INDIVIDUAL ASSIGNMENT 1

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SEJARAH PEMIKIRAN EKONOMI

NAMA: IZZAT AMZAR BIN SAFARUDDIN

NO MATRIK: D20171077204
NO KAD PENGENALAN: 980907565429
PENSYARAH: PROFESOR MADYA DR. ZAINIZAM BIN
ZAKARIYA
CONTENTS
NO CONTENT PAGES
1. Introduction
- Introduction of Mercantilism. 3–4
- Introduction of Classical.

2. Differences Between Mercantilism school and

Classical school. 5

3. Similarities Between Mercantilism school and 6

Classical school.

4. Conclusion. 7

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INTRODUCTION OF MERCANTILISM.

History of mercantilism started in Europe during the 1500s. Some history also said that the
period of mercantilism ages was between middle ages and the period of the triumph of the laissez-
faire. The main ideas during mercantilism was based on the nation’s wealth and power. Mercantilism
was also focusing on collecting gold and metal which is the sources of wealth during that time. The
more gold and silver that a country had, the more power that country hold. The state capital can be
depicted in real terms with the amount of capital such as precious minerals, gold and other
commodities owned by the country. By increasing exports and reducing imports can expanded the
capital so that the net value of external trade will always positive.

Other than that, the philosophy of western country very influential in Europe. The progress of
the political can be said was not so apparent during that centuries. People are more focused on how
well-being they are in a market-neutral system. At that moment, slowly Europe transforming the
economy from feudalism into a profit-oriented market economy.

There are a few sign that we can see from the beginning of the mercantilism era. Among of
the, we can see that at the early era of mercantilism, there are so many great discovery and conquest
of new geographical territories by European countries. This was due to the adventures and
colonization of Europe to conquer and control the precious resources of that time. For the example is
when they discover gold in the western Hemisphere facilitated the growing of commerce and
stimulated theorizing about precious metals. During that period also, based on the development of
navigation, they discover great geographical discoveries were extending the sphere of commerce.
Besides, many countries were exploring for new territories and the new discoveries of this vast area
led to assumption that trading at local level was no longer profitable. They found that there are more
opportunities to go through foreign trade. The results continues to grow as trader trade with various
countries. At the end, trade competition between the explorers started to happen.

Basically there are some individuals who expressed mercantilist ideas which is Thomas Mun,
Jean Baptiste Colbert, Sir William Petty and some others philosopher during that period. They play
important role in spreading the thought of mercantilism.

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INTRODUCTION OF CLASSICAL.

Generally, classical economics considered as to be the first modern trend in the history of
economic thought. Adam Smith, Jean-Baptiste Say, David Ricardo, Thomas Malthus and John Stuart
Mill was the key thinkers and developers of this stream. The Wealth of Nations by Adam Smith in
1776 is regarded as the beginning of the classical economic era. This trend dates back to the mid-19 th
century. The thinkers believe that classical economic is a free market and it will govern itself without
any intervention from any party. Adam Smith also stated that the market will move naturally and will
balance in natural without outside intervention.

Other than that, the historical of classical economic thought is also said to be from the
discovery of Isaac Newton about the gravity theory. By his theory, he found out that something that
happened in the universe is governed by the laws of nature. Newton’s thinking in the classical
economy provided an ideology that justified property income and this is because the best laws of
nature is just let it being left untouched. He also stated that interest, profit and rent are the only
rewards for the ownership and productive use of wealth.

Classical economic thought also holds to some of the vital principal in their flow. One of their
beliefs is in conducting economy there is must have minimal government involvement. Classical
thinks that economy should move on its own. Government should not intervene in the economic
cycle. The country’s economy will make its own move to achieve stability in the market. There is no
need the government to interfere. The next principle is selfish economic behaviour and emphasizing
harmony. By the economic runs by itself, the cycle of economic will run smoothly without any
interfere from others parties. This will create the harmony situation in the market according to the
classical school. After that is the importance of all economic resources and activities. Economic
activities is important in order to move the economy in a countries. All the activities should run to
make sure the cycle of economic will not stop. By doing the economic activities will develop the
country’s economy and show the excellence of the country. Lastly is the economic laws. The
examples of economic laws during that period is, The Malthusian theory of population, the law of
market and Ricardian theory of rent. The classical made important contribution to economics through
focusing explicit economic theories and laws.

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DIFFERENCES BETWEEN MERCANTILISM SCHOOL AND CLASSICAL SCHOOL.

There are some factors that we can compare for both of the school:

1) Major Tenets of the school.

For this first factors, as for the mercantilism they believe in order to develop the economy,
they need the strong central government to run the economy smoothly. They need the strong
central government to promote all the goals of mercantilist. This is because strong
government has the privileges of monopoly to engage the companies in foreign trade. Strong
government will have power to made trade with other foreign countries as they are strong and
foreign country can believe in the strong central government. Next, a strong central
government could closely regulated the methods of the production and the quality of the
products will be guarantee. By regulate the methods a country will have the good reputation
for their goods in the foreign trade.

Next, mercantilism also believe in spirit of the nationalism. They believe that all countries
must have more export goods than having more import goods. This is because, they want to
make sure that their country have more wealth and become richer than other countries and
they work together to achieve the goals. As the result, mercantilism believe the one who
should promote the exports is one’s own country. By doing that, the export will be greater
than import. The spirit of mercantilism nationalism also led them to have strong militarism. It
is because they want to contribute to the development of their economy.

