Mercantilism:

 Mercantilism is an economic theory.

 It advocates government regulation of international trade to generate wealth and
strengthen national power.
 It advocates trade policies that protect domestic industries.
 Under it,

 Merchants and the government work together to reduce the trade deficit and
create a trade surplus.
 The government strengthens the private owners of the factors of production.
These factors of production are: Entrepreneurship, Capital goods, Natural
resources and Labour.

Significance of Mercantilism:

 Mercantilism laid the foundation for today's nationalist and protectionist economic
policies.
 Nations felt they lost power as a result of globalism and the interdependence fostered
by free trade.
 Mercantilists promote policies that seek to create trade surpluses.
 Mercantilists use the resulting wealth to f promote national economic goals and
national businesses.
 Mercantilism establishes monopolies.
 It grants tax-free status.
 It grants pensions to favoured industries.
 It imposes tariffs on imports.
 It also prohibits the emigration of skilled labour, capital, and tools.
 It doesn't allow anything that could help foreign companies.

Causes of the Rise of Mercantilism:

Mercantilism grew due to the following reasons:

 At first, the Renaissance did not accept the religious doctrine of Medieval Europe. It
explained ‘Materialism’ as one of the mediums of human happiness. So, everybody
dreamt to lead a happy and prosperous life. This gave birth to Mercantilism.
 Secondly, the Fall of Feudalism was another cause for the rise of Mercantilism. With the
fall of feudalism, the fate of agriculture was doomed. This encouraged the small-scale
industries. The towns and guilds wanted the increase of these industries. They wanted
to export the surplus of these productions. This led to the rise of Mercantilism.
 Thirdly, the Reformation Movement encouraged the merchants. All these activities
encouraged the merchants to take up their business independently. This encouraged
Mercantilism.
  Fourthly, the Guilds and Banking System gave great impetus for the growth of
Mercantilism.
 Fifthly, the Geographical Discoveries encouraged Mercantilism. The sea voyage of
Columbus, Vascodagama, Magellan and others encouraged Mercantilism.
 Sixthly, Political Patronage established Mercantilism on sound footing. The kings
wanted to reduce the power of the feudal Lords and Barons. So, they encouraged the
merchants for trade.
 At last, Scientific Invention and Discoveries helped a lot in the growth of Mercantilism.
The telescope invented by Galileo helped the merchants in their journey.

Responsibilities of Mercantilism:
1. The fundamental aim of the mercantilists was to make the country strong. Mercantilists had
a high regard for money.
2. The aim of this theory was to get large amount of precious metals through Foreign trade.
3. The mercantilists considered commerce and industry as the most important branches of the
national economy.
4. Mercantilists encouraged large population for making the nation militarily strong and for
increasing its productive capacity.
5. The mercantilists wanted to utilize all the natural resources to the maximum extent so as to
produce more, export more and import less.
6. The mercantilists discussed the problems of production only.
7. Tmercantilists favoured a multiple tax system based on the principle of “each should pay
according to the benefits received from the state”.
8. According to the mercantilists the normal value of a commodity depended on the cost of
production.

Criticisms:
(1) Mercantilists gave too much importance to gold and silver and neglected the importance
of other commodities.

(2) They undermined the usefulness of agriculture and other branches of human history.

(3) They were wrong in believing that a favourable balance of trade was the only source of
prosperity.

(4) Their believe that the gain of one nation was necessarily the loss of another was wrong.

(5) Their ideas regarding ‘utility’ and ‘value’ were vague and abstract.

(6) Their ideas about capital and interest were imperfect.

(7) They lacked broad-mindedness.