Adam Smith on Mercantilism
ChatGPT: Adam Smith strongly criticized mercantilism in The Wealth of Nations (1776), arguing that it was a flawed and self-defeating economic doctrine. His main points:
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Wealth is not gold: Mercantilists equated national wealth with the accumulation of gold and silver (bullion). Smith rejected this, emphasizing instead that real wealth lies in a nation’s productive capacity—its ability to produce goods and services.
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Trade is not zero-sum: Mercantilists saw international trade as a zero-sum game where one nation’s gain is another’s loss. Smith argued trade is mutually beneficial. He introduced the idea of absolute advantage, showing how specialization and exchange increase the wealth of all nations.
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Protectionism hurts consumers: Mercantilist policies favored domestic producers through tariffs and trade restrictions. Smith viewed these as harmful to consumers, who are forced to pay higher prices and have fewer choices. He famously wrote:
“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.”
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Cronyism and rent-seeking: Smith accused mercantilist policies of serving powerful interest groups (e.g., guilds, monopolies, chartered trading companies) at the expense of the public. He viewed the system as corrupted by lobbying and state favoritism:
“The interest of the dealers… in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public.”
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Free trade promotes growth: Smith advocated for a liberal trade regime based on natural liberty. He saw the division of labor and free exchange as key drivers of economic growth and prosperity.
In short, Smith saw mercantilism as a doctrine that enriched special interests and weakened overall prosperity. He called for a shift toward a system where markets and competition—not state-backed monopolies—allocate resources efficiently.