use of labor and resources. They also supported free trade and specialization, which would benefit all parties involved. They demonstrated that mercantilism was ineffective, expensive, and detrimental to consumers and producers.
Decline: Europe and the world's economic and political landscape changed due to the Industrial Revolution, the American Revolution, and the French Revolution in the late 18th and early 19th centuries. This led to the market economy's gradual replacement of the mercantilist system based on supply and demand. Free trade agreements like the Cobden-Chevalier Treaty of 1860 also reduced trade barriers.
Legacy: Mercantilism is regarded as an obsolete and flawed economic theory, but some of its ideas and practices still affect modern economic policies. For example, some countries adopt protectionist measures, such as tariffs and quotas, to support their domestic industries and reduce their trade deficits. This is sometimes called neomercantilism or economic nationalism.