Academic journal article Journal of Economics and Economic Education Research

Mid-18th Century Economic Changes: The Rise of Adam Smith and the Decline of the Mercantilists and Physiocrats

Academic journal article Journal of Economics and Economic Education Research

Mid-18th Century Economic Changes: The Rise of Adam Smith and the Decline of the Mercantilists and Physiocrats

Article excerpt

ABSTRACT

The mid-18th century was a time that saw the birth of new economic systems. The mercantile system of the past 250 years was being attacked by new movements in economic thought. One of the chief critics of mercantilism was Adam Smith, and with the publication of his greatest work, Smith drastically changed modern economic theory and created a science out of what was once a philosophy of merchants. Smith was not the first critic of mercantilism. He was preceded by a group of French economic philosophers whose theories had much influence on Smith's work. This paper will explore the rise of mercantilism and its principles, detail the criticisms of Adam Smith toward mercantile doctrine, and discuss the physiocratic doctrine that laid the groundwork for economic change.

INTRODUCTION

This paper will discuss the origins of mercantilism. Through an exploration of the times leading up to mercantilism, a more detailed understanding of mercantile principles will be ascertained. The onset of international commerce laid the groundwork for the mercantile system by creating a new class of merchants who explored the philosophy of economics in an attempt to ensure their own well being. Mercantilists derived much of their doctrine from their strong sense of nationalism. The desire to create a strong state led to the development of the mercantile principle of wealth as existing in the form of specie--gold and silver. The desire to accumulate large amounts of specie led to the development of the balance of trade principle, which would be essential to mercantilistic economic policies. The mercantile system thus developed from a strong sense of nationalism, which led to a desire for the accumulation of gold and silver, further leading to the balance of trade doctrine, enabling said accumulation.

The paper will also address Smith's comments on mercantile doctrine. In An Inquiry into the Nature and Causes of the Wealth of Nations, Smith explores the importance of gold and silver accumulation that is embedded in the tenets of mercantilism. Smith, through his analysis of mercantile arguments in favor of specie accumulation, will ultimately find such arguments in error. By his analysis of mercantile principles, Smith proves to be one of mercantilism's greatest critics. He advocates against specie accumulation and the necessity of a favorable balance of trade to aid in this accumulation, two doctrines that are at the heart of mercantile thought.

The paper will end in a discussion of the physiocratic doctrine that developed in France during the last half of the 18th century. The physiocratic doctrine was vastly different from the principles of mercantilism. The physiocrats placed much emphasis on land as the true creator of wealth. The mercantile principle of wealth existing in the forms of gold and silver was dismissed and more concrete forms of wealth were adopted. The circulation of wealth within a nation was also demonstrated by Quesnay, the undisputed leader of the physiocrats, in his book Tableau Economique. This book also explored the productivity of labor and ruled that agriculture was the only productive industry. The physiocrats exhibited strong criticism toward the mercantilistic economic system of the time, especially the system of taxation. The physiocrats further opposed governmental regulation in favor of a laissez-faire system of no interference. The physiocratic system is clearly the antithesis of the mercantile system and lays the groundwork for the publication of Smith's book.

THE RISE OF MERCANTILISM

"Mercantilism is the name given to some 250 years of economic literature and practice between 1500 and 1750" (Landreth, 1976). Mercantilism was the result of the developing commercial class, the merchants, and the name "mercantilism" is "derive[d] from the Italian word for merchant" (Canterbery, 2001). As they gained wealth and power, merchants' writings began to develop into the economic system known as mercantilism. …

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