Overview
This lecture introduces mercantilism, covering its historical context, core characteristics, notable examples, decline, and resurgence in modern economic policies.
Historical Background
- Mercantilism dominated European economic thought from the 16th to 18th centuries.
- The term “mercantilism” became popular after Adam Smith’s The Wealth of Nations (1776).
- European powers sought to restrict imports and encourage exports to accumulate gold and silver.
- Gold was essential for funding militaries and symbolized national power.
- Colonial empires used colonies to obtain raw materials, convert them to finished goods, and export for profit.
- The aim was a favorable trade balance to increase national wealth.
Major Characteristics of Mercantilism
- Accumulation of gold was central, symbolizing wealth and power.
- Wealth was viewed as static and finite, with nations gaining only at others' expense.
- Large populations supplied labor and supported larger armies.
- Positive trade balance (exporting more than importing) was prioritized.
- Colonies supplied raw materials and ensured net wealth transfer to the mother country.
- State monopolies managed trade, especially with colonies.
- Trade barriers, such as tariffs and bans, limited competition and foreign trade.
Examples of Mercantilist Policies
- British Navigation Act (1651): Mandated British ships for trade between Britain and its colonies.
- Colbertism in France: Tariffs, public works, and expansion of the merchant navy.
- British East India Company (1600): State-sponsored monopoly for Asian trade, particularly spices.
Decline and Recent Resurgence
- Mercantilism saw trade as zero-sum and led to higher consumer prices and limited goods.
- Critiques by Adam Smith and David Hume argued wealth could be created through productive trade and specialization.
- Modern protectionism, or "neo-mercantilism," imposes tariffs and subsidies to protect domestic industries.
- Common arguments today include protection from unfair subsidies, anti-dumping measures, and support for emerging industries.
- Countries like China, the US, Russia, and India use some mercantilist tactics (tariffs, subsidies, currency controls).
Key Terms & Definitions
- Mercantilism — Economic policy focusing on maximizing exports and minimizing imports to accumulate wealth.
- Trade Balance — The difference between the value of a country's exports and imports.
- State Monopoly — A situation where the government exclusively controls certain industries or trade.
- Protectionism — Policies that restrict imports to protect domestic industries.
- Dumping — Selling excess goods abroad at very low prices.
Action Items / Next Steps
- Review definitions and characteristics of mercantilism.
- Prepare examples of mercantilist policies for class discussion.
- Read about Adam Smith’s critique of mercantilism.