Principles of Mercantilism

Mercantilism was an economic theory that was current between about 1550 and 1760. First, it stated that wealth can be created only by trading between nations, using the products in which each has a special advantage. The second feature formed the principle behind colonialism because it stated that an increase in the wealth of one country must cause a reduction of wealth in others. By deduction, for "civilised" European countries to become richer, countries in Africa, Asia and America will need to provide their materials as minimum cost. The classic examples used at the time were South American silver and Oriental spices. Mercantilism was apologetic for the plundering of "primitive societies" but it was adopted by most thinkers and politicians, and by the Roman Catholic church. It became clear by the late 1600s that China and India were not primitive societies, and that mercantilist principles were at risk of damaging those large communities, but for a time no one could devise an alternative theory of wealth creation.Adam Smith in his book "The Wealth of Nations" [1776] showed that wealth can be created by other means and that trade could in fact cause a reduction in domestic wealth if certain conditions are not met. Smith and David Hume are regarded as the principal critics of mercantilism in the 18th century.By the end of the 18th century, mercantilism was used as a term of abuse or insult on economic theories that were out of date, or had been superseded by the wealth creation possibilities of the industrial revolution. It became clear that wealth can be created domestically, without trade, if an economy is self sufficient in the essentials of human life and if there is a ready supply of raw materials. By 1800, almost no one accepted mercantilist theory.There was a short resurgence of mercantilism in USA in the 1840s and 1850s, after the bimetallism debate and whilst slavery was still important to agricultural production. The southern states espoused a mercantilist approach to public policy in banking, land management, fiscal [taxation] policy and so on.These days, it is regarded as an interesting historical stage in the development of economic theory and public policy but not a basis for economic strategy or business planning.