When we dig deep into the topic of capitalism and mercantilism, we usually consider how many businesses in the present-day capitalistic economy go by the same principle mercantilists had. Therefore, since the two economic systems had a common objective of profit generation, mercantilism is regarded as the earliest form of capitalism.
- Capitalism is an economic system based on private ownership of resources, production for profit, and market competition, where prices are determined by supply and demand.
- Mercantilism is a historical economic system characterized by the state controlling trade and resources to increase a nation’s wealth and power by accumulating gold and silver.
- The key differences between capitalism and mercantilism lie in their approaches to trade, resource ownership, and the state’s role in economic affairs.
Capitalism vs Mercantilism
The difference between capitalism and mercantilism is that capitalism refers to an economic system of liberty where the members of society are allotted independence and equal rights to produce wealth through an open market with minimum government interference. In contrast, mercantilism refers to an economic system that has restricted liberty because they insist on proper administration to restrain individuals from pursuing their self-centred intentions of accumulating wealth for themselves instead of enhancing their nation.
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Capitalism refers to the economic system that aims at enhancing the country’s economic growth by considering the productive efforts of each member of the economy as principal figures of wealth generation. The underlying reason behind this is that individuals generally have a competitive nature.
On the other hand, Mercantilism refers to the economic system that aims at enhancing wealth and power by the aggregation of gold and policies that are compatible with the notion of a country mainly focusing on exporting goods and services to other nations and barely focusing on importing goods and services (by restrictions like export subsidies and high tariff rates) to generate more wealth for the country’s treasury,
|Parameters of comparison||Capitalism||Mercantilism|
|Meaning||Capitalism is an economic practice where privately owned enterprises aim to generate profits.||Mercantilism is an economic practice that maximises profits by increasing exports and minimizing imports.|
|Objective||Capitalism aims at earning profits to expand the business or industry.||Mercantilism aims at exporting traded goods.|
|Tariffs||Under capitalism, low tariff rates are imposed.||Under mercantilism, high tariff rates are imposed.|
|World wide acceptance||Capitalism enjoys worldwide acknowledgement, and this economic activity is primarily preferred.||Mercantilism does not enjoy worldwide acknowledgement since this economic activity is gradually becoming extinct.|
|Government intervention||Capitalism usually operates without the intervention of the government.||Mercantilism mainly accumulates money for the nation while the state controls the economy.|
What is Capitalism?
Capitalism is an economic practice where private industries, businesses, or ownerships have capital goods or profits. Capitalism was historically initiated in Europe, mainly out of systems of feudalism and mercantilism.
In a capitalist market economy, the decisions to be taken and the investments to be made mainly depend on factors like wealth and production ability in capital and financial markets. Laissez-faire capitalism, or the free market, is considered the purest form of capitalism.
Most countries today practice mixed capitalism, mainly incorporating ownership and government regulation of selected industries and businesses. The main benefit of capitalism towards society is that they resolve the issues relating to economic production and distribution of resources.
What is Mercantilism?
Mercantilism is an economic practice that mainly deals with increasing exports and decreasing a country’s imports. Mercantilism spanned Europe from the 16th century to the 18th century.
Exports aim to make a country richer because this brings cash into the economy, and imports enrich the competitors at the expense of the economy. Mercantilism is primarily said to promote tariffs and subsidies on traded goods.
Mercantilism is a relationship where one nation wins, and the other loses. A mercantilist economy is considered highly protectionist as the imported goods have very high tariff rates.
Main Differences Between Capitalism and Mercantilism
- Capitalism refers to an economical operation where private businesses or industries aim at generating profits. Mercantilism refers to an economical operation where a country mainly focuses on increasing exports and decreasing imports to prosper a country.
- The main objective of capitalism is that they mainly focus on earning enough profits to build up or widen the business or enterprise. The main objective of mercantilism is that they primarily focus on increasing their exports and accumulating metals, for instance, gold and silver.
- When we talk about capitalism, this economic activity concentrates on imposing low tariff rates and free trade. Regarding mercantilism, this economic system mainly imposes high tariff rates to improve the country’s exports.
- Capitalism is considered to be a very preferred economic activity worldwide. Mercantilism is not considered to be the preferred economic activity worldwide.
- Capitalism supports the business environment and functions that do not involve government interference. Mercantilism advocates monopoly and stockpiles wealth for the economy as the state principally controls this economy.
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Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.