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What is 'Mercantilism'

Mercantilism was the main economic system of trade used during the 16th to 18th centuries. The goal was to increase a nation's wealth by imposing government regulation that oversaw all of the nation's commercial interests. It was believed national strength could be maximized by limiting imports via tariffs and maximizing exports.

BREAKING DOWN 'Mercantilism'

Mercantilism was popularized in Europe during the 1500s. The mercantile system was based on the understanding that a nation's wealth and power were best served by increasing exports and collecting precious metals, such as gold and silver. This system replaced the older, feudal economic system in Western Europe, leading to one of the first occurrences of political oversight and control over an economy.

The United Kingdom was one country that implemented this economic system. England imposed the Navigation Act of 1651 to ensure foreign vessels would not be able to engage in trade along its coast, and also required colonial exports to first pass through British control before being redistributed throughout Europe. Governmental actions such as these protected Britain's commercial interests in a mercantile fashion and increased its wealth.

Mercantilism, although effective in the short term, did not last due to the fact the global economy would stagnate if every country wanted to export and none wanted to import. After a period of time, many people began to revolt against the idea of mercantilism and stressed the need for free trade. The continued pressure resulted in the implementation of laissez faire economics in the 19th century, eventually leading to the evolution of modern capitalism that is prevalent in 2016.

The Underlying Principles of Mercantilism

The idea of mercantilism is based on the idea that strong nation-states had the opportunity to create a world economy by using a state's military power to ensure local markets and supply sources were protected. Advocates of mercantilism believed the prosperity of a nation was reliant on its supply of capital and global volume of trade was static. The result was a system of economics that required a positive balance of trade, with surplus exports. However, since it is impossible for every country or nation-state to have a surplus of exports, with many needing increased imports to fuel growth, the basis of mercantilism ensured it was doomed for eventual failure.

One notion behind mercantilism is the economic health of a nation could be assessed by the amount of precious metal, gold or silver it owned. The system advocated for each nation to strive to be economically self-sufficient, which meant the nation would have to increase domestic production and build new homes and industries.

Advocates of mercantilism also saw that agriculture was important and should be promoted so a nation could reduce the need to import foods. They suggested a strong nation-state needed colonies and a merchant fleet, both of which could provide additional markets for goods and raw materials. Mercantilists also believed a large population was integral to the domestic labor force of a nation.

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