Mercantilism

Mercantilism is an economic policy that emphasizes government intervention to increase the nation’s revenue through artificial monopolies, subsidies, and trade wars.

It had its roots with the silk road between Venice and China.

China became wealthy during the Song dynasty whch lasted up to the 1260’s when the Mongols started to control most of China.

This allowed trade with Europe, attracting the Europeans to the East.

However, the Fall of Constantinople in 1453 blocked the Silk Road. This allowed the Arabs to gain dominance in trade between Europe and Asia.

To solve the Arab problem, the Europeans sought a sea route to India, China, and Indonesia for spices.

• The Spanish looked for a Western route.
• The Portuguese looked for an Eastern route.

During the Roman times, the revenue model of Europe was conquest.

They would invade lands and to extract taxation as precious metals. This was because precious metals were abuundant in mainland Europe, North Africa, and Arabia.

However, this revenue model could not work for distant countries that did not have:

• centralized systems of governance
• precious metals

This forced the Europeans to import native commodities instead and convert them to precious metals.

This gave birth to mercantilism of which the goal was to get the most precious metals through monetization, as the trade for money.

Balance of Trade

This conversion led to the concept of the balance of trade which sought to maximize the precious metals that went into the country.

To do this, it implemented policies such as:

• monopoly export and import
• subsidies to support unsustainable industries
• trade wars

In other words, it prioritized nominal value at the expense of real value.

The lack of real value caused inequality in the colonies, causing rebellions and losses.

Moreover, the introduction of the steamship allowed private traders to undersell the government traders, further reducing the colonizers’ revenue.

In the end, it was abandoned in the 19th and 20th centuries.