Adam Smith's Role in Ending the Mercantilist Economy The mercantilist theory of economics existed in Britain since the 16th century when European states started regulating the manufacturing industry, including the conditions of the market and prices. During the time of mercantilism, the economic policy of the leaders sought to encourage national self-sufficiency. They valued gold and silver as an index of national power and wealth. The mercantilists also had a contra- or anti-quantity theory of money, which gave them a permanent spot in the history of monetary doctrines. Adam Smith was crucial in establishing the classical economy and driving economic thought forward.An Inquiry into the Nature and Causes of the Wealth of Nations, published in 1776, explains Smith's classical thoughts. "The Wealth of Nations is an extended polemic against mercantilism" (Schlefer). In Book IV, Chapters I and VIII, Adam Smith states his opinion on the mercantile system and its faults, while he dissected, clarified, and revolutionized the mercantilist economy and advocated the classical economy throughout the book. He used real world examples to prove his points. First, Smith disagreed with the "regulation of economic activity by the State in the interests of the merchant classes" (O'Brien 273). He proposed a free, competitive market, which through an "invisible hand" would do a better job in guiding the economy than the mercantilists. In Book IV, Chapter II, he emphasized the invisible hand:Every individual...generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his ...
