Final answer:
Mercantilism is an economic theory that dictates the wealth of a nation is measured through its accumulation of precious metals and that colonies exist to supplement this wealth through raw materials and as markets for finished goods. It involved strict trade regulations to ensure benefits for the motherland. This system was later challenged by economists advocating for free trade.
Step-by-step explanation:
Mercantilism is an economic theory and system that was popular during the 16th to 18th centuries. It emphases on the idea that a country's power depends on its wealth, particularly in the form of gold and silver. Colonies were important in this system, as they provided both the raw materials to fuel domestic production and a guaranteed market for the home country's manufactured goods. This led to a trade system wherein colonies could often only legally trade with their motherland, fostering a form of economic dependency.
Under mercantilist policies, stringent regulations were put in place, including tariffs, monopolies, and subsidies, to ensure that the home country benefited from the colonial trade. These policies aimed to create a favorable balance of trade that would result in the accumulation of precious metals and the strengthening of the national merchant marine. The mother country often also encouraged domestic manufacturing so as to reduce the need to import goods from abroad, further solidifying economic control.
Trade and taxation policies under mercantilism strongly influenced colonial economies. England and other European nations, such as France and Spain, sought to leverage their colonies for their own benefit. Critics of mercantilism, like Adam Smith, later argued that this system was counterproductive as it stifled competition and led to inflation, advocating for free trade and the notion that wealth could expand, benefiting multiple nations simultaneously.