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    Chapter Three

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    Mercantilism was the dominant school of thought in economics between the 16th and mid-18th centuries. [1] Mercantilists viewed wealth as being determined by a country's stock of precious metals. They believed the goal for governments should be to maximize exports and minimize imports, in an effort to accumulate bullion. [2] Mercantilist writers argued governments should promote domestic production and discourage consumption through tariffs, subsidies, and other policies. [3] As capitalism developed, views shifted toward seeing prices as determined by conditions of production rather than international differences, paving the way for classical economic theory.

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    Chapter Three

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    Mercantilism was the dominant school of thought in economics between the 16th and mid-18th centuries. [1] Mercantilists viewed wealth as being determined by a country's stock of precious metals. They believed the goal for governments should be to maximize exports and minimize imports, in an effort to accumulate bullion. [2] Mercantilist writers argued governments should promote domestic production and discourage consumption through tariffs, subsidies, and other policies. [3] As capitalism developed, views shifted toward seeing prices as determined by conditions of production rather than international differences, paving the way for classical economic theory.

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    Mercantilism was the dominant school of thought in economics between the 16th and mid-18th centuries. [1] Mercantilists viewed wealth as being determined by a country's stock of precious metals. They believed the goal for governments should be to maximize exports and minimize imports, in an effort to accumulate bullion. [2] Mercantilist writers argued governments should promote domestic production and discourage consumption through tariffs, subsidies, and other policies. [3] As capitalism developed, views shifted toward seeing prices as determined by conditions of production rather than international differences, paving the way for classical economic theory.

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    © All Rights Reserved
    Download as DOC, PDF, TXT or read online from Scribd
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    7 views3 pages

    Chapter Three

    Uploaded by

    allahgodallah1992
    Mercantilism was the dominant school of thought in economics between the 16th and mid-18th centuries. [1] Mercantilists viewed wealth as being determined by a country's stock of precious metals. They believed the goal for governments should be to maximize exports and minimize imports, in an effort to accumulate bullion. [2] Mercantilist writers argued governments should promote domestic production and discourage consumption through tariffs, subsidies, and other policies. [3] As capitalism developed, views shifted toward seeing prices as determined by conditions of production rather than international differences, paving the way for classical economic theory.

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    of 3

    History of Economic Thought

    Chapter Three

    Economic Ideas before Adam Smith

    Mercantilism

    1- Mercantilism (16th – mid 18th centuries)


    - Keep in mind that there is not really any “mercantilist” theory

    Mercantilist:

    - Mercantilist writers were businessmen, people engaged in


    commerce
    - Most Mercantilists were British

    What are the assumptions that mercantilists make?


    1- Total wealth of the world is fixed.
    2- Wealth is measured by the amount of precious metals in
    the country.
    3- The goal is a positive trade balance – exports exceed
    imports

    What is the role of government?

    1- Restrict imports of manufactured goods via tariffs/quotas


    2- Encourage imports of raw materials (colonies)
    3- Encourage exports of manufactured goods via subsidies
    4- Encourage production, discourage consumption (taxes on
    imports of finished products)

    Early Mercantilist Writing on Value and Profits


    The early mercantilists generally ignored the cost-of-production
    approach to the understanding of prices and focused on the point
    of sale to analyze exchange values as it is the source of profits.

    1
    The profits of early mercantilists came largely from three
    sources:
    1- Inflation of the sixteenth and seventeenth centuries.
    2- Different relative prices of commodities in the various
    regions or countries.
    3- Enforcing monopiles, as it appeared to the early
    mercantilists that control over the conditions affecting the
    supply of commodities was the principal means by which
    high profits could be attained.

    In the early mercantilist period, economic writers increasingly


    came to substitute the state for the medieval church.

    The main mercantilist policies have included:

    High tariffs, especially on manufactured goods;

    Building a network of overseas colonies;

    Forbidding colonies to trade with other nations;

    Monopolizing markets;

    Banning the export of gold and silver, even for


    payments;

    Forbidding trade to be carried in foreign ships;

    Export subsidies;

    Promoting manufacturing with research or direct


    subsidies; writings
    Later Mercantilist
    As capitalism developed, however, there was economic
    Limiting
    development wages; rendered the mercantilist outlook
    increasingly
    unsatisfactory to the needs
    Maximizing of the
    the use new system
    of domestic and most of the
    resources.
    important capitalists of the time.

    despite the efforts of the great trading companies to maintain


    their monopolies, the spread of commerce and the growth of
    2
    competition continuously reduced the price differences among
    different regions and nations. This correspondingly reduced the
    profits that could be made.

    These economic changes led to two very important changes in


    economic ideas.

    First, philosophers and economists rejected the older view of


    the state intervention and regulations and began to formulate a
    new philosophy of individualism.

    Second, there was a shift from the view that prices and profits
    were determined primarily by the forces of supply and demand,
    to the view that prices were determined by the conditions of
    production and that profits originated in the production process

    The majority of mercantilist writers were capitalists, and, thus, it


    was quite natural for them to see the motives of the capitalists as
    universal.

    Beginnings of the Classical Theory of prices and profits

    With the integration of production and commerce and the


    increasing difficulty of making profits through price differences
    came the beginnings of a new approach to understanding prices
    and profits.

    It was obvious that labor was the most important determinant of


    prices. Throughout this period numerous writers saw profits as a
    surplus left after the laborers had been given the commodities
    necessary for their own consumption.

    In l976, Adam Smith published his famous book "the Wealth of


    Nations". This was the first systematic and extensive analysis of
    capitalism in which such an understanding of profit on capital
    was fully developed.

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