Understanding Mercantilism: The Economic Theory that Dominated Europe from the 16th to the 18th Century.

Mercantilism

An economic policy under which nations sought to increase their wealth and power by obtaining large amounts of natural resources from their colonies.

Mercantilism was an economic theory that was prevalent in Europe from the 16th to the 18th century. It was characterized by a belief that a country’s wealth was measured by the amount of precious metals (gold and silver) it had, and that the creation of a strong economy was achieved through maximizing exports and minimizing imports.

Mercantilists believed that the government should play an active role in promoting exports by implementing protectionist policies (such as tariffs on imported goods), encouraging the establishment of colonies to provide raw materials and markets, and subsidizing domestic industries. They also emphasized that a favorable trade balance (exporting more than importing) was necessary to achieve economic growth and ensure national security.

Despite its strong influence in economic policy during its time, mercantilism was eventually replaced by other economic theories, such as classical economics and Keynesian economics. Modern economists point out that mercantilism mistakenly assumed that the economy was a zero-sum game where one country’s gain was another’s loss. Additionally, it failed to recognize the potential benefits of free trade and specialization.

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