Final answer:
Mercantilism is an economic theory where colonies are primarily used to benefit the founding country by providing raw materials and serving as a market for goods. Under mercantilism, European nations restricted colonial trade to maintain a favorable balance of trade and accumulate wealth.
Step-by-step explanation:
Mercantilism is an economic theory that played a significant role in the establishment and maintenance of colonies by European nations between the sixteenth and seventeenth centuries. According to mercantilist theory, colonies existed primarily to benefit the founding country. Colonies provided raw materials and served as markets for goods produced by the mother country. European powers, such as England, enforced policies that restricted colonial trade to the home country to ensure a favorable balance of trade and to accumulate wealth in the form of gold and silver.
The goal of these mercantilist policies was to maximize a nation's wealth by limiting imports and maximizing exports. Governments supported these aims through tariffs, subsidies, and monopolies, often to the detriment of colonial economies. This system discouraged the colonies from trading with other countries, thereby avoiding competition and ensuring that the economic benefits flowed back to the home country.
Over time, mercantilism gave way to other economic theories, such as capitalism, as noted by thinkers like Adam Smith who argued that wealth was not finite and that free trade could benefit all nations.