Did Smith have a theory of capitalism or was he primarily a critic of mercantilism?
Between the 16th and 18th century mercantilism dominated western economics. Mercantilism held a strong belief in the power of large reserves of precious metals, primarily gold and silver, and encouraged states to maintain large reserves through high tariffs on imported goods. In 1776, Scottish philosopher Adam Smith refuted the theory of mercantilism in a criticism entitled An Inquiry into the Nature and Causes of the Wealth of Nations, known today as simply as The Wealth of Nations. In The Wealth of Nations, Smith aimed to introduce an alternative to mercantilism. For this new theory to be taken seriously however, Smith had to both criticize and expose the shortcomings of mercantilism while also introducing a stronger alternative: the theory of capitalism.
Mercantilism, when practiced, was sustained through substantial economic regulations exercised by states. These regulations included tariffs, the power to grant monopolies, restrictions on emigration of skilled workers and providing capital to emerging industries. States enacted these policies in order to protect their industries from foreign competition. States with colonies restricted the trade of the colony to only the mother country. Smith saw these regulations as inhibiting to the general welfare, and believed that an elimination of them would be advantageous to all. In a mercantilist system, states believed that the only advantage of trade was trade which that resulted in the importation of precious metals that could be added to the country’s treasury. In The Wealth of Nations, Smith, contested this idea and offered a revolutionary alternative that aims satisfies the needs of the many instead of the needs of the few.
Instead of the highly restrictive era of trade, due to mercantilism seen in 1776, Smith offered his alternative. Smith proposed that the masses can prosper through unrestricted free trade...
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