what is mercantilism 
mercantilism was an economic system of trade that spanned the 16th century to the 18th century mercantilism was based on the principle that the world s wealth was static and consequently governments had to regulate trade to build their wealth and national power many european nations attempted to accumulate the largest possible share of that wealth by maximizing their exports and limiting their imports via tariffs 1investopedia mira norianunderstanding mercantilismmercantilism was a form of economic nationalism that sought to increase the prosperity and power of a nation through restrictive trade practices its goal was to increase the supply of a state s gold and silver with exports rather than to deplete it through imports 1 it also sought to support domestic employment mercantilism centered on the interests of merchants and producers such as england s east india company and the dutch east india company and protected their activities as necessary 23mercantilism had several noteworthy characteristics 1 the belief in the static nature of wealthfinancial wealth was considered limited due to the rarity of precious metals nations that sought prosperity and power needed to secure as much wealth as possible at the expense of other nations 2 the need to increase the supply of goldgold represented wealth and power it could pay for soldiers seafaring exploration for natural resources and expanding empires it could also protect against invasion a lack of gold meant the downfall of a nation 3 the need to maintain a trade surplusthis was integral to building wealth nations needed to focus on selling their exports and collecting the associated revenue more than on spending on imports and sending gold out of countries 4 the importance of a large populationlarge populations represented wealth increasing a nation s population was integral to supplying a labor force supporting domestic commerce and maintaining armies 5 the use of colonies to support wealthsome nations needed colonies for raw materials a labor supply and a way to keep wealth within its control by selling colonies the products their raw materials helped to produce essentially colonies increased a nation s wealth building power and national security 6 the use of protectionismprotecting a nation s ability to build and maintain trade surpluses encompassed prohibiting colonies from trading with other nations and imposing tariffs on imported goods history of mercantilismfirst seen in europe during the 1500s mercantilism was based on the idea that a nation s wealth and power were best served by increasing exports and limiting imports mercantilism replaced the feudal economic system in western europe 4 at the time england was the epicenter of the british empire but had relatively few natural resources to grow its wealth england introduced fiscal policies that discouraged colonists from buying foreign products and created incentives to buy only british goods for example the sugar act of 1764 raised duties on foreign refined sugar and molasses imported by the colonies this increased taxation was meant to give british sugar growers in the west indies a monopoly on the colonial market 5similarly the navigation act of 1651 forbade foreign vessels from trading along the british coast and required colonial exports to first pass through british control before being redistributed throughout europe 6programs like these resulted in a favorable balance of trade that increased great britain s national wealth under mercantilism nations frequently engaged their military might to ensure that local markets and supply sources were protected mercantilists also believed that a nation s economic health could be measured by its ownership of precious metals such as gold or silver their levels tended to rise with increased new home construction increased agricultural output and a strong merchant fleet that serviced additional markets with goods and raw materials arguably the most influential proponent of mercantilism french controller general of finance jean baptiste colbert 1619 1683 studied foreign trade economic theories he was uniquely positioned to execute on mercantilist ideas 7 a devout monarchist colbert called for an economic strategy that protected the french crown from a rising dutch mercantile class 8colbert also increased the size of the french navy on the belief that france had to control its trade routes to increase its wealth 9 although his practices ultimately proved unsuccessful his ideas were hugely popular ultimately they became overshadowed by the theory of free market economics the british colonies were subject to the direct and indirect effects of mercantilist policy at home here are several examples defenders of mercantilism argued that it created stronger economies by marrying the concerns of colonies with those of their founding countries in theory when british colonists created their own products and obtained others by trading with their founding nation they remained independent from the influence of hostile nations meanwhile great britain benefited from receiving large amounts of raw material from the colonists that was necessary for a productive manufacturing sector critics of mercantilism believed the restriction on international trade increased expenses because all imports regardless of product origin had to be shipped by british ships this radically spiked the costs of goods for the colonists who believed the disadvantages of this system outweighed the benefits of affiliating with great britain after a costly war with france the british empire hungry to replenish revenue raised taxes on colonists who rebelled by boycotting british products consequently slashing imports by a full one third this was followed by the boston tea party in 1773 where boston colonists disguised as indians raided three british ships they emptied several hundred chests of tea into the harbor to protest british taxes on tea and the monopoly granted to the east india company to reinforce its mercantilist control great britain pushed harder against the colonies this resulted in the revolutionary war 11merchants and mercantilismby the early 16th century european financial theorists understood the importance of the merchant class in generating wealth cities and countries with goods to sell thrived in the late middle ages consequently many believed the state should allow its leading merchants to create exclusive government controlled monopolies and cartels governments used regulations subsidies and if needed military force to protect these monopolistic corporations from domestic and foreign competition citizens could invest money in mercantilist corporations in exchange for ownership and limited liability in their royal charters these citizens were granted shares of the company profit in essence these were the first traded corporate stocks the most famous and powerful mercantilist corporations were britain s east india company and the dutch east india company for more than 250 years the british east india company maintained the exclusive royally granted right to conduct trade between britain india and china its trade routes were protected by the royal navy 3mercantilism is considered by some scholars to be a precursor to capitalism since it rationalized economic activity such as profits and losses mercantilism vs imperialismmercantilist governments manipulate a nation s economy to create favorable trade balances imperialism uses a combination of military force and mass immigration to foist mercantilism on less developed regions military campaigns forced inhabitants to follow the dominant countries laws one of the most powerful examples of the relationship between mercantilism and imperialism is britain s establishment of the american colonies mercantilism vs capitalismcapitalism provides several advantages over mercantilism for individuals businesses and nations with capitalism s free trade system individuals benefit from a greater choice of affordable goods on the other hand mercantilism restricts imports and reduces the choices available to consumers fewer imports mean less competition and higher prices mercantilist countries engaged in warfare frequently to control resources nations operating under a free trade system prospered by engaging in mutually beneficial trade relations in his seminal book the wealth of nations legendary economist adam smith argued that free trade enabled businesses to specialize in producing the goods that they could manufacture most efficiently this led to higher productivity and greater economic growth 12mercantilism todaytoday mercantilism is deemed outdated the disaster of world war ii underscored the potential danger of nationalistic policies it also prodded the world toward global trading and relationships as a way to combat them however it is hard to escape mercantilism for example after the war barriers to trade were still used to protect locally entrenched industries the united states adopted a protectionist trade policy toward japan and negotiated voluntary export restrictions with the japanese government which limited japanese exports to the united states today russia and china still use a mercantilist system because it partners so well with their forms of government 13 they have relied heavily on their ability to control foreign trade their balance of payments and foreign reserves they have also sought to make their exports relatively more attractive with lower pricing in 2018 president trump imposed tariffs on chinese imports launching a trade war that exists to this day 14