Question

Discuss concepts associated with mercantilism demonstrating key policies that a country would implement if they were to apply such a theory. What is the liberal critique of mercantilism?

Answer 1

It was counterpart of political nationalism and argued for it. It exhibited aspirations of rising merchant capitalists to whom strong state appeared necessary for their own protection. Abundant money supply was necessary for them. IT AIMED AT STATE POWER AND UNIFICATION OF COUNTRY. WEALTH OF NATIONS INTERESTED THEM. IT ARGUED FOR ENHANCEMENT OF STATE POWER THROUGH ECONOMIC MEANS. THIS WAS ACHIEVED FROM WEALTH AND ECONOMIC POWER OF NATION. WEALTH IN ABSENCE OF MINES COULD BE ACHIEVED THROUGH BALANCE OF PAYMENT SURPLUS. NATION MUST HAVE WELL EQUIPPED ARMY AND NAVY TO DEFEND ITSELF AND TO PROTECT ITS INTERESTS IN OUTER WORLD. THEY EQUATED MONEY WITH WEALTH AND FOR THEM ONLY WAY TO ACQUIRE SPECIE WAS THROUGH BOP SURPLUS.. THEY VIEWED MONEY SUPPLY AS WORKING CAPITAL FOR TRADING ACTIVITIES. THEY VIEWED FALLING PRICES UNFAVOURABLY AND ACCORDING TO THEM RISING PRICES WERE STIMULATING TO INDUSTRY. ACCORDING TO THEM STATE SHOULD HELP FOR FAVOURABLE Bop.

From the proceeding discussion it is clear mercantalists will argue for govt intervention in economy. Other policy conclusions will be strong govt and army, acquisition of colonies, maximum exports and minimum imports to achieve bop surplus, mercantalism proper also argued for such imports (rawmaterials) which led to exports of greater value, Rising prices and profits etc

The liberals argued that beggar thy neighbour attitude will harm even our own country. They argued for trade based on comparative and absolute advantage which benefits every country. They are against state intervention prescribed by mercantalists and believe in laissez-faire. For them rising prices are harmful.