Mercantilism

Written by Fmi.Online Friday January 6, 2023
Mercantilism is an economic system that proposes that a nation’s wealth increases by having surplus in the balance of trade. It is a concept also known as commercialism, which is based on the belief that a country should encourage exports but at the same time to limit imports with the aim of driving economic growth.

Explanation :

Mercantilism used to be a popular economic system for a long time until the 18th century, namely in European countries like England and France. It substituted feudalism and assumed that the best way to increase nation prosperity was to accumulate gold and precious metals in the hands of the state. This would be possible by maximizing exports, imposing high barriers to imports and encouraging economic self-sufficiency. Stocks of gold also meant powerful governments that invigorated nationalism and colonialism. Under mercantilism, the State had strong intervention in the economy. But this system proved to be disadvantageous because some important elements to guarantee sustainable well being were undervalued, such as education, investment and specialization. On the other hand, self-sufficiency was not a feasible option for small nations. Although it is now considered an outdated, inappropriate system, some mercantilist arguments tend to arise from time to time. Nationalism and protectionism are ideologies that still appear despite the fact that market freedom is nowadays the prevalent economic system in most prosperous countries.

In a nutshell :

  • Mercantilism was an economic system of trade that spanned from the 16th century to the 18th century.
  • Mercantilism was based on the idea that a nation's wealth and power were best served by increasing exports and so involved increasing trade.
  • Under mercantilism, nations frequently engaged their military might to ensure local markets and supply sources were protected, to support the idea that a nation's economic health heavily relied on its supply of capital.
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