A Definition and History of Mercantilism

Mercantilism is an economic policy that believes that trade generates wealth, and the economy is stimulated by the accumulation of profitable balances. It also states that the government should maintain a strong hold over the economy by means of protectionism, meaning that the economy should be protected from foreign competition by taxing imports. This economic theory was a major part of European policy in the 17th and 18th centuries. Notable examples of the utilization of this concept include the economic policies of Jean Baptiste Colbert in France, the adoption of the principles in Great Britain, and it’s effect on the Colombian exchange.

The height of French Mercantilism was witnessed under the reign of King Louis XIV, but more specifically under the control of his finance minister, Jean-Baptiste Colbert. Colbert promoted a favorable balance of trade that limited imports and expanded exports. This would help bring in more gold, as the country would have to sell more products than it bought.

Colbert also believed that it was critical for France to become economically self sufficient, thus halting the gold flow to other countries. The predicted effect of this policy would make France the richest country in Europe. Colbert also adopted high taxes on the commoners of France, with no taxes on the nobles. This was supposed to help sustain the self-sufficient French economy, but this caused the agricultural economy to suffer, indirectly leading to the French Revolution in the 19th century. Colbert’s influence and regulation over the French economy is the most important example of European mercantilism.

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Mercantilist policies were likewise adopted in Great Britain and in it’s colonies, reaching it’s peak during the age of Oliver Cromwell (1640-1660). Examples of the policies include the act of placing tariffs on imports and bounties on exports. This embodies the mercantilist policy of encouraging exports and discouraging imports. England also engaged the Navigation Acts, which expelled foreign merchants from English trade. This put more pressure on British colonies (specifically those in North America), thus indirectly leading to the American Revolution. However, the adoption of the policies turned Great Britain into the world’s dominant trader, thus turning the country into an international superpower that would last late into the 19th century.

The strict mercantilist regulations in European countries stimulated what is now known as the Colombian exchange. Imports from England went to Africa for trading purposes, which sent slaves to America, who would cultivate products sent back to England. This strict circle of trade, bound strictly to British policies, exemplifies the severity of British mercantilist policies. However, the strict trade route that brought the new products from British colonies would set Britain as the example of a perfect mercantilist economy. By setting this example, Britain was able to establish itself as an international superpower (as mentioned above).

Mercantilism discourages free trade, promotes protectionism, and utilizes profitable balances. This economic policy is so mostly extinct from modern economies, with most adopting free trade policies. Many disagree with the policy, believing instead that the best way to stimulate an economy is through consumption rather than emphasized-exporting. However, the basic principles of Mercantilism are embedded subtly in modern economies and have proved to be major catalysts of economic events in European history.