Mercantilism
Options:
a. Is the philosophy of free international trade. b. Was a system of export promotion and barriers to imports practiced by governments. c. Was praised by Adam Smith in The Wealth of Nations. d. Both (a) and (c). |
The Correct Answer Is:
b. Was a system of export promotion and barriers to imports practiced by governments.
Correct Answer Explanation: b. Was a system of export promotion and barriers to imports practiced by governments.
This economic philosophy was based on the belief that a nation’s wealth was determined by the amount of precious metals, such as gold and silver, it possessed. Therefore, mercantilist policies were designed to accumulate as much of these metals as possible.
One of the key aspects of mercantilism was the emphasis on a positive balance of trade. This meant that a country should export more goods than it imported, leading to a net inflow of precious metals. To achieve this, governments implemented a variety of measures.
These included tariffs, which were taxes on imported goods, and subsidies or grants to domestic industries to encourage production for export. Additionally, governments often imposed restrictions on the export of certain raw materials to ensure they were available for domestic industries.
Another important element of mercantilism was the establishment of colonies. Colonies were viewed as sources of valuable raw materials and markets for finished goods. The mother country would extract resources from its colonies and sell them back manufactured goods, further contributing to the accumulation of wealth.
Furthermore, governments often intervened directly in the economy through policies such as monopolies and state-controlled trading companies. These measures were aimed at centralizing control over trade and ensuring that the benefits flowed back to the nation.
Now, let’s analyze the other options and explain why they are not correct:
a. Is the philosophy of free international trade.
This statement is incorrect because mercantilism is fundamentally opposed to the philosophy of free international trade. Mercantilism advocates for government intervention in trade to maximize a nation’s wealth, often through policies like tariffs, subsidies, and restrictions on imports.
In contrast, the philosophy of free international trade, as advocated by thinkers like Adam Smith, emphasizes the benefits of allowing markets to operate without excessive government interference. It promotes the idea that countries benefit from specializing in what they are most efficient at producing and engaging in mutually beneficial trade with other nations.
c. Was praised by Adam Smith in The Wealth of Nations.
This statement is also incorrect. In “The Wealth of Nations,” Adam Smith was a vocal critic of mercantilism. He argued that the government intervention and protectionist policies associated with mercantilism were counterproductive and hindered economic growth.
Smith advocated for the benefits of free markets, competition, and the invisible hand of self-interest as mechanisms for promoting economic prosperity. He believed that individuals pursuing their own interests would lead to overall benefits for society, a concept central to the philosophy of classical economics.
d. Both (a) and (c).
This option is incorrect because it combines two inaccurate statements. As mentioned earlier, neither statement (a) nor statement (c) accurately describes mercantilism. Mercantilism is characterized by interventionist policies aimed at controlling trade and accumulating wealth through export promotion and barriers to imports.
Adam Smith, on the other hand, was a proponent of free markets and criticized the mercantilist approach in “The Wealth of Nations.”
In summary, mercantilism and the philosophy of free international trade represent two opposing economic ideologies. Mercantilism advocates for government intervention in trade to maximize a nation’s wealth, while the philosophy of free international trade emphasizes the benefits of allowing markets to operate with minimal government interference.
Adam Smith, a prominent advocate of free trade, was critical of mercantilism and argued for the merits of competitive markets and self-interested behavior in promoting economic prosperity.
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