Mercantilism is based on the
assumption that power and wealth were dependent on a theory of more exports
than imports. This involved a lot of
government regulations. Mercantilism was
created to get more gold for the country.
The more colonies that were created, the greater the amount of exports
which, in turn, would create a large gold revenue. However, the government was
extremely involved in trade. Adam Smith
did not agree with the amount of regulations put on trade. He was in favor of free trade. He suggested that people did not have enough
freedom when it came to trade. His theory
of the “invisible hand” introduced capitalism.
The “invisible hand” suggested that the economy would regulate itself
when 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 to
control their own interests and make their own decisions. Smith believed that people would pursue the interests
that made them more money. With this
money, they would create jobs to pay more workers. When the government intervenes, this theory
does not work. Smith argues that the government should have very little
economic influence. The fewer
regulation, the easier the economy will balance itself.