MERCANTILISM n The swing of the Pendulum FROM the “heavenly” incentive of the ScholasticsFROM the “heavenly” incentive of the Scholastics TO the “mundane” incentive of the MercantilistTO the “mundane” incentive of the Mercantilist

Period n Roughly from the n The Term “Mercantilism” was coined by Maquis de Mirabeau (a physiocrat) n It is a system closely associated with the rise of nations and the concept of Nationalism n It was a system prevalent in: FranceFrance SpainSpain EnglandEngland HollandHolland

9 points by Phillip Wilhelm von Hornick (1864) n 1That every inch of a country’s soil be utilized for agriculture, mining, or manufacturing n 2That all raw materials found in a country be used for domestic manufacturing, since finished goods have a higher value than raw materials

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

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

Von Hornick’s blueprint n 8That opportunities be constantly sought for selling a country’s surplus manufactures to foreigners, so far as necessary, for gold and silver n 9That no importation be allowed if such goods are sufficiently and suitably supplied at home

BALANCE OF TRADE n Edward Misselden ( ) estimates the first balance of trade n He calculated Balance of Trade for England between Christmas 1621 and Christmas n He included visible and invisible (shipping expenses, insurance, etc.) items

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

Colonies n Are important because: provide raw materials are forbidden from purchasing manufactured goods unless they come from the “mother” country can provide workers

The Seas n NEED to be protected since they are the lifeline to commerce In England: Sir Walter Raleigh In Spain the Pirate Raleigh

Labor and “ UTILITY OF POVERTY” n Basic Premise: suffering is therapeutic Given the opportunity, the MENIAL would be lazy and slothful n 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

Jean Baptist Colbert n Chief Minister of Louis XIV from n Strong believer in Regulation n He purchased Martinique, Guadeloupe in the West Indies n Encouraged settlement in Santo Domingo, Louisiana, and Canada

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

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

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

Physiocrats n 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 n Economy was Agriculture based

Francois Quesnay n Physician to Madame de Pompadur and Louis XV n Economic Table n Based on the relative new concept of the “circulatory system” n Table divided into: farmerfarmer landlords andlandlords and Artisans and ServantsArtisans and Servants

Tableau Economique n 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 n It was only the farms who could output greater than its cost. In this table he assumed 100%. n Thus, the 1000 livres farmers received at the beginning of the period allowed them to produce 2000 livres of output.

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

Physiocratic Policy n At the time a large burden of the tax was on farmers n 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 n Consequently, they argued for large tax increase on landowners and lowering tax on farmers

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

Criticism 0f the Physiocrats Criticism 0f the Physiocrats n There are two basic criticism of them: Theories were not based on the facts of their timeTheories were not based on the facts of their time Their theories were basically normativeTheir theories were basically normative n They considered only the farmers to have the capacity of producing a surplus above necessary cost. n To them manufacturing was a sterile since it was incapable of producing this surplus