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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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Mercantilistsand Pre-Mercantilists


Summer 2006

Prof. Cunningham

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  • 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!