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October 19, 2016

A Historical Economic Policy “Mercantilism”

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
Motivation for European nations to establish daughter colonies | Courtesy of

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

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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Recent Comments

Roberto Tijerina

This article was very good! It was straight to the point and I learned quite a bit. Next time I recommend adding a little more excitement or more facts that are interesting to catch people’s attention. Kind of like examples in the world. Good Job!



7:34 am

Rachel White

This was an interesting article to read as I was enrolled in Economics last year and had not learned about this type of economics. I find it interesting that this type is more of an “every man for himself” type of game. This does not work. When we become selfish and do things that only benefit a small portion of the world, the outcome will be the same. We are not just nations on a globe, we are people living in this world together, with limited resource. We must work together to truly reach our potential and not destroy all the resources we consume. I am glad that we found ourselves abolishing this type of thinking and creating a new system, still with flaws.



7:34 am

Maalik Stansbury

I hardly know anything about economics so this was a big surprise to me. I mean the way it was presented allowed me to learn in a way that seems easier than if i went out on by myself. This created a better basis for me to abide by than what i was trying to figure out. Great job with presenting the information in a wonderful article. I just can’t believe that there is more to economics.



7:34 am

Teresa Valdez

Very insightful. I never realized the extent to which the European countries competed for economic prowess. Although the economic system really would not make sense today, this article helped me see some of the logic behind mercantilism. I can see why the mother countries would be so protective over their colonies. It is really interesting as to how precious they saw gold and silver. It gives a new perspective on the phrase “for glory, God, and gold.” In a sense glory would be brought to a country through the wealth that they brought back. This gives good background as to why the colonies became so frustrated with the British trading system.



7:34 am

Angela Rodriguez

This article was an interesting read. You provide a good basis for all to understand the information. As a business major, I would have enjoyed if you went more into depth about economics.



7:34 am

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