Mercantilism and Adam Smith

This article is dedicated to the type of economics that goes before Adam Smiths laissez-faire economics. Well talk about Mercantilism, Economy that was widespread in Europe in 16th-18th centuries.

During the 18th and 16th centuries European countries believed in the ideal of Mercantilism, the idea that a nations existence depended on power, and power depended on wealth. The fundamental focus of Mercantilism was on the self inter est of the state. In order to accumulate the vast wealth needed to run a state, protect government interests and acquire new colonies, political domination of the Economy would be necessary. The basic purpose of this economic policy was to strengthen the state and further its aims, which at the time were trading and colonization. By trading goods only for gold or silver countries could build up their treasuries, which in turn funded further colonization. Political economics ensured monarchies of financial concerns, and the success of absolute monarchies. With Mercantilism, Britain achieved a favorable balance of trade, which exported more goods than it imported. To achieve this, the government oversaw the production, exchange, consumption of goods and services. To enforce Mercantilism, the Navigation Acts were passed in Britain. These acts forced colonies to trade only with Britain.

Mercantilism was very profitable for the government, and a few lucky citizens. It was however, detrimental to society. The common man profited least Mercantilism because of the governments monopoly of trade and distribution. Lateral movement from the lower class to the middle class was also unlikely because the government seized all business opportunities. Mercantilist states favored issuing low wages, believing that this would discourage imports, and contribute to the export surplus. The gap between the rich and poor rose along with social unrest. The fundamental problem with Mercantilism is in its belief that the real wealth of a nation is the size of its gold and silver treasuries. Increasing gold and silver hoards did provide short-term economic stimulus, however it was only short term. A long-term measure of a countries value is in its ability to produce, similar to the gross national product of today. Intercontinental trade was a major mercantilist market. The problem with a monopoly on trade was that since the government restricted competition, there would be only one supplier for imported goods. Meaning that the prices for these goods will rise to the highest point people were willing to pay. The population of Britain, an island nation, depended heavily on imported goods. Imports that Mercantilism was all too happy to provide, at high prices with no alternatives. The population was held captive by the political Economy.

Adam Smiths Economy was a capitalistic market Economy based on private ownership of production and distribution of goods. Smith stated that, capitol is best employed for the production and distribution of wealth under conditions of governmental noninterference, laissez-faire, and free trade. The opposite of the government monopoly style found in Mercantilism, Smith wanted perfect competition among all citizens of the state. Perfect competition would allow many competitors to enter the market, thus driving inflated prices down. New competition would also encourage innovation.

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Author:: Mary Anne Winslow
Keywords:: Economy, Mercantilism, Adam Smith
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