mercantilism, economic system of the major trading nations during the 16th, 17th, and 18th cent., based on the premise that national wealth and power were best served by increasing exports and collecting precious metals in return. It superseded the medieval feudal organization in Western Europe, especially in Holland, France, and England. The period 1500-1800 was one of religious and commercial wars, and large revenues were needed to maintain armies and pay the growing costs of civil government. Mercantilist nations were impressed by the fact that the precious metals, especially gold, were in universal demand as the ready means of obtaining other commodities; hence they tended to identify money with wealth. As the best means of acquiring bullion, foreign trade was favored above domestic trade, and manufacturing or processing, which provided the goods for foreign trade, was favored at the expense of the extractive industries (e.g., agriculture). State action, an essential feature of the mercantile system, was used to accomplish its purposes. Under a mercantilist policy a nation sought to sell more than it bought so as to accumulate bullion. Besides bullion, raw materials for domestic manufacturers were also sought, and duties were levied on the importation of such goods in order to provide revenue for the government. The state exercised much control over economic life, chiefly through corporations and trading companies. Production was carefully regulated with the object of securing goods of high quality and low cost, thus enabling the nation to hold its place in foreign markets. Treaties were made to obtain exclusive trading privileges, and the commerce of colonies was exploited for the benefit of the mother country. In England mercantilist policies were effective in creating a skilled industrial population and a large shipping industry. Through a series of Navigation Acts England finally destroyed the commerce of Holland, its chief rival. As the classical economists were later to point out, however, even a successful mercantilist policy was not likely to be beneficial, because it produced an oversupply of money and, with it, serious inflation. Mercantilist ideas did not decline until the coming of the Industrial Revolution and of laissez-faire. Henry VIII, Elizabeth I, and Oliver Cromwell conformed their policies to mercantilism. In France its chief exponent was Jean Baptiste Colbert.

Economic theory and policy influential in Europe from the 16th to the 18th century that called for government regulation of a nation's economy in order to increase its power at the expense of rival nations. Though the theory existed earlier, the term was not coined until the 18th century; it was given currency by Adam Smith in his Wealth of Nations (1776). Mercantilism's emphasis on the importance of gold and silver holdings as a sign of a nation's wealth and power led to policies designed to obtain precious metals through trade by ensuring “favourable” trade balances (see balance of trade), meaning an excess of exports over imports, especially if a nation did not possess mines or have access to them. In a favourable trade balance, payments for the goods or services had to be made with gold or silver. Colonial possessions were to serve as markets for exports and as suppliers of raw materials to the mother country, a policy that created conflict between the European colonial powers and their colonies, in particular fanning resentment of Britain in the North American colonies and helping bring about the American Revolution. Mercantilism favoured a large population to supply labourers, purchasers of goods, and soldiers. Thrift and saving were emphasized as virtues because they made possible the creation of capital. Mercantilism provided a favourable climate for the early development of capitalism but was later severely criticized, especially by advocates of laissez-faire, who argued that all trade was beneficial and that strict government controls were counterproductive.

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