Mercantilism, a significant school of economics in the 16th to 18th centuries, greatly impacted how nations managed their economies. To understand this theory, we have to focus on the key characteristics of this theory.
1. Accumulation of Precious Metals:
One defining feature of mercantilism was the emphasis on accumulating precious metals, especially gold and silver, as a measure of a nation's wealth. Mercantilists believed that having a surplus of these metals would enhance a country's economic power and influence.
Example - In the 16th century, Spain's huge silver mines in South America provided a ton of precious metals. This made Spain richer and showed how precious metals were vital in mercantilism.
2. Favorable Balance of Trade:
Mercantilists empower for a favorable balance of trade, wherein a nation should export more than it imports. They employed various strategies, including tariffs, import restrictions, subsidies, and taxes, to promote exports and limit imports.
Example - England in the 17th century encouraged the export of woolen textiles and imported raw materials like cotton and wool. This strategy aimed to maintain a positive balance of trade by selling more finished goods than buying raw materials.
3. Protectionist Measures:
Mercantilism promoted protectionist policies to shield domestic industries from foreign competition. This involved imposing tariffs and quotas on imported goods to stimulate domestic production and protect local markets.
Example – 18th century France implemented high tariffs on imported silk fabrics to protect its domestic silk industry, fostering growth by limiting foreign competition.
4. Colonies for Resources:
Many mercantilist nations expanded into colonies to get valuable resources and markets. They viewed colonies as sources of wealth and strategic importance.
Example - The British Empire's colonization of India and Sri Lanka allowed Britain to acquire resources like spices, textiles, and tea, crucial to maintaining a favorable balance of trade.
5. Promotion of Domestic Manufacturing:
Mercantilists encouraged the growth of domestic manufacturing by fostering the development of industries that produced goods for export. Importation of cheap raw materials, which could be used in manufacturing products for export, was encouraged.
Example - England's development of the woolen industry in the 16th and 17th centuries focused on producing textiles for export using domestically sourced wool.
6. Government Intervention:
Governments played a big role in the economy. They actively participated in economic affairs, supporting businesses, regulating trade, and issuing licenses to control commerce.
Example - In the 17th century, France used an economic plan called Colbertism. It involved government policies to boost the economy, help local industries, control trade, and create state-run factories.
7. Fixed Exchange Rates:
Some mercantilist nations fixed exchange rates to maintain a stable currency value. This was intended to promote trade and economic stability.
Example - The gold standard adoption in the 19th century fixed exchange rates by tying currency values to specific amounts of gold, promoting stability in international trade.
8. Economic Nationalism:
Mercantilism often mixed with economic nationalism, where a country's own economic interests were more important than working together with other nations.
Example - In the 17th century, England's Navigation Acts said English goods had to be carried on English ships. This aimed to strengthen England's merchant fleet and rely less on foreign ships.
According to these characteristics and examples, it illustrates how various countries historically applied mercantilist principles to advance their economies and exert their influence.
Written by
Chanaka Jayasanka
https://boycewire.com/mercantilism-definition/
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