As consumer demand grows against limited supplies, producers will either create more or raise prices. When demand falls, the market will respond in kind. The logic of capitalism is built around productivity and the idea that wealth can increase over time. This was the idea that Adam Smith introduced. Modern capitalism descends from Smith's theory that a nation's wealth does not come from its holdings of currency but from the sum of goods and services that it produces.
What's more, this pool of wealth can grow over time. By increasing productivity a nation can produce more goods and services and increase its total sum of wealth. Comparative advantage is in many ways capitalism's answer to mercantilism. This is a theory of international trade which teaches that trade and wealth are not zero-sum competitions. Rather, comparative advantage holds that trade partners can both increase their net wealth even though one will necessarily run a trade deficit against the other.
Under comparative advantage, each nation specializes in what it can produce better or more cheaply than its trading partners. This increases the net amount of goods and services produced within the trading bloc, increasing the overall wealth among those nations. Comparative advantage holds that the lessons of a free market apply on a global scale. Among individuals within a free market economy, competition will generally drive them to work in fields at which they're best.
The same holds true of nations. Without artificial barriers to trade, each nation will produce more of what it's best at, enriching everyone. Let's say 'Empire' takes a classic mercantile trading posture toward 'Nation. It will view every dollar spent on a Nation product as lost because that dollar went out to another country. As a result, Empire will erect trade barriers such as tariffs, regulatory hurdles and outright embargoes designed to reduce imports from Nation as much as possible.
At the same time, it will try to export as much as possible to Nation, often by subsidizing export firms and clearing regulatory hurdles. Empire doesn't want Nation to erect the same kind of tariffs and obstacles that it erected because it wants trade to flow only one way.
Since this is an inherently unfair trading relationship, Empire will typically have to use political, military or outsize market pressure to ensure that Nation's markets stay open while Empire keeps its markets closed.
Nation has a capitalist economy. This economy will look much like the one readers are familiar with in most western states. Most goods and services in the marketplace of Nation will be produced by private citizens. Meanwhile, founding countries benefit from receiving large amounts of raw material from the colonists, necessary for a productive manufacturing sector. Critics of the economic philosophy believed the restriction on international trade increased expenses, because all imports, regardless of product origin, had to be shipped by British ships from Great Britain.
This radically spiked the costs of goods for the colonists, who believed the disadvantages of this system outweighed the benefits of affiliating with Great Britain. After a costly war with France, the British Empire, hungry to replenish revenue, raised taxes on colonists, who rebelled by boycotting British products, consequently slashing imports by a full one-third.
This was followed by the Boston Tea Party in , where Boston colonists disguised themselves as Indians, raided three British ships, and threw the contents of several hundred chests of tea into the harbor, to protest British taxes on tea and the monopoly granted to the East India Company. To reinforce its mercantilist control, Great Britain pushed harder against the colonies, ultimately resulting in the Revolutionary War.
By the early 16th century, European financial theorists understood the importance of the merchant class in generating wealth. Cities and countries with goods to sell thrived in the late middle ages. Consequently, many believed the state should franchise out its leading merchants to create exclusive government-controlled monopolies and cartels, where governments used regulations, subsidies, and if needed military force to protect these monopolistic corporations from domestic and foreign competition.
Citizens could invest money in mercantilist corporations, in exchange for ownership and limited liability in their royal charters. These citizens were granted "shares" of the company profit, which were, in essence, the first traded corporate stocks.
The most famous and powerful mercantilist corporations were the British and Dutch East India companies. For more than years, the British East India Company maintained the exclusive, royally granted the right to conduct trade between Britain, India, and China with its trade routes protected by the Royal Navy.
Mercantilism is considered by some scholars to be a precursor to capitalism since it rationalized economic activity such as profits and losses. Where mercantilist governments manipulate a nation's economy to create favorable trade balances, imperialism uses a combination of military force and mass immigration to foist mercantilism on less-developed regions, in campaigns to make inhabitants follow the dominant countries' laws.
One of the most powerful examples of the relationship between mercantilism and imperialism is Britain's establishment of the American colonies. Free trade provides several advantages over mercantilism for individuals, businesses, and nations.
In a free trade system, individuals benefit from a greater choice of affordable goods, while mercantilism restricts imports and reduces the choices available to consumers. Fewer imports mean less competition and higher prices. While mercantilist countries were almost constantly engaged in warfare, battling over resources, nations operating under a free-trade system can prosper by engaging in mutually beneficial trade relations. In his seminal book "The Wealth of Nations," legendary economist Adam Smith argued that free trade enabled businesses to specialize in producing goods they manufacture most efficiently, leading to higher productivity and greater economic growth.
Today, mercantilism is deemed outdated. However, barriers to trade still exist to protect locally entrenched industries.
For example, post World War II, the United States adopted a protectionist trade policy toward Japan and negotiated voluntary export restrictions with the Japanese government, which limited Japanese exports to the United States. And it is not solely about economics here either, but are political maggots. They also attack freedoms of personal expressions and beliefs, and promote the state as the greatest good. Face it, those are evil bastards fare far worse than any capitalist nation by all measures.
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This can, of course, create a great injustice in society. Mercantilism was an economic theory common in practice in Europe from the 16 th to 18 th centuries. Moreover, the basis of the theory was that the wealth of the world was static, and it was necessary to accumulate the maximum possible share of the wealth by increasing their exports and limiting their imports through tariffs.
Figure 2: Mercantilism helped to create trade patterns such as the triangular trade in the North Atlantic. We can even describe mercantilism as the economic counterpart of political absolutism. It is also a type of economic nationalism as it strengthens military, corporate and national growth.
Some features of mercantilism are given below. The main objective of capitalism is earning profits, while the main objective of mercantilism is increasing the wealth of the nation.
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