Four theories that explain economic growth

Theory 1: Theory of Mercantilism

 Nation’s wealth increases only if government regulated all the nation’s commercial
interests.
 Wealth of a nation can be measured by its ready supply of capital, generally held in the
concrete form of gold or silver.
 Global supply of wealth is a fixed amount, and that therefore any gain of wealth by one
nation must necessarily represent a loss by another.
 National strength was based on limiting imports through high tariffs and exporting as
many goods as possible. Due to its system of “me first” and “no imports”.

Theory 2: Laissez-faire theory

 Need to minimize the role of government intervention and taxation in the free markets.
 “Invisible hand” guides supply and demand reflecting the concept that each person by
looking out for one self creates the best outcome for all.
 While engaged in enterprises to earn money entrepreneurs provide the products that
people wants, this create wealth not only for the people in business but also for the
whole country where the citizens work to provide for themselves and others and where
they take care of their own financial needs.

Theory 3: Karl Marx theory of Socialism

 Human history a class struggle between workers and employers.

 Free enterprise (laissez faire) would lead to increasing severe losses and would
eventually bring about revolution in the workers.
 Called for an economy where the government owned all the property and distributed
everything equally among all the people through socialism.

Theory 4: Entrepreneur-centered theory

 Explained that economic growth is started by people or entrepreneurs who produce

goods not only for personal profit but also for the good of everyone around them.
 Entrepreneurs are the backbone of the economy.
 Entrepreneurs are people who find joy in creating or producing goods, who find self-
fulfillment in getting things done and who have a strong need for achievement.

Apostol, Jeangrace G.
Balansag, Cyraine K.
Medes, Cathlene A. (Presentor)
Perez, Jhoana M.
Ruiz, John Rey B. (Secretary)