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Mercantilism is a bankrupt theory that has no place in the modern world. Discuss.
Solution
Introduction
Mercantilism is a bankrupt theory that has no place in the modern world. Discuss.
The philosophy of Mercantilism was the one that started more than 300 years ago on the basis of a commercial revolution that was a transition from local economies to national economies, from feudalism to capitalism as well as from a rudimentary trade to al larger international trade. The economic system formed under Mercantilism was used in the major trading nations during the era of 16th, 17th and 18th century. Its main idea was based on the premise that the wealth and power of nation are generated by increasing exports and importing precious metals in return. The countries where this economic philosophy was started were Holland, France, UK, Belgium, Portugal and Spain. This system was predominantly controlled by monarchs and therefore, the state exercised much control over economic life through corporation and trading companies. The proponents of this theory believed that the world only contained a fixed amount of resources and wealth, so in order to increase the wealth, a country had to get the resources and wealth of another(Hahn, 1947). This tendency of exporting more and importing less to receive in exchange gold (i.e, the deficit is paid in gold)is the basic philosophy of Mercantilism.
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However, in the modern world and modern economic model, there is no place for this theory to hold any water. The economists have termed it as a model of bankruptcy which is not going to help either of the importing country and exporting countries. If we are to apply the principle tenant of mercantilism in the modern economic scenario, then it would mean that a country should maintain trade surplus, even if it means that the imports are restricted by the government intervention.
One of the compelling reasons for this theory to be bankrupt in the modern economic scenario is profusely inconsistent with the general notion of the globalization, which is a prime driver of the global economy today and is getting more and more prominent by the day. In such a situation, the policies of mercantilism will anger the potential trade partners due to the fact that it will exclude their goods from having a free access to the markets of the mercantilist country. Consequently, the countries utilizing such policies would find it difficult to export the goods if they impose the oppressive quotas as well as tariffs on its imports(Ballinger, n.d.). Secondly, the practices of mercantilism are such that they always hurt consumers because such practices will deny its consumers access to either cheaper goods from other countries or more sophisticated goods from there. Import barriers create high prices for certain producers, which can be profitable for the producers, but consumers suffer from the higher prices, which in turn hurts profits. Hence, mercantilism can indeed be called a bankrupt theory.In terms of historical perspective, mercantilism put too much emphasis on money which wasn’t good for the economy. The merchants used to focus more on gold and silver which were never true wealth of a country, but resources and factories were the true wealth and the European
Mercantilism ran after gold and silver and could not serve people properly. Because of this, the European countries involved in conflicts among themselves. The fact that each country wanted to be more powerful economically and politically than the other, tilted the balance of power in Europe. Mercantilism also gave birth to colonialism as the countries involved in this practice needed markets in order to sell their surpluses which eventually led to the enmity among different countries. Because mercantilism put a lot of emphasis on trade and commerce, it did neglect the other aspects of life like education, agriculture and social issues.
The modern day economists have severely criticized mercantilism as they argue that there was really no difference between domestic and foreign trade with all the trade is beneficial both to the trader and to the public. In view of this, they maintain that the amount of money or treasure that a state needed would be automatically adjusted and that money, like any other commodity, could exist in excess. They deny the idea that a nation could grow rich only at the expense of another and argued that trade was in reality in two-way street(La Haye, n.d.).
The proponents of mercantilism followed a strong principle that a countrycan rise at the interest of other only because it made the relationships strained among different countries. Also, Mercantilism contributed to the development of full-time standing armies and navies because mercantilist nations scrambled to protect markets and sources of raw materials.
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Ballinger, C. Mercantilism and the Rise of the West: Towards a Geography of Mercantilism. SSRN Electronic Journal. http://dx.doi.org/10.2139/ssrn.2164912
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Hahn, L. (1947). Mercantilism and Keynesianism. American Journal Of Economics And Sociology,6(4), 515-529. http://dx.doi.org/10.1111/j.1536-7150.1947.tb01589.x
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La Haye, L. Mercantilism: The Concise Encyclopedia of Economics | Library of Economics and Liberty. Econlib.org. Retrieved 21 April 2016, from http://www.econlib.org/library/Enc/Mercantilism.html
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