Mercantilism, << MUR kuhn tih `lihz` uhm, >> was an economic system followed by England, France, and other major trading nations from the 1500’s to the late 1700’s. Under this system, a nation’s government strictly regulated economic affairs to enrich its treasury, especially by ensuring that exports exceeded imports.
Mercantilism was based on two beliefs. First, mercantilists judged a nation’s wealth by its stock of gold and silver, rather than by standards of living or other measurements. Second, the mercantilists believed the world had a limited supply of wealth, and so one country could grow rich only at the expense of another.
According to the mercantilists, a nation that did not have gold or silver mines had to rely on foreign trade to become rich. They called for an excess of exports over imports, a situation they termed a favorable balance of trade. At that time, gold served as the chief means of settling international debts. A nation that exported more than it imported could collect the difference in gold from the importing countries.
To maintain a favorable balance of trade, mercantilist governments enacted high tariffs and other restrictions on imports. The governments also strongly encouraged the growth of domestic industries. Many nations sought overseas colonies, which served as markets for exports and as sources of raw materials. Mercantilist governments also encouraged population growth, because a large population provided a supply of labor and a market for industrial products. Some nations prohibited the sale of gold and other precious metals to foreigners.
During the late 1700’s, the mercantilist systems of many countries were gradually replaced by a policy called laissez faire. Under laissez faire, the government played a limited role in economic affairs.
Today, the term mercantilism is sometimes used to describe policies that protect domestic industries from foreign competition. In addition, mercantilist efforts to plan economic activity resemble government planning under Communism and socialism. But there are many differences between mercantilism and a socialist or Communist system.
