Rise of Mercantilism

Definition

The Rise of Mercantilism refers to the economic theory and practice that became dominant in Europe from the 16th to the 18th centuries, emphasizing the importance of a strong state and the accumulation of wealth, particularly gold and silver, through a favorable balance of trade. This system encouraged countries to increase exports and limit imports via tariffs and monopolies, which directly influenced the economic development of nations during this period.

5 Must Know Facts For Your Next Test

1. Mercantilism emphasized government intervention in the economy to promote national power and wealth, marking a shift from feudal economic systems.
2. Colonial expansion played a crucial role in mercantilist policies, as nations sought new markets for their goods and sources for raw materials.
3. Mercantilist practices led to increased competition among European powers, resulting in conflicts over trade routes and colonial possessions.
4. The establishment of joint-stock companies during this time facilitated overseas trade and investment, allowing for greater accumulation of wealth.
5. Mercantilism gradually declined with the rise of classical economics in the late 18th century, which promoted free trade and limited government involvement in the economy.

Review Questions

• How did mercantilism influence the relationship between European nations and their colonies?
  • Mercantilism significantly shaped the dynamics between European nations and their colonies by promoting policies that prioritized the economic interests of the mother country. Colonies were seen as sources of raw materials and markets for finished goods, leading to exploitative practices that favored European powers. This relationship fostered an environment where colonial expansion was driven by mercantilist goals, resulting in significant economic benefits for European nations while often undermining the autonomy and development of colonized regions.
• Evaluate the impact of mercantilist policies on European economic development during the 16th to 18th centuries.
  • Mercantilist policies had a profound impact on European economic development by encouraging states to actively regulate trade, leading to increased national wealth through exports. The focus on accumulating precious metals and establishing favorable balances of trade fostered industrial growth and innovation within certain nations. However, these policies also created economic tensions and rivalries among nations, as each sought to dominate trade routes and markets, ultimately shaping the competitive landscape of Europe during this transformative period.
• Analyze how the decline of mercantilism paved the way for modern economic theories and practices in Europe.
  • The decline of mercantilism opened up avenues for modern economic theories, notably classical economics, which championed free trade and minimal government intervention. As critics highlighted the inefficiencies inherent in mercantilist practices, particularly regarding restrictions on trade, a shift occurred towards recognizing the benefits of comparative advantage. This transition laid the groundwork for contemporary economic thought, emphasizing market forces and competition as drivers of prosperity, ultimately reshaping global trade dynamics in subsequent centuries.

Related terms

Protectionism: An economic policy that restricts imports from other countries through tariffs and regulations to protect domestic industries.

Colonialism:

The practice of acquiring control over another country or territory, often for economic exploitation and resource extraction.

Balance of Trade:

The difference between the value of a country's exports and imports, which mercantilists aimed to maximize by exporting more than importing.