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
Elliot Avigael
Mehmet, I enjoyed reading this article. It is so fascinating to think about how precious metals like gold and silver held so much value back then, where as now they aren’t even considered to be a worthy investment. I specifically appreciated your point regarding how mercantilism was concerned with the wealth of the nation, not the individual; although fragments of that idea still remain today in our capitalist society, its amazing to think how much has changed since then. Battles over economic domination still even remain today; the world may not be viewed in a mercantilist lens anymore (more of a division between communism/socialism and capitalism), but there are still fights between America and other world powers in modern times to secure dominance over trade.
Phylisha Liscano
Hello Mehmet, I wanted to say this a very interesting topic and article. You added in so much details and facts that I was not aware of. Taking a look at your citation I can see you did lots of research. I also noticed on the images you added in citations which is very good. The images helped me a little by getting a sense of how things were.
Santos Mencio
Mercantilism was always an incredibly fascinating economic practice, one that only seems to work if a nation has an incredibly centralized government. As all of the trade is state-sponsored, a country like the United States could never successfully engage in the practice as it goes against many of our fundamental views on the role of government. This article did an excellent job expounding the nature of mercantilism and the ideology behind how it came to be.
Samuel Vega
This article is a good reminder on how events cross disciplines. This article focuses on the Economic discipline. There is also a great deal of historical significance on Mercantilism. Viewing a topic from multiple disciplines helps us further understand what a policy is and the impact the policy has. This was a good article and I got a good laugh out of the cartoon image.
Aidan Farrell
This is a very interesting article. I honestly am very uninformed with the ideas and actions of mercantilism, but this article helped me learn quite a bit. The information in this article is very well placed and thought out, and it does not seem like anything much was skimped out on. If I had to criticize one thing, it’s that I wish the article was a bit longer.
Mariah Podwika
Mercantilism is something that has been ingrained in our brains since at least high school, if not sooner. Despite that, I think that it is an economic policy whose definition often slips peoples’ minds. The whole system seems very hard to upkeep, especially after they start crossing oceans to get to raw materials. People will want to have some sense of autonomy, which would make it hard to make the policy effective. It is really interesting to see the lengths that countries would be able to go through to protect their trade and minimize their imports.
Daniel Gimena
Interesting article about economic history.
One easy way to explain Mercantilism is not take as example those movies in which kings, emperors or even pirates wanted to accumulated as much gold and silver as possible, would defend it with their lives, trying to lose as less as possible. The discovery of America and the colonization of the world brought with it this economic theory. In my opinion, I think that it is good that economic history has evolved and has brought with it new, more elaborated economic systems, as pure Mercantilism has associated with it greed, which never has brought good things to human history.
Meadow Arriaga
The doctrine of mercantilism was something I went over in high school. This article goes into great detail and gives me a better understanding of this concept. It shows countries in the past needed to be financially stable to withhold power. Countries used this as a mechanism to be on the top tier. Until Adam Smith stepped in, this was the mindset countries had go gaining wealth.
Lesley Martinez
Mercantilism is such an interesting economic theory that dominated the 16th century. This article does a great job of explaining the general concept of it. The fact that European nations were all trying to find markets for their exports while also limiting their imports, sounds quite difficult. Surprisingly, Adam Smith was able to change this popular economic policy and move towards an economy that depends on the productivity of its workforce. Great article!
Hali Garcia
This is a very interesting article. When I was in high school I had learned about mercantilism but the definition still kind of slips me today. Thankfully I can get a better understanding of mercantilism from this article. Mercantilism shows exactly how competitive countries had to be in order to make a profit. It is fascinating knowing what the countries would do to protect their trading routes.