The mercantile system has been subjected to criticism on a number of grounds. In the first place it is said that it unduly emphasized the importance of money and over-emphasized the importance of gold and silver.
It is true that in that age gold and silver were considered important forms of wealth due to scarcity of these metals and lack of proper credit facilities, but it was certainly wrong to conceive the wealth in terms of gold and silver alone. The mercantilists failed to realize that money was merely a medium of exchange for securing the real capital. So long as the country possesses real capital the money was of little consequence.
Secondly, the mercantilists unduly emphasized the importance of a favourable balance of trade. For the attainment of this objective they discouraged imports by importing heavy and prohibitive duties on foreign goods and provided every possible stimulus to exports. In other words, they emphasized that imports were bad but exports were good. It is difficult to understand how all the nations could be exporters only without
One way trade is not possible. What is really significant for the development of the country is not a favourable balance of trade but the development of the resources of a country. The idea of self-sufficiency though quite attractive is highly impracticable. It is not always possible to completely exclude the goods of other countries. In fact, the failure of mercantilism was largely due to its emphasis on the ideal of self-sufficiency.
Thirdly, the undue emphasis by the mercantilists on state regulation of the commercial activities has met with severe condemnation at the hands of the French Physiocrats and liberal writers like Adam Smith in England. The French Physiocrats insisted that every man has the right to enjoy the fruits of his labour without regulation or restriction and pleaded for equality of individual rights and minimum of government.
They considered agriculture as the only productive activity, even though they considered commerce and manufacture, also necessary. However, they insisted that commerce should be free from all domestic and foreign restrictions. But it was Adam Smith who highlighted the fallacies of mercantilism in his Wealth of Nations.
He not only exposed the futility of the measures taken by the mercantilists to promote favourable balance of trade but also asserted the superiority of the principle of international division of labour over the principle of national self-sufficiency.
He opposed state intervention and pleaded for a system based on natural liberty on two grounds. First, the individual could promote his private interests better than the state. Second, there was no contradiction between the interests of the individual and the society.
The ideas propounded by Adam Smith gained ascendancy over the minds of the English people very quickly and greatly contributed to the decline of mercantile system in Britain.
Fourthly, the mercantilist assumption that the colonies existed for the benefit of the mother was not a sound economic proposition. It not only led to the economic exploitation of the colonial people but also generated lot of tension in the relations between the colonial power and the colonial people.
Fifthly, mercantilists have been criticized for advocating state regulation of commerce. It has been asserted that the trade conducted under individual initiative and free from official regulation was inherently beneficial to the individual as well as the community.
Sixthly, merantilists wrongly assumed that one nation’s gain necessarily meant loss of another state. This may be true in some cases but is not always applicable to the sphere of international trade. At the international level generally free exchange is benefical to both the parties.
Seventhly, mercantilism was faulty in so far as it took only a short-term view of the things and made no bid to make a long term analysis.
Finally, the mercantilism over-emphasized the importance of commerce and greatly undermined the importance of agriculture and other branches of human industry.