Question 16

Mercantilism contends that the amount of gold and silver a nation possesses determines its wealth.

Mercantilism is an economic theory that emphasizes the role of a nation’s wealth, primarily measured in terms of gold and silver reserves, as the foundation of its economic strength. This theory posits that a country’s power is directly related to its wealth accumulation, particularly through a favorable balance of trade.

A) Neo-mercantilism

Neo-mercantilism is a modern adaptation of mercantilist principles that focuses on government intervention in the economy to achieve national economic objectives. While it shares some similarities with traditional mercantilism, it does not specifically assert that wealth is solely determined by gold and silver reserves.

B) Free trade

Free trade advocates for minimal restrictions on trade between nations, promoting the idea that wealth is generated through open markets and competition rather than through accumulating precious metals. This perspective is fundamentally opposed to the mercantilist view, which sees wealth as tied to a nation’s stock of gold and silver.

C) Protectionism

Protectionism refers to economic policies aimed at shielding domestic industries from foreign competition, typically through tariffs and quotas. While it may involve some elements of mercantilism, it does not specifically claim that a nation’s wealth is determined by its gold and silver reserves.

D) Mercantilism

Mercantilism is the correct answer as it explicitly states that a nation’s wealth is determined by the amount of gold and silver it possesses. This theory underpins the historical context of trade practices and national economic strategies aimed at increasing state resources through accumulation of precious metals.

Conclusion

Mercantilism is definitively the correct answer as it directly links a nation’s wealth to its stock of gold and silver, a fundamental tenet of the theory. Other options, including neo-mercantilism, free trade, and protectionism, either modify the original concept or oppose it, highlighting the unique position of mercantilism in economic thought.