Question

Given that Mercantilism is often referred to as the political economy of state building, answer the following:

State or define what Mercantilism is.

Critically evaluate the key principles and criticisms of Mercantilism.

Answer 1

Mercantilism is an economic theory focused on accumulating wealth through trade surplus and protectionist policies, which paved the way for the Industrial Revolution. Its critics highlight its inefficiencies and argue for market-driven trade and economy, leading to its replacement by capitalism.

Step-by-step explanation:

Mercantilism is an economic theory and system that was prevalent in Europe from the 16th to the 18th century. It was based on the belief that a nation's wealth was measured by its stockpile of precious metals like gold and silver, which were believed to signify actual, tangible wealth. Under the mercantilist system, countries aimed to achieve a positive balance of trade, meaning they sought to export more than they imported, thereby acquiring more bullion.

The philosophy was closely tied to colonialism because colonies could provide the raw materials that the mother country would transform into manufactured goods and then sell back to the colonies or other nations. Mercantilism promoted protectionist policies such as high tariffs on imported goods, strict regulation of colonies' trade, and the creation of monopolies. These protectionist measures not only aimed to ensure a favorable balance of trade but also sought to protect domestic industries from foreign competition. Furthermore, by supporting and funding manufacturing and technological improvements, mercantilist nations helped set the stage for the Industrial Revolution.

Critics of mercantilism argue that its policies led to inefficiency and higher prices for consumers due to the lack of competition. Moreover, by focusing on obtaining precious metals, mercantilism did not see the benefits of a free market system where supply and demand govern the trade of goods, a concept later developed during the Enlightenment and seen in the capitalist model advocated by thinkers like Adam Smith. These criticisms eventually led to mercantilism's decline in favor of more liberal economic theories that emphasize individual profit and market regulation over government intervention.