MercantilismMercantilismMercantilismMercantilism

Characteristics of MercantilismCharacteristics of MercantilismCharacteristics of MercantilismCharacteristics of Mercantilism1.1. ““Bullionism” Bullionism” the economic health the economic health

of a nation could be measured by of a nation could be measured by the amount of precious metal [gold the amount of precious metal [gold or silver] which it possessed.or silver] which it possessed. ‘‘Hard’ money was the source of Hard’ money was the source of

prosperity, prestige, and strength for a prosperity, prestige, and strength for a nation.nation.

Bullionism dictated a “favorable Bullionism dictated a “favorable balance of trade.” balance of trade.”

Export more than you import Export more than you import [a trade surplus].[a trade surplus].

High tariffs on imported High tariffs on imported manufactured good.manufactured good.

Low tariffs on imported raw Low tariffs on imported raw materials.materials.

Characteristics of MercantilismCharacteristics of MercantilismCharacteristics of MercantilismCharacteristics of Mercantilism

2.2. Each nation must try to achieve Each nation must try to achieve economic self-sufficiency.economic self-sufficiency. Those founding new industries Those founding new industries

should be rewarded by the state.should be rewarded by the state.

3.3. Thriving agriculture should be Thriving agriculture should be carefully encouraged.carefully encouraged. Less of need to import foods.Less of need to import foods. Prosperous farmers could provide a Prosperous farmers could provide a

base for taxation.base for taxation.

Characteristics of MercantilismCharacteristics of MercantilismCharacteristics of MercantilismCharacteristics of Mercantilism

4.4. Sea power was necessary to Sea power was necessary to control foreign markets.control foreign markets.

Less need to use the ships of Less need to use the ships of other nations to carry your trade other nations to carry your trade goods.goods.

Your own fleet adds to the power Your own fleet adds to the power and prestige of the nation.and prestige of the nation.

5.5. Impose internal taxes of all Impose internal taxes of all kinds.kinds.

Characteristics of MercantilismCharacteristics of MercantilismCharacteristics of MercantilismCharacteristics of Mercantilism6.6. Colonies would provide captive Colonies would provide captive

markets for manufactured goods markets for manufactured goods & sources of raw materials.& sources of raw materials.

7.7. Trade is a “zero-sum” game.Trade is a “zero-sum” game. A nation can gain in international A nation can gain in international

trade only at the expense of other trade only at the expense of other nations.nations.

Manufactured goods

Raw materials

Mother

Country

Mother

Country

ColonyColonyCheap Labor

Characteristics of MercantilismCharacteristics of MercantilismCharacteristics of MercantilismCharacteristics of Mercantilism

8.8. A large population was needed A large population was needed to provide a domestic labor force to provide a domestic labor force to people the colonies.to people the colonies.

9.9. Luxury items should be avoidedLuxury items should be avoided They took money out of the They took money out of the

economy unnecessarily.economy unnecessarily.

10.10.State action was needed to State action was needed to regulate and enforce all of these regulate and enforce all of these economic policies.economic policies.

State-sponsored trade State-sponsored trade monopolies.monopolies.

Mercantilist GoalsMercantilist GoalsMercantilist GoalsMercantilist Goals

discoverydiscovery explorationexploration tradetrade exploitation of resourcesexploitation of resources monopolies of resourcesmonopolies of resources

Who Benefited Most From Who Benefited Most From Mercantilism?Mercantilism?

Who Benefited Most From Who Benefited Most From Mercantilism?Mercantilism?

Monarchs.Monarchs.

Merchant capitalists.Merchant capitalists.

Joint-stock companies.Joint-stock companies.

Government officials.Government officials.

Atlantic Economy in the mid-18th Century

CapitalismCapitalismCapitalismCapitalism

Adam SmithAdam SmithThe Wealth of Nations The Wealth of Nations (1776)(1776)

Adam SmithAdam SmithThe Wealth of Nations The Wealth of Nations (1776)(1776)

Adam Smith’s Attack on Adam Smith’s Attack on MercantilismMercantilism

Adam Smith’s Attack on Adam Smith’s Attack on MercantilismMercantilism

He was making a political He was making a political argument, NOT an economic one.argument, NOT an economic one.Part of the argument was for new Part of the argument was for new

economic policy, but an essential economic policy, but an essential part of the argument was for new part of the argument was for new social and political arrangements.social and political arrangements.

He was against the belief that He was against the belief that trade was a zero-sum gametrade was a zero-sum gameIt was a positive-sum game.It was a positive-sum game.Both nations gained.Both nations gained.

Basic Capitalist PrinciplesBasic Capitalist PrinciplesBasic Capitalist PrinciplesBasic Capitalist Principles1.1. Goods and services are produced for Goods and services are produced for

profitable exchange.profitable exchange.

2.2. Human labor power is a commodity for Human labor power is a commodity for sale sale LABOR IS THE SOURCE OF VALUE. LABOR IS THE SOURCE OF VALUE.

BusinessesBusinesses HouseholdsHouseholds

Goods & Service

Goods & Service

Labor & Investments

Labor & Investments

Consumer SpendingConsumer Spending

WagesWages

3.3. Individuals seeking success are Individuals seeking success are driven by self-interest driven by self-interest Profit Profit MotiveMotive

4.4. The Law of Supply and DemandThe Law of Supply and Demand Individuals who are free to pursue their Individuals who are free to pursue their

self-interest will produce goods and self-interest will produce goods and services that others want, at prices services that others want, at prices others will be willing to pay.others will be willing to pay.

Basic Capitalist PrinciplesBasic Capitalist PrinciplesBasic Capitalist PrinciplesBasic Capitalist Principles

Basic Capitalist PrinciplesBasic Capitalist PrinciplesBasic Capitalist PrinciplesBasic Capitalist Principles

Basic Capitalist PrinciplesBasic Capitalist PrinciplesBasic Capitalist PrinciplesBasic Capitalist Principles

5.5. Law of CompetitionLaw of Competition The competitive market system The competitive market system

compels producers to be compels producers to be increasingly efficient, and to respond increasingly efficient, and to respond to the desires of consumers.to the desires of consumers.

6.6. A social division of labor will A social division of labor will maximize the satisfaction of maximize the satisfaction of individual wants and needs, given individual wants and needs, given scarce resources.scarce resources.

Basic Capitalist PrinciplesBasic Capitalist PrinciplesBasic Capitalist PrinciplesBasic Capitalist Principles

7. Laissez faire:Government should interfere minimally with the free and efficient workings of the market

8. The “Invisible Hand” of the market Problem How do we survive in a world

where we must depend on many others, but where humans are by nature self-interested individuals??

Solution the free market, while appearing chaotic and unrestrained, is actually guided to produce the right amount and variety of goods by a so-called “invisible hand.”

Therefore, the basic market mechanism is self-regulating!

Basic Capitalist PrinciplesBasic Capitalist PrinciplesBasic Capitalist PrinciplesBasic Capitalist Principles