Mercantilism 1500 - 1776

Balance of trade

A country should encourage exports and discourage imports by means of tariffs, quotas, subsidies, taxes, and the like, in order to achieve a so-called favourable balance of trade.

Consequences of large population in terms of international trade?

A large population with high labor-force-participation rates results in low wages, which hives the nation a competitive advantage in exports and international trade.

Why would mercantilists argued for a favourable balance of trade?

According to the mercantilists. who defined the wealth of a nation NOT in terms of the nation's production or consumption of goods but in terms of its holdings of precious metals, argued for a favourable balance of trade because it would lead to a flow of precious metals into the domestic economy TO SETTLE the trade balance

What is bullionism?

Boiled to its essence mercantilism is "bullionism": the idea that the only true measure of a country's wealth and success was the amount of gold that it had

Dave Hume

David Hume criticized the mercantilism Specie flow mechanism = Having continuous international trade going on leads to a high inflow of gold, which at some point leads to inflation, which then results in less competitive goods on the international market. This brings exports down and brings the nation's balance back to par

How did money circulate in physiocrats society?

Famers gave money to land owners in order to pay rent. Land owners buy food from famers with the money received and what they need for artisans. Farmers themselves buy objects from artisans and artisans bought whatever they needed from farmers

Laissez faire

Introduced the concept of laissez-faire = free from government interference such as regulations, privileges, tariffs, and subsidies. The Physiocrats argued, then, that government leave the economy alone and allow individuals within the economy to do as they please in attempting to realize their own selfish interests → Laissez faire

Who can be taxed in physiocrats society?

Land owners should be the only ones taxed because they received the surplus which was generated by farmers. Artisans did not produce any surplus so they should not be taxed.

Mercantilists

Mercantilism is the name given to the economic literature and practice of the period between 1500-1700. Also, it can be understood as an intellectual reaction to the problems of the times. The mercantilists and the physiocrats are the first economic theorists, who made useful contributions to economic theory, the most important of which was their recognition that the economy could be formally studied.

What would government do acc Mercantilists? What about wages?

Mercantilists believed that government should regulate foreign trade to achieve a favourable balance, encourage importation of cheap raw materials, encourage exportation of manufactured goods, enact protective tariffs on imported manufactured goods, and take other measures to increase population and keep wages low and competitive.

Physiocrats

Nearly no regulations on export, but high restrictions on import of grain

What is the motivation acc the physiocrats?

The Physiocrats, especially Turgot, believed that self-interest is the motivation for each segment of the economy to play its role

Who was regulating the society?

The economy was regulated by one central organ, the state. The state set incentives on exporting goods and set regulations to limit import in order to accumulate gold

Physciorats

The main message that tey started laizer faire. Stones, preciuos metal are not the wealth, it's the agriculture which, makes country wealthy. No government regulations and free market. They did not want any taxes, tariffs. Trade and exchange of goods are streil and it doesnt make any profits. Agriculture is only productive because they make a surplus. (to satisfy females) theyw ere getting a wage per hour and they could buy things back. They were the first people who made contributions to classes. (farmers, articents (manufacturers) and landlords). They specified the price of the grain and where it has to be sold. In times of shortogae selling was made cumpolsory to prevent hording.

What is wealth for the mercantilists?

Wealth is measured by the amount of gold and silver (precious metals) a nation has got. The mercantilists applied reasoning to trade between nations, concluding that any increase in the wealth and economic power of the nation occurred at the expense of other nations. Thus, they emphasised the international trade as a means of increasing wealth and power of a nation and, particular, focused on the balance of trade between nations. Also, wealth for them wasn't defined in terms of the sum of individual wealth. They advocated increasing the nation's wealth by simultaneously encouraging production, increasing exports, and holding down domestic consumption. Thus, the wealth of the nation rested on the poverty of the many.

How mercantilists can increase their wealth?

• Precious metals were collected by international trade; trying to reach higher export than import → Nationalism: all countries could not simultaneously export more than they imported. Therefore, one's own country should promote exports and accumulate wealth at the expense of its neighbors