1. MERCANTILISM The swing of the Pendulum
FROM the “heavenly” incentive of the Scholastics
TO the “mundane” incentive of the Mercantilist

2. 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

3. 9 points by Phillip Wilhelm von Hornick (1864)
1 That every inch of a country’s 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

4. Von Hornick’s 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

5. Von Hornick’s 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

6. Von Hornick’s blueprint
8 That opportunities be constantly sought for selling a country’s 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

7. BALANCE OF TRADE
Edward Misselden ( ) 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

8. 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

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

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

11. 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

12. 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

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

14. 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

15. 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

16. 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

17. 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

19. 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.

20. 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

21. 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

22. 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

23. 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