Mercantilism is one of the most influential economic doctrines in the history of economics; however, the school that dominated European thought for two centuries is now considered a historical artifact. According to scholar Lars Magnusson, no self-respecting economist would associate himself or herself with mercantilism in today’s society.1  

Motivation for European nations to establish daughter colonies | Courtesy of Pinterest.com
Motivation for European nations to establish daughter colonies | Courtesy of Pinterest.com

Mercantilism was the dominant economic policy most associated with the Early Modern period of the 16th and 17th centuries. During this era, the only true measure of a country’s wealth and success was thought to be the amount of gold and silver reserves that a nation possessed. In order to add precious metals to a nation’s reserves, it would seek to maximize its net exports and minimize its imports in order to secure its prosperity. Countries that had more wealth could in turn raise and maintain stronger armies and navies, and thus be more powerful. Moreover, according to the doctrine of mercantilism, the gold and silver reserves in the world were thought to be limited. Therefore, one’s gain in precious metals would come at some other country’s expense. Trade was a zero-sum game. For example, the gain from trade for England, mercantilism taught, would be a loss for France or Spain. The best way to ensure a nation’s prosperity was by limiting imports and increasing exports, thereby generating a net inflow of gold and silver, thus increasing the country’s overall gold stocks. Every European nation was trying to find a market for its exports to bring wealth while limiting imports, which would otherwise transfer wealth to others.2

Mercantilism was an economic theory that placed the nation, not the individual, at the center of economic activity. Economic nationalism, the effort to boost exports, was seen as a state-sponsored endeavor. States backed domestic production. Governments applied many forms of protectionist policies in order to promote efficient domestic consumption and maximize the export of surplus production.59aae47e According to the famous British Navigation Act of 1651, all imports to England had to be carried to English ports on English ships. Colonial exports to Europe had to first land at an English port before going any further. These laws sharply restricted colonial trade with anyone else but England. With mercantilism, each country sought to export as much as possible while preventing imports. As a result, the economic importance of colonies to the success of colonizing powers became vital.3

adam-smith-the-wealth-of-nations
Front cover of Adam Smith’s Wealth of Nations, published 1776

Colonies played a critical role for European countries. Each country sought to become self-sufficient so that they would not need to import goods from the other European powers. Colonies provided the precious metals and raw materials that European countries needed but could not produce at home. They were also markets for finished goods. According to mercantilism, colonies could only trade with their mother nation, and the direction of wealth should flow to the mother nation. In order to protect colonial trade, each European nation developed powerful navies, which protected its nation’s trade routes.4

The collapse of mercantilist ideology can be attributed to Adam Smith’s classic book The Wealth of Nations. Smith argued that the wealth of a nation does not consist in the amount of gold or silver stashed in its treasuries, but in the productivity of its workforce. He stated that trade can be mutually beneficial for nations, and that the general growth of wealth did not come at the expense of others, but that a “rising tide” of growth would benefit all, which is directly opposed to the ideology of mercantilism.5

  1. Lars Magnusson, Mercantilism: the shaping of an economic language (London: Routledge, 1994), 8.
  2. John Maynard Keynes, The general theory of employment, interest and money (New York: Harcourt, Brace and Co., 1936), 3.
  3. Alan Brinkley, American History: Connecting with the Past Volume 2, 15 edition (New York: McGraw-Hill Education, 2014), 26-27.
  4. The Concise Encyclopedia of Economics, 2008, s.v. “Mercantilism,” by Laura LaHaye.
  5. The Concise Encyclopedia of Economics, 2008, s.v. “Mercantilism,” by Laura LaHaye.

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46 Responses

  1. Mercantilism essentially could tell you how wealthy a country really is.  The more gold and silver you had the more “powerful” you seemed. In which they didn’t want to trade because it would benefit other countries other than themselves. So they decided that they would only trade with their mother nation. Which would result in wealth flowing to the mother nation. 

  2. Hey Samuk, I think you wrote a very well written article. You’re right to defend against mercantilism, not all of it is bad, but it’s true that colonies should be focused on helping each other rather than be selfish over minerals. Imagine how much more we could have grown as a species. I also like the cartoon you included that summed up the ways of mercantilism, it made it much more interesting.

  3. The article about mercantilism tells about it to an understandable level and with the help of the photos, it becomes clear how mercantilism worked. The photo used is about the Mercantilist Argument for Colonial Expansion, it shows how gold and silver were the priority and food and raw materials were inferior to it. Shows the ideal of what mercantilism was truly going for. The article did well to also include how the Wealth of Nations was presented to the reader with the photo and how Adam Smith influenced it. The detail of the article surmised the key points to know about Mercantilism and possibly more.

  4. It is a fantastic article on a relatively unloved part of history, that being economics, but an essential role, for states cannot exist without it. Mercantilism seems almost like a footnote in history, though the colonies own their existence too. It helped establish the colonies and late capitalism because of how unfair the system was towards the colonies, later the US.

  5. This was a great article to read and it explained mercantilism very well. I find it interesting that now days, we completely disassociate ourselves with mercantilism. It makes me think did the view of the success of the mother country being the most important thing to now the success of the individual to be more important happened immediately. Or did the the ideas of Adam Smith slowly change the people’s view on wealth.

  6. I think it is interesting how things change through history and I think this is a good example of that. Mercantilism used to be the economic system of the time and everybody thought it worked perfectly and it was never doubted, but if you see it knowdays it is just obsolete. Also, I think the author explained in a detailed way how this economic system worked and, at the same time, did a great job providing examples to make it even clearer (England and the 13 colonies). Finally, I would like to say that I find this article very educational and personally I feel like I know more about mercantilism after reading this article.

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