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How do capitalist and mercantilist views on government economic regulation differ?
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Mercantilism advocates for active government intervention in the economy through tools like subsidies and taxes to protect domestic industries and enhance state power. It often aligns with corporate interests, as seen historically with entities like the East India Company. In contrast, capitalism favors minimal government interference, emphasizing a self-regulating market driven by supply and demand. Notably, Adam Smith critiqued mercantilism, promoting free-market principles, while some argue for selective regulation to protect emerging industries.
Mercantilism stresses the active intervention of the state in the economic processes of trade and manufacturing by such means as subsidies, taxes, patents, monopolies, restrictions, prohibitions, and controls. The declared goal of these interventions is typically the public good of society and enhancement of economic development; for early modern mercantilist ideologists there is also the goal of increasing industrial strength, financial resources, and war-making capabilities of the state. Often mercantilist governments established close relations with powerful corporations, such as the East Indian Company in 18th century Great Britain, and implemented policies suggested by these companies and similar interest groups.
Free-market capitalism, on the other hand, demands that the state stop or minimize its interventions in economic activity. It proclaims the principle of freedom of economic opportunity and asserts that the market is a self-regulating mechanism that needs only the impartial enforcement of a few basic rules, especially property rights, to...
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The main 18th century ideologist of free market capitalism, Adam Smith, provided a comprehensive critique of mercantilism which dominated European economic thinking and policies from the 15th century until the middle of the 18th century. The American revolution involved the rebellion of colonial merchants and artisans against mercantilist restrictions on colonial trade and manufacturing, which were adopted by the British parliament and enforced by British colonial authorities.
At the same time, in situations where the economic infrastructure is relatively primitive, the local industry is still weak and needs protection from cheap foreign imports, or the market is very imbalanced, unstable, and unequal, some government interventions, such as high import tariffs on manufactured goods, may play a positive role. For example, in 19th-century US, such tariffs served to promote industrialization and enhance economic development. Similarly intense regulatory activity on the part of the Roosevelt government during the New Deal protected the interests and wellbeing of large groups of disadvantaged people from the disastrous consequences of the collapsing market mechanisms during the Great Depression.
Similarly, in the late 20th century, Singapore, South Korea, Indonesia, Japan, and China successfully used a wide range of government economic policies (sometimes called Neo-mercantilism) to modernize and grow their industries.
People who supported the mercantile system wanted to have some government regulation of the economy. Mercantilists wanted the government to pass laws that favored the business owners and protected them from foreign competition. During the days when Great Britain had the 13 colonies in North America, the British government passed laws that restricted what the colonists could trade and with whom they could trade. These laws were designed to protect the British industries and business owners.
Capitalists want very little government regulation of the economy. They believe in a laissez-faire attitude where the government stays out of the economy and out of the affairs of businesses as much as possible. They believe that businesses should be free to make business decisions without much interference by the government. During the 1920s, a laissez-faire attitude dominated the American government's beliefs about the economy. There were few government regulations, and many people felt that what businesses did was good for the United States.
There is a difference between how a mercantilist and a capitalist view the role of the government in the economy.
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