Question

With reference to Mercantilism answer the following question:
Explain briefly the basic principles of Mercantilism.

Answer 1

The basic principles of mercantilism were identical in all the countries. These were the following:

1. Foreign Trade: The Mercantilists believed that the strength and richness of a country depend on two things the possession of gold and silver mines and a favorable balance of trade. As all the countries did not have mines of gold and silver, they could build up stocks of these metals by exporting the maximum of their manufactured goods and importing a minimum of commodities from other countries. They, therefore, insisted on discouraging imports through the imposition of heavy duties and prohibition on foreign goods and encouraging exports by promoting domestic agriculture and industry.
2. Importance of Wealth: Mercantilists considered wealth as the sources of all power and laid great emphasis on the importance of gold and silver.
3. Interest: Mercantilists favored charging of a low rate of interest on the money as it could be profitably employed in trade to make a profit. The high rates of interest made the money scare.
4. Factors of Production: Mercantilists considered the land and labor as the sole factors of production. Most of them laid emphasis on the need to increase production to attain self ­sufficiency in food-stuffs and to encourage exports. They laid emphasis on the cultivation of wastelands to increase production in agriculture.
5. Large Population: Mercantilism emphasised the need of having a large population for increasing production and participation in the war. They regarded a large population as the real strength of the community as it made inventions and developed industries which brought riches.to the nation.
6. Commercial Regulations: For the maintenance of a favorable balance of trade the mercantilists favored commercial regulations. The European countries frame regulations to restrict the import of foreign goods and encourage exports.