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An Overview of Mercantilism & Physiocracy

June 17, 2020 | Aamir Wani  

 

Introduction

Accumulation of knowledge and understanding does not necessarily lead to a better world. Even if all people were perfectly well-informed on economic matters, disagreements and conflicts would continue because of different ideas about what is good and what is bad, which goals should be adopted and which rejected, and what the priority of each goal should be. Even if we agree on the goals for the economy, we will disagree on their relative importance. But economic analysis helps us devise systems through which the common good can be individually and socially defined and through which people can pursue their own interests while simultaneously enhancing the well-being of others.

Mercantalism

The economic doctrine known as mercantilism appeared between the Middle Ages and the period of the triumph of laissez-faire. Mercantilism can be dated roughly from 1500 to 1776. These dates vary, however, in different countries and regions. Four individuals who expressed mercantilist ideas were Mun, Malynes, Davenant, and Colbert. Mercantilism is economic nationalism for the purpose of building a wealthy and powerful state. Adam Smith coined the term “mercantile system”.
Mercantilist thinkers did not form a group, advocating a fixed line of thought and policy. They were businessmen, merchants, administrators, in different countries. They left a number of pamphlets and papers regarding economic problems. Only the later economists have analysed their writings and found certain uniformity in their ideas and policies and have grouped them together as mercantilists.
Mercantilism prevailed not only in England, France, Germany and Italy, but also in countries like Russia, Spain and Scotland. It adopted itself to the changing circumstances. Alexander Grey observed that “It had three hundred years run and so it coloured the thought and still more the actions of every country in Europe”. Haney says, “Mercantilism comprises the economic views that prevailed among the European statesmen from 16th to 18th century”.
Major Tenets of the Mercantalistic School:-
The fundamental aim of Mercantilism was to make a country strong. The strength of a country was tested with the help of the wealth of the country, above all, in that portion of wealth which consisted of precious metals like gold and silver. So the Mercantilists attached greater importance to bullion (gold) because it was the most durable, useful and generally acceptable form of wealth.
A country can get gold and silver through trade. The country should have a favorable balance of trade. In other words, there should be an excess of exports over imports.
In the Mercantilist system of thought trade was the most important occupation. Industry and commerce were ranked second in importance. Agriculture was the least important of all.
Extensive money circulation within the national boundaries was the basis of wide tax base.
Prevention or prohibition of gold outflow to the money & penelising the people who send money across the border.
Encouraging the coming in of foreign currency to be spend in this country.
All countries could not simultaneously export more than they imported. Therefore one’s own country should promote exports and accumulate wealth at the expense of its neighbors. Only a powerful nation could capture and hold colonies, dominate trade routes, win wars against rivals, and compete successfully in international trade.
Duty-free importation of raw materials that could not be produced domestically, protection for manufactured goods and raw materials that could be produced domestically, and export restriction on raw materials. This emphasis on exports and a reluctance to import has been called “the fear of goods.”
A strong central government was needed to promote mercantilist goals. The government granted monopoly privileges to companies engaged in foreign trade. It restricted free entry into business at home to limit competition. Agriculture, mining, and industry were promoted with subsidies from the government and protected from imports via tariffs.
That all raw materials found in a country be used in domestic manufacture, since finished goods have a higher value than raw materials.
All imports of foreign goods to be discouraged as much as possible.

Physiocrasy

The physiocrats appeared in France toward the end of the mercantilist epoch. Physiocracy was a theory of wealth. The physiocrats, led by Quesnay, believed that the wealth of nations was derived solely from the value of agriculture. Quesnay’s understanding of value-added was rather primitive—he could not see, for example, how manufacturing could create wealth. Farmers, on the other hand, could. As Karl Marx explains in "Das Kapital", "the Physiocrats insist that only agricultural labour is productive, since that alone, they say, yields a surplus-value".
Physiocracy is an economic theory developed by an Franch Economist Francois Quesnay in the 18th century. The Physiocracy ideology opposed mercantalistic ideology. They believed govt. Policies should not interfere with natural law. They believed land was the natural source of all wealth, so agriculture & land development were source of all wealth. Physiocracy is considered to be the first. We developed theory in Economics & became most popular in the second half of 18th century.
The most significant contribution of physiocrates had an economies that they emphasis on productivity being the source of wealth. This was an direct opposition to mercentalism which focused on nations accumulation of Gold as what determines the nation's wealth.

