Mercantilism is based on theassumption that power and wealth were dependent on a theory of more exportsthan imports.
This involved a lot ofgovernment regulations. Mercantilism wascreated to get more gold for the country. The more colonies that were created, the greater the amount of exportswhich, in turn, would create a large gold revenue. However, the government wasextremely involved in trade. Adam Smithdid not agree with the amount of regulations put on trade. He was in favor of free trade.
He suggested that people did not have enoughfreedom when it came to trade. His theoryof the “invisible hand” introduced capitalism. The “invisible hand” suggested that the economy would regulate itselfwhen people were able to act and think on their own. With the government so heavily involved,there was not enough room for the citizens to make their own decisions.
Adam Smith was making a way for people tocontrol their own interests and make their own decisions. Smith believed that people would pursue the intereststhat made them more money. With thismoney, they would create jobs to pay more workers. When the government intervenes, this theorydoes not work. Smith argues that the government should have very littleeconomic influence.
The fewerregulation, the easier the economy will balance itself.