Mercantilism: History, Examples, and Definition

A doctrine named by its critics

In the 17th century, officials and writers such as the Englishman Thomas Mun, the Frenchman Jean-Baptiste Colbert, and the Italian Antonio Serra applied and described the economic policies we now call mercantilism. None of the three, however, ever used that word for their own work: according to Britannica Money, it was Adam Smith, in The Wealth of Nations of 1776, who gave the term currency, while criticizing its foundations. Mercantilism was the prevalent economic system in the Western world from the 16th to the 18th century, applied mainly in France, Spain, Portugal, Italy, and Britain, as well as Germany and the Netherlands — a period sometimes summarized as the history of mercantilism.

The trade surplus, the shared goal

The principle uniting these different practices was simple to state: a state had to sell more abroad than it bought. Econlib describes mercantilism as a form of economic nationalism, aimed at building a wealthy and powerful state: restricting imports and encouraging exports served to attract gold and silver and to support domestic employment. The same underlying idea served mercantilist states much as GDP serves today to measure the size of an economy: back then the yardstick was the reserve of precious metals, today it is the value of everything a country produces.

OpenStax describes the conceptual premise behind this pursuit: the world’s wealth, measured in gold and silver, was treated as a finite quantity. One nation’s gain was therefore another’s loss, a zero-sum view that pushed every state to maximize exports and minimize imports, to the point of aiming to produce even farm goods at home.

Example: as French finance minister from 1661 to 1683, Jean-Baptiste Colbert applied mercantilism to the letter. He raised tariffs on foreign goods and banned the import of some products outright, while subsidizing the French merchant navy (Econlib, OpenStax).

Laws that closed the ports

Mercantilist protectionism also took the form of law. In England, Econlib cites the Navigation Act of 1651, which restricted foreign vessels, and the Staple Act of 1663, which required colonial exports to pass through English ports before reaching the rest of Europe. Rules like these did not concern foreign trade alone: they also shaped the relationship between a mother country and its colonies, the subject of the next section.

Mercantilism in the colonies

Under mercantilism, colonies had a defined economic job, not just political oversight from a distant capital. According to Britannica Money, they could sell their own raw materials only to their colonizers and had to buy finished goods only from their respective mother countries; local manufacturing was banned. OpenStax describes the same mechanism from the other side: colonies supplied raw materials for the mother country’s domestic consumption, sparing it the need to buy them elsewhere, and their populations were in turn a ready market for goods made at home.

This double constraint, Britannica Money explains, also produced monopoly trading companies and a commercial rivalry between European states that turned into military rivalry. Colonists, for their part, practiced widespread smuggling to get around those restrictions: among the tensions that followed, Britannica Money notes that mercantile restrictions were among the factors that contributed to the American Revolution.

Why the state wanted gold: standing armies and navies

Behind the hunt for precious metals was more than a simple desire to accumulate wealth. Econlib points to a concrete need: by the 17th and 18th centuries, armies and navies had become full-time professional forces, which had to be paid year-round, even outside periods of war. Hard currency reserves helped cover that expense, at a time when a state’s economy was also seen as the foundation of its military strength.

Mercantilism and capitalism, compared

Mercantilism reasoned at the level of the state, not of a single firm or household, the scale that macroeconomics still studies today, unlike microeconomics. The table below lists only the points the sources document directly.

Adam Smith’s critique and the decline of mercantilism

Among those who challenged the system were David Hume and Adam Smith. Econlib reports that Smith showed how trade, when freely initiated, benefits both parties, and that specialized production improves efficiency and growth. OpenStax adds that Smith opposed the monopolies and state subsidies that mercantilist practices relied on.

Econlib describes the free-market doctrines that followed as a broad reaction against the imperialist policies of the era’s nation-states. That reaction opened the way to a different economic age, the Industrial Revolution, in which production and exchange, rather than gold reserves, became the measure of a country’s wealth.