You are on page 1of 41

| 


   

By
Qulb e Abbas
O
  
  

° An introduction to the history of economic


thought.
° The Mercantilist School:
Overview, tenets, key contributors.
° Mun, Petty, Malynes, Davenant, Colbert
Mercantilism
(Roughly
between
1500 to 1776)
|   
 
   

° Self-sufficient feudal community slowly


replaced by a new system of merchant
capitalism.

° Trade flourished both within each country and


between countries, and the use of money
expanded.
Concept of nation state;

strongest nations had colonies


The mercantilist school emerged:

° suspended feudal concepts


° promoted nationalism
° gave new dignity and importance to
merchants
° justified a policy of economic and military
expansion.
 
 
   

      ! " #

° uealth of nation equivalent to the amount of gold and


silver bullion it possesses.

° Surplus exports were therefore necessary to generate


payments in hard money.

° Therefore, a nation would even export to enemy during


war as long as the products were paid for in gold.
£$ 
  #

There is a fixed amount of economic resources in the world: One


country could increase its resources only the expense of others ʹ all
countries cannot simultaneously export more than they import.

Therefore, one͛s own country should promote exports and accumulate


wealth at the expense of others.

Led to stronger nations forming colonies, dominating trade routes,


waging wars against rivals and competing aggressively international
trade.

This extreme nationalism led to militarism.


% & 
"
   
!
&   '&  


 
"
   !& 
  '
(&
  

"  #
This emphasis on exports and reluctance to import has been called ³? 
 ´.

It was suppose to enhance country wealth and power due to accumulation of


gold and silver.

Prohibition against the outward movement of raw materials helped keep the
prices of finished exports low.
  

áueen Elizabeth banned the export of live sheep (1565) ± penalty confiscation
of property, one year imprisonment and cutting off the left hand. Second
offense ± death.
å
) 

 
& ) 


#
Merchant capitalists wanted favored
colonization and wanted to keep colonies
eternally dependent upon and subservient to
the mother country.

Any benefits to the colonies were an accidental


by-product of the policy of exploitation.
Boston Tea Party 1773
*&&  


'('
 
  

    
#

Mercantilists recognized that tolls and taxes could


throttle business enterprise and drive up the price of
country͛s exports.

However, mercantilists did not favor free internal trade


in the sense of allowing people to engage in any trade
that they wished.

Rather, preferred monopoly grants and exclusive


trading privileges whenever they could acquire them
ë


 

#

Strong central government required to promote mercantilist


goals.

Government encouraged exports, limited domestic


competition by granting monopoly privileges.

Agriculture, mining and industry promoted through subsidies


and protected from imports via tariffs.

Regulated quality of goods ʹ for preserving international


reputation.

Therefore strong national government required to ensure


uniform national regulations.
MO &
+|"

&& 
#

ºot only would a sizeable, industrious


population provide an abundance of
soldiers and sailors ready to fight for
the glory and wealth of the nation, but
it would also keep the labor supply
high and wages therefore low.
Low wages mean:

Lower prices on exports and hence


an increased inflow of gold
Reduce idleness and promote
greater participation in the labor
force.
Odleness and begging by able-bodied
people dealt with mercilessly, and
thievery was severely punished.

Henry VOOO in Great Britain hanged


7,200 thieves during his reign (1509-
1547).
u  %   
   

 
 ,

Ot benefited the:
° merchant capitalists
° kings
° government officials.

Ot served those who were the most powerful and


entrenched and had the most favored
monopolies and privileges.
Laws took the form of grants of:
° monopoly status
° prohibitions against imports
° regulations that made it difficult for new
producers and merchants to compete
successfully against the established ones.
÷xtreme form of rent seeking behaviour.

° Government officials to make these laws and


regulation - as a way to secure benefits for
themselves and for the royalty they served.

° Huge tensions could exist between those who


benefitted and those who were at a
disadvantage
 or ÷xample
° On  rance from 1686 to 1759, import and use
of printed calicoes was prohibited. Result ʹ
16,000 people were killed in conflicts and
executions arising from the enforcement of
these measures.
|"u  
   - '
.' 
O ,
° Arguments for bullionism, although exaggerated, made sense in the
context of that period.

° The rapid growth of commerce required more money in circulation,


and banking was insufficiently developed to produce it.

° Bullion provided a reserve that could be used to hire and maintain


soldiers, build ships, buy allies and bribe enemies.

° Before the development of international finance and multilateral


trade, bullion was of major significance in making international
payments.
° Onflux of precious metals also made tax collection easier.
u  
  
  
   +

 ! 
,
1. ÷mphasized on the importance of international
trade
2. Developed the concept of balance of payments
between a nation and the rest of the world.

Little other direct contribution to economics as


we know it today:
Ognored increases in efficiency, comparative
advantage specialization etc.
Ondirect contributions to economics
and economic development:
1) Permanently influenced the attitude towards the merchant:
helped them gain respectability and importance.

2) Had a major impact on economics by promoting nationalism.

