Mercantilists

and Pre-Mercantilists
ECON 205W
Summer 2006
Prof. Cunningham

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1500s
 Rise of the nation-state
 John Calvin (1509-1564): Prosperity
is Piety
 Nicolo Machiavelli (1469-1527) and
“The Prince”
 Separates the church and the state
 Denies mankind’s desire for freedom
 Charity has no role for the individual

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1500s and 1600s
 Elizabethan Poor Law of 1601
 Invention of printing with movable type gave
rise to economic literature written by lay people
 Thomas Wilson (1525-81) wrote Discourse on
Usury (1572)
 Charles Dumoulin (Latinized as Molinaeus) wrote
Treatise on Contracts and Usury (1546)
 Denied that interest was forbidden by divine law
 Suggested public regulation of lending and interest
 Influx of gold and silver from the New World

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Jean Bodin (1530?-96)
 Reply to the Paradoxes of M. Malestroit (1568)
 Here Bodin developed the quantity theory in response
to a contemporary writer
 Sees the abundance of gold and silver as the reason for
price increases
 May have been influenced by Navarrus (1453-
1586).
 Both were students at Univ. of Toulouse, Navarrus may
have been a teacher of Bodin
 How do theories like the quantity theory
emerge?

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Rise of Mercantilism
 Few systematic treatises prior to Wealth
of Nations
 Phenomenological
 Term “Political Economy” arises in 1615
 Policy orientation
 Ideals of Renaissance
 Adam Smith in Book IV of Wealth of
Nations, devotes 200 pages to “the
commercial or mercantile system”

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Major Tenets of Mercantilism
 Gold and silver are most desirable forms of wealth
 Accumulating these requires a trade surplus
 Implies a nationalistic view
 Import raw materials, protect with tariffs against
the importation of an goods that can be produced
domestically. Restrict imports of raw materials.
 Colonization. Keep colonies dependent.
 Oppose internal taxes of any kind.
 Strong central government
 Large, hard-working labor force is critical

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Whom did the Mercantilists
seek to benefit?
 Merchant capitalists
 Kings
 Government officials
 (amounts to rent-seeking behavior)

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Validity in its time?
 The growth of commerce was/is
constrained by liquidity
 Needed money for wars
 Increased supply of money makes
tax collection easier
 Reduces interest rates, making
borrowing and expansion of capital
stock easier and cheaper

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Lasting contributions?
 Influenced attitudes toward
merchants
 Promoted nationalism
 Increased the role of chartered
trading companies
 (Several East Asian countries today
employ mercantilist policies)

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Gerard de Malynes
(Belgium, 1586-1641)
 Background
 Views
 The economic world was out of control and
destabilizing
 Suspicious of bankers, lending, usury
 Thought foreign exchange was some kind of
“cloaked usury”
 Purely monetary transactions had lost sight of
“just price”
 Profits should be regulated by the government

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Malynes (2)
 1601, wrote 80 page pamphlet called Saint
George for England Allegorically Described
 1601, 120 pages, writes a second treatise
 Advocates “a certain equality of exports and imports”
 Never addressed what determines the volume of
imports and exports
 1622, Lex Mercatoria
 Defends merchants
 Advocates government quality controls
 Increased money supply leads to increased prices and
increased business activities

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Edward Misselden (1608-54)
 Worked at times at East India Company
 1622, 130 pps., Free Trade or the Means
to Make Trade Flourish
 Tries to explain the recession/depression of
the early 1620s
 Obsessed with the idea that England needs
more specie
• Force exports, restrain imports
• Advocates “Free Trade”, but that shouldn’t include a
lack of restrictions on imports
• Prefers oligopoly?

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Thomas Mun (1571-1641)
 Director of East India Company
 Needed to defend East India’s practice of
exporting gold
 1621, Discourse of Trade from England
unto the East Indies
 1630, England’s Treasure by Foreign Trade
 Published posthumously by his son in 1664
 Mercantilist view of the wealth of nations
 Understands quantity theory
 Taxes are a necessary evil

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Charles Davenant (1656-1714)
 Served in government posts
 Views mercantilist policies as a bid
for political power
 Saw the benefit of some kinds of
free trade
 Essay on the East-India Trade, 1696

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Jean Baptiste Colbert
(1619-1683)
 French Prime Minister under Louis
XIV
 Bullionist, colonialist, nationalist
 Disdain for everyone outside the
palace?

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Sir William Petty (1623-87)
 Self-made man, Latin scholar at age 12
 Diverse life and career, genius with a
hard, multifaceted life
 Made a fortune by buying land from
soldiers leaving Ireland
 Pioneering statistician
 Most important economic writer of the
period
 Some mercantilist sympathies

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Petty (2)
 Developed concept of national income
 Disutility theory of interest
 Backward bending labor supply curve
 Prefers consumption tax to income tax
 In Verbum Sapienti (1664) discusses the velocity
of money and its impact on the quantity theory
 Specialization and division of labor
 Understand economic rents
 Relationship of capital to production
 Labor theory of value

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Physiocrats (1756-1776)
 Économistes
 1756, François Quesnay published
his first article on economics in
Grande Encyclopedie
 1776, Turgot lost his position in the
French government and Adam Smith
publishes Wealth of Nations

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Major Tenets
 “Physiocracy” means “rule of nature”
 Laissez faire, laissez passer
 Emphasis on Agriculture
 Only tax landowners
 Viewed the macroeconomy as a
circular flow of goods and money

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Who Benefits?
 Peasants avoid taxes
 Businesses helped by reduced
regulation
 Landowners get hurt by taxes

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Lasting Contributions
 Established economics as a social
science
 Tableau Economique
 Diminishing returns (Turgot)
 Marginalism
 Recognition of the issue of shifting
of tax burdens
 Laissez faire

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Key Ideas
 Each individual is the best judge of his/her
interest
 Self-interest leads to common good
 Private property
 Role of government
 Unequal distribution of wealth
 Advanced capital theory
 Interest is OK
 Use of the concept of equilibrium
 Focus on distribution
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Francois Quesnay (1794-1774)
 Made a fortune as a court physician, came to economics
in his 60s
 His model of nature was biological
 Developed the tableau as analogous to a blood
circulation model
 Harvey’s theory of the circulation of the blood was
understood at that time
 Wealth is created and used, circulating through the
economy with perpetuating flows
 Quesnay wanted to show scientifically the nature of the
economy
 Believed that nonagricultural production was sterile
(“produit net” can occur only in agriculture)

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Anne Robert Jacques Turgot
(1727-1781)
 Born to nobility
 1774 became Finance Minister
 Implemented numerous reforms
 Advocated:
 Taxing the nobility, stop taxing subsistence-level
peasants
 People should be free to choose their occupations
 Allow religious liberty
 Universal education
 Create a central bank
 Increase saving to increase investment
 Got a lot of people angry with him!
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