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The Logic of Mercantilism

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The Logic of Mercantilism
Explain the Logic of Mercantilism and Why it is Generally Viewed as a Deficient Theory
Gretchen Serrao
Nova Southeastern University

Explain the Logic of Mercantilism and Why it is Generally Viewed as a Deficient Theory Mercantilism was an economic system that developed in Europe between the 16th and 18th century during the period of the new monarchies. This economic philosophy is based on the belief that a nation’s wealth depends on accumulated treasure, usually precious metals such as gold and silver, and to increase wealth, government policies should promote exports and discourage imports. Adam Smith, an eighteenth-century Scots professor of moral philosophy who influenced the founding fathers of the United States, was a fierce critic of mercantilism and convincing advocate of free trade. Smith attacked this this economic philosophy by arguing that the nation’s wealth was not defined in terms of gold but instead on t he nation's ability to produce. The theory of mercantilism is inefficient because the mercantilist in England made up by the monarchy, looked to international trade to supply gold and silver and established economic policies that promoted exports and stifled imports. According to Pecquet (2003), “the sheer economic waste resulting from mercantilist trade barriers has been well known...Both the British and the colonial cartel-like regulations proved to be very costly and ultimately unsustainable” (p. 467). These developments would ultimately cause the destruction of merchant capitalism. In short, merchant capitalism reached a level within the mercantilist system where state intervention and direction of the economy was threatening and even preventing further expansion.

Moreover, One of the key assertions of mercantilism is that national wealth will come through the import and accumulation of gold or other precious metals such as silver. Smith was highly critical of this theory of wealth and he clearly



References: Pecquet, G. M. (2003). British mercantilism and crop controls in the tobacco colonies: a study of rent-seeking costs. The Cato Journal. Retrieved from http://www.cato.org/cato-journal/ archives Coleman, D

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