What is Mercantilism

Mercantilism is the economic term where the government keeps a check on the foreign trade to ensure that the balance of payment is positive where the exports of the nation should exceed the imports. Here efforts are made so that the exports should increase and the imports should be reduced. The main object of Mercantilism was to enhance the wealth of country by certain regulations of government which were in favor of the commercial interest of the country. It was thought and planned that the only way to restrict and decrease imports can be levy different taxes and tariffs.

The concept of Mercantilism is based on the assumption that the nation’s wealth is basically depends primarily on the possession and accumulation of the precious commodities and metals like gold, silver and many other. It is difficult to maintain this kind of approach forever, as the world’s economy can become stable if all the countries will restrict on import and will emphasize more on exports. It is observed that after certain period of time many countries and their representatives started opposing the concept and stressed more on the need of free trade. The Policies of Mercantilism includes the high tariffs on the goods manufactured, exclusive trades, restriction on export of valuable metals like gold and silver, increasing the use of resources manufactured in the country instead of importing other resources and commodities.

Theory of Mercantilism

The theory of Mercantilism is the most popular and oldest theory of global trade or the international trade. The theory is based on accumulating the precious metals like gold which constitutes the capital and wealth of the nation. According to the theory of Mercantilism more emphasis should be to increase the exports and reduce the imports, by this we will be able to achieve the positive balance of payment or surplus in trade. Government should also help in improving and increasing the export by different means of imposing and levying tax and various other charges and tariff on the imports which will help to reduce the imports and enhance the export by using the resources of the country. The theory of Mercantilism stressed on the importance of the valuable commodities like gold and silver which are the symbol of a wealth of country and the power that finally led to the designing of the policies for obtaining the precious commodities to have the positive balance of trade as if the imports would be higher than the exports the level or the balance of payment will be in the negative terms.

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