What Is Mercantilism?

Mercantilism, or mercantile system, is a political economic system whereby countries restrict imports and encourage exports. The rationale is to balance foreign trade in such a way that would increase revenue without negatively impacting domestic employment.

The mercantile system was the standard among Western European nations between the 16th and late 18th centuries.

One of its chief objectives was to colonize countries beyond the power centers of Europe. This was important as a means of expanding the scope of commerce and of instituting standardized monetary systems based on gold and silver.

Mercantilism gave rise to many violent military conflicts regarding territory. The goal of each nation had become financing a superior military, for both defense and colonial expansion.

For Western European countries, and for Great Britain especially, the mercantilist period was one of great economic growth.

Even so, Adam Smith argued in "The Wealth of Nations" that mercantilism neglected the welfare of the general population, while funneling benefits toward the political and commercial classes. His argument was in favor of free markets.

England gradually accorded with Smith's observation, abolishing all mercantile regulations and tariffs by 1860. As a result, Great Britain became Europe's strongest economy, supported by the extensive agriculture of the American colonies.