Mercantilists and Pre-Mercantilists

1
Mercantilistsand Pre-Mercantilists

• ECON 205W
• Summer 2006
• Prof. Cunningham

2
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 mankinds desire for freedom
• Charity has no role for the individual

3
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

4
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?

5
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

6
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

7
Whom did the Mercantilists seek to benefit?

• Merchant capitalists
• Kings
• Government officials
• (amounts to rent-seeking behavior)

8
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

9
Lasting contributions?

• Influenced attitudes toward merchants
• Promoted nationalism
• Increased the role of chartered trading companies
• (Several East Asian countries today employ
  mercantilist policies)

10
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

11
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

12
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 shouldnt
  include a lack of restrictions on imports
• Prefers oligopoly?

13
Thomas Mun (1571-1641)

• Director of East India Company
• Needed to defend East Indias practice of
  exporting gold
• 1621, Discourse of Trade from England unto the
  East Indies
• 1630, Englands 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

14
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

15
Jean Baptiste Colbert (1619-1683)

• French Prime Minister under Louis XIV
• Bullionist, colonialist, nationalist
• Disdain for everyone outside the palace?

16
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

17
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

18
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

19
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

20
Who Benefits?

• Peasants avoid taxes
• Businesses helped by reduced regulation
• Landowners get hurt by taxes

21
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

22
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

23
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
• Harveys 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)

24
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!