the monetary policy of mercantilism (q.v.), which called for national regulation of transactions in foreign exchange and in precious metals (bullion) in order to maintain a “favourable balance” in the home country.

Spain, with which the policy is most closely associated, was preeminent in developing a colonial empire and drew from the New World great quantities of gold and silver during the 16th and 17th centuries. Nations attributed Spain's greatness to its almost limitless supply of precious metals, which were thought to increase commerce and provide the sinews of war, for, with a full treasury, armies could be bought and a vigorous population could flourish. This led to the development in theory and practice of the idea of a favourable balance of trade that would increase the nation's supply of gold and silver money. Spain, however, in draining precious metals from its colonies and buying goods and services from other states, lost its treasure and failed to develop home industry. In the end Spain changed from the richest to one of the most impoverished European states.