In reference to Colonial America, mercantilism was the idea that the colonies existed in order to benefit Great Britain. Under mercantilism the American colonists were essentially tenants of Britain. In exchange for the land on which they lived, they "paid rent" to Britain by sending almost all of their manufactured goods back to Britain. Virtually no trade existed directly between the colonies and other nations.
According to the Library of Economics and Liberty, mercantilism grew out of the popular belief that there was a fixed amount of wealth in the world and that the primary way to increase a nation's wealth was to conquer other lands. In order to sustain its wealth base, Britain felt it was important to keep the goods and materials from the colonies to themselves. Thus, the colonists were not able to trade these materials to other countries and obtain any wealth for themselves. All of the profits went to Britain, and the colonists remained in relative poverty. If the colonists wished to trade with other nations, the items had to first be shipped to Britain and then to the other nations. This allowed Britain to collect the associated tax revenue.
Land and Freedom describes how mercantilist policies encouraged the colonists to specialize in the production of raw materials rather than the manufacture of goods. Regulations prohibited certain industries, such as the woolen-garment industry, since manufacturing these items would lead to export competition between the colonies and Britain.