What is Mercantilism? | International Business | From A Business Professor
TLDRThis video explores mercantilism, an economic policy where nations maximize exports and minimize imports to amass wealth and power. Originating in 16th-18th century Europe, it was driven by empire expansion and the belief in static wealth. Key features include gold accumulation, large populations, positive trade balances, and reliance on colonies. Notable mercantilist practices include the British Navigation Act and Colbertism in France. Despite its decline with the advent of free trade theories by Adam Smith, mercantilism has seen a resurgence in modern forms like protectionism and tariffs, with countries like China, the US, and Russia implementing such policies.
Takeaways
- 🏛️ Mercantilism is an economic policy where a nation aims to maximize exports and minimize imports to maintain a favorable trade balance and accumulate wealth and power.
- 📚 It originated in Europe between the 16th and 18th centuries and was officially named by Adam Smith in 'The Wealth of Nations'.
- 🌐 Mercantilism was influenced by the Age of Discovery, where empires like Britain, France, and Spain expanded and sought to control trade and resources.
- 💰 The policy emphasized the accumulation of gold, which was seen as a symbol of wealth and power, and was necessary for military funding and empire expansion.
- 📈 Mercantilists believed in a static view of wealth, where one nation's gain was another's loss, and thus sought to import less than they exported.
- 👥 A large population was considered vital for a mercantilist nation to ensure a workforce and a strong military.
- 📊 Positive balance of trade was pursued to accumulate wealth from other nations, with the belief that more exports than imports would bring in more gold.
- 🏴☠️ Colonies were crucial for mercantilist nations, providing raw materials and ensuring a net transfer of wealth back to the mother country.
- 🛡️ State monopolies and trade barriers, such as tariffs and bans on trade with other empires' colonies, were used to protect domestic industries and maintain control over trade.
- 📜 Notable examples of mercantilism include the British Navigation Acts, Colbertism in France, and the East India Company.
- 📉 Mercantilism declined due to critiques by economists like Adam Smith, who argued that wealth could be created through specialization and trade rather than being finite.
- 🔄 Despite being considered outdated, elements of mercantilism have re-emerged in modern protectionist policies, referred to as neo-mercantilism, used to support domestic industries and respond to unfair trade practices.
Q & A
What is mercantilism in economic terms?
-Mercantilism is an economic policy or trade system where a country focuses on maximizing exports and minimizing imports to maintain a favorable trade balance, aiming to empower the nation through wealth and resource acquisition, which in turn improves its military and political might.
When was mercantilism most prevalent, and who officially named it?
-Mercantilism was most prevalent in Europe between the 16th and 18th centuries. It was not officially named until Adam Smith released his book 'The Wealth of Nations' in 1776.
What were the two main reasons gold became important during the mercantilist era?
-Gold was important for two reasons: it was needed to fund the empire's military and it was widely considered a sign of wealth and power.
How did the Age of Discovery influence the mercantilist policies of the time?
-The Age of Discovery led to rapid expansion of empires like the British, French, and Spanish across the world, creating an interconnected system of trade and an incentive to keep trade going between the colonies and the mother countries.
What are the general characteristics of mercantilism?
-The general characteristics of mercantilism include the accumulation of gold, a belief that wealth is static, the importance of a large population, a positive balance of trade, reliance on colonies, state monopolies, and trade barriers.
Why did mercantilists believe a large population was necessary?
-Mercantilists believed a large population was necessary to supply labor markets and an army to the nation, as a larger nation could accumulate more wealth and have a bigger army, leading to increased prosperity.
What is the significance of the British Navigation Act of 1651 in the context of mercantilism?
-The British Navigation Act of 1651 was significant as it made it illegal for any foreign ship to carry goods to British colonies, ensuring all trade was conducted by British ships, thus protecting domestic industries and promoting a favorable balance of trade.
What is Colbertism, and how does it relate to mercantilism?
-Colbertism, named after Jean-Baptiste Colbert, refers to the mercantilist policies implemented in France during his time as the Minister of State. It includes the introduction of tariffs, encouragement of public works, and the establishment of the French merchant navy to expand exports.
How did the East India Company exemplify mercantilist practices?
-The East India Company, created by the British government, was a state-sponsored monopoly aimed at taking advantage of Asian markets, particularly the East Indian spice trade. It brought gold back to Britain and established a strong trade route between Britain and its colonies.
