Mercantilism shaped European economic policies from the 16th to 18th centuries. It emphasized national wealth through trade surpluses and colonial expansion. Countries sought to accumulate precious metals, boost exports, and limit imports to gain economic power.

This system fueled European colonialism and global trade dominance. It led to the exploitation of colonial resources and labor, including the slave trade. However, mercantilism faced criticism for its narrow focus and eventually gave way to classical economic theories.

Key Principles and Impact of Mercantilism

Key principles of mercantilism

• Emphasized the importance of a nation's wealth and power through the accumulation of precious metals (gold and silver)
• Promoted a favorable balance of trade by exporting more goods than importing to generate a trade surplus
• Encouraged domestic manufacturing and raw material production to reduce reliance on imports and increase self-sufficiency
• Viewed global trade as a zero-sum game, believing that one nation's economic gain resulted in another nation's loss
• Prioritized economic self-sufficiency to reduce dependence on foreign goods and strengthen national power

Colonies in mercantilist systems

• Increased competition among European powers (Britain, France, Spain) for colonies and trade routes to secure access to resources and markets
• Led to the establishment of chartered companies (British East India Company, Dutch East India Company) to manage trade and colonial affairs on behalf of the state
• Contributed to the rise of European dominance in global trade and colonialism, as nations sought to expand their empires and control key trading regions
• Encouraged protectionist policies (tariffs, subsidies, monopolies) to support domestic industries and limit foreign competition
• Resulted in the exploitation of colonial resources and labor (slave trade, plantation economies) for the benefit of the mother country
• Implemented trade monopolies to control the flow of goods between colonies and the mother country

Mercantilism and European Colonialism

Criticisms of mercantilist policies

• Overemphasized the accumulation of precious metals, neglecting other forms of capital and productive investments that could drive economic growth
• Often benefited merchants and the state at the expense of the general population, as protectionist measures and monopolies hindered competition and efficiency
• Reflected a limited understanding of international trade dynamics, failing to recognize the benefits of comparative advantage and specialization
• Prioritized the interests of the mother country over the welfare of colonial subjects, leading to the exploitation of colonies and colonial labor (forced labor, slavery)
• Faced intellectual challenges from economic thinkers (Adam Smith) who criticized mercantilist ideas as misguided and inefficient, paving the way for classical economics

Mercantilist Practices and Colonial Exploitation

• Implemented high tariffs on imported goods to protect domestic industries and generate revenue for the state
• Engaged in colonial exploitation through resource extraction, forced labor, and unequal trade relationships
• Focused on the accumulation of precious metals as a measure of national wealth and power
• Established trade monopolies to control colonial markets and maximize profits for the mother country