Download Chapter 3: Precursor of Classical Economic Thought

Chapter 3: Precursor
of Classical Economic
Thought
Questions for Review, Discussion and
Research (pp. 67)
1, 2, 3, 7, 10
- Period covers 1600-1750
- Develops a view of the economy as a
system with laws and interrelationships
Mercantilism



Written by merchants who
concentrated on a few topics
Often assumed the total wealth
of all nations was fixed so that
the gain of one country was at
the expense of another
Emphasized international trade
as a means of increasing the
wealth and power of the new
nation states
Mercantilism Cont’d
I.
Balance of Trade

encourage exports and
discourage imports with
subsidies, tariffs, quotas
and taxes.
I.
Money and Precious
Metals


Relationships between the
quantity of money and the
general price level
recognized by Jean Bodin in
1569
Believed that the monetary
factors, rather than real
factors, were the chief
determinants of economic
activity and growth
Contributions of
Mercantilists’


Transfers ideas and attitudes
from the physical sciences to
the social sciences
Believed the laws of the
economy could be discovered
by the same methods
revealed by the laws of
physics
Influential Writers
1. Thomas Mun

Adam Smith quotes him as a key
writer of “Conservative”
mercantilists
2. William Petty


Borrowed concepts of induction,
empiricism and mathematics for
his Political Arithmetic written in
1676
First to explicitly advocate
statistical techniques to measure
economic phenomena
Influential Writers
Cont’d
3. Bernard Mandeville

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Provoked contemporaries
with his attack on
sentimental moralists
Selfishness was a moral vice
Social benefits could be
derived from selfish motives
and actions if properly
channeled by government
The end result of private
virtue was economic
depression
4.David Hume


Close personal friend of Adam
Smith
Was a “Liberal” mercantilist
who borrowed insights from
John Locke to develop the
price specie-flow mechanism
- Overhead pp. 54
Influential Writers
Cont’d
5. Richard Cantillon



Book written around 1730
but not published until 1755
Jevon’s called It the “First
Systematic Treatment of
Political Economy”
Seminal vision was the role
of markets in coordinating
the activities of producers
and consumers through the
medium of individual self
interest


Key economic actors were
entrepreneurs
Treated each sector or
component of the economy as
a part of an integrated
structure
- Overhead pp. 55-56
Physiocracy



Stressed the interrelatedness
of sectors in a national
economy
Economic theory was a
prerequisite of economic
policy
Unique idea concerned the
role of natural laws –
independent of human will –
that was essential in
formulating public policies
- Overhead 58
 Figure 3-1 shows a
photocopy of the original
Tableau Economique
developed by Quesnay with
no foreign sector, public
sector, or manufacturing
activity
Physiocracy Cont’d
Overhead pp 60-61
Conceived the economy as a
self regulating mechanism
 The proper role of the public
authorities was to follow a
policy of laissez-faire
Spanish Economic Thought
Skip 62-64

Summary

Overhead pp. 65