Monday, January 14, 2013
by Vasilis Viliardos
Mercantilism was ultimately rejected by the liberal and British Adam Smith, who also refused to wade into monetary policy – believing that products, people and institutions constitute the foundations, on which general well-being can be built on peacefully, and under conditions of freedom and democracy.However, many economists believed that mercantilism, in some cases, is not erroneous.
The most important among them was J.M. Keynes, who incorporated some elements of mercantilism in his theory – stating that the money supply, the foreign trade balance and prime interest rates are very important for an economy (believes that where later used to set the grounds for modern monetarism).
Adam Smith rejected the sole focus on production mercantilists thought to be the key – believing that consumption is the only way to develop an economy. In contrast, Keynes considered both the production and the consumption as being equally important for economic growth – recognizing also, that...