What is Mercantilism? | International Business | From A Business Professor
Summary
TLDRThis 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
- π Mercantilism is an economic policy that prioritizes maximizing exports and minimizing imports to accumulate wealth and power.
- π It was prevalent in Europe between the 16th and 18th centuries and was officially named by Adam Smith in 'The Wealth of Nations'.
- π° The policy aimed to bring gold and silver into the country to stimulate domestic employment and military funding.
- π Gold was crucial for funding empires' military needs and as a symbol of wealth and power.
- π± Mercantilism believed in the static nature of wealth, viewing it as a zero-sum game where one nation's gain was another's loss.
- π₯ A large population was seen as essential for labor markets and military strength, contributing to national prosperity.
- π The policy advocated for a positive balance of trade to acquire wealth from other nations and increase gold reserves.
- ποΈ Colonies were vital for providing raw materials and ensuring a net transfer of wealth and gold to the mother country.
- π‘οΈ State monopolies and trade barriers, such as tariffs and bans on trade, were common to protect domestic industries and markets.
- π Mercantilism declined due to the recognition that wealth could be created through the productive allocation of labor and specialization.
- π 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
π 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.
π 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.
π’ 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.
π 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.
Mindmap
Keywords
π‘Mercantilism
π‘Trade Balance
π‘Gold and Silver
π‘Colonies
π‘State Monopolies
π‘Trade Barriers
π‘Comparative Advantage
π‘Neo-Mercantilism
π‘Dumping
π‘Infant Industry Argument
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
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
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