How do mercantilism and capitalism differ

Capitalist economies are driven by profit generation as a means to sustain economic growth and prosperity. Mercantilism was focused on local consumption while wages are kept at their lowest level.

Also, colonies are not allowed to do business with foreign markets, and high tariffs were imposed on foreign commodities. Capitalism encourages free trade and lower tariffs to ensure the continuous flow of foreign trade. By: Editorial Staff Updated: Mar-2, Mercantilism Capitalism Accumulate wealth for the country with the state controlling the whole economy.

Usually operates without government intervention. Export commodities and accumulate precious metals such as gold and silver. Generate profit to expand industry. High tariff rates on foreign goods are imposed. The result is that both markets increase their total wealth: Vietnam gets a net trade surplus and American consumers get more shirts for less money.

Capitalism and capitalist trade theory is generally considered both more accurate and more stable than mercantilism. Mercantilism has two core problems that have made it an unreliable form of economic theory. First, as noted above, mercantilism relies on inherently unfair trade balances and trade practices.

Mercantile nations depend on being able to erect barriers in their own economies without their trading partners doing the same. In the long run this is an unstable situation, because peer nations rarely willingly concede to economic subservience. For this reason mercantilism has historically been intertwined with trade wars and military adventurism.

Second, also as noted above, mercantilism relies on an archaic and inaccurate view of wealth. This is a school of thought wedded to gold standard philosophy, one in which wealth is measured by currency and is a zero-sum quantity. Modern economics considers currency a measure of wealth rather than a form of it. It is how nations interact with and trade their productivity, but the real wealth of nations is measured by the goods and services that currency gives access to.

This is a fluid sum. As an economy grows through population and technology, it can produce more for all of its participants. This positive-sum reality of wealth undermines the core tenet of mercantilism. Receive full access to our market insights, commentary, newsletters, breaking news alerts, and more. I agree to TheMaven's Terms and Policy. The answer is trade wars.

Here's how: What Is Mercantilism? Mercantilism is an economic philosophy built around exports and trade. Why Is Mercantilism Relevant in ? This is mercantilism, and it is a change from America's historic approach to global trade. What Is Capitalism? Capitalism is an economic philosophy built around competition and productivity.

What Is Comparative Advantage? TheStreet Recommends. Furthermore, private property, competitive markets, capital accumulation, wage labour, a price system, and voluntary exchange are some of the main characteristics of capitalism. Economists have analyzed capitalism and identified several forms of capitalism in practice, including free-market capitalism, state capitalism, and welfare capitalism.

In fact, free-market capitalism is considered the purest form of capitalism. In such an economy, there are unrestrained private individuals as they have the power to decide what to produce and sell, where to invest and prices for goods and services. However, in most countries of the modern world, we can observe a mixed form of capitalism, with some degree of government regulation.

The main advantage of capitalism is that it gives the best products for the best prices. Moreover, there is an intrinsic reward for innovation in capitalism. However, this system also has disadvantages. Even though Mercantilism is the primary form of capitalism, the two notions are substantially different. While capitalism considers income generation to be the key determinant of economic progress, Mercantilism argues that financial success can only be attained via wealth generation.

And, as a consequence of this suppression of freedom, Mercantilism is progressively becoming extinct. Your email address will not be published. Save my name, email, and website in this browser for the next time I comment. Skip to content. Leave a Reply Cancel reply Your email address will not be published. Expanding the economy of the country is the primary goal of Mercantilism. Capitalism generally operates without the involvement of the government.

Mercantilism is usually accompanied by the intervention of the government. Imports are subjected to significantly higher tariffs under mercantile policies. Capitalism is widely recognized across the world, and this economic practice is widely liked. Seeing as this economic practice is progressively becoming obsolete, Mercantilism is not well recognized on a global scale.