What Is Mercantilism?

Mercantilism was an economic system of trade that spanned from the 16th to the 18th century. Many European nations attempted to accumulate the largest possible share of that wealth by maximizing their exports and by limiting their imports via tariffs.

Mercantilism replaced the feudal economic system in Western Europe. Under mercantilism, nations frequently engaged their military might to ensure local markets and supply sources were protected, to support the idea that a nation's economic health heavily relied on its supply of capital.

British Colonial Mercantilism

England had relatively few natural resources. To grow its wealth, England discouraged colonists from buying foreign products, while creating incentives to only buy British goods.

The British colonies were subject to the direct and indirect effects of mercantilist policy at home. Below are several examples:

  • Controlled production and trade: Mercantilism led to the adoption of trade restrictions, which stunted the growth of colonial businesses.
  • The expansion of the slave trade: Trade became triangulated between the British Empire, its colonies, and foreign markets, encouraging the development of the slave trade in many colonies.
  • Inflation and taxation: The British government demanded that trades be conducted using gold and silver bullion. The colonies often had insufficient bullion left over to circulate in their markets, so they issued paper currency instead. Heavy taxation was needed to prop up its army and navy. The combination of taxes and inflation caused great colonial discontent.

American Revolution Mercantilism

Defenders of mercantilism argued that the economic system created stronger economies by combining the concerns of colonies with those of their founding countries. In theory, when colonists created their own products and obtained others in the trade from their founding nation, they remained independent from the influence of hostile nations. Meanwhile, founding countries benefitted by receiving large amounts of raw material from the colonists, 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 from Great Britain. The colonists believed the disadvantages of mercantilism outweighed the benefits.

After a costly war with France, the British Empire raised taxes on colonists to pay it debts. They rebelled by boycotting British products. Great Britain pushed harder against the colonies, ultimately resulting in the Revolutionary War.

Merchants and Mercantilism

By the early 16th century, Europeans understood the importance of the merchant class in generating wealth. Cities and countries with goods to sell thrived in the late middle ages.

Source: Mercantilism
© Dotdash

Back to top