Category: Mercantilism definition simple

Mercantilism definition simple

Mercantilism is an economic policy that is designed to maximize the exports and minimize the imports for an economy. It promotes imperialismcolonialismtariffs and subsidies on traded goods to achieve that goal. The policy aims to reduce a possible current account deficit or reach a current account surplus, and it includes measures aimed at accumulating monetary reserves by a positive balance of tradeespecially of finished goods.

Historically, such policies frequently led to war and motivated colonial expansion. Mercantilism was dominant in modernized parts of Europe, and some areas in Africa from the 16th to the 19th centuries, a period of proto-industrialization[2] before it fell into decline, but some commentators argue that it is still practiced in the economies of industrializing countries, [3] in the form of economic interventionism.

High tariffsespecially on manufactured goods, were almost universally a feature of mercantilist policy. With the efforts of supranational organizations such as the World Trade Organization to reduce tariffs globally, non-tariff barriers to trade have assumed a greater importance in neomercantilism.

Mercantilism became the dominant school of economic thought in Europe throughout the late Renaissance and the early-modern period from the 15th to the 18th centuries.

Evidence of mercantilistic practices appeared in early-modern VeniceGenoaand Pisa regarding control of the Mediterranean trade in bullion. However, the empiricism of the Renaissancewhich first began to quantify large-scale trade accurately, marked mercantilism's birth as a codified school of economic theories. Mercantilism in its simplest form is bullionismyet mercantilist writers emphasize the circulation of money and reject hoarding. Their emphasis on monetary metals accords with current ideas regarding the money supply, such as the stimulative effect of a growing money-supply.

Fiat money and floating exchange rates have since rendered specie concerns irrelevant. In time, industrial policy supplanted the heavy emphasis on money, accompanied by a shift in focus from the capacity to carry on wars to promoting general prosperity.

Mature neomercantilist theory recommends selective high tariffs for "infant" industries or the promotion of the mutual growth of countries through national industrial specialization.

England began the first large-scale and integrative approach to mercantilism during the Elizabethan Era — An early statement on national balance of trade appeared in Discourse of the Common Weal of this Realm of England"We must always take heed that we buy no more from strangers than we sell them, for so should we impoverish ourselves and enrich them.

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Queen Elizabeth promoted the Trade and Navigation Acts in Parliament and issued orders to her navy for the protection and promotion of English shipping. Elizabeth's efforts organized national resources sufficiently in the defense of England against the far larger and more powerful Spanish Empireand in turn, paved the foundation for establishing a global empire in the 19th century.

Numerous French authors helped cement French policy around mercantilism in the 17th century. Many nations applied the theory, notably France. It was determined [ by whom? Mercantilist economic policies aimed to build up the state, especially in an age of incessant warfare, and theorists charged the state with looking for ways to strengthen the economy and to weaken foreign adversaries.

In Europe, academic belief in mercantilism began to fade in the lateth century after the East India Company annexed the Mughal Bengal[13] [14] a major trading nation, and the establishment of the British India through the activities of the East India Company, [15] in light of the arguments of Adam Smith — and of the classical economists.

Most of the European economists who wrote between and are today generally considered [ by whom?

mercantilism definition simple

Originally the standard English term was "mercantile system". The word "mercantilism" came into English from German in the earlyth century. The bulk of what is commonly called "mercantilist literature" appeared in the s in Great Britain.It was the economic counterpart of political absolutism. The primary countries that employed mercantilism were of western Europe— FranceSpainPortugalItalyand Britainas well as Germany and the Netherlands.

Since colonies were regarded as existing for the benefit of their mother countries, the colonized parts of North AmericaSouth Americaand Africa were involuntarily involved with mercantilism and were required to sell raw materials only to their colonizers and to purchase finished goods only from their mother countries.

Mercantilism contained many interlocking principles. If a nation did not possess mines or have access to them, precious metals should be obtained by trade. Colonial possessions should serve as markets for exports and as suppliers of raw materials to the mother country.

mercantilism definition simple

Manufacturing was forbidden in colonies, and all commerce between colony and mother country was held to be a monopoly of the mother country. A strong nation, according to the theory, was to have a large population, for a large population would provide a supply of laboura marketand soldiers.

Human wants were to be minimized, especially for imported luxury goods, for they drained off precious foreign exchange. Sumptuary laws affecting food and drugs were to be passed to make sure that wants were held low. Thrift, savingand even parsimony were regarded as virtues, for only by these means could capital be created.

In effect, mercantilism provided the favourable climate for the early development of capitalismwith its promises of profit. Later, mercantilism was severely criticized. Advocates of laissez-faire argued that there was really no difference between domestic and foreign trade and that all trade was beneficial both to the trader and to the public. They also maintained that the amount of money or treasure that a state needed would be automatically adjusted and that money, like any other commodity, could exist in excess.