As for the classical school, they believe that government should have the minimal
involvement in their economy cycle. They think that the best government is by the
government govern the least. The least government govern, the best for the classical school.
They also believe that economy should have their own self-adjusting and tend go for the full
employment without any government intervention. Differ to the mercantilism which is
believe that strong central government are needed to have the strong economy. Classical
school also think that government should more focus to provide for the national security,
public education and enforcing property rights.

After that is, classical have their self-interested economic behaviour. Compare to the
mercantilism which has more spirit of nationalism, classical just think about their self-interest
in economy. They stated that self-interested behaviour is nature to every human. They
provided and produced goods just to make profit from the perspective view of producers and
merchants. As for the worker, they just want wages to support their life. And for the
consumers, they purchase goods to satisfy what they want. There a lack of nationalism spirit

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 to help the economy of their country to develop. Compare to the mercantilism they work
together to help the country develop.

2) Whom did the school Benefit or Seek to Benefit.

For the mercantilism the school was benefit for host of the government officials, inspectors,
judges and other enforcement officers. They got their benefit from the school and from the
mercantilism regulation. As for the French government, they get significant revenue from the
fines, concession and monopoly that sold to the business interest.

For the classical, the benefit received for all society. It is because classical economics served
to all society due to their theories application that promoted capital accumulation and
economic growth.

3) Tenets that became lasting contribution.

As for the mercantilism, their long lasting contribution for the economics is the importance
of international trade. As we can see from the past and even until now, international trade are
still on going. This trade had given many benefits between countries as they can trade their
goods to the other country. This will help a country to develop their economy. After that, their
long lasting contribution is, based on their spirit of nationalism shown that a force that much
alive can be seen until today. As for the strong central government, their strength of a force is
important to keep the economy stable. Lastly, for the economic development, mercantilism
had contribute by promoting the free movement of goods in market.

As for the classical school, their long lasting contribution is, there are five major long lasting
contribution. Firstly, the law of diminishing return then the second one is the law of
comparative advantage. Next is the notion of consumer sovereignty, the importance of capital
accumulation to economic growth and the market as mechanism for reconciling the interest of
individuals with those society.

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SIMILARITIES BETWEEN MERCANTILISM AND CLASSICAL SCHOOL.

After some further study and research, there are some similarities between mercantilism and classical
school in some factors.

1) Concept of competition.
During the age of mercantilist, competition happen when they want to conquer the gold and
silver which is the sign of power during that time. Economic rivalries happened during that
time in order to collect the gold and silver. Mercantilists also equate that amount of gold and
silver as the wealth of nation and must own it. Exploration and adventure happen to explore
gold and silver in an attempt to compete to become a strong and wealthy nation. Under the
spirit of nationalism in mercantilists, they stated that only a powerful nation could capture and
hold the colonies, dominate trade routes, win wars again the rival and compete in
international trade. It is show that, during the mercantilism period, concept of competition
already exist as they compete to conquer gold and silver and the economy as well.

While during the classical period, concept of competition can be seen when Adam Smith
explain about the competition in market. For the example, Smith stated that every action of
the producers or merchants is to make profit from their products. They compete each other to
maximize their profit. Other than that, competition also happened in workers. They compete
to get better job and compete to receive the suitable salary with them. Meanwhile consumer
compete to fulfil satisfy by choosing only good products.

By that reasons, it is shown that competition happened during the mercantilist and classical
age. Both of the school have the similarities on the competition concept during their age.

2) Economic Law.
Under the law of value that stated by Smith, there are similarities with the mercantilism
school. Smith drag this attention to the exchange value. In his book of Wealth of Nations,
Smith give some simple example to show the concept of exchange value. Smith give example
of pearls. He stated that the pearls have value. And because of the value of pearls, people
would dive to find the pearls in the oceans. It show how the concepts of exchange value. Back
to the mercantilism age, they are willing to exchange their goods as long as they get gold or
silver as the exchange. It is because, they believe that gold and silver has the high value
during that time. They even willing to exchange their goods to the enemies even during war
as long they got gold and silver. It shown that the similarities between the mercantilism and
classical on the exchange value law. But the Smith found that back to the past, exchange

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 value was so “early and rude”. He develop a theory of exchange value to make sure there is
fairness and positive for the economy.

3) Population and Wages.

Both of the mercantilism and classical school have their theories about population and wages.
As for the mercantilism, the more population, the more better. It is because, when they have a
lot of population, they will pay less to the workers. It happen due to the dumping of the labour
because of the high population. As for the classical, Adam Smith said that when the demand
of the labour increase, wages will increase as well. The theories of wages from Smith already
exist during the mercantilist period. What make it different is their way implement the
theories. The similarities is the introduction of wages which is payment for wokers.

CONCLUSION.

As the conclusion, we had learn a lot of thing from this two school of economy. From the
mercantilism, we can learn that spirit of nationalism is needed in every person so that always
excited to help our nations to develop. Other than that, the strong central government will
help nation to develop mere and become strong country. From the classical, we learn a lot of
theory that remain until now. We still use some of the theory from both school to achieve
economy growth. Even there are differences between both schools, the differences make us
have choice to choose which is the best way to follow. And their similarities, help us to
understand economy much better.