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

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mercantilists and pre mercantilists

Mercantilistsand Pre-Mercantilists


Summer 2006

Prof. Cunningham

  • 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
1500s and 1600s
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
jean bodin 1530 96
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?
rise of mercantilism
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”
major tenets of mercantilism
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
whom did the mercantilists seek to benefit
Whom did the Mercantilists seek to benefit?
  • Merchant capitalists
  • Kings
  • Government officials
  • (amounts to rent-seeking behavior)
validity in its time
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
lasting contributions
Lasting contributions?
  • Influenced attitudes toward merchants
  • Promoted nationalism
  • Increased the role of chartered trading companies
  • (Several East Asian countries today employ mercantilist policies)
gerard de malynes belgium 1586 1641
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
malynes 2
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
edward misselden 1608 54
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?
thomas mun 1571 1641
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
charles davenant 1656 1714
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
jean baptiste colbert 1619 1683
Jean Baptiste Colbert (1619-1683)
  • French Prime Minister under Louis XIV
  • Bullionist, colonialist, nationalist
  • Disdain for everyone outside the palace?
sir william petty 1623 87
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
petty 2
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
physiocrats 1756 1776
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
major tenets
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
who benefits
Who Benefits?
  • Peasants avoid taxes
  • Businesses helped by reduced regulation
  • Landowners get hurt by taxes
lasting contributions21
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
key ideas
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
francois quesnay 1794 1774
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)
anne robert jacques turgot 1727 1781
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!