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
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.
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
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
- Lars Magnusson, Mercantilism: the shaping of an economic language (London: Routledge, 1994), 8. ↵
- John Maynard Keynes, The general theory of employment, interest and money (New York: Harcourt, Brace and Co., 1936), 3. ↵
- Alan Brinkley, American History: Connecting with the Past Volume 2, 15 edition (New York: McGraw-Hill Education, 2014), 26-27. ↵
- The Concise Encyclopedia of Economics, 2008, s.v. “Mercantilism,” by Laura LaHaye. ↵
- The Concise Encyclopedia of Economics, 2008, s.v. “Mercantilism,” by Laura LaHaye. ↵
85 comments
Skyla Bonilla
Before reading the article I was not too familiar with Mercantilism, and while it’s still a bit of a hard subject for me to grasp, the author was really good and helping me understand the ideologies of Mercantilists. I learned that Mercantilists thought the the worlds wealth was limited and so they did what they could to try and keep their wealth. It was a nice and informative article and I enjoyed reading it.
Amelie Rivas-Berlanga
This article really helped me to fully understand mercantilism. Explaining WHY the ideology of mercantilism is also a great ending. When two nations can help each other grow, it can benefit all of those citizens. Emphasizing the importance of mercantilism is so important because it was something that was affecting the economy. The author does a great job of explaining every aspect that goes into it.
Eliana Villarreal
I really appreciate this article Mehmet! It is very informational and describes exactly what mercantilism is without sounding too complex. I am not very well versed on how different types of economies work but this makes it sound simpler than I thought it was going to be. I’m sure in practice it had its complications but as an overall concept, I think you did a great job describing in detail how mercantilism works.
Christopher Metta Bexar
The article was well written and explained the policy well.
It is interesting to realize how much trade the nations of Europe were willing to lose in order to secure raw materials and force their colonies to trade only with them.
To a great extent as well it could be presumed that some of those colonies were producing the gold and silver by which France , England and Spain were hoarding to show their presumed wealth.
I fully understand Adam Smith’s attitude which brought the final end to this policy.
Maria Luevano
This article does a great job describing and detailing what mercantilism is all about. Mercantilism can be a confusing topic, but there’s a clear and precise explanation throughout the entire article. I have a better understanding and background of this economic theory. This topic can also be a boring and uninteresting part of history to many people, but the author of this article does a great job of keeping it light and making it an easy and entertaining read for all.
Carlos Hinojosa
It was a very well made article that clearly stated what mercantilism was and how it worked. And eventually hoe it became obsolete and was slowly replaced with different form of economy. I honestly learned a great deal more about mercantilism. Besides that a really well made article. I would recommend to someone else.
Sabrina Drouin
Great article, I like the way you concretely established the definition of mercantilism and explained it in full. I always had a difficult time understanding what mercantilism truly meant, but this article really cleared that up for me. I really liked the second image because it explains what mercantilism is through a simple photo, so that was a very clever choice of a picture. I also never knew about the collapse of mercantilism, due to Adam Smith’s book, so that was also super interesting to hear!
Tomas Salazar
This article was a joy to read because it displayed how certain countries would attempt to one-up one another striving to acquire the most power over one another. Also, it was interesting to read about how Adam Smith, in a way, removed the thought of mercantilism. Mercantilism is very interesting to me, it is a doctrine that seems to be about survival of the fittest.
Aidan Fitzgerald
Very educational article. You did a great job in this article of properly explaining mercantilism as well as tying in Adam Smith’s “Wealth of Nations” where he basically opposes the mercantilism ideology. Mercantilism was something that flourished during the 16 and 1700’s but it ultimately drove nations to attempt to become self sufficient. I enjoyed how this article was structured and I believe you did a good job of explaining why many nations believed becoming entirely self sufficient would be beneficial to their nation’s funds but towards the end of the article you explain why a balance of trade is what is really necessary.
Trenton Boudreaux
A very well written article. It’s not surprising that a system of economic thought could influence the world. We saw it recently in the cold war between the ideas of Capitalism and Communism. It makes me wonder whether, at the time this article takes place, there were any rival ideas to mercantilism. The closest I can think would probably be feudalism, but that was more of a regression, rather than a rival thought.