Mercantilism refers both to the economic policies of European nation-states from roughly the mid-16th to mid-18th centuries and to the constellation of economic theories that were used to justify those policies. The term mercantilism, although not employed by Adam Smith, derives from his discussion and critique of the “mercantile system” in the Wealth of Nations (1776). Characterized by Smith as “in its nature and essence a system of restraint and regulation,” this system was called the mercantile (or commercial) system because Smith believed it served the special interests of domestic merchants and manufacturers at the expense of laborers, landowners, and consumers generally.

According to Smith, merchants and manufacturers frequently opposed free markets because their rate of profit was systematically lowered by unfettered competition. They therefore ...

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