Mercantilism is economic nationalism for the purpose of building a wealthy and
powerful state. Adam Smith coined the term “mercantile system” to describe the
system of political economy that sought to enrich the country by restraining
imports and encouraging exports. This system dominated Western European
economic thought and policies from the sixteenth to the late eighteenth
centuries. The goal of these policies was, supposedly, to achieve a “favorable”
balance of trade that would bring gold and silver into the country and also to
maintain domestic employment. In contrast to the agricultural system of the
physiocrats or the laissez-faire of the nineteenth and early twentieth century’s,
the mercantile system served the interests of merchants and producers such as
the British East India Company, whose activities were protected or encouraged
by the state. The most important economic rationale for mercantilism in the
sixteenth century was the consolidation of the regional power centers of the
feudal era by large, competitive nation-states. Other contributing factors were
the establishment of colonies outside Europe; the growth of European commerce
and industry relative to agriculture; the increase in the volume and breadth of
trade; and the increase in the use of metallic monetary systems, particularly gold
and silver, relative to barter transactions. During the mercantilist period, military
conflict between nation-states was both more frequent and more extensive than
at any other time in history. The armies and navies of the main protagonists
were no longer temporary forces raised to address a specific threat or objective,
but were full-time professional forces. Each government’s primary economic
objective was to command a sufficient quantity of hard currency to support a
military that would deter attacks by other countries and aid its own territorial
expansion. Most of the mercantilist policies were the outgrowth of the
relationship between the governments of the nation-states and their mercantile
classes. In exchange for paying levies and taxes to support the armies of the
nation-states, the mercantile classes induced governments to enact policies that
would protect their business interests against foreign competition.
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