|This article attempts to explain the main essence of Mercantilism, Physiocrats, and Classical economics and their effect on economics policies.|
In the 18th century, economics was called political economy. At that time, the main purpose of economics was to assist in the formulation of public policy and to guide policymakers, and for this reason, economics was known as political economy. Economists, regardless of whether the state or the government agreed, thought that they should advocate and encourage the right policy and discourage the wrong policy, and they used to help to formulate the right policy accordingly.
Economics as a separate discipline was recognized only after 1776. In 1776, the famous economist Adam Smith published his book ‘An Inquiry into the Nature and Causes of the Wealth of Nations‘, and then economics found its existence and identity. That is why Adam Smith is also known as the father of political economy.
Even before Adam Smith, there were many different economic ideologies and perceptions. From the Middle Ages to the 18th century, various philosophers and scholars before Smith have expressed various views on economics in their philosophies and theories. However, before 1776, economics was considered to be a part of other social sciences like political science, ethics, etc. Therefore, Adam Smith’s economic ideology and his theories are considered to be powerful and influential concepts of economics. His many ideas are still being implemented with a great treat.
Mercantilism and Its Policy
Looking at the world economic and political history, it is easy to see that in Europe, about 250 years before Adam Smith‘s apocalyptic classical contribution, an economic and political thought had influenced public policymaking for more than 200 years in all the European countries and states. That particular economic thought was called Mercantilism.
From 1500 A.D to about 250 years the ideology of mercantilism has completely dominated the public policy of the European states. The main idea of mercantilism was to make a strong and self-sufficient nation-state.
For that, their policy prescription to the government was that the state had to do surplus foreign trade by reducing imports as much as possible, and increasing exports collect more and more gold and silver and the government had to show its strong presence by formulating policies and rules for its management. State-controlled surplus international trade was their main policy for economic growth and prosperity under mercantilism.
Physiocracy and Its Policy
Along with mercantilism, there was another organized economic ideology that originated in France around 1750 A.D. and is known as Physiocrats. It was an organized group of individuals who pursued a policy of promoting the agricultural sector, which was neglected by mercantilism, as the main source of net output and wealth. They also advocated for minimizing the role of government in economic activity.
It is also considered to be the first organized, systematic and intellectual school of economic ideology. Its impact on the public policy formulation of European countries was found to be around 25 to 30 years. In 1776, with the arrival of Adam Smith, the economic thoughts of Physiocrats were collapsed.
Classical Economics and Its Impact on Public Policy
With the publication of The Wealth of Nations in 1776, the influential introduction of economics and the influential role of economics in public policy-making were increasing. Therefore, along with Adam Smith’s definition of economics, the role and usefulness of economics in the economy, and the daily life of the people were increasing and since then economics has been taken as one of the most important subjects in human life. Due to such epoch-making work, Adam Smith‘s name has always been and will remain among famous personalities.
The theories propounded by Smith and his followers were named by later economists as classical economic theory and Adam Smith as the leader of classical economic thought. Therefore, the name of Adam Smith always seems to come to the forefront as soon as it is called classical economics and along with him, his followers like Ricardo, Malthus, Fischer, Say, Mill, Pigou, etc. are known as classical economists.
Adam Smith himself and the follower economists of Adam Smith, who used to consider Adam Smith as their thinker or leader, through their different scientific theories explained how the economic system and the economic agents participate in the economic undertakings and how the overall economy and economic system work within the framework of Smiths ideas.
By solving the economic problems and issues of that time scientifically, classical economists popularized economics as a special and indispensable subject. They formulated theories related to economic issues such as product cost, product value, economic growth, capital formation, etc. They studied the workings and dynamics of the overall economy and their main focus was on national wealth, cost of production, scientific definition of value, and so on.
Although theories of classical economics were later expanded and modified by later economists such as Karl Marx and Ricardo, concepts and definitions were first scientifically given by Adam Smith and his followers. Therefore, the contribution of classical economists in the overall development and expansion of economics can never be forgotten.
With the publication of Adam Smith’s famous book in 1776, his economic theories and concepts applied widely and played a major role in public policy. At that time, Smith’s economic ideology had a profound effect on the policy-making of all countries moving towards industrialization and economic prosperity.
Their main idea was that there should be an open economy and that the government should have no control over the economy and economic activities. According to them, since the various units of the economy or the agents of the economy are guided by their motives and rationality, the government should not interfere in their economic activities and economic relations by making any policy or rules, and the overall economy is self-balanced due to causes of market capacity and natural law.
Adam Smith called the open market system an invisible hand. Therefore, according to classical economists, to increase the economy and increase the national wealth, the main policy is that the government should create easy laws by creating an investment-friendly environment and leave all economic activities in the hands of the market.