What is Mercantilism? | International Business | From A Business Professor

Summary

This video explores mercantilism, an economic policy where nations maximize exports and minimize imports to acquire wealth and power. Originating in 16th-18th century Europe, it was critiqued by Adam Smith for viewing trade as a zero-sum game. Key characteristics include gold accumulation, a static view of wealth, and reliance on colonies. Notable examples include the British Navigation Acts and Colbertism in France. Despite its decline, mercantilism has seen a resurgence in recent years, with modern forms focusing on protectionist policies to support domestic industries.

Takeaways

• 📚 Mercantilism is an economic policy that prioritizes maximizing exports and minimizing imports to accumulate wealth and power.
• 🌐 It was prevalent in Europe between the 16th and 18th centuries and was officially named by Adam Smith in 'The Wealth of Nations'.
• 🏰 The policy aimed to bring gold and silver into the country to stimulate domestic employment and military funding.
• 🌟 Gold was crucial for funding empires' military needs and as a symbol of wealth and power.
• 🌱 Mercantilism believed in the static nature of wealth, viewing it as a zero-sum game where one nation's gain was another's loss.
• 👥 A large population was seen as essential for labor markets and military strength, contributing to national prosperity.
• 📈 The policy advocated for a positive balance of trade to acquire wealth from other nations and increase gold reserves.
• 🏝️ Colonies were vital for providing raw materials and ensuring a net transfer of wealth and gold to the mother country.
• 🛡️ State monopolies and trade barriers, such as tariffs and bans on trade, were common to protect domestic industries and markets.
• 📉 Mercantilism declined due to the recognition that wealth could be created through the productive allocation of labor and specialization.
• 🔄 Despite its decline, mercantilist policies have re-emerged in recent times, often referred to as neo-mercantilism, focusing on protectionist measures.

Q & A

What is mercantilism?

Mercantilism is an economic policy or trade system where a country aims to maintain a favorable trade balance by maximizing exports and minimizing imports, with the goal of empowering the nation through wealth and resource acquisition, enhancing its military and political power.

When did mercantilism become a popular economic school of thought in Europe?

Mercantilism was a popular economic school of thought in Europe between the 16th and 18th centuries.

Who is credited with officially naming mercantilism?

Adam Smith is credited with officially naming mercantilism when he released his book 'The Wealth of Nations' in 1776.

What were the two major reasons gold became important during the period of mercantilism?

Gold was important for funding the empire's military and as a widely recognized sign of wealth and power.

How did the expansion of empires during the age of discovery affect trade?

As empires expanded, gold became more important, and there was a more interconnected system of trade, with colonies providing raw materials to the mother country, which were then converted into final goods and sold at a higher price.

What are the major characteristics of mercantilism?

The major characteristics include the accumulation of gold, the belief that wealth is static, the necessity of a large population, a positive balance of trade, reliance on colonies, state monopolies, and trade barriers.

Why did mercantilists believe that a large population was necessary?

Mercantilists believed a large population was necessary to supply labor markets and an army, which would help accumulate more wealth and power for the nation.

What is the significance of a positive balance of trade in mercantilism?

A positive balance of trade meant that a nation exported more than it imported, allowing it to acquire a net accumulation of wealth from other nations and enhance its gold stock.

Can you provide an example of mercantilist policy during the age of discovery?

One example is the British Navigation Act of 1651, which made it illegal for any foreign ship to carry goods from Britain to any of its colonies, ensuring all trade was conducted by British ships.

What is the difference between mercantilism and the economic theories proposed by Adam Smith and David Hume?

Mercantilism viewed trade as a zero-sum game, while Adam Smith and David Hume argued that wealth was not finite and could be created through the productive allocation of labor and specialization in goods production, leading to mutually beneficial trade.

How has mercantilism evolved in recent times?

Modern mercantilism, sometimes referred to as neo-mercantilism, typically involves protectionist policies that restrict imports to support domestic industries, including tariffs on imports, subsidizing domestic industries, devaluation of currencies, and restrictions on foreign labor migration.

What are some arguments supporting the restriction of free trade in certain circumstances?

Arguments include the use of tariffs in response to domestic subsidies, protection against dumping, and the infant industry argument for developing new industries.