mercantilism to adam smith

Ms. Susan M. PojerMs. Susan M. PojerHorace Greeley HS Chappaqua, Horace Greeley HS Chappaqua,

NYNY

Ms. Susan M. PojerMs. Susan M. PojerHorace Greeley HS Chappaqua, Horace Greeley HS Chappaqua,

NYNY

From Mercantilism From Mercantilism to to

Adam Smith:Adam Smith:

The EvolutionThe Evolutionof theof the

Modern Capitalist SystemModern Capitalist System

From Mercantilism From Mercantilism to to

Adam Smith:Adam Smith:

The EvolutionThe Evolutionof theof the

Modern Capitalist SystemModern Capitalist System

MercantilismMercantilismMercantilismMercantilism

Characteristics of MercantilismCharacteristics of MercantilismCharacteristics of MercantilismCharacteristics of Mercantilism1.1. ““Bullionism”Bullionism” the eco. health of a nation the eco. health of a nation

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

prestige, and strength for a nation.prestige, and strength for a nation. Bullionism dictated a Bullionism dictated a “favorable balance of “favorable balance of

trade.”trade.” • Export more than you import [a trade Export more than you import [a trade

surplus].surplus]. High tariffs on imported manufactured

good. Low tariffs on imported raw materials.

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

rewarded by the state.rewarded by the state.

Characteristics of MercantilismCharacteristics of MercantilismCharacteristics of MercantilismCharacteristics of Mercantilism

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.

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

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

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

5.5. Impose internal taxes of all kinds.Impose internal taxes of all 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 Trade is a “zero-sum” game.“zero-sum” game. A nation can gain in international trade A nation can gain in international trade

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

Manufactured goods

Raw materials

Mother

Country

Mother

Country

Colony

Colony

Cheap labor

Characteristics of MercantilismCharacteristics of MercantilismCharacteristics of MercantilismCharacteristics of Mercantilism

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

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

unnecessarily.unnecessarily.

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

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

Jean Baptiste Colbert Jean Baptiste Colbert [(1619-[(1619-1683)1683)


£ Architect of French Architect of French mercantilism or mercantilism or “Colbertism.”“Colbertism.”

£ He was a bullionist.He was a bullionist.£ There are four There are four

professions of professions of importance to the importance to the nation:nation:

AgricultureAgriculture TradeTrade ArmyArmy NavyNavy

£ Uniform weights & Uniform weights & measures.measures.

£ Opposed tolls on Opposed tolls on internal trade.internal trade.


Jean Baptiste Colbert Jean Baptiste Colbert [(1619-[(1619-1683)1683)£ Supported mandatory labor on national Supported mandatory labor on national

roads.roads.£ Favored a large population.Favored a large population.

Father of 10 or more children would be Father of 10 or more children would be exempt from taxes.exempt from taxes.

£ Favored low wages and child labor.Favored low wages and child labor.

Colbert & Louis XIVColbert & Louis XIV

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.

TheThePhysiocratsPhysiocrats

((The The ““Government of Government of NatureNature”)”)

TheThePhysiocratsPhysiocrats

((The The ““Government of Government of NatureNature”)”)

Francois Quesnay Francois Quesnay (1694-1774)(1694-1774)Francois Quesnay Francois Quesnay (1694-1774)(1694-1774)

£ A surgeon who A surgeon who turned to medicine turned to medicine because of failing because of failing eyesight.eyesight.

£ He began publishing He began publishing economics treatises economics treatises at the age of 62.at the age of 62.

£ No single document No single document or book summarizes or book summarizes his economic his economic system.system.

£ He was concerned He was concerned about the state of about the state of the French the French economy, especially economy, especially of French of French agriculture.agriculture.

QuesnayQuesnay’’s Economic Theoriess Economic TheoriesQuesnayQuesnay’’s Economic Theoriess Economic Theories£ Tableau ÉconomiqueTableau Économique

[1759].[1759]. A reaction against the A reaction against the

extreme mercantilist extreme mercantilist policies of Colbert.policies of Colbert.

£ Three economic Three economic classes:classes:

1.1. ““Proprietary class” Proprietary class” landowners.landowners.

2.2. ““Productive class” Productive class” agricultural laborers.agricultural laborers.

3.3. ““Sterile class” Sterile class” artisans & merchants.artisans & merchants.

£ Productive work was Productive work was the source of national the source of national wealth.wealth.

QuesnayQuesnay’’s Economic Theoriess Economic TheoriesQuesnayQuesnay’’s Economic Theoriess Economic Theories£ Therefore, the wealth of the nation was Therefore, the wealth of the nation was

derived from agriculture.derived from agriculture. Agriculture was the productive sector of an Agriculture was the productive sector of an

economy.economy.

£ Tax only the landowning class.Tax only the landowning class.

CapitalismCapitalismCapitalismCapitalism

Adam Smith Adam Smith (1723-1790)(1723-1790)Adam Smith Adam Smith (1723-1790)(1723-1790)

£ Appointed to the chair of Appointed to the chair of logic in 1751 at the logic in 1751 at the University of Glasgow, University of Glasgow, Scotland.Scotland.

£ In 1752 he transferred to In 1752 he transferred to the chair of philosophy.the chair of philosophy.

£ On his travels to France, On his travels to France, he was influenced by the he was influenced by the writings of the writings of the physiocrats.physiocrats.

£ 1776 1776 The Theory of The Theory of Moral Sentiments and an Moral Sentiments and an Inquiry Into the Nature Inquiry Into the Nature of Causes of the Wealth of Causes of the Wealth of Nations of Nations was was published.published.

A vehement attack of A vehement attack of the mercantilist the mercantilist system.system.

The Wealth of Nations The Wealth of Nations (1776)(1776)The Wealth of Nations The Wealth of Nations (1776)(1776)

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

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

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

policy, but..policy, but.. An essential part of the argument was for new An essential part of the argument was for new

social and political arrangements.social and political arrangements.

£ He argued that the basic unit for social He argued that the basic unit for social analysis should be the analysis should be the nation, not the statenation, not the state..

£ He was against the belief that trade was a He was against the belief that trade was a zero-sum gamezero-sum game It 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 Principles

1.1. 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. The The “Invisible Hand”“Invisible Hand” of the market of the market ProblemProblem How do we survive in a How do we survive in a

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

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

Therefore, the basicTherefore, the basicmarket mechanism is market mechanism is self-regulating!self-regulating!


4.4. Individuals seeking success are driven Individuals seeking success are driven by self-interest by self-interest Profit MotiveProfit Motive

5.5. The The Law of Supply and DemandLaw 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 others services that others want, at prices others will be will be willing to willing to pay.pay.



6.6. Law of CompetitionLaw of Competition The competitive market system compels The competitive market system compels

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

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

8.8. Government should interfere minimally Government should interfere minimally with the free and efficient workings of with the free and efficient workings of the marketthe market

Laissez faireLaissez faire [“Leave things alone.”] [“Leave things alone.”]

There, there it is again—the invisible hand of the marketplace giving us the

finger.

mercantilism to adam smith

Documents

internal trade

trade goods

economic policies

trade surplus

international trade

economic classes

economic selfsufficiency

economic system