They denied the idea that a nation could grow rich only at the expense of another and argued that trade was in reality a two-way street. Laissez-faire, like mercantilism, was challenged by other economic ideas. Mercantilism Article Media Additional Info.

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Mercantilism

The Editors of Encyclopaedia Britannica Encyclopaedia Britannica's editors oversee subject areas in which they have extensive knowledge, whether from years of experience gained by working on that content or via study for an advanced degree See Article History. Top Questions. Mercantilism is an economic practice by which governments used their economies to augment state power at the expense of other countries.

Governments sought to ensure that exports exceeded imports and to accumulate wealth in the form of bullion mostly gold and silver. In mercantilism, wealth is viewed as finite and trade as a zero-sum game.

Mercantilism was the prevalent economic system in the Western world from the 16th to the 18th century.

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Restrictions on where finished goods could be purchased led in many cases to burdensome high prices for those goods.Send us feedback. See more words from the same year Dictionary Entries near mercantilism mercantile law mercantile marine mercantile paper mercantilism mercapt- mercaptan mercaptobenzothiazole.

mercantilism definition simple

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Definition of mercantilism. Keep scrolling for more. Examples of mercantilism in a Sentence Recent Examples on the Web The world is now pushing back against Chinese mercantilism. First Known Use of mercantilismin the meaning defined at sense 1. Learn More about mercantilism. Time Traveler for mercantilism The first known use of mercantilism was in See more words from the same year.

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Dictionary Entries near mercantilism mercantile law mercantile marine mercantile paper mercantilism mercapt- mercaptan mercaptobenzothiazole See More Nearby Entries. Comments on mercantilism What made you want to look up mercantilism? Get Word of the Day daily email! Test Your Vocabulary. Test your knowledge - and maybe learn something along the way. Anagram puzzles meet word search. Love words?These four factors of production are:.

Mercantilism establishes monopolies, grants tax-free status, and grants pensions to favored industries. It imposes tariffs on imports. It also prohibits the emigration of skilled labor, capital, and tools. It doesn't allow anything that could help foreign companies. In return, businesses funnel the riches from foreign expansion back to their governments. Mercantilism was the dominant theory in Europe between and In return, they received gold.

It powered the evolution of nation-states out of the ashes of feudalism. Holland, France, Spain, and England competed on the economic and military fronts. Before that, people focused on their local town, kingdom, or even religion. Each municipality levied its tariff on any goods that passed through its borders. The nation-state began in with the Treaty of Westphalia. So, merchants supported national governments to help them beat foreign competitors.

It then plundered their riches as the British government protected the company's interests. Many members of Parliament owned stock in the company. As a result, its victories lined their pockets.

mercantilism definition simple

Mercantilism depended upon colonialism as the government would use military power to conquer foreign lands. Businesses would exploit natural and human resources. The profits fueled further expansion, benefiting both the merchants and the nation.

The nations with the most gold were the richest. They could hire mercenaries and explorers to expand their empires. They also funded wars against other nations who wanted to exploit them. As a result, all countries wanted a trade surplus rather than a deficit.Mercantilism is a kind of economic system that was present in most parts of Europe between the 16th and the 18th century.

The term was first used by Marquis de Mirabeau in Adam Smith made it known to a wider audience in At that time, absolutism was the main form of government in Europe.

These regimes needed money to finance a large militarythe many people who worked in the government. The monarchs and princes also needed money in order to finance their lifestyle. These governments were also very nationalistic.

For this reason, mercantilism is seen as a form of economic nationalism. The theory of mercantilism holds that the prosperity of a nation depends on its supply of capitaland that the global volume of international trade is "unchangeable". Economic assets or capital are bullion gold, silver, and trade value held by the state, and is best increased through a positive balance of trade with other nations exports minus imports.

The theory assumes that wealth and monetary assets are identical. Mercantilism suggests that the ruling government should advance these goals by playing a protectionist role in the economy by encouraging exports and discouraging imports, notably through the use of tariffs and subsidies.

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Namespaces Page Talk. Views Read Change Change source View history.Mercantilism replaced the feudal economic system in Western Europe. 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, while creating incentives to only buy British goods.

For example, the Sugar Act of raised duties on foreign refined sugar and molasses imported by the colonies, in an effort to give British sugar growers in the West Indies a monopoly on the colonial market. Programs 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 local markets and supply sources were protected, to support the idea that a nation's economic health heavily relied on its supply of capital.

Mercantilists also believed that a nation's economic health could be assessed by its levels of ownership of precious metals, like gold or silver, which tended to rise with increased new home construction, increased agricultural output, and a strong merchant fleet to provide additional markets with goods and raw materials.

Arguably the most influential proponent of mercantilism, French Controller General of Finance Jean-Baptiste Colbert studied foreign-trade economic theories and was uniquely positioned to execute these ideas. As a devout monarchist, Colbert called for an economic strategy that protected the French crown from a rising Dutch mercantile class. Colbert also increased the size of the French navy, on the belief that France had to control its trade routes to increase its wealth. Although his practices ultimately proved unsuccessful, his ideas were hugely popular, until they were overshadowed by the theory of free-market economics.

