What Is Mercantilism?

Mercantilism refers to an economic idea that a country or an economy will be better off both economically and socially if it has a positive trade balance (the value of goods that are exported are greater than the value of goods which are imported) and by doing this it will accumulate large monetary reserves. Mercantilism first became a popular idea, particularly in Western Europe, in the 1500s and was the widely followed economic course until around 1800.

Different countries used different methods to attempt to achieve mercantilism in their economies. One of the main methods was to keep wages as low as possible so that goods could be produced cheaply and thus this would allow a greater profit margin on the exports and would help the country keep the price of the good down to keep it competitive. Another popular policy was to give companies who exported a lot of goods subsidies to help keep the prices down and thus reduce their own costs. Some methods didn’t focus on the actual manufacturing of the product and instead focused on other areas such as banning the exporting of any gold as this was a key part of building up a large monetary reserve. Governments were also involved in making imports as expensive as possible by adding tariffs to deter other economies from wanting to sell them goods. 

Different countries used different methods to attempt to achieve mercantilism in their economies.

Different countries used different methods to attempt to achieve mercantilism in their economies.

Adam Smith was one of the leading economic theorists during the early modern period of mercantilism and was the first person to use the phrase “mercantile system” referring to an economy run by the belief in mercantilism. It was Adam Smith’s own personal belief that mercantilism was not a good thing as its only aim was to benefit the mother country and it limited trade, and as a great believer in capitalism he saw this as a bad thing.

Robert Peel was British Prime Minister for the Conservative Party during periods of the 1830s and 1840s. During his administration he famously repealed the Corn Laws which had been introduced to protect British cereal producers from foreign competition. This decision was widely seen as going against mercantilism as what Robert Peel wanted was free trade and the Corn Laws didn’t offer that. It was in a sense the end of mercantilism.

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