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How is capitalism different from mercantilism?

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Quick Answer

Capitalism refers to an economic system featuring private corporations and individuals maintaining ownership of a society's means of producing, distributing and exchanging wealth; mercantilism refers to a practice that predates capitalism, in which towns, regions and countries set up imbalances in trade with one another. Capitalism is designed to set up open competition, but mercantilism is designed to establish a winner among losers.

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Full Answer

The capitalist impulse is to continue to amass wealth, and industrialist capitalism brought higher wages to multiple levels of society. While ownership amassed wealth much more quickly than the working classes, wages at all levels rose considerably.

In contrast, mercantilism resembled a more advanced form of feudalism. It began as towns trading goods with one another, but the trade was not always competitive. At the beginning, different towns specialized in different services and products, but those became more similar as time went by, and as the similarities grew, trade areas grew from swapping goods between cities to swapping them between nations. When nations began establishing colonies, they had a forced market for their goods, and many of the colonial regions were only allowed to trade with their occupying power. Instead of bringing development to the world, mercantilism actually kept parts of the world in a backward economic situation.

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