Mercantilism is an economic theory that the prosperity of a nation depends upon its capital, and that the volume of the world economy and international trade is unchangeable. Government economic policy based on these ideas is also sometimes called mercantilism, but is more properly known as the mercantile system. Some scholars conceive the mercantile system as a subset of, or synonymous with, the early stages of capitalism, while others consider mercantilism to be a distinct economic system.
Economic assets, or capital, are represented by bullion (gold, silver, and trade value) held by the state, which is best increased through a positive balance of trade with other nations (exports minus imports). Mercantilism suggests that the ruling government should advance these goals by playing a protectionist role in the economy, by encouraging exports and discouraging imports, especially through the use of tariffs.
Mercantilism was the dominant school of economics throughout the early modern period (from the 16th to the 18th century). Domestically, this led to some of the first instances of significant government intervention and control over the economy, and it was during this period that much of the modern capitalist system was established. Internationally, mercantilism encouraged the many European wars of the period and fueled European imperialism. Belief in mercantilism began to fade in the late 18th century, as the arguments of Adam Smith and the other classical economists won out. Today, mercantilism (as a whole) is rejected by all serious economists, though some elements are looked upon favourably.