3) The privileged, charted trading companies helped transform the


economic organization of ÷urope by bringing in new products,
providing outlets for manufacturing goods, and furnishing
incentives for the growth of capital investment.

4) Contributed to economic development through expansion of


internal markets, promoting free movement of goods unhampered
by tolls, establishing uniform laws and taxes, and protecting people
and goods in transit within and between countries.
|*/.$0M ëå1
° Director of ÷ast Ondia Company.

Argued that as long as total exports exceeded


total imports, the drain of species from a
country in any one trade area did not matter.
÷  

 
  

° |""
 !
 *

° The answer lay neither in production nor in the accumulation of capital


goods, but in surplus of exports.

° Although ÷ngland was rich, it could be still richer if it used wasteland to


grow hemp, flax, lumber, tobacco, and other things being imported.

° ÷xports should be carried in ÷nglish ships to gain insurance and freight


charges.

° Believed that increasing imports would increase ÷ngland͛s stock of


precious metal if the wares were exported to some other country at a
profit.
2/2%/3+$0 ëëå1

° A merchant in foreign trade, prisoner, an


÷nglish commissioner in Belgium, a
government advisor on trade matters, assay
master of the mint, and commissioner of mint
affairs.
Maylnes expressed several
Mercantilist ideas
° uhere trade was considered to be too low for
aristocracy, Maylnes defended the merchants.
° Advanced the idea that regulation of goods by
government was necessary to assure high
quality exports.
° Developed the Mercantilist notion that more
money in a country would raise the prices and
thereby stimulate business.
|/2+%-/$/$ 0ëëMå1
° An Oxford dropout, MP, Civil servant

°
÷  
÷  


° Argued against burying the dead in woolen cloth.

°
÷  
   

  


 
 

! "
 


° Argued that the kingdom can reap the benefit of the entire value of
an exported product if it is made from domestic raw materials.

° 0" 
 
 " #
$

%  
 
÷  
Devanant expressed a preference for wars fought within a country
rather than abroad, citing economics as the underlying reason.

Called for government regulation of business because merchants were


not to be trusted.

͞..their answers are dark and partial: and when they deliberate
themselves in assemblies, ͚tis generally with a bypass, and a
secret eye to their own advantage͙͟

He was


to say that the wealth of a country is what it
produces, not its gold or silver.

He favored a trade surplus because he believed that when the quantity


of money increases, interest rates fall, land value rise, and taxes
increase.
ù/$/ O*+2 0ë4 ë 1
°  rench Minister of  inance

° Colbert was a bullionist who believed that the


strength of a state depends on its finances, its
finances rest on its collection of taxes, and tax
revenues in turn are greatest if money is
abundant.
uas an arch-nationalist and militarist.

He favored exports, reduced imports


and laws preventing the outflow of
bullion from the country.
 our professions are useful for great
purposes: Agriculture, trade, war on
land, and from the sea.
Commerce was economic war.

Government regulation of business was an


important part of Colbert͛s policies ʹ
mistrust of merchants ʹ to protect the
consumer,  rances reputation and attain
uniformity

Monopoly privileges and subsidies were


offered for new industries ʹ especially
where large investment was required.
÷ncouragement of wine making
almost led to food insufficiency.

Many businesses declared ͞Royal


Manufacturers.͟
Colbert favored large, hard working,
and poorly paid population.
Also in favor of child labor:

͞.. experience has always certainly


shown that idleness in the
first years of a child͛s life is the
real source of disorders in later
life..͟
He regarded monks, nuns, lawyers and officials as unproductive idlers and
tried to reduce their number.

÷very father of ten living children was exempted from taxes.

Sons died in armed forces were counted as living; but priests, nuns and
monks were not counted.

ºot interested in internal commerce which, in his view, did nothing for state
wealth

Oncredibly regressive tax system was reinforced: privileged landowning gentry


exempt from taxation, subsidies to the big import-export capitalists, the
burden of taxes fell upon  rench farmers and small town craftsmen.

Generated a "progressive" external economy while allowing the internal


economy to stagnate.
O2uO++O/ 30ë£ ë M1

° A sailor, physician, professor of anatomy,


inventor, surveyor, MP, shipbuilder, author,
statistician, landowner.
5 
   "#

He favored freer foreign trade than many of the mercantilists, for he believed it would
circumvent the widespread smuggling.

He wanted imported goods to be taxed if the same goods are made or grown at home.

He wanted lower tariffs on the imports of raw materials.

Like other mercantilists, favor large population: based upon his concept of increasing
returns to government and lower unit costs.

 avoured a poll tax as an incentive to work.

Thieves should become slaves

The unemployed should be hired by the state to work on roads, dredging rivers,
planting trees, building bridges, mining minerals and manufacturing various goods.
How to finance these public
works*

Petty believed it should be done


through taxes: proportional
taxation.
6

 
 
 
° He was a pioneer statistician.
° Several of his ideas were later developed in
greater detail by the classical economists.

1. Velocity of circulation
2. Division of Labor
3. Rent Theory
4. Omportance of Capital and production efficiency
5. Labor Theory of Value
Thank You
give any feedback
sqjafery@gmail.com

You might also like