What is Mercantilism?

Mercantilism

Mercantilism, sometimes called ‘economic nationalism, was a prevalent economic doctrine in the Europe more specifically in the Western Europe around 1500 to 1800. This view postulates that economics should be subordinated to politics as market emerges within a social context shaped by the state power. The strategy of mercantilism emphasized the state regulation of the economy and international trade by increasing exports and keeping imports low. They believed that state’s power, wealth and prestige could be achieved through favorable trade surplus. It was a time of Gold Standard so countries were paid with the gold. More Gold was a sign of prestige so, states with more precious metals were considered more powerful and wealthy. Economic wealth, according to mercantilism, could be transformed into military might later on. Mercantilists imposed tariffs, duties and subsidies on imports to support their nascent domestic industries. They demanded governments to make protectionism a central part of government policy. However, aggressive mercantilism went even one step ahead and aspired to make economy stronger by expansion. This type of mercantilism inspired states to pursue the policies of imperialism and colonialism. Colonies served two purposes to the master: first it was a bigger market for the manufactured goods, second colonies provided the required raw material in cheap prices. Due to industrialization and capitalism, domestic production capacity increased and states started producing consumer goods on massive scales which later on were exported to colonies.

Great powers like England, Holland, France and Spain competed each other on the economic and military fronts. These powers were in search of new colonies which could secure their business interests.

 

The End of Mercantilism   

Mercantilism started to decline in the eighteenth century. When Liberal economists like Adam Smith and David Ricardo proposed the concepts of economic liberalism in the form of laissez-faire, free market, specialization and comparative advantage. They argued that international trade is rather a mutual gain than zero-sum game. Adam Smith in his 1776 book ‘The wealth of Nations’ debated that politics and economics exist ideally in separate spheres. He further assumed that free market has an ‘invisible hand’ in the shape of the laws of the demand and supply and price mechanism which will contribute to economic growth and general individual welfare in the long run. Market with less state intervention has self-regulating mehcanism. Therefore, economic liberalists negated the state regulation of market. It emerged in reaction to the mercantilism. It was a heavy blow on the mercantilist polices. 

Naveed Qamar.

MSc International Relations 

Quaid-i-Azam University, Islamabad.

M.Phil Scholar, Researcher, Writer.