Difference Between Capitalism and Mercantilism

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Difference Between Capitalism and Mercantilism Difference Between Capitalism and Mercantilism

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Introduction

Every society has resources at its disposal, yet these resources are finite. There is just so much water available. There is only so much fertile land available. The amount of human labor available is limited. Economics is the study of how people use their limited resources to meet their wants and requirements. Essentially, all governments must address the issue of resource scarcity. A social system is a form of the economic system. An economic system is a tool that the government uses to plan and distribute accessible services, resources, and commodities across the country. Economic systems combine wealth, labor, physical resources, and business personnel to handle production factors. Many organizations, agencies, products, models, and decision-making methods make up an economic system. A related idea is the mode of production. The four fundamental economic challenges must be addressed and solved by all economic systems:

What kinds of items will be produced and in what quantities: The price theory lies at the heart of this fundamental economic issue. In this context, price theory refers to the economic decision-making process in the economy between the production of capital goods and consumer goods in the face of limited resources. In this regard, a critical assessment of society's needs based on population distribution in terms of age, gender, employment, and geography is crucial.

How goods will be created: The fundamental problem of how goods will be produced is largely dependent on the lowest-cost method of production to be used as profitably unique to the items and services to be produced. On a broad level, labor-intensive and capital-intensive methods of production are both viable options.

How the output will be distributed: When the commodities reach the end consumers, production is said to be complete. This fundamental problem of how the output will be divided aims to find the best possible medium for reducing bottlenecks and clogs in the wheel of a chain of economic resource distributions to the bare minimum and optimizing consumer happiness.

When to produce: Because the dynamics of demand and supply have a lot to do with time, consumer satisfaction is partially a function of seasonal analysis. This fundamental economic challenge necessitates a thorough examination of time dynamics and seasonal fluctuation in consumer requirements satisfaction. It is important to remember that the type of economic system determines the answer to these fundamental challenges.

Economic System Types

Capitalist economy

In a capitalist economy, items are distributed among individuals based on purchasing power, which is the ability to acquire goods and services, rather than on what they want. This implies that a person must have sufficient funds to purchase products and services. Low-cost housing for the poor is desperately needed, yet there will be little demand in the market because the poor lack the purchasing ability to support it. 

Socialist economy

This economic system responds to the three questions in a unique way. In a socialist society, the government decides what products will be made to meet the society's needs. It is assumed that the government is aware of what is acceptable for the country's population. As a result, individual purchasers' passions aren't given much consideration. The government makes decisions about how items are made and how they are disposed of. In theory, sharing under socialism is based on what each individual requires rather than what they can afford.

Mixed economy

Mixed economies combine the traits of both command and market economies. Mixed economic systems are also called dual economic systems for this reason. A genuine approach for determining a mixed system, on the other hand, does not exist. In some parts of the economy, the term can refer to a market system that is subject to rigorous administrative regulation.

Capitalism vs. Mercantilism

When we study capitalism and mercantilism in-depth, we usually consider how many enterprises in today's capitalistic economy operate on the same principles as mercantilists. As a result, mercantilism is considered the first version of capitalism because the two economic systems shared the same goal of profit generation. Despite this, these two systems are claimed to have completely different approaches to reaching their objectives. Capitalism is an economic system that tries to boost a country's economic growth by treating each member of the economy's productive activities as the primary source of wealth generation. The underlying reason behind this is that most people are competitive by nature. As a result, people tend to increase their talents to add value to their own money more efficiently, so increasing a country's economic success.

Mercantilism, on the other hand, refers to an economic system that aims to increase wealth and power through the accumulation of gold, as well as policies that are consistent with the idea of a country focusing primarily on exporting goods and services to other countries and barely focusing on importing goods and services (due to restrictions such as export subsidies and high tariff rates) to generate more wealth for the country's treasury.

Difference between Capitalism and Mercantilism in Tabular Form

Table: Capitalism vs. Mercantilism
Parameters Of Comparison
Capitalism
Mercantilism
Meaning
Capitalism is a kind of economics in which privately owned businesses seek to make a profit.
Mercantilism is an economic strategy that focuses on growing exports while reducing imports to maximize profits.
Objective
Capitalism tries to make a profit to expand a company or industry.
The goal of the mercantile policy is to export commercial goods.
Tariffs
Low tariff rates are imposed under capitalism.
High tariff rates are imposed under mercantilism.
Worldwide acceptance
Capitalism is well-known over the world, and it is widely preferred as a means of economic activity.
Since this business activity is gradually becoming extinct, mercantilism does not enjoy international recognition.
Government intervention
The majority of the time, capitalism runs without the involvement of the government.
Mercantilism is primarily concerned with accumulating money for the nation, but the state maintains control over the economy.

What is Capitalism?

Capitalism is a system of economics in which private enterprises, industries, or ownerships have capital goods or profits. Historically, capitalism arose in Europe, mostly as a result of feudalism and mercantilism. Wage labor, the price system, and capital accumulation are all features of capitalism. When products and services are created, the market economy is based on demand and supply.

In a capitalist market economy, decisions and investments are primarily influenced by factors such as wealth and production capability in both capital and finance markets. The free market, or laissez-faire capitalism, is thought to be the purest form of capitalism. Private ownerships make the majority of decisions about where to produce, sell, and invest, as well as the pricing at which things should be exchanged. Mixed economies (which fall somewhere between pure socialism and pure capitalism) and pure socialism can be contrasted with pure capitalism (where all means of production are state-owned). Most countries today are believed to follow mixed capitalism, which entails the ownership of certain industries and corporations as well as government control. The main benefit of capitalism to society is that it resolves challenges such as economic production and resource allocation. As a result, capitalism's primary goal is to maximize wealth.

