How Does Liberalism Compare With Mercantilism?


What is Liberalism?

Liberalism is a political ideology that emphasizes the individual over the state. Liberals believe in personal freedom, free markets, and civil rights. They are often critical of government intervention and prefer economic policies that allow for more competition and less regulation.

What is Mercantilism?

Mercantilism is an economic theory that holds that the wealth of a nation is best increased by controlling trade and maximizing exports. Mercantilists also believed that colonies existed primarily to serve the mother country and that their resources should be used to benefit the homeland, not the colonists. This meant that Mercantilist nations were often hostile to one another, as each sought to gain an advantage in trade.

The study of international politics is a branch of international relations. There are three schools of thought in political economy: liberalism, mercantilism, and Marxism. This paper will have three sections. In the first part, I’ll explain liberal and mercantilist economic theories from an economic standpoint; then, I’ll compare and contrast these two political-economic ideas; finally, I’ll offer my thoughts on the subject.

Liberalism is an economic theory that holds that the free market is the most efficient way to allocate resources. The government should intervene in the economy only when necessary and should not try to micromanage the economy. Mercantilism, on the other hand, is an economic theory that holds that the government should actively manage the economy in order to promote growth and protect businesses from foreign competition.

So, what are the key differences between these two schools of thought? First, let’s look at their respective beliefs about the role of government. Liberals believe that government intervention in the economy should be limited, while mercantilists believe that government intervention is necessary for promoting economic growth. Second, liberals believe in free trade, while mercantilists believe in protectionism. Third, liberals believe that the market is self-regulating, while mercantilists believe that the government should actively manage the economy. Finally, liberals believe in laissez faire capitalism, while mercantilists believe in state capitalism.

So, which of these two theories is correct? Well, that’s a tricky question to answer. Both theories have their merits and their drawbacks. Personally, I lean more towards liberalism, but I can see the appeal of mercantilism as well. Ultimately, I think it’s up to each individual country to decide which theory works best for them.

The Western economics approach to politics is represented by the field of Western economics (Gilpin, 1987). It emphasizes the rights and freedom of individuals, as well as economic profit maximization. Economic liberalism is based on David Ricardo’s idea that “invisible hand” Adam Smith discovered in the seventeenth century. Friedrich August von Hayek made a resurgence in the 1940s with his new explanation.

By the 1970s, there were two schools of thought in liberalism, one being represented by James Buchanan and Gordon Tullock (Buchanan & Tullock, 1962). They believed that government intervention in the economy led to rent seeking and inefficient resource allocation. The other school was public choice theory, which stated that individuals seek to maximize their own utility regardless of whether they are acting as voters, politicians, or bureaucrats ( Olson , 1965 ).

Mercantilism is an economic theory that holds that the prosperity of a nation depends on its supply of capital, and that the best way to increase capital is to restrict imports and encourage exports. Mercantilism was the dominant economic philosophy in Europe from the sixteenth to eighteenth centuries.

Milton Friedman was also important in the 1970s, when he made significant contributions to economic Liberalism. The basic views of economic liberalism are that people should be considered as “rational economic animals” and that a market emerges spontaneously to satisfy human want. When the market runs on its own internal logic rather than human will, it develops naturally. Even though national power can be improved through commercial activity, the main focus should be on the individual and their development. The state should not interfere in market operations, or else it would distort natural processes.

While these ideas have been influential, they have also been controversial. Critics argue that Liberalism is too optimistic about the market’s ability to create wealth and Opportunity, while others argue that it fails to adequately account for power differentials between individuals.

Mercantilism, on the other hand, is an economic theory that holds that a nation’s wealth is best increased through a policy of accumulating gold and silver. This was the dominant view in Europe during the 16th and 17th centuries, and led to policies such as colonial expansion and trade restrictions. While Mercantilism has fallen out of favor in the modern era, it continues to inform some economic policies, particularly in developing countries.

Because everyone is both a consumer and a producer, each individual’s behavior should be guided by the market. Every decision has an opportunity cost, the tradeoff between alternative uses of a limited resource (Samuelson, 1980, p. 27). There’s always a loss for gain. As a result, every person’s reasoned decisions contribute to an equilibrium among competing forces in the market. The market’s inherent stability derives from this balance among these forces.

In liberalism, everyone is both a producer and consumer. And so, each person’s behavior is made in the market. This is because every choice has an opportunity cost- the tradeoff between various alternative uses of a scarce resource (Samuelson, 1980, p. 27). In other words, you always have to give up something to gain something else. Therefore, every individual’s rational choices contribute to an equilibrium among competing forces in the market. The market’s inherent stability comes from this equilibrium among different powers.

However, mercantilism is when government regulates imports and exports for the purpose of accumulating wealth. The government does this by controlling trade and encouraging exports while discouraging imports. This way, more money flows into the country than flows out. Mercantilism was the dominant economic system in Europe from the 16th to 18th centuries. It began to decline in the late 18th century with the rise of liberalism (Mankiw, 2014, p. 470).

So while liberalism and mercantilism are both systems that seek to create stability, they do so in different ways. Liberalism relies on individuals making rational choices in the market, while mercantilism relies on the government regulating trade. In the end, both systems are trying to create a stable equilibrium, but they go about it in different ways.


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