Mercantilism

economic-dictionary

Mercantilism is a political and economic system based on the idea that countries are richer and more prosperous the more precious metals they can accumulate.

Mercantilism and its ideas developed in Europe between the 16th and 17th centuries and the first half of the 18th century. One of its fundamental pillars was the belief that countries that wanted to maintain a relevant position in the international context and develop their power, should accumulate wealth (mainly in the form of gold and other precious metals).

Influenced by colonialism and the large amount of precious metals, raw materials and cheap labor that the invading countries were able to obtain from them, mercantilism reinforced the idea of ​​the accumulation of wealth as a reflection of power.

Origin of mercantilism

Mercantilism as a current of economic thought had its origin in the early Modern Age (16th century). Where? In Europe and specifically in countries like France and England after replacing feudalism.

In addition, it had its maximum expression in France in the 16th century under the mandate of Jean Baptiste Colbert, finance minister of Louis XIV. During his tenure, Colbert protected and promoted France's agricultural and industrial enterprises through subsidies, credits and other facilities while at the same time imposing strong restrictions on imports. While it is true that commercialism in England was very important during the Modern Age.

Mercantilism began to disappear at the end of the 18th century with the emergence of new economic theories that had a more liberal character and focused on taking advantage of the advantages of trade. One of the most prominent critics of mercantilist ideas was Adam Smith, who proposed the idea that free markets and free trade are fundamental elements for economic development and efficient use of resources.

Characteristics of mercantilism

Mercantilism, in short, is based on three fundamental characteristics or ideas:

  • The accumulation of wealth (mainly precious metals) is essential for the economic development of a country. The greater the accumulation of wealth, the greater the prosperity and political power.
  • The State has the role of using and imposing all the mechanisms that are necessary to achieve the objective of accumulating wealth (controls, restrictions, subsidies, etc.) Its intervention will have a protectionist nature, encouraging local production at the same time as protecting it. competition from foreign producers.
  • Global trade is unalterable. For trade to help the accumulation of wealth, inflows and outflows must be controlled in order to maintain a positive balance of payments (exports exceed imports)

How Mercantilism Works

Some of the most important measures that were applied to achieve the goal of mercantilism were:

  • Ban on the export of precious metals.
  • Control of the local currency.
  • Taxes and restrictions on imports.
  • Control of natural resources.
  • Subsidies, benefits and facilities for local producers (mainly from the agricultural and industrial sectors).
  • Promote the growth of the working population.
  • Tend to a cheap labor force that will help the country to be more competitive internationally.
  • Tax privileges for exports and local production.

Advantages and disadvantages of mercantilism

Among the advantages of mercantilism we can highlight:

  • It allowed to have under control the foreign trade of the country.
  • In theory, it made national production stronger and protected from abroad.
  • It favored the accumulation of precious metals such as gold.
  • The country's trade balance had a surplus.

For its part, the most important disadvantages of mercantilism are:

  • The boost from monopolies and state controls over products led to price rises.
  • In addition, the foregoing gave rise to smuggling situations.
  • He proposed that the accumulation of wealth depended on the quantity of precious metals. Scientific evidence has shown this idea to be wrong.
  • In this sense, pirates who looted ships and colonies proliferated to keep the most valuable belongings.
  • The colonies were overexploited to extract precious metals.

The main mercantilist schools

Mercantilism that gave rise to other similar economic theories such as bullionism, colbertism and commercialism:

  • Bullionism: Promulgates the accumulation of wealth through precious metals. It was developed during the 15th and 16th centuries, reaching its maximum splendor in the 17th century. It ended up being known as Spanish mercantilism because it was the system used in the Hispanic monarchy during the Old Regime.
  • Colbertism: Proposes the industrialization of the economy as a source of wealth. It is also called French commercialism.
  • Commercialism: Proposes foreign trade as a source of wealth It was also known as British mercantilism.

Main representatives of mercantilism

Among the main mercantilist authors, the following should be highlighted:

  • Thomas Mun.
  • Jean Baptiste Colbert (Colbertism).
  • Antonio Serra.
  • Jean Bodin.

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