Mercantilism
Bodin (1569)
- explained rise of prices in 16C primarily by 'abundance of gold and silver'
- "the principal reason which raises the price of everything, whatever one may
be, is the abundance of that which governs the appraisal and the price of
things."
-> first clear statement of the quantity theory of money
Mercantilism
- do not confuse with Bullionism, which is the argument for the accumulation of
precious metals by regulation of international monetary exchange
- primarily economic pamphlets written in the 16C to 18c mostly in England
- criticized by Adam Smith (1776) for treating wealth as money – gold and silver and
favouring government interference in trade through monopolies and
tariff/bounties
- the writings of Germans in the 18c led Schmoller and Heckscher in the 20c to view
mercantilism as the economics of making the nation state
- mercantilist views are consistent with a mercantile perspective in the age of the
development of capitalism prior to the factor and Industrial Capitalism
Merantilist Overview
Wealth
- storable -> land intensive goods (raw materials) but generally precious metals
- loanable -> generally precious metals
->
Surplus
- stored up wealth due to thrift
-> thrift is an essential element (e.g., Puritanism, etc.)
-> 'fear of goods' - fear of holding stocks of unsold goods
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Mercantilism
- factors used up in production are essentially irrelevant provided a surplus results
from exchange
- agricultural produce is a surplus to support the population but this is not wealth
- population can produce labour intensive goods to exchange for wealth
(Steuart recognizes diminishing returns in agriculture)
-> profit - comes from buying cheap and selling dear
-> one's gain is another's loss
-> no net additions to wealth in a country through trade
-> wealth created by foreign trade (D'Avenant, 1697)
[note the merchant mentality where profit is exclusively from trade not
production]
- a small profit may exist in long-term price
Foreign Trade
- crucial to have a positive balance to store up wealth
- export labour-intensive manufacture for land-intensive raw materials
- government intervention probably necessary
Interest
- savings consist in the accumulation of money
- inversely related to the supply of circulating currency according to Locke
- later (North, Hume) determined by consumption and savings habits of different
classes and productivity of investment, independent of interest
Price
- determination of supply and demand (utility and scarcity) was ‘received doctrine’
- but 17c pamphlet literature had little appreciation of relative prices in the
organization of economic activity
- the real value of goods is determined by costs – labour, machinery, and materials,
while profit is made upon sale in response to demand (Steuart)
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Mercantilism
- recognition of self-interested economic man
- profit organizes production but requires government guidance to assure
optimal allocation of resources if only to assure competition. A minority (e.g.,
North) argued that unregulated trade served the public interest due to
automatic processes
Accumulation (Growth)
- results from thrift and hence takes the form of storable wealth, principally
precious metals.
-> foreign trade
- growth in total output not growth in output per head
- savings might be loaned
Consumption
- minimize, particularly foreign land-intensive goods and luxuries
(except where this maintains workers for future use)
- avoid diverting labour from producing goods in the export sector
- not interested in labour as consumer but as producer
Wages
- subsistence
- to minimize expenditure and maximize competition in foreign markets
- limits consumption of foreign goods or domestic goods which are available for
export
- to generate greater effort as workers compete for survival
Population
- expand to increase exportable produce
- income/head is not important
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Mercantilism
- expand to keep wages low and workers more productive
-> thereby increasing foreign competition
Technology
- irrelevant except in cheapening labour cost, i.e., labour saving
-> effectively increases population
(Steuart: fixed capital would not replace circulating capital)
e.g. Thomas Mun (@1630 but published only in 1664
- a top official in the East India Company
-argued that outflow of specie was not due to unfavourable exchange rate (Malynes)
but to unfavourable balance of trade.
[- Malynes (1601) – almost identified the specie flow mechanism since he said that
the export of money lowers domestic prices and increases foreign prices.
However, he blamed fluctuation in the exchange rate on manipulations by
bankers]
“The ordinary means … to increase our wealth and treasure is by Foreign Trade,
wherein we must observe this rule; to sell more to strangers yearly than we
consume of theirs in value.”
-> (inter alia)
- diminish imports
- export superfluities as cheaply as possible for maximum sales
- value of exports increased by using own ships
- do not tax exports
- profitable to export money if this buys foreign wares that can be re- exported
- long-distance trade more profitable than short-distance trade due to more
payment for shipping, wages, victuals, insurance, customs, imposts, and
interest
- the Dutch proverb “live and let live” is wrong since they take our living from us
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Mercantilism
William Petty (1623-87)
- emphasizes labour as the source of wealth
"Wealth, stock, or Provision of the Nation ...[is] the effect of [labour] or past
labour"
" Labour is the Father and active principle of Wealth, as Lands are the Mother
- gives example of equality of value of silver output and corn output if two men take
the same time to produce each
- discusses division of labour (e.g.) and growth of towns
- distinguishes between 'true Price Currant' and "Political Price"
- ‘Price Currant’: "natural dearness and cheapness depends upon the few or more
hands requisite to the necessaries of Nature"
- "But Political Cheapness depends upon the paucity of Supernumerary Interlopers
into every Trade over and above all that are necessary"
- recognizes that other factors affect political price
- including "all commodities have their Substitutes"
- elsewhere talks of labour sustenance (food) as measure of value rather than time
"The days food of an adult Man, at a Medium, and the days labour, is the
common measure of value”
- opposed interest (even though money was wealth, i.e., productive)
- low interest led to wealth [financed trade] not wealth to low interest (Josiah
Child, 1669)
-
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