Business, Legal & Accounting Glossary
An economic theory that holds that the prosperity of a nation depends upon its supply of capital and that the global volume of trade is unchangeable.
Mercantilism is an economic theory promoting an idea that a nation should export more goods than it imports. A nation should also sell goods at higher prices and purchase at lower prices. Economic capital or assets comprise of bullion (gold and silver) reserved by a state and is increased by positive balance (exports minus imports) of trade with other countries. According to mercantilism, a nation’s government should promote these economic goals by advancing exports while simultaneously hindering imports. This is generally done through the application of tariffs.
Mercantilism promotes a concept that a country’s wealth is primarily dependent on the possession of precious metals like silver and gold. This type of economic system is unsustainable as if every country wished to export while resisting imports there would be a worldwide recession. Mercantilism is now an extinct economic concept.
Mercantilism was a popular economic concept in the 16th and 17th centuries. It was backed by contemporary economists like Jean Baptiste Colbert (1619-1683) of France, Edward Misselden (1608-1654) and Sir Thomas Mun (1571-1641) of United Kingdom. First major blow to mercantilist thought was brought forward by Adam Smith. He pointed out notions of comparative advantage and absolute advantage. Benefits of trade were pointed out. All these were published in Smith’s book ‘The Wealth of Nations’ published in 1776.
Mercantilism resulted in a number of benefits for colonial nations. Colonies of European nations exported raw materials to their respective colonial power and received finished goods in return. This led to the development of skilled labour at home and catalyzed the creation of a capable marine supply system. Navigation Acts of 17th century applied mercantilism in colonies.
Mercantilism was revived by English economist John Maynard Keynes in the 20th century. He pointed out a few relevant tenets of economic theory. Keynes pointed out that a surplus balance-of-trade causes demand. Increase in demand, in turn, leads to the growth of a nation. Real-world examples of mercantilism appear when trade unions and large companies demand higher duties to restrict imports.
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This glossary post was last updated: 29th March, 2020 | 0 Views.