Difference Between Capitalism and Mercantilism
Capitalism vs Mercantilism
Capitalism evolved from mercantilism and while both economic systems are geared towards profit, these systems have differences in the way this is achieved. Capitalism is an economic system that works around the concept of wealth creation in the pursuit of economic growth for the nation while mercantilism focuses on wealth accumulation through extraction of wealth which they believe is measured by the amount of gold bullions that the nation has in its possession. Wealth extraction efforts are augmented by colonization to gain more wealth.
Capitalists regard the individual member of society as the central figure in wealth creation. They believe that a nation’s wealth could grow through the productive efforts of each individual. They view individuals as naturally competitive. As such, they will enhance their skills to achieve greater efficiency in adding value to their own wealth and consequently contribute to the economic success of the nation. There is no pre-defined end to wealth creation. Nations must continue to grow wealthier each day. Mercantilists, on the other hand, think that wealth is finite and the skills of the people should, therefore, be honed for greater efficiency in extracting from such wealth. They further support the idea that a nation should diversify and sell goods to other countries to accumulate more wealth while avoiding the importation of goods and services in order to maintain a positive balance of trade. The positive balance of trade means more gold goes to the treasury of the country.
Capitalism supports a competitive business environment where the forces of supply and demand determine the price of goods and services. In mercantilism, industries are run and controlled by monopolies which are protected and supported by the government through subsidies.
From the point of view of the capitalists, individuals should be given freedom and equal opportunity in creating wealth through a free market that has a level playing field and a minimal regulatory intervention. The individual’s freedom to consume what he wants encourages him to produce more and consequently gain more wealth that will give him more purchasing power. Mercantilists oppose this view and assert the need for heavy regulation in order to prevent the people from pursuing their natural selfish motives of amassing wealth for themselves instead of enriching their country. They even believe that people should be forced to be patriotic and submit themselves to regulation. Mercantilists go to the extent of prohibiting people from purchasing luxury items because this would mean a large amount of money flowing out of the economy.
Mercantilism is now considered as extinct while capitalism is the more popular system adopted by many economies all over the world.
1. Capitalism views wealth creation as the key to economic growth while mercantilism believes that economic prosperity can be achieved through the extraction of wealth.
2. A capitalist society supports a competitive business environment while mercantilism advocates monopoly.
3. Capitalism encourages consumer spending and enjoyment of life to the fullest in order to make the economy grow while mercantilism discourages extravagance of consumers to prevent outflow of money from the economy.
4. Mercantilism is now considered extinct while capitalism enjoys world-wide acceptance.
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