MERCANTILISM

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MERCANTILISM

• The swing of the Pendulum
• FROM the heavenly incentive of the Scholastics
• TO the mundane incentive of the Mercantilist

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Period

• Roughly from the 1600-1800
• The Term Mercantilism was coined by Maquis de
  Mirabeau (a physiocrat)
• It is a system closely associated with the rise
  of nations and the concept of Nationalism
• It was a system prevalent in
• France
• Spain
• England
• Holland

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9 points by Phillip Wilhelm von Hornick (1864)

• 1 That every inch of a countrys soil be utilized
  for agriculture, mining, or manufacturing
• 2 That all raw materials found in a country be
  used for domestic manufacturing, since finished
  goods have a higher value than raw materials

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Von Hornicks blueprint

• 3 That a large, working population be encouraged
• 4 That all exports of gold and silver be
  prohibited and all domestic money be kept in
  circulation
• 5 That all imports of foreign goods be
  discouraged as much as possible

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Von Hornicks blueprint

• 6 That were certain imports are indispensable
  they be obtained at first hand, in exchange for
  other domestic goods instead of gold and silver
• 7 That as much as possible, imports be confined
  to raw materials that can be finished at home

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Von Hornicks blueprint

• 8 That opportunities be constantly sought for
  selling a countrys surplus manufactures to
  foreigners, so far as necessary, for gold and
  silver
• 9 That no importation be allowed if such goods
  are sufficiently and suitably supplied at home

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BALANCE OF TRADE

• Edward Misselden (1608-1654) estimates the first
  balance of trade
• He calculated Balance of Trade for England
  between Christmas 1621 and Christmas 1622.
• He included visible and invisible (shipping
  expenses, insurance, etc.) items

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Bullionism

• Belief that economic health of a nation is
  measured by the amount of precious metals (gold
  and silver) it posses
• Spain is the Richest country because of the gold
  and silver from its colonies in Latin America

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Colonies

• Are important because
• provide raw materials
• are forbidden from purchasing manufactured goods
  unless they come from the mother country
• can provide workers

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The Seas

• NEED to be protected since they are the lifeline
  to commerce
• In England Sir Walter Raleigh
• In Spain the Pirate Raleigh

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Labor and UTILITY OF POVERTY

• Basic Premise
• suffering is therapeutic
• Given the opportunity, the MENIAL would be lazy
  and slothful
• Bernard Mandeville argued that poor children
  should not be allowed to go to school since that
  would make them less useful for the jobs that
  belong to them

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Jean Baptist Colbert

• Chief Minister of Louis XIV from 1661-1683
• Strong believer in Regulation
• He purchased Martinique, Guadeloupe in the West
  Indies
• Encouraged settlement in Santo Domingo,
  Louisiana, and Canada

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Population

• Discourage Young people from entering the clergy
• Gave TAX breaks to families with over 10 children

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Colbert

• Directed the construction of the Louver
• Financed Expansion of the palace of Versailles
• His downfall Impose a large tax on Italian
  wine and a smaller tax on French wine

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Physiocrats

• Group of individuals who claimed to be
  economists. Important in that they introduced the
  label to the profession.
• However, afterwards as the profession evolved it
  was recognized that they were a school of thought
  and they were renamed the Physiocrats.
• They were called so because assumed Natural Laws
  governed the economy

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Physiocrats

• Among the great contribution of the Physiocrats
  was that they introduce to the profession the
  importance of building theories based on models
  where analysis was done by isolating one or more
  variables in the economy
• Economy was Agriculture based

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Francois Quesnay

• Physician to Madame de Pompadur and Louis XV
• Economic Table
• Based on the relative new concept of the
  circulatory system
• Table divided into
• farmer
• landlords and
• Artisans and Servants

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Tableau Economique

• Landlords have 2000 livres (the French currency
  of the time) from last year and spend 1000 on
  buying farm goods and a 1000 buying from artisans
  and servants
• It was only the farms who could output greater
  than its cost. In this table he assumed 100.
• Thus, the 1000 livres farmers received at the
  beginning of the period allowed them to produce
  2000 livres of output.

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Physiocratic Policy

• The advocated capital accumulation as essential
  for economic growth
• At the same time they wanted the state
  (government) to also flourish
• Consequently, the look at those things which
  could do both and focused on
• Taxation
• Trade

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Physiocratic Policy

• At the time a large burden of the tax was on
  farmers
• They argued that for capital accumulation to
  occur it should be the recipients of the benefits
  of capital accumulation who should pay the tax
  not the producers of it
• Consequently, they argued for large tax increase
  on landowners and lowering tax on farmers

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Physiocratic Policy

• They were not against Landowners, they argued
  that the increase in economic growth would
  increase Landowners wealth beyond the burden of
  the tax
• They saw the trade restrictions of the
  Mercantilist as imposing a large burden on the
  economic growth so they argued for free trade

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Criticism 0f the Physiocrats

• There are two basic criticism of them
• Theories were not based on the facts of their
  time
• Their theories were basically normative
• They considered only the farmers to have the
  capacity of producing a surplus above necessary
  cost.
• To them manufacturing was a sterile since it was
  incapable of producing this surplus