Capitalism vs mercantilism – Which economic system is better?

The aim of this post is to compare these two economic systems by looking at today’s world as well as some economic theory of the past.

Mercantilism definition and criticism

Though the encouragement of exportation, and the discouragement of importation, are the two great engines by which the mercantile system proposes to enrich every country. – Adam Smith

Adam Smith went on to write something that might seem very unsettling at first glance. But in reality makes perfect sense if you yield to the logic of his argument.

Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer.

The maxim is so perfectly self-evident, that it would be absurd to attempt to prove it. But in the mercantile system, the interest of the consumer is almost constantly sacrificed to that of the producer; and it seems to consider production, and not consumption, as the ultimate end and object of all industry and commerce.

  • The average citizen in a mercantilist country does not benefit much. Only the owner of the factory. It is really just and extension of feudalism. Workers receives wages but wages or money that is not worth much if their quality of life is not improved.
  • An oligarach class is formed
  • Karl Marx was really criticising mercantilism not capitalism

Adam Smith went on to write:

In the restraints upon the importation of all foreign commodities which can come into competition with those of our own growth or manufacture, the interest of the home consumer is evidently sacrificed to that of the producer. It is altogether for the benefit of the latter, that the former is obliged to pay that enhancement of price which this monopoly almost always occasions.

The average citizen pays for the oligarch’s lifestyle. Much of Smith’s book wealth of Nations was a criticism of the mercantilist economic system. For nations and people there is a difference between acting on enlighten self-interest (capitalism) and selfishness (mercantilism).

Chinese neomercantilsm vs US and EU capitalism

Although mercantilism does not exist today, neomercantalism lives on in countries like China, Japan and Russia. The Chinese neomercantalist economic model is often praised by outsiders as the only country in the world that is really manufacturing, exporting and growing. Many people point out the USA and EU should protect their own industries and pursue a course of capitalism mixed with encouraging and export driven economy.

Lets compare a citizen in China or the Czech Republic, Hungary or Poland.  I live in Poland. I would 100% rather be a Polish citizen which participates in free movement of labor and capital in the EU the largest free trade zone in the world, than a citizen in China, the largest mercantile economy in the world. Poland had nothing in 1980. Now in a few years it is pretty rich.  Some Chinese are rich but most are not.

Look at Russia another mercantilist country ( trying to play this game with the former members of the Soviet Union). There is no way I would want to be an average Russian citizen. oligarchs who benefit from mercantilism makes the rest of the country pay for this.

Wealthy USA and UK capitalist countries

Is capitalism bad? People in the UK and USA criticises capitalism because they have never lived under another system. Lets some of these neomercantilists or anti-capitalists or socialists live under another system and they will change their minds fast. If you compare counties that use capitalism and observe how rich and happy the citizens are vs other countries and how the citizens are not as free or wealthy I think you will see the answer to which is  economic system is better capitalism or mercantilism.
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