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What Is The Relationship Between Import And Export In A Mercantilist Economic System?

Over the years, our world has gone through different economic systems and different inclinations towards different laws. History is full of them. Mercantilism can also be said to be one of them. However, in order for you to understand what a mercantilist economic system is or what mercantilism is, you first need to have a basic idea of what economics is.

So, let’s take this step by step. Economics is defined as, in simple words, the study of production, distribution and consumption of goods and services. So, it basically revolves around everything related to business. It looks at how things are produced and everything that may affect the production. It also looks at what should you be producing, why should you be producing and for whom should you be producing. In exactly the same way as it looks closely at production and all its different aspects, it also looks at the different aspects of distribution and consumption as well.

Furthermore, according to economics the biggest problem, which is mostly referred to as the basic economic problem, that the world is facing is that the wants of human beings are unlimited and the resources to fulfill them are limited. So, to effectively use the resources you have in order to satisfy most of your wants is what’s taught to us by economics.

What is an economic system?

Now that we have a basic understanding of what economics is, we will move on to what economic systems are. So, like with everything else, there are different ways through which people can choose to perform a simple task. That is the case with economics as well. An economic system, in simple words, is a process used by people through, which they organize their production, distribution and consumption. Now, there are four things on which your production is based on and they are called the factors of production. Land, labor, capital and entrepreneurship are the four factors of production, which are regulated in different ways in different economic systems.

What is mercantilism?

Moving on to mercantilism, so a mercantilist economic system was first introduced and practiced in between 1500-1700s in Europe. Now, it was also being practiced in other parts of the world as well, such as the Britishers.

Under mercantilism, a country’s total wealth, is determined by the total volume of precious metals, which they have, mainly gold and silver. So you can imagine the government’s concern for accumulating gold and silver. Whatever the government did, was to ensure that their gold and silver reserves were increasing. 

Now, in order to increase their gold and silver reserves, a country needed to have a favorable or positive balance of trade, where their exports were more than their imports. Let’s take an example of a normal business, if you want your business to be successful, you will need to have a larger inflow of cash or resources as compared to its outflow. This means, in simple words, that your sales are more than your purchases. This will help your business to make a profit. The higher the difference between the two, the more profits your business will make. In the same way, countries needed to buy less and sell more in order to maintain a favorable balance of trade. This would result in the other countries trying to make up the difference by giving them gold, silver and other precious metals.

Now, going back to the 1500-1700s time period, it was a time when there were a lot of colonies. A colonial system was at large. Now, the mother country was the one taking advantage through this economic system. They would import the raw materials and supplies from their colonies and by using their superior industrial capabilities, the mother countries would create finished products. By adding value to these raw materials, they would increase the prices and would sell them back or export them to the colonies again.

The colonies would also serve as a market for the mother countries as well. By selling goods, at increased prices, to the people in the colonies the mother country would make hefty profits.

Now, this economic system also has certain benefits and flaws like every other economic system in the world.

Benefits

  • Increase in Development: Trade between countries leads to a faster rate of development for both the countries involved in the activity.
  • Increase in Wealth: Mercantilism allows the mother country to accumulate wealth at a much faster rate than other economic systems.
  • It Helps In Lowering the Unemployment Rate: Trade between countries opens up work and employment opportunities for people of both the countries involved in this activity.
  • It Helps In Building Stronger Relationships: Business activity requires both the countries to have cultural knowledge about each other. This exchange of cultural knowledge allows them to build stronger and more long lasting relationships.

Flaws

  • It Looks Out More For The Interests Of The Mother Country: In the colonial era, the interests of the mother country were always a priority. The mother country was seen to be reaping most of the rewards in this particular arrangement of trade. 
  • It Encourages Negative Feelings In The People Of The Colonies: As amazing as this economic system may sound, mercantilism only allowed the stronger countries to reap the rewards from the trade and accumulate larger proportions of wealth, leaving none or very little for people living in the colonies.
  • It Creates A Risk Of Depletion Of Natural Resources: There are only so many natural resources in a particular piece of land. When the mother country focuses on using the natural resources as raw materials for their products then it is only a matter of time till they get depleted.

What is the basic economic problem?

The basic economic problem arises with the phenomenon of having unlimited wants and having scarce resources. As a result human beings have to make choices that would provide them with the most amount of satisfaction.

Which is the best economic system in the world?

There are many economic systems, which have come and gone over time. Some of them are still being practiced today as well. All of them have flaws that can exploited and benefits that can reaped. However, most people believe that a mixed economic system is better than the rest, these days.  

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