Adam Smith and Mercantilists (Essay Sample)

Adam Smith and Mercantilists
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Institution
Adam Smith and Mercantilists
The nature and wealth of nations has been viewed in different perspectives by different economist who lived in differed periods of time. Economists have continually attempted to develop the best systems necessary for increasing the levels of the wealth of nations. One of the renowned economist who explored much into the study of the nature and the wealth of nations is Adam Smith. Adam Smith developed various policies which he believed were the causes of the wealth of nations. However, some countries did not adopt Smiths principles rather they employed mercantilisms, for instance, Britain in the years between 16th and 18th centuries. Adam smith and mercantilists held some common and also different views on the nature and causes of wealth of nations.
Mercantilism dominated the European Economic arena in the years between 16th and 18th centuries. The economic doctrines developed by the Mercantilists formed the foundation for the modern economic principles. Adam smith is also an economic legends who is remembered for his struggle for free markets and trades.
According to the Mercantilists, one of the ways of achieving economic prosperity in any nation is the maximization of the net exports and minimization of imports. These economist maintained that nation’s wealth can be measured based on the quantity of gold possessed in the particular nation. If a country has large quantity of gold, then it stands taller being better off in terms of wealth stock. The reasons as to why mercantilism was associated with maximization of exports was to ensure increase in the net inflow of foreign exchange. In contrast, according to Adam Smith, wealth of nations are measured in terms of money. Smith hold that money is generated by fixed assets. In this case, for an asset to qualify to be a fixed asset, it must provide consumables for the human capital and also provides means of maintaining the physical assets. However, subsistence consumables and resources expend for maintenance of the physical asset are not measure of wealth.
The mercantilists stand hat that the key indicator of the level of wealth in any particular nation is the quantity of available gold and silver suffered criticism form Adam Smith. Adam smith was totally opposed to this view arguing that the use of availability of gold and silver in measuring wealth of nations limited the potential of real wealth. Adam Smith maintained that Wealth is determined by the annual produce of labor of the society and also land.
Also mercantilists held that one of the ways of ensuring increase the level wealth was restriction of trade. This type of economic system was confirmed to have led to inflations, slow economic growth and development and also limited trade in Britain in 17th century. In contrast, Adam smith held that free trade, without government interference would lead to achievement of true national wealth. Free market also was essential since it would benefit all classes of people without favoring privileged merchants.
Mercantilists hold that the cause of wealth of nations was application of government regulations which include restriction of prices and exports. For instance, in 16th century, the British parliament, which practiced Mercantilism, enacted and passed laws that issued regulations to the free trade. The restrictions were manifested through imposing high import duties and issued subsidies to certain firms. Also the same parliament passed law that would grant monopolist some companies for instance, the East India Company. Adam Smith was opposed to this type of market control and he termed it as biased. Instead, he viewed that, the true cause of wealth of national was to adopt public works. For instance, the constructions and maintenance of infrastructures such as roads, bridges, canals, harbors and postal systems would promote flow of commerce.
Mercantilists encouraged conflicts and wars. They viewed wars and conflicts as an opportunity for making wealth since it leads to raise the interest+
rates at which they would lend to the government and the invaded lands. They believed that this was one of the causes of wealth. Contrary to this view, Adam Smith, hold that wars and conflicts was a waste of money and leads to public debts. Smith hold that Public debt diminishes investments since the funds that would have been spent on investment sector were diverted to repaying debts.
Mercantilists never created good relationship with labors, rather they were interested in exploiting them. They believed in full employment as a way of ensuring increase in wealth. According to one of the Mercantilist, William Petyt, as "capital material … raw and undigested … committed into the hands of supreme authority, in whose prudence and disposition it is to improve, manage, and fashion it to more or less advantage." (Heckscher, 1955). One of the factors which manifested their labor exploitation is their dislike of holidays for workers. The mercantilists were wealth incentive but not considered of the welfare of the employees. Mercantilists issued fixed wage rate, without allowing the market forces of demand and supply of labor to determine the wage rate. The overexploitation of workers and low wages rates lead to high rate of unemployment and severe shortage of labor in various sectors. Many persons who were willing to deliver their labor services begun being discontent with the labor regulations hence shied away the labor markets. Additionally, the employers who paid their workers above the ceiling wage rates were fined. This was greatly experienced in Britain in 17th century. The mercantilists hold that the minimization of wage rate would lead to accumulation of wealth since it minimized the cost. On the other hand, Adam Smith never developed a defined wage theory but he tried to modify theories that had been postulated by other economists. He maintained a view that wages are determined by the law of supply and demand. According to his view, the supply in the labor market is the force which drives the wage rates to minimum levels. However, in his book, Wealth of nations, Smith argues that the salaries paid to the workers must be enough to enable them cater for their basic needs and that of their families. Additionally, as far as labor service is concerned, Adam smith held that specialization in the production arena is a crucial factor which increases the levels of production. Therefore, he argues that, one’s area of operation should match the field of expertize or professionalism. In regard to this, he advocated for providing education to the youths in order to improve their skills necessary for quality and quantity productivity. In trying to make this approach more practical he demonstrated an example of a pin factory in accordance with his personal view. In his example, one worker run all the operations necessary to make a single pin. The worker doing the all activities could not produce more than 20 in one day. In the same pin factory, ten workers, working at the same rate could produce 200 pins the same way. However If the 10 workers are organized based on their specialization for instance, wi...