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International Trade
Mercantilism is the economic theory that a nation's prosperity depended upon its supply of gold and silver, that the total volume of trade is unchangeable. According to the theory, the government should play an active role in the economy by encouraging exports and discouraging imports, especially through the use of tariffs. Underlying mercantilism was the notion that a country needs a positive balance of trade to gain more precious resources. This belief fueled colonialism to acquire natural resources and to build a large empire in order to become wealthy. England often banned exports of raw or unfinished good and passed the Navigation Acts requiring ships entering English ports either be English or be carriers of goods from their country of origin.
David Hume was opposed to mercantilism. He argued that prices in a country change directly with changes in the money supply. As net exports increased and more gold flowed into a country to pay for them, the prices of goods in that country would rise. Thus, an increased flow of gold into England would not necessarily increase England's wealth substantially.
Like Hume, Smith also opposed mercantilism. The primary advantage of trade, he argued, was that it opened up new markets for surplus goods and also provided some commodities at less cost from abroad than at home.
Mass perception of free trade in the United States is rarely positive. Immediately, people think of lost jobs and our growing trade deficit instead of the free trade promises of a higher standard of living brought about by the theory of comparative advantage and economies of scale. Therefore, many feel that free trade makes this country worse off.
Bibliography
Adam Smith (1723-90)." The Concise Encyclopedia of Economics. Available:
http://www.econlib.org/library/Enc/bios/Smith.html (Accessed 19 Feb. 2005).
David Hume (1711-76)." The Concise Encyclopedia of Economics. Available: http://www.econlib.org/library/Enc/bios/Hume.html (Accessed 19 Feb. 2005).
Mercantalism." Available:
http://en.wikipedia.org/wiki/Mercantilist (Accessed 19 Feb. 2005)
David Hume (1711-76)." The Concise Encyclopedia of Economics. Available: http://www.econlib.org/library/Enc/bios/Hume.html (Accessed 19 Feb. 2005).
Adam Smith (1723-90)." The Concise Encyclopedia of Economics. Available:
http://www.econlib.org/library/Enc/bios/Smith.html (Accessed 19 Feb. 2005).
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