economics

Mercantilism, the Physiocrats, and Adam Smith

In the transition to modern times (16th–18th cent.), European overseas expansion led to the growth of commerce and the economic policies of mercantilism, a system that inspired a substantial body of literature on the subject of economic nationalism. In the late 17th and the 18th cents., protest against the governmental regulation characteristic of mercantilism was voiced, especially by the physiocrats. That group advocated laissez-faire, arguing that business should follow freely the "natural laws" of economics without government interference. They regarded agriculture as the sole productive economic activity and encouraged the improvement of cultivation. Because they considered land to be the sole source of wealth, they urged the adoption of a tax on land as the only economically justifiable tax.

In the 18th cent. important work in economics was done by the Scottish philosopher David Hume. His analysis of the natural advantages that some nations enjoy in the cultivation of certain products and his observations on the flow of commerce became the basis for the theory of international trade. The most important work of the 18th cent., however, was Adam Smith's An Inquiry into the Nature and Causes of the Wealth of Nations (1776), which is considered by many to be the first complete treatise on economics. Smith identified self-interest as the basic economic force and, through his analysis of the division of labor and his comprehensive study of the development of economic institutions in the West, established economics as a major area of study. John Millar, a follower of Smith, incorporated and developed these ideas into a highly sophisticated economic interpretation of history. Smith's theories, especially his advocacy of free trade, played an important part in the Industrial Revolution then taking place in Britain.

The Columbia Electronic Encyclopedia, 6th ed. Copyright © 2012, Columbia University Press. All rights reserved.

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