Mercantilist Approach According to Mercantilists , a nation become rich and powerful when its exports increases than its imports. The resulting export surplus could be used for accumulating precious metals like gold and silver. The more gold and silver a nation had, the more powerful the nation was. Government had to all the power to stimulate the nation's exports and discourage and restrict imports. Mercantilists preached economic nationalism. Physiocrats approach According to Physiocrats, wealth of nations was derived solely from agriculture sector. They believed that government should not interfere with the operation of economic activities and the land is source of all wealth. Only agriculture labor is production and they alone creates surplus value. Both Adam smith views and mercantilists views are entirely different. Mercantilist preached nationalism, while Adam Smith supported capitalism and free economy. Mercantilism encourage exports only. More the gold and silver a nation had, the more powerful the nation was. But according to Adam Smith, a nation would specialise and export a commodity which the nation has absolute advantage on that commodity and import the commodity which has absolute disadvantage. He encourage both exports and imports of nations. He explained the government has only a police role in the economy Rate of profit will fall as capitalism grows older. The growth of capital stock itself drive down the rate of profit. Smith explained that rate of profit falls, as capital grows due to the competition among capitals. The more and more capitalists invest in the new machinery rate of profit would falls. As capital grows older, the ratio of the profit to the amount of invested capital decreases over time
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