hello everyone welcome to business school 101 mercantilism refers to an economic policy or trade system wherein a country focuses on maintaining a favorable trade balance by maximizing exports and minimizing imports with other countries its purpose is to empower a nation via wealth and resource acquisition while improving its military and political might as one of the earliest trade policies mercantilism played a critical role in guiding countries international trade so what is its historical background what are the major characteristics and examples of mercantilism why did it decline after the 18th century and rise again in recent years in this video i will discuss these questions with you section one historical background 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 the wealth of nations in 1776. he highlighted how european powers aimed to restrict imports whilst actively encouraging exports the aim was to bring gold and silver into the country and thereby stimulate domestic employment this was a period of religious and commercial warfare but also the age of discovery which saw the british french and spanish empires expand rapidly across the world as empires expanded gold became more and more important for two major reasons first gold was needed to fund the empire's military second gold was widely considered a sign of wealth and power as colonies grew it meant there was a more interconnected system of trade for example britain had links to australia india canada and significant parts of africa similarly france had colonies in africa north america and parts of asia the world was becoming interconnected and each imperialist had an incentive to keep trade going between the colonies and itself the colonies were important to france britain and spain which had fewer raw materials for instance britain relied on its colonies to provide goods such as sugar tobacco tropical fruits and gold the idea was that a nation's colony would provide raw materials that would then be converted into final goods and sold at a higher price this would then provide a favorable balance of trade to the mother country and enhance its gold stock section 2 characteristics in general the mercantilism has following characteristics number one 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 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 number two 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 number three large population according to mercantilist theory a large population was necessary to supply labor markets and an army to the nation the larger the nation the more wealth it could accumulate and the bigger its army so larger populations were associated with an increase in a nation's prosperity number four positive balance of trade mercantilists believed that by exporting more than they imported they 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 number five 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 number six state monopolies the state had a monopoly in the fact that it was the only nation able to supply to its colonies this was because its mother nations relied on it for raw materials whereby they were converted into final goods and sold back of the profit the result was a net transfer in gold from the colonies to the colonists number seven trade barriers many empires enforced a ban on trade between their 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 impose tariffs to make imports more expensive and uncompetitive section three examples mercantilism is a form of protectionism that was practiced throughout the age of discovery 16th 18th centuries here are a few notable examples 1. british navigation act 1651 in 1651 the british government led by oliver cromwell introduced legislation that made it illegal for any foreign ship to carry goods from her to any of its colonies all trade was to be conducted by a british ship with a british owner master and majority crew 2 colbertism colbertism was named after john baptist colbert first minister of state in france between 1661 and 1683 that refers to the number of mercantilist policies implemented during his time in office he introduced tariffs encouraged public works programs and set up the france merchant navy in the bid to expand exports abroad three east india company in 1600 the british government created the east india company which was a state-sponsored monopoly looking to take advantage of the asian markets particularly the east indian spice trade it not only brought gold back to britain but also helped establish a strong and permanent trade route between britain and her colonies section 4 the decline and a recent tries the flaw with mercantilism was that it viewed trade as a zero-sum game under a mercantilist system the restriction of imports meant consumers obtained access to fewer goods at higher prices by the end of the 18th century scholars such as adam smith and david hume began to evaluate and critique the merits of mercantilist theory contrary to established beliefs the scholars realized that wealth was not finite but could be created through the productive allocation of labor when countries specialize in the production of goods for which they enjoy a comparative advantage trade can result in mutually beneficial deals although mercantilism is mostly viewed as an outdated economic theory there has been an emergence of mercantilist policies in recent times present-day mercantilism typically refers to protectionist policies that restrict imports to support domestic industries it can sometimes be referred to as neo-mercantilism arguments supporting the restriction of free trade in certain circumstances first tariffs in response to domestic subsidies supporters argue that since china's steel is effectively subsidized leading to a glut and supply it is necessary and fair to impose tariffs on imports of chinese steel to protect domestic producers from unfair competition second protection against dumping if some countries have an excess supply of goods they can sell at a very low price to get rid of the surplus but this can make domestic firms unprofitable protectionism can be justified to protect against this dumping third the infant industry argument for countries seeking to diversify their economy tariffs may be justified to try and develop new industries when the industries have developed and benefited from economies of scale then the tariffs and protectionism can be dropped modern mercantilist policies include tariffs on imports subsidizing domestic industries devaluation of currencies and restrictions on the migration of foreign labor according to the western media china is the nation that institutes the most mercantile policies many other countries such as the us russia and india also engage in mercantilism to some degree all right that's all for today's topic so what do you think about mercantilism please leave your thoughts in a comment below i hope that you guys have enjoyed this video and if you did make sure you give it a thumbs up and subscribe to my channel thanks for watching and i will see you next time