Question

Compare and contrast Economic Liberalism's prescriptions on how states should behave towards markets with Mercantilism's prescriptions on the same issue . Explain why a free market is the best way to organize a society according to economic liberals like Adam Smith. Who benefits the most? Explain why free trade between societies is so important according to economic liberals like David Ricardo . Who benefits the most ?

Answer 1

Liberal economic theory strongly advocated a free market approach with states not using tariffs to prevent competition from their countries from other countries and not interfering in their own internal markets. According to this theory free market should set the price for goods. The basis of liberal theory was the right to gain property or capital to be used. The mercantilist theory is in effect the opposite theory to the economic liberal theory for a market. The restrictions of trade and the use of tariffs are the main basis of mercantilist theory. Mercantilist theory equates to restrictions being placed upon free trade when government are more prepared to intervene in the international political economy or if needs to be by pass by it.

Free market is the best way to organise a society:

According to Adam Smith, Giving everyone freedom to produce and exchange goods as they pleased(free trade) and opening the market up to markets upto domestic and foreign competition, people's natural self-interest would promote greater prosperity than with stringent government regulations. In free market, Consumers benefit the most.

According to David Ricardo, industry specialisation and free trade is beneficial. He alaways arugued that industry specialization combined with free international trade always produce positive results.In free trade between societies, developing countries can benefit the most by increasing their amount or of access to economic resources.