Abstract
Emerging in England in the mid-sixteenth century, mercantilism is the first (or pre-classical) theory
of international trade. The doctrine placed great faith in the ability of a government to improve
the well-being of its residents using a system of centralized controls. Under mercantilism, the primary goal of the government in foreign economic policy is to increase the wealth of the nation by
acquiring gold. Mercantilists identified national wealth with the size of a nation’s reserves of precious metals (which could then be used to hire mercenary armies). Apart from directly mining gold
around the world, the primary means for achieving this policy goal was to extract trade gains from
foreigners through regulations and controls so as to achieve a surplus in the balance of trade by
increasing exports (e.g., by subsidies) and decreasing imports (e.g., by tariffs and quotas) because
trade balances among countries at the time were settled via the transfer of gold.