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9/8/2018Comparing two of the main ideologies of Global Political Economy: Mercantilism and Liberalism |1/10Comparing two of the main ideologies of GlobalPolitical Economy: Mercantilism and LiberalismSEPTEMBER 25, 2014 | ANH DIEP | LEAVE A COMMENTIn the sphere of political economy, a question may emerge toward specific economic policies choicemade by a government, for instant, why do some governments keep the currencies ﬂoating whereasothers uphold fixed exchange rates? In answering such a question, it is important to come back to thethree traditional schools of thought of political economy – Mercantilism, Liberalism, and Marxism. Infact, each of these three schools of thought gives distinctive explanations to the above question. Thesedifferences have become a debating ma±er when they are brought into comparison. Particularly, when itcomes to comparison between Liberalism and Mercantilism, there are contrary viewpoints. From onepoint of view, Mercantilism is a political economy paradigm that was later overtaken by Liberalism atthe end of the 18century. On the other point of view, however, the Mercantilist thought is still beingimplemented today.Mercantilist and Liberalist believe that economic activities enhance the power and security of the state.However, these two ideologies have different approaches in operating economic activities. This paperwill examine as well as compare Liberalism and Mercantilism within their historical and practicalperspectives in order to prove that both Mercantilism and liberalism have certain strength andweakness. Although the tension between their mindsets remains with economists until today; the twoideologies had given economists an insight of market system throughout history of political economy.The first part of the paper will go through the historical perspectives of the mercantilist school followingwith their rationales, strength and weakness. The second part of the paper will highlight the liberalistschool and its innovation idea on market system, as well as its strength and limitation. In the process ofillustrate the strength and weakness of the mercantilism and liberalism, the paper a±empt to show howtension between Mercantilist and Liberal thinking still remain until today.Mercantilism and its rationaleFrom historical viewpoint, mercantilism is the oldest and can be considered as an important theory ininternational economy since it accounts for the basis compulsion of all nation-state. The developmentof classical mercantilism was associated with the rise of the modern nation-state in Europe during 15–18century. This was the period of time when the idea of state building and state intervention in themarket for the purpose of strengthening nation-state security dominated political economic thought.