The word “mercantilism” comes from “merchant”, a person who buys goods to resell them. Merchants make money with the profit of the sale (the amount of money that is left from the sale after all expenses related to the buying and selling are paid). Since the beginning of time people have bought goods somewhere in order to resell them somewhere else. The Silk Road is a great example of this, these routes were very slow, very expensive, and full of dangers.

The world changed in the 15th century. Until then, in Europe, the economy was based on feudalism, a system where Lords owned vast agricultural lands and received a rent from the farmers who actually worked those lands. The lands were given by the King, in exchange for some service worthy of them (like becoming Knights, going to war, and being successful). Back then, merchants were considered an inferior class. Like the farmers, they existed only to serve the King and the Lords, to provide them with goods from far away.

The Era of Discovery aimed to expand the land of European Kings and, consequently, expand their wealth. The “mother land” would send people to the lands of the “new world” (the settlers) and the idea was for them to serve the King in a similar way as the Lords. However, they failed to foresee the role of merchants. While they became the intermediaries between the settlers and the King and the Lords, trade routes became less long and less expensive, and maybe a little less dangerous.

Long story short, merchants started to make a lot of money. And with wealth, came power. They organized themselves in guilds and companies, like the Dutch West India Company. These guilds and companies were owned by the State, but they acted as they were independent. Wealth increased exponentially, both for the State and the merchants. This led to a shift in the economy and feudalism gave way to mercantilism. In countries where agriculture was not as important, trading became the core business of society. This is what happened in The Netherlands, and which gave rise to the Dutch Golden Age.

Then, in the 18th century, came the Industrial Revolution and the economy shifted again. Trade was still the main focus, but this time the profits were to go to “capitalists”, people who had capital to invest in factories that would produce goods to be sold. The difference is that these capitalists were individuals and they would “compete” with other individuals/capitalists for the customers whereas in mercantilism, trade was made by the State and there was no competition.

Nowadays, capitalism is still the base of the economy.