The paper "How Mercantilism Works" is an outstanding example of business coursework. Mercantilism is a trade theory that suggests that nationals “ should accumulate financial wealth, usually in the form of gold by encouraging exports and discouraging imports” (Wild & Wild, 2014, p. 161). Mercantilism downplays the importance of measures such as human development or living standards in the wellbeing of a nation. In other words, the theory implies that a nation’ s performance should be measured based on the number of exports it has as opposed to imports and the amount of wealth (measured by gold standards) it accumulates in the ensuing trade.
The importance of one-way trade was underscored, and that the benefits accrued by the exporter would be at the expense of the importer (Cairns & Silwa, 2008, p. 21). Mercantilism, therefore, represented the interests of (mainly) governments, but also merchants, while disadvantaging the laboring and farming countries. Indeed, Cairns and Silwa (2008) note that the economic and social poverty of the importing countries was perceived as desirable because any increase in social or economic power would have led to a decline in productivity, and as a result, would have denied powerful exporting countries the raw materials they needed to make imports.
This paper will discuss how mercantilism worked, identify its essential pillars, identify its strengths and weaknesses and identify the argument that liberals have against it. The paper concludes by noting that the passage of time and the development and acceptance of more efficient trade theories have succeeded in wiping out some components of mercantilism. How Mercantilism Worked The basis of mercantilism was the transition from a rudimentary trade to international trade and from feudalism to capitalism (Andrea, 2004, p.
1). It was the economic system adopted by major trading nations in the wake of geographical discoveries. In mercantilism, governments exercised control over trading companies and corporations and would carefully regulate production in order to maximize high-quality goods in an effort to enable the country to establish or uphold a certain position in foreign markets (Andrea, 2004, p. 1; Musonera, 2008, p. 2). The foregoing assumption is further noted by Lim (2009) who observes that “ mercantilism is based on the very simple assumption that the international political economy is governed, first and foremost, by state power” (p.
2). Another assumption by the mercantilist states was that wealth was finite, and as such, the more a state had in its vaults, the more secure it would be in future (Pincus, 2012, p. 5). The latter assumption whetted the mercantilist states’ appetite for hoarding gold and silver. To succeed, mercantilist policies would protect domestic industries using tax breaks, subsidies, quotas, and tariffs among other measures, hence disadvantaging foreign industries (Lim, 2009, p. 2).
It was further pegged on the realist perspective that intimated that people live in a ‘ man eat man world/society’ . In other words, every country was a self-interest actor, and all decisions made were in the pursuit of maximizing benefits accrued by a country while minimizing costs (Lim, 2009, p. 5). It also worked on the assumption that states were unitary actors, whose actions were guided by the national interest. On his part, Irwin (1991, p. 1296) points out that mercantilism worked both as a commercial policy and as an economic thought.
As a commercial policy, mercantilism was assisted by extensive regulations by government, which ensured that the country benefited from any form of international trade it engaged in. As an economic thought, mercantilism held that the gains that a country got were based on exports alone and that international trade for a country should be equivalent to a “ zero-sum game” (Irwin, 1991, p. 1296). In a zero-sum game, what one party gains and the opposing party loses (Harris, 1993, p. 2; Raghavan, 1994, p. 736). In other words, if one trading party earns profits, it would be obvious that the other party in the trade arrangement would lose.
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