Chapter 3: Precursor of Classical Economic Thought Questions for Review, Discussion and Research (pp. 67) 1, 2, 3, 7, 10 - Period covers Develops a view of the economy as a system with laws and interrelationships

Mercantilism Written by merchants who concentrated on a few topics Often assumed the total wealth of all nations was fixed so that the gain of one country was at the expense of another Emphasized international trade as a means of increasing the wealth and power of the new nation states

Mercantilism Cont’d I.Balance of Trade encourage exports and discourage imports with subsidies, tariffs, quotas and taxes.

I.Money and Precious Metals Relationships between the quantity of money and the general price level recognized by Jean Bodin in 1569 Believed that the monetary factors, rather than real factors, were the chief determinants of economic activity and growth

Contributions of Mercantilists’ Transfers ideas and attitudes from the physical sciences to the social sciences Believed the laws of the economy could be discovered by the same methods revealed by the laws of physics

Influential Writers 1.Thomas Mun Adam Smith quotes him as a key writer of “Conservative” mercantilists 2.William Petty Borrowed concepts of induction, empiricism and mathematics for his Political Arithmetic written in 1676 First to explicitly advocate statistical techniques to measure economic phenomena

Influential Writers Cont’d 3.Bernard Mandeville Provoked contemporaries with his attack on sentimental moralists Selfishness was a moral vice Social benefits could be derived from selfish motives and actions if properly channeled by government The end result of private virtue was economic depression

4.David Hume Close personal friend of Adam Smith Was a “Liberal” mercantilist who borrowed insights from John Locke to develop the price specie-flow mechanism - Overhead pp. 54

Influential Writers Cont’d 5.Richard Cantillon Book written around 1730 but not published until 1755 Jevon’s called It the “First Systematic Treatment of Political Economy” Seminal vision was the role of markets in coordinating the activities of producers and consumers through the medium of individual self interest

Key economic actors were entrepreneurs Treated each sector or component of the economy as a part of an integrated structure - Overhead pp

Physiocracy Stressed the interrelatedness of sectors in a national economy Economic theory was a prerequisite of economic policy Unique idea concerned the role of natural laws – independent of human will – that was essential in formulating public policies

- Overhead 58 Figure 3-1 shows a photocopy of the original Tableau Economique developed by Quesnay with no foreign sector, public sector, or manufacturing activity

Physiocracy Cont’d Overhead pp Conceived the economy as a self regulating mechanism The proper role of the public authorities was to follow a policy of laissez-faire Spanish Economic Thought Skip 62-64

Summary Overhead pp. 65