Mercantilism- an economic policy or trade system wherein a country focuses on maintaining a favorable

trade balance by maximizing exports and minimizing imports with other countries.

Purpose: To empower a nation via wealth and resource acquisition while improving its military
and political might.

KOPYA AQ BOKAS HIHIHIHIH

1. HISTORICAL BACKGROUND

Mercantilism was a popular economic school of thought in Europe between the 16th and 18th centuries.

It was officially named when Adam Smith released his book “The wealth of Nations” in 1776. This was a
period of religious and commercial warfare, but also the Age of Discovery, which saw the British, French
and Spanish empires expand rapidly around the world.

A nation’s colony would provide raw materials that would be converted into final goods and sold at a
higher price that would provide a favorable balance of trade.

2. CHARACTERISTICS

● Accumulation of Gold
Gold was a symbolism of wealth. Gold mines were in short supply in colonist’s nation such as
Great Britain, France and Spain so they relied in their colonist nation to provide its supply.

● Belief that wealth is static

As gold was rare, there was only a limited supply. One nation could only benefit at another’s
expense.

● Large population

A large population was necessary to supply labor, markets and an army to the nation. Larger
population were associated with an increase in a nation’s prosperity.

● Positive balance of trade

Mercantilist believed that by exporting more than they imported they would be able to acquire a
net accumulation of wealth from other nations. But, if the nation brought more goods from
abroad, it means sending gold, wealth and power abroad.

● Reliance on Colonies
Colonist relied on their colonies to ensure a net transfer of wealth and gold. It helped finance
further expansion across the globe and it help the nation to become self-reliant.

● State Monopolies

It was only the nation that is able to supply to its colonies. It was a net transfer in gold from the
colonies to the colonists.
 ● Trade Barriers

Many empires enforced a ban on trade between their colonists as well as that of other empires.
Many nations impose tariffs to make imports more expensive and uncompetitive.

3. EXAMPLES

Mercantilism is a form of protectionism that was practice throughout the age of discovery.

● British navigation act of 1651

In 1651, the British government led by Oliver Cromwell, introduced legislation that made it
illegal for any foreign ship to carry goods from or to any of its colonies.
● Colbertism
It was named after Jean-Baptist Colbert, First minister of state in France between 1661 and
1683. It refers to a number of mercantilist policies implemented during his time in office. He
introduced tariffs and encourage public work programs.
● East India company
It was a state-sponsored monopoly looking to take advantage of the Asian markets, particularly
the East Indian spice trade. It brought gold back to Britain and helped established a strong and
permanent trade route between Great Britain and her colonies.

4. THE DECLINE AND RECENT RISE

The flaw with mercantilism was that it viewed trade as a zero-sum game. Under the mercantilist system
the restriction of imports meant consumers obtained access to fewer goods at higher prices.

By the end of the 18th century, Adam Smith and David Hume evaluate and critique the merits of
mercantilist theory. They realized that wealth was not finite, but could be created through the
productive allocation of labor.

Present-day mercantilism typically refers to protectionist policies that restrict imports to support
domestic industries, sometimes referred to a neo-mercantilism.

Neo-mercantilism- arguments supporting the restriction of free trade in certain circumstances.

● Tariffs in response to domestic subsidies

● Protection against dumping
● The Infant industry argument

Modern mercantilist policies includes:

● Tariffs on imports
● Subsidizing domestic industries
● Devaluation of currencies
● Restrictions on the migration of foreign labor
China is the nation that institutes the most mercantile policies.