Mercantilist theory of international trade. Mercantilism 2022-10-21

The mercantilist theory of international trade is an economic philosophy that dominated the European economic system in the 16th, 17th, and 18th centuries. It holds that a country's wealth and power are determined by the amount of gold and silver it possesses, and that the only way to increase a country's wealth and power is to export more goods than it imports.

According to mercantilist theory, international trade is a zero-sum game, in which one country's gain is another country's loss. Therefore, mercantilists believed that a country should pursue policies that would encourage exports and discourage imports, in order to maximize its own wealth and power.

One way that mercantilist countries pursued this goal was through the use of tariffs and other trade barriers, which made it more expensive for foreign goods to enter the domestic market and thus made domestic goods more competitive. Mercantilist countries also sought to establish monopolies over certain industries, in order to control the production and distribution of certain goods and prevent competition from foreign producers.

Mercantilism also played a role in the colonization of new lands, as European powers sought to gain access to raw materials and new markets for their goods. This often led to conflict and exploitation, as colonizing powers sought to extract as much wealth as possible from the territories they controlled.

Despite its widespread influence, mercantilism was eventually challenged by Adam Smith and other classical economists, who argued that international trade could be mutually beneficial and that countries should not attempt to protect their domestic industries at the expense of others. Today, mercantilist theory is largely rejected by mainstream economics, which emphasizes the benefits of free trade and globalization.