Mercantilism theory
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Abstract
Mercantilism is among the first theories that ever existed since the 16th century. However, it is a bankrupt theory that has no place in the modern world. The reason behind the bankruptcy of the theory is the assertion that the theory holds. It is in the assertion of the theory that the country can only achieve its best interest by maintaining the trade surplus. It suggests that countries need to export more than what they import. It is possible for the said countries to achieve this by the government intervention to regulate the trade sector through the imposition of tariffs and quotas. The theory, therefore, goes against the modern global notion that encourages free trade among countries. In cases where the mercantilism theory can hold, then any economic injuries and failures would be recorded. Many other economists including Adams Smith and David Ricardo have boldly come out to fold the theory as one that has much shortsightedness.
Keywords: Mercantilism, bankrupt, surplus, trade, import, export, tariffs
Mercantilism is a bankrupt theory that has no place in the modern world.
Mercantilism was the first theory of the international trade of its kind that emerged in England in the mid- 16th century. The theory asserted that the country could only achieve its best interest through maintaining trade surplus at the same time exporting more than what it can import. To maintain the surplus in the trade balance, the doctrine of Mercantilist advocated that government needs to intervene.
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Through intervention, the government had to regulate all the commercial interests of the nation with the aim of increasing its wealth. In its position, therefore, Mercantilism presented a view that for one country to gain in trade, another one must incur the loss.
In the modern world, however, this theory could not hold since it would greatly crater the economic development of the country. Today’s century where we exist in advocates for free trade among countries as they have to grow under one global market. Therefore, mercantilism goes against this notion of globalization that has taken over the world market. The policy instead will create the enmity among the traders who do businesses together as their goods and services will not be allowed into the markets of the countries that have adopted the mercantilist notion. Once such restrictions on imports using the tariffs and quotas ate implemented by the mercantilist country, it will find it difficult to export (Gaido, 2016). The other reason for the bankruptcy of the mercantilism theory in the modern world is the fact that those consumers living in the mercantilist countries will suffer a lot. The explanation behind the suffering of the consumers is that since no imports are allowed in their mercantilist country, the consumers will lack access to cheaper and quality products other countries. So, in this perspective, it is the common consumers who lack capacity who will suffer.
Take for instance a country like the United States of America, despite the excessive government regulations, traders in this nation have just looked upon the regulations in place. This then means that this mercantilism theory will stand no chance of succeeding. And in cases where such a theory succeeds in the US, there would be a dramatic fall in the country’s economic development. Since the US is among the leading economies in the world, it would likely experience the economic recession that comes with this theory of mercantilism. The US traders are used to engaging in free trade within and outside the borders of the country.
However, it is important to examine the extent of the success of this economic system. One such a factor that can be used to determine its success is the fact that many trading countries utilized silver and gold as the main currencies (Joshua & Jaewoo, 2010). So the whole concept behind this theory was to see an increment and maintenance in the positive flow of the gold and silver. However, even with this notion, Adam Smith and David Ricardo never got tired of pointing out the shortcomings of the mercantilism theory and advocate for a sum game that is positive in trade. In his argument, David Ricardo defended his argument say that the positive inflow of silver and gold from one country into the other would cause inflation (Joshua & Jaewoo, 2010). The amount of the circulating currency will increase thus making the prices of the commodities go high. On the other hand, the country giving out silver and gold would experience the deflation. Thus, at all cost, mercantilism is a bankrupt theory that has no place in the modern world.
References
Gaido, D. (2016). Rudolf Hilferding on English Mercantilism. History Of Political Economy, 48(3), 449-470. doi:10.1215/00182702-3638631
Joshua, A., & Jaewoo, L. (2010). Real exchange rate, mercantilism and the learning by doing externality. Pacific Economic Review, 15(3), 324-335. doi:10.1111/j.1468-0106.2010.00505.x
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