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Mercantilism refers to an economic system of trade that existed in the late XV — early XVII century. The key idea of this policy was to equate the wealth and economic development of the country with the available amount of gold and silver in circulation. The main goal of mercantilism was to increase their reserves through the extraction of precious metals, and the key area of national welfare increment was foreign trade.

Historical overview

Mercantilism got widespread in Europe in the 1500s. The policy was characterized by the strive to accumulate precious metals in the country through the excess of exports over imports. 

The policy originated in Western Europe when commodity-money relations replaced the natural economy. Representatives of early and late mercantilism considered money as the main source of wealth of the state, but their views regarding the ways of accumulating wealth, as well as regarding  the role of the state in this process were different.

In England, protectionist duties were of great importance in the XVI and XVII centuries, when the economy of the country was threatened by the competition of the more developed industries of the Netherlands at that time. In 1650, the Parliament of England passed a law prohibiting foreigners from trading without the appropriate permission. In 1651, a Navigation Act was issued, which contributed to the development of English maritime trade when the trade and fleet of England required protective measures. 

In the XVIII century, less developed countries could no longer compete with England, and in this regard, the spread of free trade ideas began in England.

Mercantilists considered administrative measures for retaining precious metals in the country to be the most important ones. Gold and silver were usually connected with an increase in the number of new home construction and high performance of the agricultural sector. 

Jean-Baptiste Colbert 

Jean Baptiste Colbert (1619-1683) was an ardent supporter of mercantilism and a major political figure in France of the XVII century. The policy he introduced was called "colbertism". Colbert believed that such points as an increase in state revenues (primarily by achieving an active trade balance) and decline in the import of foreign-made products, high export growth of industrial products, and development of French industry were extremely important for the economy of France. 

He contributed to the development of the merchant and military fleet. Unfortunately, his ideas turned out to be unsuccessful when the theory of the market economies was introduced. 

British colonies and Mercantilism

Mercantilism had a great impact on the British colonies:

  • Tools and regulations used to restrict imports of foreign goods were accompanied by the growth restraint of colonial enterprises.
  • The triangular slave trade between the British Empire, its colonies, and other countries emerged. The development of slave trading in different colonies, especially in America, accelerated. 
  • The Government of the British Empire requested that the process of buying and selling goods and services was accompanied with an exchange of gold and silver bullion. The colonies lacked bullion, that’s why they began to use printed money. Monetary mismanagement led to inflationary episodes. 

Merchants and Mercantilism

By the XVI century, European researchers became aware of the significance of the merchants in creating wealth. Many people claimed that the country should franchise out the best merchants to build a monopoly in the market. 

British and Dutch East India companies were examples of such corporations. It is a joint-stock company established on December 31, 1600 by the decree of Elizabeth I, that received immense privileges for trading in India. With the help of the East India Company, the British colonization of India and a number of Eastern countries was carried out.

Mercantilism and imperialism

Countries with mercantilist governments change their policies to increase the number of goods exported. Merchants and the government cooperate in order to reduce trade deficits and create surpluses.

Imperialism refers to the state policy based on the use of military force. The policy is aimed at seizing territories, forming colonies and establishing political or economic control over other countries. In other words, the state with superior qualities conducts this policy to rule the other nation. 

Free trade and Mercantilism

The policy of free trade is quite widespread in the world, since it is an integral part of the liberal market economy and has a lot of benefits over mercantilism. Free trade is characterized by increasing competition and limits of the monopolization of markets, and this forces manufacturers to introduce innovations, reduce production cost, and improve the quality of products. Consumers here can choose from a wide variety of goods.  And mercantilism, on the other hand, means that there are less competitors in the market. 

While mercantilist states always fight over wealth, the absence of limitations in a free-trade system promotes greater openness of societies and cooperation of countries.

Nowadays mercantilism can be described as an outdated economic system. But there are still trade regulations established for protection of particular industries. 

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