Mercantilism and Economic Control: A Case Study of Peru

In Chapter 7 of The Other Path¸ de Soto compares the state of Peru’s economy to the mercantilism that was rampant across Europe during the 15th to 19th centuries. Mercantilism was defined as the belief that the economic welfare of the State can only be secured by government regulation of a nationalist character. Mercantilism relied on the elite groups within a state, who were in turn sustained by state privileges. The essence of mercantilism was that it was an economic environment filled with governmental regulations. The state reserves the right to single out and promote whatever economic activities it considered desirable and to prohibit or discourage those which it considered inappropriate. One of the main aspects of a mercantilist society is the lack of access to enterprise. In these societies, the opportunity for business is granted to a select few, and generally those who have some sort of connection to the ruling class. In addition to having a connection with the ruling class, usually the businesses were partially owned by the government and used this method to indirectly tax the citizens purchasing the

De Soto talks about how there do need to be laws and regulations to keep order and make sure the country doesn’t harm its people. However, there needs to be a method created for peacefully transitioning from a mercantilist society to a free market that eventually will incorporate the informal market. De Soto argues that there needs to be a simplification of the laws to allow a more conducive environment to business, there needs to be decentralization of the government and deregulation of the tough laws in the country. De Soto ends the book by telling the reader that the government will needs to weigh the costs and benefits of the different suggestions for institutional change and make a decision based on what will greatly benefit all of the people in the