Mercantilism is an economic practice by which governments used their economies to augment state power at the expense of other countries. Governments sought to ensure that exports exceed imports and to accumulate wealth in the form of bullion (mostly gold and silver).

Mercantilism was a popular economic school of thought in Europe between the 16th and 18th centuries, but it wasn’t officially named until Adam Smith released his book ‘A Wealth of Nations’ in 1776.

Mercantilism is an economic policy whereby a nation aims to maximize exports and minimize the imports. Originally adopted by European nations between 1500 and 1800, mercantilist nations implemented policies such as tariffs and subsidies in order to boost exports and make international imports more expensive.

Mercantilism originates from the term ‘mercantile’, which refers to merchants and trade. By extension, mercantilism is the philosophy and belief that trade with other nations should be regulated through what is now known as ‘protectionism’.

Characteristics of Mercantilism


1. Accumulation of Gold

Gold was associated with wealth and power. It not only allowed nations to pay for soldiers and expand the empire but also for its symbolism of wealth. Nations saw gold as protection against invasion and a lack of gold would inevitably lead to the nation’s demise.

Gold mines were in short supply in colonist nations such as Great Britain, France, and Spain, so they relied on their colonist nations to provide its supply. By procuring raw materials from the colonies, it would convert them to final goods and sell them back for a profit in gold.

2. Belief that Wealth is Static

At the heart of mercantilism was the belief that wealth was static. As gold was rare, it was seen that there is only a limited supply. So importing more from one nation than it exported meant it was losing wealth. In other words, one nation could only benefit at another’s expense.

3. Large Population

According to mercantilist theory, a large population was necessary in order to supply labour, markets, and an army to the nation. The larger the nation, the more wealth in could accumulate, and the bigger its army. So larger populations were associated with an increase in a nation’s prosperity.

4. Positive Balance of Trade

Mercantilists believed that by exporting more than they imported, it would be able to acquire a net accumulation of wealth from other nations. However, by contrast, if the nation brought more goods from abroad, it was essentially sending gold, wealth, and power abroad.

5. Reliance on Colonies

Colonists relied on their colonies not only for raw materials but to ensure a net transfer of wealth and gold. In the long-term, this helped finance further expansion across the globe. More importantly, it helped the mother nation become self-reliant.

6. State Monopolies

The state had a monopoly in the fact that it was the only nation able to supply to its colonies – so it was only able to import or export to the mother country. This was because its mother nations relied on it for raw materials, whereby they were converted into final goods and sold back at a profit. The result was a net transfer in gold from the colonies, to the colonists.

7. Trade Barriers

Many empires enforced a ban on trade between its colonists, as well as that of other empires. For instance, when Britain had control over India, it was banned from trading with other colonies such as Australia or Canada. At the same time, many nations imposed tariffs to make imports more expensive and uncompetitive.

The aim was to suppress imports coming into the country, without completely eliminating the goods that it needs. However, nations managed to secure key resources from their colonies in order to ensure self-sufficiency.

There are various factors that contributed to the rise of mercantilism in Europe;

a) Improvement of science and technology.

This played a great role to the rise of mercantilism. Maritime technology made it possible for the European countries to conduct trade overseas. The ships enabled the transportation of large quantities of goods to various countries in the world.

b) Development of internal trade.

The development of internal trade contributed significantly to the rise of mercantilism because it introduced various items of trade. These goods were exchanged with other goods during the Trans – Atlantic slave trade, the Europeans provided Africans with clothes and spirit in return for goods such as gold and silver.

c) Enclosure system.

The enclosure system involved passing laws by the parliament whereby wealthy land owners bought land from the peasants. The small peasants and common land in villages of Britain had to be grouped together and out under individual capitalist’s farms. The enclosure system increased agricultural production that facilitated trading activities.

d) Development of the banking system.

There were various banks that were established in Britain e.g. Barclays bank. These banks contributed to the rise of mercantilism by providing loans and grants to the merchants who wanted to trade overseas.

e) Rise of nation states.

The rise of nation states contributed to the rise of mercantilism in Europe. European monarchies such as the Tudor monarchy played a great role in the rise of mercantilism by giving security to the merchants which encouraged them to engage in mercantile activities.

f) Geographical discoveries.

This was made by different scholars, contributed to the rise of mercantilism. Christopher Columbus discovered America which was followed by the establishment of capitalist enterprises such as farms and mining which encouraged trading activities.

g) Rise of the Trans Atlantic slave trade.

The Trans Atlantic slave trade was an economic system that involved three continents i.e. Africa, Europe and America. The trading system consolidated mercantilism by making it possible for European countries to trade with Africa and America. Africa provided slaves, America produced raw materials and Europe provided manufactured goods.

What Exactly Is Mercantilism?

Mercantilism is the belief that importing goods is bad as it transfers gold and wealth abroad. In turn, mercantilists use trade barriers such as tariffs, quotas, and regulations to prevent imports and ensure a positive trade balance.

Why Is Mercantilism Bad?

Mercantilism reduces trade and cooperation between countries, which makes goods more expensive and difficult to procure. For example, tropical fruits cannot be grown in western countries such as the UK and France, so need to be imported.

At the same time, it forces a country to be self-reliant. That isn’t always the most economically efficient, as other countries may be able to provide goods at a lower price than can be achieved domestically.

What Are 7 Characteristics Of Mercantilism?

The 7 characteristics of mercantilism are:
1. Desire to accumulate gold
2. Belief that Wealth is Static
3. Desire for Large Population
4. Positive Balance of Trade
5. Reliance on Colonies
6. State Monopolies
7. Trade Barriers


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