What is Mercantilism?
Mercantilism was the dominant economic outlook of European states from roughly the sixteenth to the late eighteenth century. It treated the economy as a tool of state power. Mercantilists believed that national wealth, often measured in gold and silver, was limited, so one country's gain in trade was another's loss. Governments therefore tried to run trade surpluses by encouraging exports, restricting imports, protecting domestic manufacturing, and controlling colonies as sources of raw materials and markets. The word mercantile system was used by Adam Smith, who criticized it. Today the term neomercantilism describes modern policies that pursue export surpluses and protect home industries.
Core beliefs
- The wealth and power of the state are closely linked and should be pursued together.
- A favorable balance of trade, with more exports than imports, makes a nation richer.
- Gold, silver and reserves are important measures of national strength.
- Tariffs, bans and subsidies should protect and promote domestic industry.
- Colonies should supply raw materials and buy the mother country's manufactures.
- International trade is a competition in which one nation's gain is often another's loss.
History
Mercantilist ideas developed as European monarchies consolidated power and overseas trade expanded after 1500. Early bullionist writers stressed accumulating precious metals. In England, Thomas Mun argued in England's Treasure by Forraign Trade, published in 1664 after his death, that the overall balance of trade mattered most. Chartered companies such as the English East India Company, founded in 1600, and the Dutch East India Company, founded in 1602, received trade monopolies backed by the state. In France, Jean-Baptiste Colbert, finance minister under Louis XIV, built royal manufactures, raised tariffs and expanded the navy, giving his name to Colbertism. England's Navigation Act of 1651 required goods to be carried in English ships. German states developed a related tradition called cameralism. Adam Smith's The Wealth of Nations in 1776 attacked mercantilism, and Britain moved toward free trade in the nineteenth century, repealing the Corn Laws in 1846 and the Navigation Acts in 1849.
Variants
Bullionism focused narrowly on acquiring gold and silver. Balance of trade mercantilism, associated with Mun, focused on overall trade flows. French Colbertism stressed state-built industry and quality standards, while German cameralism focused on public administration and state finances. Neomercantilism describes later policies, such as managed exchange rates and export promotion, that aim at persistent trade surpluses.
Criticisms
Adam Smith and later classical economists argued that wealth lies in productive capacity, not stocks of gold, and that free trade benefits all participating countries through specialization. David Hume argued that trade surpluses would raise domestic prices and correct themselves over time. Historians link mercantilist rivalry to frequent trade wars and colonial wars between European powers, and to the exploitation of colonies, including the Atlantic slave trade that supplied plantation economies. Critics also note that monopolies and privileges favored connected merchants over consumers.
In practice
Mercantilist policies shaped the trading empires of Spain, Portugal, the Netherlands, France and Britain. British restrictions on colonial trade are among the grievances that historians connect to the American Revolution. Modern debates about trade surpluses, export-led growth and industrial protection are often described in mercantilist terms, though few governments today endorse the label.