What are the mechanisms of mercantilism?

Answer 1

Mercantilism is a dated economic system that had its heyday in the 18th century in Europe. The goal of installing any particular economic system is to gain prosperity, however, all economic systems can, to some extent, fail to accomplish their goals. The extent of such failures can be either long or short term.

In the case of mercantilism, the goal was indeed prosperity and the idea of using it was much like this for any particular nation:

A. Attract precious metals such as gold and silver to the nation's treasury. These metals are standards by which many economists deem to be measures of wealth;

B. Create an imbalance of trade whereby a nation exports more than it imports;

C. Receive payments in the imbalance in the form of gold & silver;

D. Continue this imbalance by increasing exports, even to the extent of subsidizing companies to continue their production of exportable goods;

E. Raise tariffs to reduce imports. This may not reduce imports if the market is willing to pay the extra cost of goods, however, it will certainly have an overall affect of doing so;

G. Imperialism. Yes, one of the reasons besides accumulating power & creating sphere's of influence is part & parcel with mercantilism. By creating colonies, an export market is created along with being able to acquire raw materials at a reduced price to aid manufacturing; and

H. Create laws that forbid the colonies from trading with other countries. Have the colonies only trade with the founding nation.

This entire economic system was intended to therefore benefit the home country and their colonies.

As an aside, planned economies and trade restrictions eventually fall apart.