Question

In: Economics

why mercantilism is not a viable theory

why mercantilism is not a viable theory

Solutions

Expert Solution

Mercantilisim was a dominant
school of economic thought prevailing in
the seventeenth century.
The mercantilist writings were scattered
through 1500-1750, although the more
sophisticated treatise appeared between
1650 and1750.

Mercantilists did not
have a systematic treatment of their
doctrines. Mercantilist writing can mostly
be found in the form of pamphlets.

The most famous doctrine of the
Mercantilists is the doctrine of balance of
trade.
The main tenet of this doctrine is simple:
in their view bullion and treasure are the
essence of national wealth.
Hence, government should restrict
imports to save bullion and treasure.

Their rationale behind such policy
prescription was simple: as must an
individual, a country must spend less
than its income (i.e import less than it
exports) so that its wealth will increase.
In Mercantilist view, national wealth took
the form of bullion and treasure.

They perceived that an
increase in money supply will result into
increase in transaction which in turn
signifies more income and not inflation .

By the end of the eighteenth century,
Mercantilism lost its theoretical fervor as
an analysis of economy.

The mercantilist writers failed to provide
an integrated analysis of the market
economy. However, Mercantilism formed
the basis of formed the basis of one of the
most powerful argument in the favor of
protectionism.


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