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.

Outlines

00:00

📚 Introduction to Mercantilism

This section introduces mercantilism as an economic policy focused on maximizing exports and minimizing imports to maintain a favorable trade balance. The goal of mercantilism was to empower nations through wealth and resource acquisition, which also bolstered their military and political power. The historical background of mercantilism is traced back to its prevalence in Europe between the 16th and 18th centuries, with a detailed account of how European powers like Britain, France, and Spain expanded their empires and utilized their colonies to supply raw materials, which were then converted into finished goods for trade, aiming to accumulate gold and enhance national prosperity.

05:00

🏛 Characteristics of Mercantilism

The characteristics of mercantilism are outlined, including the accumulation of gold as a symbol of wealth and power, the belief in a static wealth where one nation's gain was another's loss, the necessity of a large population to support labor and military forces, the pursuit of a positive balance of trade, reliance on colonies for raw materials and wealth transfer, state monopolies over trade with colonies, and the implementation of trade barriers such as tariffs and bans on trade with other empires' colonies. These characteristics highlight the protectionist and expansionist nature of mercantilist policies.

🚢 Historical Examples of Mercantilism

This section provides historical examples of mercantilist practices, such as the British Navigation Act of 1651, which regulated trade to and from British colonies, ensuring that only British ships could carry goods. It also discusses Colbertism, the mercantilist policies implemented in France under Jean-Baptiste Colbert, including tariffs and the establishment of a merchant navy. The East India Company is highlighted as a state-sponsored monopoly that exploited Asian markets, particularly for spices, contributing to Britain's wealth and trade dominance.

📉 Decline and Modern Resurgence of Mercantilism

The decline of mercantilism is attributed to the recognition that wealth is not finite and can be created through specialization and trade, as argued by economists like Adam Smith and David Hume. Mercantilism was seen as a zero-sum game, which limited consumer choice and raised prices due to restricted imports. However, recent times have seen a resurgence of mercantilist policies, now termed neo-mercantilism, which includes protectionist measures to support domestic industries. Justifications for these modern mercantilist policies include tariffs to counter domestic subsidies, protection against dumping, and the infant industry argument to nurture new industries. The video concludes with a call for viewer engagement and a summary of the key points discussed.

Keywords

💡Mercantilism

Mercantilism refers to an economic policy or trade system where a country aims to maximize exports and minimize imports to maintain a favorable trade balance. It was a dominant economic theory in Europe between the 16th and 18th centuries. In the video, mercantilism is discussed as a historical approach to empower nations through wealth and resource acquisition, which is central to understanding the video's theme of economic policies and their impact on global trade.

💡Trade Balance

A trade balance is the difference between a country's exports and imports. A favorable trade balance occurs when a country exports more than it imports, which was a key goal of mercantilist policies. The video explains how mercantilism aimed to achieve this by focusing on maximizing exports and minimizing imports, thereby accumulating wealth and enhancing a nation's power.

💡Gold and Silver

In the context of mercantilism, gold and silver were seen as the ultimate forms of wealth and power. The video highlights that the accumulation of these precious metals was a primary objective for mercantilist nations, as they were needed to fund military expenditures and symbolized a nation's prosperity. This concept is exemplified by the video's discussion of how European powers sought to bring gold and silver into their countries.

💡Colonies

Colonies played a significant role in mercantilist economies, as they provided raw materials and markets for finished goods. The video discusses how empires like Britain, France, and Spain relied on their colonies for resources and how these colonies were essential in maintaining a positive trade balance by supplying raw materials that were then converted into final goods and sold back at a profit.

💡State Monopolies

State monopolies were a feature of mercantilism where the state controlled certain industries or trade routes. The video mentions how the state had a monopoly on supplying its colonies, which allowed it to ensure a net transfer of wealth and gold from the colonies back to the mother country, reinforcing the idea of state control over economic activities for national benefit.

💡Trade Barriers

Trade barriers, such as tariffs and bans on trade, were used by mercantilist nations to protect their economies and promote domestic industries. The video provides examples, including the British Navigation Act of 1651, which restricted trade to British ships and crew, illustrating how mercantilist policies used trade barriers to control the flow of goods and wealth.

💡Comparative Advantage

Comparative advantage is an economic concept that was highlighted by Adam Smith as an alternative to mercantilism. It suggests that countries should specialize in producing goods in which they have a lower opportunity cost compared to others, leading to mutually beneficial trade. The video contrasts mercantilism with the idea of comparative advantage, indicating a shift in economic thought that challenged the zero-sum view of trade.

💡Neo-Mercantilism

Neo-mercantilism refers to modern protectionist policies that resemble historical mercantilism. The video discusses how some countries still practice mercantilist policies today, such as imposing tariffs, subsidizing domestic industries, and restricting foreign labor migration. This concept shows a resurgence of mercantilist ideas in contemporary economic strategies.

💡Dumping

Dumping is the practice of selling goods in a foreign market at a price lower than the normal market price, often to get rid of excess supply. The video mentions protection against dumping as a justification for modern mercantilist policies, arguing that it protects domestic industries from being undercut by unfairly priced imports.

💡Infant Industry Argument

The infant industry argument is a justification for protectionist policies, suggesting that new industries need temporary protection to grow and compete. The video discusses this as a reason for modern mercantilist policies, where tariffs and protections are used to nurture industries until they are strong enough to compete without assistance.

Highlights

Mercantilism is an economic policy focused on maximizing exports and minimizing imports to empower a nation.

Its purpose is to improve a nation's military and political might through wealth and resource acquisition.

Mercantilism was a key trade policy in Europe between the 16th and 18th centuries.

Adam Smith's 'The Wealth of Nations' was the first to officially name mercantilism.

European powers aimed to restrict imports and encourage exports to accumulate gold and silver.

Gold was crucial for funding military and symbolizing wealth and power.

Colonies were vital for providing raw materials to European empires.

Mercantilism involved a belief in a static wealth, where one nation's gain was another's loss.

A large population was seen as necessary for labor and military strength.

Mercantilists sought a positive balance of trade to accumulate wealth from other nations.

Colonies were relied upon for raw materials and to ensure a net transfer of wealth and gold.

State monopolies were common, with the state being the sole supplier to its colonies.

Trade barriers such as bans and tariffs were enforced to protect domestic industries.

The British Navigation Act of 1651 exemplified mercantilist protectionism.

Colbertism in France involved mercantilist policies like tariffs and public works.

The East India Company was a state-sponsored monopoly aimed at Asian markets.

Mercantilism declined as it was seen as a zero-sum game, contrary to the ideas of Adam Smith and David Hume.

Neo-mercantilism has emerged with protectionist policies to support domestic industries.

Modern mercantilist policies include tariffs, subsidies, currency devaluation, and labor restrictions.

China, the US, Russia, and India are among nations engaging in mercantilist policies.

Transcripts

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

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