ECON 303 Chapter 3: Mercantilism

What was Hume's underappreciated, view of money?

"'Tis none of the wheels of trade; 'Tis the oil".

What are Von Hornick's 9 Principle Rules of National Economy?

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 in domestic manufacture, since finished goods have a higher value than raw materials. 3. That a large, working population be encouraged. 4. All export of gold/silver be prohibited 5. All imports of foreign goods be discouraged. 6. Imports that are indispensable may be obtained in exchange for other domestic goods. 7. Imports be confined to raw materials 8. Opportunities be constantly sought for selling a country's surplus manufactures to foreigners. 9. No importation be allowed if such goods are sufficiently and suitably supplied at home.

What are the 2 basic ways to analyze the economics of the system of thought called mercantilism?

1. The Doctrinal Approach 2. The Process Approach

What is the Doctrinal (ideational) Approach?

A fairly cohesive, "static" set of ideas- that is, a body of thought summarized in the events of the day.

What strategem was often referred to as "favorable balance-of-trade"?

An export-import policy that led to a stockpiling of bullion. It encouraged importation of (low value) raw materials and exportation of (high value) finished goods.

What was common practice during the Mercantilist era?

For the state to establish legal monopolies in the form of franchises and patents.

What were the MAJOR theoretical defects in mercantilism?

Inability to grasp the cyclical nature of international accounts and the linkage between domestic money supply and prices.

What major topic was considered by mercantilist writers?

International Trade and Finance.

Who anticipated the Quantity Theory of Money?

John Locke

Who are a few that advocated for a more liberal economic activity?

John Locke, Sir Dudley North, Charles Davenant, and Bernard de Mandeville.

Who coined the term "Mercantilism"?

Mirabeau in 1763

Who condensed the summary of mercantilist principles?

Phiilipp Wilhelm von Hornick (an Austrian lawyer) in 1684

Mercantilist writers showed less concern for moral issues and more concern for...?

Secular matters (Wealth and power)

Who was the leading avenue of Britian's Trade with the East in the early 17th century?

The East India Company

What did the merchant depend on?

The authority of the monarch to protect his or her economic interests.

How long did mercantilism dominate?

The beginning of the 16th century to the end of the 18th century.

What did many mercantilists misunderstand?

The effects of an increase in the domestic money supply (monetization) that usually followed a trade surplus.

What did the monarch depend on?

The merchant's economic activity to build up his or her treasury

What was one common error or Mercantilism?

The persistent belief that a favorable balance of trade - and thus specie accummulation - could continue over long and indefinite periods without adverse consequences.

MV = Py

Theory of Price Level. Dependent variables (prices) and independent variables (money, velocity, and transactions).

What is the Process Approach?

This approach sees mercantilism as an important historical process. It concentrates on the dynamics of competing interests and their role in defining economic and political institutions.

What is "rent seeking"?

Where "rent" refers to the profits that are attributable to the existence of monopoly rather than to competitive advantage.

What is Mercantilism?

belief in the benefits of profitable trading; commercialism. The economic theory that trade generates wealth and is stimulated by the accumulation of profitable balances, which a government should encourage by means of protectionism.