HISTORY OF ECONOMIC THOUGHT

What is the history of mercantilism?

What Is Mercantilism?
History of Mercantilism. First seen
in Europe during the 1500s,
mercantilism was based on the
idea that a nation's wealth and
power were best served by
increasing exports and limiting
imports. Mercantilism replaced the
feudal economic system in Western
Europe.
 Mercantilism
is a nationalist economic policy that is
designed to maximize the exports and
minimize the imports for an economy. In
other words, it seeks to maximize the
accumulation of resources within the
country and use those resources for one-
sided trade. It promotes imperialism,
colonialism, protectionism, currency
manipulation, and tariffs and subsidies on
traded goods to achieve that goal.
 bullionism, the monetary policy of mercantilism (q.v.),
Bullionism which called for national regulation of transactions in
foreign exchange and in precious metals ...

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
 The British
perspective:
Mercantilism was explained by its
proponents, as a "a philosophy of
nation building, a series of
economic controls intended to
strengthen a country ... against
other … empires. A major tenant
of this view was self- sufficiency:
sources of supply--raw materials,
agriculture, and industry--should
be developed domestically, or in
colonies, to prevent interruptions
by hostile foreigners”
Mercantilism: Main Goals
4
Encourage growth of native merchant ships, this included the colonial ships. Protect
English manufacturers from foreign competition. Protect English Agriculture, especially
grain farmers. Increase the wealth of a nation (i.e. accumulate as much hard money as
possible—colonial money was worthless in England; merchants wanted gold) and to
become the wealthiest/most powerful nation. Become self-sufficient; aka: meet all the
needs within the empire (not only necessitated colonies, but also a tightly regulated trade,
since trade was perceived as a zero-sum game: A nation can gain in international trade
only at the expense of other nations).Develop a favorable balance of trade.
 The main goal of mercantilism:
increase the money in a country’s treasury by creating a favorable balance
of trade. A country had a favorable balance of trade if the value of its
imports (what it sold) exceeded the value of its exports (what it
purchased).Colonies helped a country produce/acquire the goods to
maintain a favorable balance of trade.
Say Spain sold $500 in sugar to France, and France sold $300 in cloth to
Spain. France would also have to pay Spain $200 worth of precious metals
to pay for all the sugar. Spain would then have a favorable balance of trade
because the value of its exports (sugar) was greater than the value of its
imports (cloth). Spain would become richer because of the precious metals
it received from France.
 Characteristics of Mercantilism
“Bullionism” health of a nation could be measured by the amount of precious
metal [gold or silver] which it possessed.
‘Hard’ money was the source of prosperity, prestige, and strength for a nation.
Bullionism dictated a “favorable balance of trade.”
Export more than you import [a trade surplus].
High tariffs on imported manufactured good.
Low tariffs on imported raw materials.
Each nation must try to achieve economic self-sufficiency.
Those founding new industries should be rewarded by the state.
 Mercantilism in Effect

Build a formal empire

acquire/protect markets (both resource/product)
establish colonies
Develop strong military

to defend empire (Navy especially important)

Navigation Acts (political aspects of

mercantilism 1660’s – 1700’s)
 The circular flow model
The colonists supplied raw materials to England for either manufacture or
re-export and they provided additional markets for the finished products
produced from those resources (England also sold them in European
markets).The colonies played a large role in England’s becoming self-
sufficient. For this system to succeed, the Parliament needed to pass laws
and regulations to protect wealthy British merchants and industrialists,
even at the expense of its colonists (i.e. those laws were intended to benefit
the English economy exclusively).A mercantilist economy is a managed
economy, managed by the larger and stronger power (i.e. the home/mother
country).
 Mercantilist policies

As its colonies in North America became

more successful and profitable, the home
government began to increase its control
over them.
Between 1651 and 1673, the Parliament
passed four Navigation Acts intended to
ensure a favorable balance of trade.
What were his 3 major mercantilist policies?

That all exports of gold and silver be prohibited and all domestic
money be kept in circulation.
That all imports of foreign goods be discouraged as much as
possible.
That where certain imports are indispensable they be obtained
at first hand, in exchange for other domestic goods instead of
gold and silver.
 Physiocracy
Physiocracy (French: physiocratie; from the
Greek for "government of nature") is an
economic theory developed by a group of
18th-century Age of Enlightenment French
economists who believed that the wealth of
nations derived solely from the value of
"land agriculture" or "land development"
and that agricultural products
 Who was the main thinker of physiocracy?

François Quesnay was the leading figure of the

Physiocrats, generally considered to be the first
school of economic thinking. The name
“Physiocrat” derives from the Greek words phýsis,
meaning “nature,” and kràtos, meaning “power.”
The Physiocrats believed that an economy's power
derived from its agricultural sector.
What is the physiocracy theory?

Physiocracy is an economic theory

which states that the wealth of
nations is derived solely from the
value of “land agriculture” or “land
development” and that agricultural
products. It was developed by a
group of French thinkers during the
Age of Enlightenment in the 18th
century.
What is the physiocracy theory of value?

The physiocrats natural value theory is

focused upon agricultural production, and
indicated that capital can be invested in
there, so that it can develop into a large
capitalization of agriculture and strengthen
the development of agriculture.
What is physiocracy also known as?

Physiocracy, which is also

known as the Agricultural
System, emphasized the
government of human society
by the laws of nature in
contrast to its regulation by
man-made positive laws.
 What is an example of physiocrats?
The physiocrats were less dogmatic
than most people think. Turgot, for
example, subscribed in theory to the
idea that free trade in grains was the
best way of resolving scarcity. But he
was responsible for dealing with an
actual famine in south-west France in
1770.
Group the class into six!
Question #1
nationalist economic policy that is designed to
maximize the exports and minimize the imports
for an economy
#2
It states that someone thinks they are right
without valid Evidence
#3
natural value theory is focused upon agricultural
production, and indicated that capital can be invested
in there, so that it can develop into a large
capitalization of agriculture and strengthen the
development of agriculture.
#4
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
#5
#6
what is the main goal of mercantilism?
#7
Who was the main thinker of physiocracy?
#8
The name “Physiocrat” derives from the Greek
words phýsis, meaning “________,”
#9
#10.
History of Mercantilism. First seen in Europe
during the ________, mercantilism was based
on the idea that a nation's wealth and power
were best served by increasing exports and
limiting imports.
#11-13
What were his 3 major mercantilist policies?
#14-16
#17-19
What are the countries included in the
triangular Trade?
# 20
The ___________ played a large role in
England’s becoming self-sufficient.
1. mercantilism 11- 13 slide #14
2. dogmatism 14-16 slide # 20
3. Psysiocrats 17-19. Europe, north America, Africa
4. bullionism 20.
5. Tariffs
6. increase the money in a country’s treasury by creating a favorable balance of trade.
7. François Quesnay
8. nature
9. Circular flow model
10. 1500