Akash answered on
Jun 25 2021
Last Name: 1
Adam Smith, in 1776, published one of the most famous books of the 18th century, called “An Inquiry into the Nature and Causes of the Wealth of Nations”. Therein he had laid down his thesis on the expansion of trade and industry through the concept of free flow of economy, without government interventions, based on the principle of self-interest and freedom.
He reasoned that individuals, on the basis of their self-interest, unconsciously contribute to overall prosperity and growth. According to Weingast, the idea behind the concept of free will was that each individual, acting upon their self-interest, wants the best for themselves in every sphere. However, the resources with each individual are limited and differentiated from the other.
Hence, each individual can act upon their best interest by utilising their resource to the best of their ability, a market will thus be created where superior and differentiated outputs are available with each individual, which can be exchanged and traded through hard cu
ency. Such a market operates on the principle of an “Invisible hand”, which is a culmination of the choices and actions, based upon free will, undertaken by individuals culminating into common prosperity.
Mercantilism, on the other hand, is based on the school of thought that the world’s wealth was static, and hence, to accumulate wealth, the balance of trade needs to be highly favourable. As noted by Magnusson, the positive balance of trade would be achieved through several measures such as tariffs on imports, employing military might to enable stable supply of capital in the domestic market, and expanding the use of bullions such as gold and silver in trade to ensure sufficient reserves.
The balance of gold and silver was believed to be bolstered further by increase in home constructions, enhanced agricultural output and a robust merchant fleet to facilitate unrestricted exports. Mercantilism was extremely popular through the 16th century up to the 18th century, where Monarchist economic policies were practised, in order to consolidate control in the colonies and retain power of the founding countries. The policy was as much an impetus to...