THEORY OF

theory of merchants

MERCHANTS
MERCANTILIS
theory of merchants

M
MERCANTILIS
M
theory of merchants
an economic policy or trade system
wherein a country maintains a favorable
trade balance by maximizing exports
and minimizing imports with other
countries.
1. HISTORICAL BACKGROUND

• Mercantilism was a popular economic school of thought

in Europe between the 16th and 18th centuries.
theory of merchants
• It was officially named when Adam Smith released his
book “The Wealth of Nations” in 1776. This was a
period of religious and commercial warfare, but also the
Age of Discovery, which saw the British, French and
Spanish empires expand rapidly around the world.
• A nation’s colony would provide raw materials that
would be converted into final goods and sold at a higher
price that would provide a favorable balance of trade.
2. Characteristics

• Accumulation of Gold
theory of merchants • Belief that “wealth is static”
• Large population
• Positive balance of trade
• Reliance on Colonies
• State Monopolies
• Trade Barriers
3. EXAMPLES

British navigation act of 1651

theory of merchants
In 1651, the British government led by
Oliver Cromwell introduced
legislation that made it illegal for any
foreign ship to carry goods from or to
any of its colonies.
3. EXAMPLES

COLBERTISM
theory of merchants
It was named after Jean-Baptist Colbert,
First Minister of State in France between 1661
and 1683. It refers to several mercantilist
policies implemented during his time in office.
He introduced tariffs and encouraged public
work programs.
3. EXAMPLES

EAST INDIA COMPANY

theory of merchants
It was a state-sponsored monopoly looking to
take advantage of the Asian markets,
particularly the East Indian spice trade. It
brought gold back to Britain and helped
establish a strong and permanent trade route
between Great Britain and her colonies.
4. THE DECLINE AND
RECENT RISE
ZERO-SUM GAME
The flaw with mercantilism was that it viewed trade as a zero-sum
theory of merchants
game. Under the mercantilist system, the restriction of imports
meant consumers obtained access to fewer goods at higher prices.
By the end of the 18th century, Adam Smith and David Hume
evaluated and critiqued the merits of mercantilist theory. They
realized that wealth was not finite, but could be created through the
productive allocation of labor.
Present-day mercantilism typically refers to protectionist policies
that restrict imports to support domestic industries, sometimes
referred to as neo-mercantilism.
 4. THE DECLINE AND RECENT RISE
NEO-MERCANTILISM MODERN MERCANTILIST

Neo-mercantilism are Modern mercantilist policies

arguments supporting the include:
restriction of free trade in  Tariffs on imports
theory of merchants
certain circumstances.  Subsidizing domestic
 Tariffs in response to industries
domestic subsidies  Devaluation of currencies
 Protection against  Restrictions on the
dumping migration of foreign labor
 The Infant industry
argument