The dynamics of supply and demand determine the pricing of goods and services in a competitive economic environment supported by capitalism. The industry is administered and controlled by monopolies in mercantilism, which are protected and backed by the government through subsidies. According to capitalists, individuals should be granted freedom and an equal chance to create riches through a free market with a level playing field and minimal regulatory intrusion. The freedom of an individual to spend whatever he wants drives him to generate more and, as a result, obtain more wealth, which increases his purchasing power

What is Mercantilism?

Mercantilism is an economic practice that focuses on raising a country's exports while minimizing its imports. Mercantilism lasted from the 16th through the 18th centuries in Europe. Mercantilism was largely founded on the belief that the world's wealth is static, and that the majority of European countries earn the greatest portion of it by promoting exports and restricting imports through tariffs. Exports are intended to make a country wealthy by bringing money into the economy, whereas imports are thought to enrich competitors at the expense of the economy. Tariffs and subsidies on traded goods are regarded to be the primary goals of mercantile policy. They primarily seek to reduce current account deficits or achieve current account surpluses. Mercantilism reduces trade to a zero-sum game in which exporters are believed to enjoy a competitive edge over importers. The term "mercantile" is most commonly connected with gold and silver coins.

Mercantilism is an economic theory based on trade and exports. A mercantilist economy aims to maximize exports while limiting imports to increase wealth. This school of thinking contends that there is a finite quantity of wealth in the globe and that all nations strive for it. Exports make a country's economy richer by bringing money into the country. Imports benefit competitors at the expense of the economy. The mercantile concept makes trade a zero-sum game in which exporters outweigh importers. Mercantile nations utilize tariffs, economic leverage, and military might to maximize their trade balance and extend their wealth and influence. They seek to maintain the country's status as a net exporter.

As a school of thought, Mercantilism is intimately linked to specie (gold and silver) currency. This is because the amount of cash in circulation in specie, or "hard money," economies is set. Unlike fiat currencies, the more a government spends on gold, the less of it has. This is in line with mercantilism's notion that trade and wealth are scarce resources that countries fight for. One of the theory's major flaws in this belief. Both parties to a trade agreement can't be net exporters by definition. As a result, mercantilism is based on a winning-losing relationship between two nations. This relationship lends itself to either an unintentional trade relationship or trade warfare in which both countries raise tariffs on each other. From the 16th to the 18th centuries, mercantile thought dominated economic theory in Europe. Because a mercantile trade relationship is almost always a net negative for at least one trading partner, and because mercantilist nations often saw military and economic power as inextricably linked, European nations frequently used military power to ensure markets for their exports during this era. In the nineteenth century, it began to lose popularity as a major ideology.

Difference between Capitalism and Mercantilism In Points

  • Capitalism is a type of economic system in which private enterprises or industries seek to make a profit. Mercantilism is an economic strategy in which a country concentrates on boosting exports while minimizing imports to become wealthy.
  • The basic goal of capitalism is to make enough money to expand or expand the business or enterprise. The basic goal of mercantilism is to increase exports while also stockpiling metals such as gold and silver.
  • When we talk about capitalism, we're talking about an economic activity that focuses on enforcing low tariff rates and unrestricted commerce. When we talk about mercantilism, we're talking about an economic system that levies high tariff rates to boost a country's exports.
  • Capitalism is often regarded as the most desirable economic activity on the planet. Mercantilism is not widely regarded as a favored economic activity.
  • Capitalism promotes a commercial environment and functions that are free of government intrusion. Mercantilism promotes monopoly and wealth accumulation for the economy, which is mostly controlled by the state.

Conclusion

When a person investigates capitalism and mercantilism in-depth, he will discover that a capitalistic economy is far more accurate and stable than a mercantile economy. This is because, unlike capitalism, mercantilism is based on unfair trading tactics and an erroneous understanding of wealth. Mercantilism aims to increase a country's riches, influence, and power through exporting products and services and aggregating silver. This economic philosophy argues that all members of society should be patriotic and submit to the authority of the government. Furthermore, if a situation arose, they would consider prohibiting persons from purchasing wealthy commodities because a significant quantity of resources and wealth would be wasted.

Capitalism, on the other hand, is geared toward wealth creation as a means of sustaining economic success and expansion. It is an economic theory based on the belief that when individuals are allowed the freedom to make their own decisions and a small amount of security in their lives without government intervention, coordination among society’s members will naturally emerge. Capitalism is based on willing trade, in which both parties benefit from the transaction. Taking all of these factors into account, this article primarily outlines how mercantilism's relevance is steadily diminishing day by day, and how capitalism is becoming a well-known system as it is embraced by many nations throughout the world.

References

  1. "Definition of COMPETITION". Archived from the original on 4 July 2008. Retrieved 24 March 2015.
  2. ^ George J. Stigler, 2008. ([1987][clarification needed] 2008[clarification needed]. "competition", The New Palgrave Dictionary of Economics. Abstract. Archived 15 February 2015 at the Way back
  3. "Macroeconomic effects of Chinese mercantilism". December 31, 2009.
  4. ^ Martina, Michael (March 16, 2017). . Reuters – via www.reuters.com.

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"Difference Between Capitalism and Mercantilism." Diffzy.com, 2022. Sun. 27 Nov. 2022. <https://www.diffzy.com/article/difference-between-capitalism-and-mercantilism-556>.



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