Understanding Mercantilism

Mercantilism was an economic system of trade that spanned the 16th century to the 18th century. Mercantilism was based on the principle that the world's wealth was static, and consequently, governments had to regulate trade to build their wealth and national power. Many European nations attempted to accumulate the largest possible share of that wealth by maximizing their exports and limiting their imports via tariffs.

First seen in Europe during the 1500s, mercantilism was based on the idea that a nation's wealth and power were best served by increasing exports and limiting imports.

Mercantilism replaced the feudal economic system in Western Europe. At the time, England was the epicenter of the British Empire but had relatively few natural resources.

To grow its wealth, England introduced fiscal policies that discouraged colonists from buying foreign products and created incentives to buy only British goods. For example, the Sugar Act of 1764 raised duties on foreign refined sugar and molasses imported by the colonies. This increased taxation was meant to give British sugar growers in the West Indies a monopoly on the colonial market.

Similarly, the Navigation Act of 1651 forbade foreign vessels from trading along the British coast and required colonial exports to first pass through British control before being redistributed throughout Europe.

Programs like these resulted in a favorable balance of trade that increased Great Britain's national wealth.

Under mercantilism, nations frequently engaged their military might to ensure that local markets and supply sources were protected. Mercantilists also believed that a nation's economic health could be measured by its ownership of precious metals, such as gold or silver. Their levels tended to rise with increased new home construction, increased agricultural output, and a strong merchant fleet that serviced additional markets with goods and raw materials.

Defenders of mercantilism argued that it created stronger economies by marrying the concerns of colonies with those of their founding countries. In theory, when British colonists created their own products and obtained others by trading with their founding nation, they remained independent from the influence of hostile nations.

Meanwhile, Great Britain benefited from receiving large amounts of raw material from the colonists that was necessary for a productive manufacturing sector.

Critics of mercantilism believed the restriction on international trade increased expenses, because all imports, regardless of product origin, had to be shipped by British ships. This radically spiked the costs of goods for the colonists, who believed the disadvantages of this system outweighed the benefits of affiliating with Great Britain.

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