Why did mercantilism decline after the 18th century?
-Mercantilism declined because it viewed trade as a zero-sum game. Scholars like Adam Smith and David Hume critiqued mercantilist theory, realizing that wealth could be created through the productive allocation of labor and specialization in goods production, leading to mutually beneficial trade.
What are some modern examples of mercantilist policies, and why are they used?
-Modern mercantilist policies include tariffs on imports, subsidizing domestic industries, devaluation of currencies, and restrictions on foreign labor migration. They are used to protect domestic industries from unfair competition, counteract dumping, and support the development of infant industries.
Outlines
🌟 Introduction to Mercantilism
This paragraph introduces the concept of mercantilism, an economic policy where a nation aims to build wealth and power through a positive trade balance by exporting more and importing less. The historical background is set between the 16th and 18th centuries in Europe, highlighting Adam Smith's critique in 'The Wealth of Nations'. It discusses the importance of gold, the belief in static wealth, the significance of a large population for labor and military, the pursuit of a positive balance of trade, reliance on colonies for resources and wealth, state monopolies over trade, and the imposition of trade barriers. The paragraph sets the stage for a deeper exploration of mercantilism's characteristics, historical examples, and its decline and resurgence.
🏛 Historical Examples and Characteristics of Mercantilism
This paragraph delves into specific examples and characteristics of mercantilism. It starts with the British Navigation Act of 1651, which mandated that all colonial trade be conducted by British ships and crew, effectively controlling trade routes. The concept of Colbertism is introduced, named after Jean-Baptiste Colbert who implemented mercantilist policies in France, including tariffs and the establishment of a merchant navy. The East India Company is highlighted as a state-sponsored monopoly aimed at exploiting Asian markets, particularly the spice trade, bringing wealth back to Britain. The paragraph also discusses the decline of mercantilism due to its zero-sum view of trade, which was challenged by economists like Adam Smith and David Hume who advocated for the creation of wealth through specialization and free trade. It concludes with a look at modern mercantilist policies, often termed neo-mercantilism, which includes tariffs, subsidies, currency devaluation, and labor restrictions, with a mention of China, the US, Russia, and India as examples of countries practicing such policies.
Mindmap
Keywords
💡Mercantilism
💡Trade Balance
💡Accumulation of Gold
💡Static Wealth
💡Large Population
💡Positive Balance of Trade
💡Reliance on Colonies
💡State Monopolies
💡Trade Barriers
💡Neo-Mercantilism
💡Comparative Advantage
Highlights
Mercantilism is an economic policy focused on maximizing exports and minimizing imports to empower a nation through wealth and resource acquisition.
Mercantilism played a critical role in shaping international trade in the 16th to 18th centuries.
Adam Smith's 'The Wealth of Nations' was the first to officially name and critique mercantilism, highlighting its focus on restricting imports and encouraging exports.
The Age of Discovery and expansion of empires like British, French, and Spanish led to interconnected global trade systems.
Colonies were vital for providing raw materials to the mother countries, which were then converted into final goods for sale.
Mercantilism is characterized by the accumulation of gold as a symbol of wealth and power.
The belief in static wealth underlies mercantilism, where more imports than exports equate to a loss of wealth.
A large population was seen as necessary for labor markets and military strength, contributing to a nation's prosperity.
Mercantilists pursued a positive balance of trade to accumulate wealth from other nations.
Reliance on colonies was key for raw materials and ensuring a net transfer of wealth and gold to the mother country.
State monopolies were common, with the state being the sole supplier to its colonies, facilitating a net gold transfer.
Trade barriers, such as bans on trade between colonies and tariffs on imports, were enforced to protect domestic industries.
The British Navigation Act of 1651 and Colbertism in France are notable examples of mercantilist policies.
The East India Company was a state-sponsored monopoly aimed at exploiting the East Indian spice trade.
Mercantilism viewed trade as a zero-sum game, which was challenged by economists like Adam Smith and David Hume.
Modern mercantilism has emerged with protectionist policies that restrict imports to support domestic industries, known as neo-mercantilism.
Arguments for modern mercantilism include tariffs in response to domestic subsidies, protection against dumping, and the infant industry argument.
China, the US, Russia, and India are among the nations that currently engage in mercantilist policies to varying degrees.
Transcripts
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