By the beginning of the sixteenth century, some significant institutional changes in Europe took place like the discovery of new continent, Renaissance, and religion revolution, which made the next two hundred years different from the preceding era of feudalism and portended the advent of capitalism. The intervening period is called mercantilism. The essential characteristic of mercantilism, I think, is economizing expenses and exporting products in order to strengthen nation-state. Gold and silvers becomes the end of final objective. This economic system has its special principal rules on nationalism, and eventually follows its inevitable trend to failure after 200 years.
Though mercantilism in different nations at that period appeared different, the nine principles of national economy approximately represent mercantile ideas as a whole:
(a) Every inch of soil should be utilized either for agriculture, mining, or manufacturing.
(b) Large working population should be encouraged.
(c) All raw domestic resources should be used for producing final goods like tools and cloth that are of more value.
(d) Only manufactured goods should be exported but raw materials are forbidden to export.
(e) No gold or silvers can be exported.
(f) If raw materials are imported, it should be paid by exporting other goods.
(g) New market should be sought and extended for exporting its surplus goods.
(h) Only raw materials can be imported.
(i) If a good is sufficiently and suitably supplied at home, it should not be allowed to import.
From the nine characteristics of mercantilism doctrine, it is easy to find out that mercantilism motivated manufacture and maximized final-product exports. The state was very strong and powerful. The monarch and the merchant-capitalists planed and governed the economic life to secure monopoly gains. To pursue the goal of monopolizing manufacture market, rather than improved technologies and utilized the benefits of specialization, the state tried every means to resist and block the development of neighbor countryбпs manufacture, which is “beggar thy neighbor”. They neglected and eliminated competitive advantage, and actually violated the nature of economy.
Consumption should be the unique objective of production. However, at mercantile age, it seemed to go against consuming and encourage frugality. Mercantilists intensified the development of manufacture, with no hesitation to sacrifice the interest of consumers. For instance, in this period the government usually rewarded manufacturers to export their goods and limited the importation of external goods; therefore domestic market was less competitive, legal monopolies drove up prices, consumers were hurt, the purchase power declined, and the further development of economy was affected.
In addition, such international trade style often causes some unnecessary waste. If a country had to import some raw materials, it usually didnбпt trade with its neighbors but with its colonies even if they were in very remote places. The reason was it couldnбпt be paid by exporting other goods into its neighbor countries. Also to seize and control colonies, a great number of money was spent to recruit soldiers and purchase warships. However, many countries became in the red due to the innumerable payments to wars; for example, the sinking of Spanish Armada in some sense destroyed the empire.
Furthermore, money or gold was equated to wealth or fortune in the ear of mercantilism. A wealth country was considered to hold plenty of money, so hunting for gold and silvers seemed to the desirable and ultimate aim. Nevertheless, this mercantile behavior had also to take risk. Suppose there is much enough gold in a place, it will be undoubtedly depreciated. When Spain transported piles of gold into Europe from Latin America, gold devalued greatly. In this case, the mercantile attempt to accumulate gold is self-defeating.
Besides the limitation of mercantile labor rules is also a cause to its end. The maintenance of a growing domestic population was considered means of national aggrandizement. The policy was of keeping labor poor. Laborers were very miserable and only provided subsistence wages because high wages would lead to vice and moral ruin. Unemployment was devalued as a result of indolence. Those views are very extreme and sound ridiculous. Economic efficiency needs productive workers, of great passion and high qualifications. I think at that time, the manufacturing work might be inefficient.
Mercantilism was a very important historical process. It eliminated the feudal self-sufficiency and enhanced the international trade, which was very different from the previous feudalism. However, after experiencing its peak phase, it would go down on the wane. It eventually gave way to a very distinctly different economic system.
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