Mercantilism was an economic system that mostly existed between the 16th and 18th centuries. It was based on the notion that a nation’s wealth and power came through increasing exports and limiting the rate they imported goods and services. It was characterized by many European nations striving to accumulate wealth by maximizing their exports and minimizing their imports through tariffs.
Under mercantilism, nations used their military might to ensure that their local markets and sources of supply were protected. Therefore, it supported the idea that a nation’s economic health depended on its supply of capital. It was also believed that a nation’s economic wealth could be assessed by its level of ownership of precious metals like gold, silver, or diamond. The following points outline the pros and cons of mercantilism.
Pros of mercantilism
1. Encouraged complete development of all-natural resources: There was a need to research and develop all possible resources to their greatest level through mercantilism. There would be a lot of waste if mercantilism didn’t exist due to the emphasis on using foreign trade to fill in products/ service gaps. The local mother nation economy would be supported to grow.
2. It was a good source of employment: There was a lot of emphasis on developing the mother country’s local industry. Jobs were thus created to support this objective. From finding resources to creating innovative new products and selling the products, workers were needed at every stage. Though most of the employment opportunities were given to people of the mother nation, other additional jobs were created in each colony.
3. It promoted the exchange of culture to promote Trade: Exchange of culture encouraged and influenced business opportunities between the trading countries. The cultural exchange also enhanced people’s living standards in the trading countries. Exchange of culture was done to create a long-lasting relationship between the trading countries to continue to do business together for a long time.
4. It promoted Industrial growth: There was a need for a surplus for export. Therefore, there was a need for industrial growth so that the production process would increase to meet the demand of the people. The surplus product would also be exported.
5. It led to improved foreign relations: Foreign Trade helped the trading countries get along well so that the history of trade among the countries would live forever. Trade created a solid foundation-friendly relationship between countries that still live today.
6. It helps increase colonies: There needed to be a market to export its surplus products. Thus, European countries had to conquer new countries to establish their colony in those places.
7. It paved the way for a new invention: Due to the growth of trade and commerce, there was increased demand for new goods. Therefore, people had to invent new things to increase technology, such as machines that would produce more. The new inventions thus brought a revolutionary change in terms of production.
8. It created a market for finished goods: The increase in colonies of the trading nations paved the way for finished goods. The mother country also collected raw materials from its colonies at relatively low rates – raw materials that were then converted into useful finished products exported to other countries during the trade.
9. Led to national growth: Countries that practiced mercantilism became strong and influential. Nations that depended on these nations for goods and services would become indebted to the trading countries in many ways.
10. Led to the economic prosperity of nations: The countries that benefited from mercantilism enjoyed more resources and financial and military benefits.
Cons of mercantilism
1. It brought conflict among European nations: Conflict arose because each country wanted to be more powerful than the other.
2. It led to Colonialism: European needed markets for sailing and transporting surplus goods. They also needed raw materials to transport to their countries for production. Therefore, enmity among countries was created as a country wanted to acquire more colonies than the other.
3. It was one-way traffic: Mercantilism emphasized export rather than importing goods to countries. For this reason, it created an imbalance in trade since it was not easy for countries to be self-sufficient. Many European nations thus failed in trade, which led to their economic misery later on.
4. It put too much emphasis on money: European countries that practiced mercantilism concentrated so much on making money, forgetting that this was not the true wealth of a country. They forgot that natural resources and technology added up to true wealth.
5. It interfered with human rights: European countries that practiced mercantilism ran colonies where they mistreated the people they colonized. However, colonies raised their voice against the colonizing countries and acquired independence later on.
6. It emphasizes trade and commerce: European countries that practiced mercantilism emphasized trade that they neglected other aspects of life such as education and agriculture. As a result, It became a major subject of criticism against mercantilism later on.
7. It made countries take advantage of each other: Since a country wanted to become more powerful than the other, it was easy for one country to take advantage of the other in terms of trade to be steps ahead of the other country. This consequently led to strained relationships between countries; thus, hatred for one country against the other grew.
8. There was a risk of local raw materials and resources running out: Mercantilism was based on the full use of natural resources to meet the demand in the market. Since natural resources are finite, there was a risk that they would run out one day due to over-extraction.
9. Led to the rise of monopolistic trading Firms: These trading firms include East India Company and French East India Company. These companies later came to produce low-quality goods since they had no competitors.
10. Weakened the country’s future economic growth: This is because countries that practiced mercantilism robbed individuals of the ability to trade freely and benefit from voluntary exchanges.