What is Mercantilism?
Economic theory is a set of thoughts, beliefs, traditions, or laws that are employed in the study of economic phenomena and solving economic problems. Economic theory is a fundamental existence in any economic system. These theories are propositions, assumptions, or practices that are employed, to solve economic problems. Therefore, there is no economic system without its own set of principles, beliefs, or laws (economic theory)
Examples of economic theories are feudalism, mercantilism, capitalism, communalism, socialism, and physiocracy; while economic systems are free-market system or laissez-faire, command or socialist economy, mixed market economy, traditional economy, and others. While the theories are beliefs; the systems are frameworks where the beliefs are being executed.
The collapse of feudalism in the 15th Century created a vacuum that was later filled by the development of a new economic theory, mercantilism. This theory paved way for the emergence of new states with the centrality of state institutions. European dynastic relations prevailed during this period and the states sought the development of their respective empires at the expense of the vassal states (colonies). The theory of mercantilism backs the growth of the states at the expense of others.
Therefore, the mercantilist states had to maintain the development at home, even if it was going to be detrimental to other states. The state’s accumulation of wealth (defined in terms of bullionism) is the basis of ranking states’ status, therefore, states, by all means, sought to amass enormous wealth and spend less.
Features of Mercantilism
Every piece of land should be used for agriculture, mining and manufacturing. Contrary to the era of feudalism that limited agricultural engagement, and over glorification of feudal lords, the mercantilist theory propounded that states should use all available lands for large agricultural produce for exportation in return for economic value, usually gold.
There was an emphasis on the acquisition of gold because it was only two countries (Spain and Portugal) that had access to the mining of precious metals (gold, silver and diamond). Therefore, nations saw it as a prime to acquire precious metals.
Also, all raw materials must be converted to finished products which must then be exported in exchange for gold and silver. In this way, raw materials could be imported from vassal states to mercantilist states, where they would be processed to finished goods, then exported to foreign countries in return for gold and silver. In addition, importation must be discouraged except the imports are essential raw materials.
The state should govern and regulate trading activities. The state could also force vassal states to buy finished goods from the mother states. Military might could also be used to enforce the economic interest of the mercantilist states in the colonists. And also, the state could reduce the consumption rate and encourage parsimony in order to increase state wealth. A large population was good and desirable for economic progress.
It is important to know that the obnoxious trans-Atlantic Slave Trade occurred during the heydays of mercantilism in Europe. European merchants, who wanted prosperity for Europe, went down to Africa to get slaves to engage them in the American plantations. Britain and France were the most active mercantilist states during this period. European merchants provided African rulers luxury goods, cotton, glasses, mirror, and others, in return for Africans (slaves).
In order to limit importations from foreign countries, high tariffs and dues could be placed on importing companies. And in contrast, the local industries were subsidised and encouraged to manage enormous production, and then export the manufactured goods abroad in return for gold and silver. The popular Sugar Act of 1764, and the Navigation Act of 1651 were policies that the British Empire sought to monopolise the sugar trade and sea navigation in the colonists respectively.
Jean-Baptiste Colbert, the French Controller General of Finance, was one of the proponents of mercantilism. And the most powerful mercantilist corporations were the British and the Dutch East India Companies. Taxes (or any due so far) could also be placed on the colonies by the mother state to generate revenue for the latter. This act led to the Boston Tea Party 1773 in the British East India Companies’ colony.
Conclusively, some states in the global system like Japan, Singapore, China, Taiwan and Germany still encourage exportations over importations, a novel form of new-mercantilism in which states protect and subsidise the local industries at the face of competitive foreign importations.
Citation: Faforiji Tadese. Mercantilism: Meaning and Features. 17-09-2021. Tadexprof. Retrieved from https://tadexprof.com/2021/09/mercantilism-features/
- Mercantilism: Definition and Examples. Britannica. Avaialable at https://www.britannica.com/topic/mercantilism
- Mercantilism Definition (Economic System) – Investopedia. Avaialable at https://www.investopedia.com/terms/m/mercantilism.asp
- Mercantilism. Wikipedia. Available https://en.wikipedia.org/wiki/Mercantilism