When we dig deep into the topic of capitalism and mercantilism, we usually take into account how a lot of businesses in the present-day capitalistic economy go by the same principle mercantilists had. Therefore, since the two economic systems had a common objective of profit generation, mercantilism is regarded to be the earliest form of capitalism. Even so, these two systems are said to have very dissimilar ways when it comes to achieving their goals.
Capitalism vs Mercantilism
The main difference between capitalism and mercantilism is that capitalism refers to an economic system of liberty where the members of society are allotted independence and equal rights to produce wealth through an open market that has minimum government interference while mercantilism refers to an economic system that has restricted liberty because they insist on the necessity of proper administration to restrain individuals from chasing their self-centered intentions of accumulating wealth for themselves instead of enhancing their nation.
Capitalism refers to the economic system that aims at enhancing the economic growth of the country by considering the productive efforts of each member of the economy as principal figures of wealth generation. The underlying reason behind this is that individuals generally have a competitive nature. As a result, they tend to improve their abilities to efficiently add value to their own money and accordingly heighten the economic prosperity of a country.
On the other hand, Mercantilism refers to the economic system that aims at enhancing wealth and power by the aggregation of gold, and policies that are compatible with the notion of a country mainly focusing on exporting goods and services to other nations and barely focusing on importing goods and services (by restrictions like export subsidies and high tariff rates) to generate more wealth for the country’s treasury,
Comparison Table Between Capitalism and Mercantilism (in Tabular Form)
| Parameters of comparison | Capitalism | Mercantilism |
|---|---|---|
| Meaning | Capitalism is an economical practice were privately owned enterprises aim at generating profits. | Mercantilism is an economical practice that focuses on maximizing profits by increasing exports and minimizing imports. |
| Objective | Capitalism aims at earning profits to expand the business or industry. | Mercantilism aims at exporting traded goods. |
| Tariffs | Under capitalism, low tariff rates are imposed. | Under mercantilism, high tariff rates are imposed. |
| World wide acceptance | Capitalism enjoys a worldwide acknowledgment and this economic activity is largely preferred. | Mercantilism does not enjoy a worldwide acknowledgment since this economic activity is gradually becoming extinct. |
| Government intervention | Capitalism usually operates without the intervention of the government. | Mercantilism mainly accumulates money for the nation while the state controls the economy. |
What is Capitalism?
Capitalism is an economic practice where private industries, businesses, or ownerships have capital goods or profits. Capitalism was historically initiated in Europe, mainly out of systems of feudalism and mercantilism. Capitalism additionally includes characteristics like wage labor, price system, and capital accumulation. The market economy is based on the demand and supply of goods and services when they are produced.
In a capitalist market economy, the decisions to be taken and the investments to be made mainly depend on factors like wealth and production ability in both capital and financial markets. Laissez-faire capitalism or the free market is considered to be the purest form of capitalism. Here, the private ownerships mostly decide on where to produce, sell, and invest and also decides the prices goods ought to be exchanged for. Pure capitalism can be contrasted with mixed economies (which lies between pure socialism and pure capitalism) and pure socialism (where all means of production are state-owned).
Most of the countries today are said to practice mixed capitalism as it mostly incorporates ownership and government regulation of selected industries and businesses. The main benefit of capitalism towards society is that they resolve the issues relating to economic production and distribution of resources. Hence, capitalism mainly aims at attaining wealth maximization.
What is Mercantilism?
Mercantilism is an economic practice that mainly deals with increasing the exports and decreasing the imports of a country. Mercantilism spanned in Europe from the 16th century to the 18th century. Mercantilism was significantly based on the system that the wealth of the world is static and the majority of the European countries earn the largest share of wealth by maximizing exports and minimizing imports with the help of tariffs.
Exports aim at making a country richer because this brings cash into the economy and imports are said to enrich the competitors at the expense of the economy. Mercantilism is primarily said to promote tariffs and subsidies on the traded goods. They mainly aim at reducing the deficits in the current account or reaching the surplus of current accounts. Mercantilism makes the trade a zero to zero transaction where exporters are said to have an advantage or benefit over the importers. Mercantilism is mainly associated with gold and silver currency.
Mercantilism is a relationship where one nation wins and the other loses. A mercantilist economy is considered to be a highly protectionist economy as the imported goods have very high tariff rates. While the use of mercantilism is gradually decreasing day by day and is becoming extinct, capitalism is becoming very popular.
Main Differences Between Capitalism and Mercantilism
- Capitalism refers to an economical operation where the private businesses or industries aim at generating profits. Mercantilism refers to an economical operation where a country mainly focuses on increasing exports and decreasing the imports to make a country rich.
- The main objective of capitalism is that they mostly focus on earning enough profits to build up or widen the business or enterprise. The main objective of mercantilism is that they mostly focus on increasing their exports and accumulating metals, for instance, gold and silver.
- When we talk about capitalism, this economical activity concentrates on imposing low tariff rates as well as free trade. When we talk about mercantilism, this economical system mainly imposes high tariff rates to improve the country’s exports.
- Capitalism is considered to be a very preferred economic activity worldwide. Mercantilism is not considered to be preferred economic activity worldwide.
- Capitalism supports business environment and functions which do not involve the interference of the government. Mercantilism advocates monopoly and stockpiles wealth for the economy as the state principally controls this economy.
Conclusion
When an individual looks into capitalism and mercantilism in detail, he’d notice that a capitalistic economy is much more accurate and stable when compared to a mercantilist economy. This is because, unlike capitalism, the system of mercantilism relies on unjust trade practices, and an imperfect view of wealth.
Mercantilism mainly focuses on exporting goods and services and aggregating silver and to enhance a country’s wealth, influence, and power. This economic system believes that all members of society should be nationalistic and should give in to the administration’s control. Additionally, if any situation were to arise, they would consider restraining individuals from buying wealthy commodities because a large amount of resources and wealth would then be wasted.
On the other hand, the system of capitalism is directed towards wealth generation as a way to sustain economic prosperity and growth. It is an economic system which believes that coordination among the members of society would voluntarily arise when individuals are given the liberty to make their own choices and have a small portion of security in their lives without any kind of government intervention. Capitalism is all about willful trade, where both sides gain from an exchange.
Taking all these features into consideration, this article mainly summarizes how the importance of mercantilism is gradually decreasing day by day and how capitalism is turning into a well-known system as it is accepted by many nations worldwide.
References
- https://cdn.mises.org/rae5_1_5_4.pdf