Mercantilists
and Pre-Mercantilists
ECON 205W
Summer 2006
Prof. Cunningham
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1500s
Rise of the nation-state
 John Calvin (1509-1564): Prosperity
is Piety
 Nicolo Machiavelli (1469-1527) and
“The Prince”
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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
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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)
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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)
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Reply to the Paradoxes of M. Malestroit (1568)
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May have been influenced by Navarrus (14531586).
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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
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
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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
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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)
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Background
Views
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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)
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1601, wrote 80 page pamphlet called Saint
George for England Allegorically Described
1601, 120 pages, writes a second treatise
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Advocates “a certain equality of exports and imports”
Never addressed what determines the volume of
imports and exports
1622, Lex Mercatoria
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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)
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Worked at times at East India Company
1622, 130 pps., Free Trade or the Means
to Make Trade Flourish
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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)
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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
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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)
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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)
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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
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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)
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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
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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)
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Born to nobility
1774 became Finance Minister
Implemented numerous reforms
Advocated:
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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!
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