Tuesday, February 5, 2019

What was the purpose of the mercantilism?

Mercantilism is an economic theory that was popular in Europe from the 16th to 18th centuries. The purpose was to increase a nation's wealth by maximizing trade surplus and collecting gold and silver. This was achieved through active government intervention in trade activities, such as imposing high tariffs on imported goods and subsidizing exports.
The idea behind this theory is that the amount of gold and silver is the true measure of a nation's overall wealth and prosperity, and for countries lacking in such resources, the best way to accumulate gold and silver is by selling its products to other countries while limiting purchases from overseas. This theory was doomed to fail because by equating the amount of gold and silver to a nation’s overall wealth, the assumption would be that the total wealth in the world is static. Therefore, for some countries to become richer, some other countries would inevitably become poorer. This makes the development of a global economy impossible. Also, such practices would lead to higher opportunity cost because import restrictions would prevent a country from utilizing cheaper resources from other countries to provide supply for its production.

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