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.

This entry comes from Encyclopædia Britannica Concise.
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