This is a set of principles that dominated economic theory in the seventeenth century. These principles came into action because Europe had entered a period of time of increased international trade and developed colonies and trading posts. Mercantilists believed that the prosperity of a nation depended on a large supply of gold and silver. To get this gold and silver, nations tried to have a good balance of trade -- what it exports and imports. When this balance is favorable, the exported goods are of more value than the imported.

The theory behind Mercantilism stressed that the government should encourage the nation's economy by limiting the number of imports and therefore debts to outside entities and putting a greater focus on internal trading and exports. In the 17th century, King Louis XIV began to implement a mercantilistic approach by reducing internal tariffs to encourage internal economy and also limited outside trade. Instead, tariffs were placed in imported goods. Merchant fleets were supported and colonies were established to provide raw materials to be used for manufactured goods for internal markets. Tariffs encouraged home-based manufacturing as opposed to manufacturing in colonial areas. This system was particularly popular in the 17th and 18th centuries in Europe as a new system as feudalism declined.