Mercantilism History: How Mercantile Economic Systems Work

Mercantilism is an economic system focused on using trade to build a powerful nation or empire. The general idea behind this economic theory is that there is a static, defined amount of wealth available across the globe, so building a powerful nation would mean collecting as much of that wealth as possible. Countries that practiced mercantilism tried to achieve favorable trade surpluses over neighboring countries to attain such wealth.

Historically, mercantilism was most prominent during the sixteenth to eighteenth centuries. European countries adopted mercantilism as state policy and competed against each other for global wealth. In particular, mercantilism was part of the economic policies of England, France, Spain, Portugal, Italy, Germany, and the Netherlands between the sixteenth and nineteenth centuries.

One of the most prominent figures in the history of mercantilism is Jean-Baptiste Colbert. As a French controller general of finance in the mid-seventeenth century, Colbert promoted mercantilist policies to the French government and tried to protect France from the policies of other nations.

Eventually, mercantilism fell to the wayside as concepts of laissez-faire and free trade rose to prominence. In the eighteenth century, Scottish economist Adam Smith wrote a book titled The Wealth of Nations that argued against mercantilism and in favor of a free market. The premise that free trade lets nations operate more efficiently and improves productivity of the population caught on, and the mercantile system became an outdated concept.

Empires based in Western Europe that achieved global power in the sixteenth to eighteenth centuries are examples of mercantilist nation-states; the British Empire is one major example.

• Colonial expansion: Great Britain expanded its influence throughout the world but did not have many natural resources within the borders of England. Instead, the British Empire colonized other places to gain new sources of raw materials and precious metals.
• Monopolistic control: The British government enacted laws and policies that affected the colonies and created monopolies benefitting England. The government encouraged, or sometimes forced, colonists to purchase manufactured goods only from the mother country, which led to higher prices for colonists. This type of protectionist government intervention contributed to the American Revolution by causing an increase in unrest among colonists who resented the higher prices they were forced to pay compared to residents of England.
• Growth of corporations and cartels: Navigation acts, such as the British Navigation Act of 1651, controlled international trade along the coast, preventing other countries from selling goods to the populace. Corporations and cartels like the British East India Company benefited from policies of mercantilism. The slave trade was also part of the mercantilism economic system. British colonies in North America supplied raw materials, such as sugar and cotton, to the imperialists, who in turn sent slaves from Africa to the colonies.

A major criticism of mercantilism is that global wealth is not static, and trade in both directions can benefit all parties. Domestic and foreign trade can work together to help a nation gain wealth and establish power. Another criticism of mercantilism as economic policy is that maintaining a stranglehold on trade requires military might, and wars that keep a mercantilist country in power come at a high cost.

While nations have largely abandoned mercantilism as a general economic system in favor of free market policies, many modern countries still engage in some degree of protectionism. As one modern example of a protectionist trade policy, after World War II, the United States enacted trade restrictions against Japan restricting which Japanese exports could enter the country. Modern protectionist policies still affect countries around the world.

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