The British colonies were subject to the direct and indirect effects of mercantilist policy at home. Below are several examples:. Defenders of mercantilism argued that the economic system created stronger economies by marrying the concerns of colonies with those of their founding countries. In theory, when colonists create their own products and obtain others in the trade from their founding nation, they remain independent from the influence of hostile nations.

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 inwhere Boston colonists disguised themselves as Indians, raided three British ships, and threw the contents of 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, ultimately resulting in the Revolutionary War.

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, which were, in essence, the first traded corporate stocks. Mercantilism is considered by some scholars to be a precursor to capitalism since it rationalized economic activity such as profits and losses.

Where mercantilist 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, in campaigns to make inhabitants 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. In a free trade system, individuals benefit from a greater choice of affordable goods, while mercantilism restricts imports and reduces the choices available to consumers.

Fewer imports mean less competition and higher prices. While mercantilist countries were almost constantly engaged in warfare, battling over resources, nations operating under a free-trade system can prosper by engaging in mutually beneficial trade relations.

Today, mercantilism is deemed outdated. However, barriers to trade still exist to protect locally entrenched industries. For example, post World War II, 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. International Markets.

Corporate Insurance. Tax Laws. Your Money. Personal Finance. Your Practice. Popular Courses. Table of Contents Expand. What Is Mercantilism?Mercantilism, which existed primarily during the 16th through 18th centuries in Europe, was an economic system founded on the belief that the government should encourage trade as a means to generate wealth for the country. Wealth was amassed by exporting more goods to other countries than the nation imported.

A high import was placed on building up sums of gold, silver, and other currencies, while banning the export of such riches. To explore this concept, consider the following mercantilism definition. Mercantilism, the gold standard for Western European countries between the 16th and late 18th centuries, was an economic system in which countries put a limit on how many imports can be brought into the country, while simultaneously encouraging as many exports as possible.

Another goal of mercantilism was to be able to colonize countries beyond Europe in order to expand commerce and put into place monetary systems that were based on gold and silver, rather than on currency. Ultimately, mercantilism caused violent military conflicts over territories, as each nation worked to create a military superior to that of its neighbors, to both build up its defense capabilities, and increase the reach of its colonial expansion.

Mercantilism was a success for the Western European countries that embraced it, particularly Great Britain. Mercantilism, which was centered in Great Britain and France, became such a dominant force that most European countries of the time embraced it in some form. What follows are some mercantilism examples in major European countries:. France embraced mercantilism during the early 16th century, shortly after the monarchy rose to dominate French politics.

Under Colbert, the French government aggressively pushed toward increasing its overall exports. Here is where protectionism entered the picture. Protectionist policies were implemented under Colbert, which both limited imports, and favored exports. Further, under Colbert, industries were separated into either guilds or monopolies, and the government would regulate production by issuing commands specifying how different products should be manufactured.

Even artisans and craftsmen were brought in from other countries during this time, in an effort to increase production. Colbert himself fought for restrictions on internal trade, and for internal tariffs to be lifted.

He also worked to build an extensive network made up of both roads and canals, to facilitate trading within the country by both land and by sea. France rose to become a major economic power in Europe at the time. Colbert was less successful, however, in trading outside France, so Britain and the Netherlands remained the chief trading authorities. Great Britain was a stellar example of mercantilism in its earlier history. Government-controlled monopolies were also fairly common during this period, especially before the beginning of the English Civil War, however these monopolies were often viewed as controversial.

The British government had a very tight grip on its trade industry during this era. These methods worked toward maximizing exports, and minimizing imports back to it. The government would take its share off the top, in the forms of duties and taxes, and the remaining profits would be allowed to trickle down to the British merchants.

mercantilism

This was actually how the British Navy was able to acquire New Amsterdam, which eventually became the state of New York, in Of the European countries practicing mercantilism, stretching from France to Britain, the Netherlands was the least interested in its policies.

The Netherlands had no interest in seeing trade restricted. During the period in which Britain served as an aggressive example of mercantilism. The first of these laws was enacted inand it required all merchandise being transported between England and its Dutch colonies to be transported in English or colonial ships. The Navigation Act of added to these restrictions, specifying that certain products, including sugar, ginger, tobacco, indigo, cotton, and wool, could be shipped only to England, or to one of its provinces.

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The various Navigation Acts created such a hardship on the North Carolina traders, they resorted to smuggling. The Navigation Acts prohibited the British colonies from directly trading with the colonies of France, the Netherlands, and Spain.

Further, the Acts also restricted the number of non-English sailors that could be employed on crews returning on the East India Company ships to one quarter of the crew.

Britain was a force to be reckoned with under the Navigation Acts, as it would aggressively seek out colonies and, once those colonies were under British rule, impose regulations upon them requiring them to trade only with Britain, or to produce only raw materials.