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Colonial Mercantilism: Definition, History & Effects

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  • 0:00 What Is Mercantilism?
  • 0:55 Gathering Precious Minerals
  • 1:35 Colony Growth
  • 2:30 Colonies And Mother Countries
  • 4:30 Exports & Imports
  • 5:10 Effects Of Mercantilism
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Lesson Transcript
Instructor: Stephen Benz

Stephen has taught history, journalism, sociology, and political science courses at multiple levels, including the middle school, high school and college levels.

Mercantilism was a major economic theory in Europe between the 16th and 18th centuries. In this lesson, we learn its four basic rules and the effects of mercantilism on history.

What Is Mercantilism?

Should a country import more or export more? How does a country grow big and powerful? What should the relationship between a mother country and a colony be?

These questions are the types of questions that were answered by an economic theory called mercantilism. Mercantilism is a set of economic ideas about how a country can get rich. Several European countries embraced this theory between the 16th and 18th centuries.

While there are several different versions enacted, there are four basic economic principles or rules of mercantilism.

  1. A country becomes rich and powerful by collecting as much gold and silver as possible.
  2. A country becomes rich and powerful by increasing the number of colonies it has.
  3. The mother country should produce manufactured goods, while the colonies should provide natural resources.
  4. A country should have more exports than imports.

Gathering Precious Minerals

For a long time in Europe, the wealth of a person was often measured by the amount of land a person had. However, ideas about what it meant to be wealthy were starting to change during the 16th through 18th centuries, when mercantilism was popular. While land was still valuable, people began to see a new way to measure one's wealth: gold!

Gold is an interesting shiny metal, but there's only a limited supply of it. Since there is only a finite quantity of it and people desired its perceived beauty, gold started to attain value. Therefore, the more gold you had, the wealthier you were. Likewise, silver's value increased and became a measurement of wealth.

Colony Growth

To understand the second rule, we must understand the two parts of an empire. An empire is 'any country that controls other lands that are not traditionally a part of it'. The central controlling country is called the mother country. The lands or territories it controls are called colonies.

As an example, think of the British Empire. In the British Empire, the mother country was Great Britain. Great Britain controlled a vast number of other colonies, including the American colonies, Australia, India, Nigeria, and others.

This rule connects to the first rule: a country wants to increase the number of territories so it can collect more gold. As an example, the Spanish Empire sent several conquistadors to the New World to conquer the land, and, more importantly, acquire gold. It also relates to the third rule: having more colonies leads to more available natural resources that can be used in manufacturing.

Colonies and Mother Countries

In order for us to learn the third rule of mercantilism, we must differentiate between natural resources and manufactured goods. A natural resource is 'a pure raw resource that we get from nature.' Humans do not have to do anything but extract it from the ground, from the water, or from a plant. It is a part of nature. Examples of natural resources are rocks, wood, water, apples, pears, fish, etc.

In contrast, a manufactured good is 'something that is man-made.' For example, a car is a manufactured good. Humans take raw metal, manipulate it, and form it into the different parts of a car. Likewise, a t-shirt is a manufactured good. Humans take pure cotton, spin it, weave it, and sew it to make a t-shirt.

Okay, now that we know the difference between a manufactured good and natural resource, let's remember the two parts of an empire: the mother country and the colonies. Under mercantilism, the colonies were supposed to send to the mother country raw natural resources. Colonies were not supposed to manufacture any goods; the raw natural resources were supposed to be processed into manufactured goods only in the mother countries.

So, in our example of the Spanish empire, the colonies it established in the New World served the sole purpose of providing natural resources to the mother country, Spain. They were not to make their own goods. Likewise, the 13 original colonies were formed by the British government in order to provide a number of natural resources to Great Britain. This rule is important for those who study the American Revolution because one of the complaints of the American colonists against the British crown was their inability to industrialize like in Great Britain.

Because manufactured goods are more expensive, colonies were getting a bad deal here because they were sending cheap resources to the mother country, and if they wanted manufactured goods, they would have to pay a lot of money. For mother countries, however, this was a great deal! They got cheap natural resources so they could make more manufactured goods and get richer.

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