Major Tenets of Physiocracy:-

The physiocrats introduced the idea of natural order to economic thinking. The term physiocrat itself means “rule of nature.”
They put economics on a scientific basis by applying scientific methods.
Economic development was a major concern of the Physiocrats. They realised the importance of agriculture which give surplus for capital formation.
The physiocrats insisted that the government should restrict its functions.
They advocated direct taxes rather than indirect taxes.
The physiocrats realised the interdependence of different classes in the economy.
The physiocrats were the first school of economists to analyse capital and capital formation.
Laissez-faire policy should be there , means “let people do as they please without government interference.” Governments should never extend their interference in economic affairs beyond the minimum absolutely essential to protect life and property and to maintain freedom of contract.
Physiocrates emphasis on agriculture. The physiocrats thought that industry, trade, and the professions were useful but sterile, simply reproducing the value consumed in the form of raw materials and subsistence for the workers. Only agriculture (and possibly mining) was productive, because it produced a surplus, a net product above the value of the resources used in production.
Physiocrates are of view that landowner should be taxed because thought that because only agriculture produced a surplus, which the landowner received in the form of rent, only the landowner should be taxed. All taxes imposed on others would be passed on to the landowner anyway. A direct tax on the landowner was preferable to indirect taxes, which increased as they were passed along to others.

Mercantalism vs Physiocrasy:

Mercentalists were unorganized while Physiocrates were organized with a leader (Quesney)
Mercentalists were independent thinkers while as Physiocrates were dependent.
Mercentalists area of activity was well spread like in England, Germany, France, Italy, Austria while as Physiocrates were confined to France.
Mercentalists believed in control or regulation while as Physiocrates believed in natural order/ Lassiz-Fair.
In Mercentalism Trade was a source of wealth while as Agriculture was a source of wealth in Physiocrasy.
For Mercantilists value lies in Exchange & value lies in production for Physiocrates.
In Mercantilism manufacturing to be promoted while as in Physiocrasy Agriculture to be emphasized.
Mercentalists also advocated there should be surplus in Balance of Payment or Trade.

 

 

 


Email:----aamirecon@gmail.com

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An Overview of Mercantilism & Physiocracy

June 17, 2020 | Aamir Wani  

 

Introduction

Accumulation of knowledge and understanding does not necessarily lead to a better world. Even if all people were perfectly well-informed on economic matters, disagreements and conflicts would continue because of different ideas about what is good and what is bad, which goals should be adopted and which rejected, and what the priority of each goal should be. Even if we agree on the goals for the economy, we will disagree on their relative importance. But economic analysis helps us devise systems through which the common good can be individually and socially defined and through which people can pursue their own interests while simultaneously enhancing the well-being of others.

Mercantalism

The economic doctrine known as mercantilism appeared between the Middle Ages and the period of the triumph of laissez-faire. Mercantilism can be dated roughly from 1500 to 1776. These dates vary, however, in different countries and regions. Four individuals who expressed mercantilist ideas were Mun, Malynes, Davenant, and Colbert. Mercantilism is economic nationalism for the purpose of building a wealthy and powerful state. Adam Smith coined the term “mercantile system”.
Mercantilist thinkers did not form a group, advocating a fixed line of thought and policy. They were businessmen, merchants, administrators, in different countries. They left a number of pamphlets and papers regarding economic problems. Only the later economists have analysed their writings and found certain uniformity in their ideas and policies and have grouped them together as mercantilists.
Mercantilism prevailed not only in England, France, Germany and Italy, but also in countries like Russia, Spain and Scotland. It adopted itself to the changing circumstances. Alexander Grey observed that “It had three hundred years run and so it coloured the thought and still more the actions of every country in Europe”. Haney says, “Mercantilism comprises the economic views that prevailed among the European statesmen from 16th to 18th century”.
Major Tenets of the Mercantalistic School:-
The fundamental aim of Mercantilism was to make a country strong. The strength of a country was tested with the help of the wealth of the country, above all, in that portion of wealth which consisted of precious metals like gold and silver. So the Mercantilists attached greater importance to bullion (gold) because it was the most durable, useful and generally acceptable form of wealth.
A country can get gold and silver through trade. The country should have a favorable balance of trade. In other words, there should be an excess of exports over imports.
In the Mercantilist system of thought trade was the most important occupation. Industry and commerce were ranked second in importance. Agriculture was the least important of all.
Extensive money circulation within the national boundaries was the basis of wide tax base.
Prevention or prohibition of gold outflow to the money & penelising the people who send money across the border.
Encouraging the coming in of foreign currency to be spend in this country.
All countries could not simultaneously export more than they imported. Therefore one’s own country should promote exports and accumulate wealth at the expense of its neighbors. Only a powerful nation could capture and hold colonies, dominate trade routes, win wars against rivals, and compete successfully in international trade.
Duty-free importation of raw materials that could not be produced domestically, protection for manufactured goods and raw materials that could be produced domestically, and export restriction on raw materials. This emphasis on exports and a reluctance to import has been called “the fear of goods.”
A strong central government was needed to promote mercantilist goals. The government granted monopoly privileges to companies engaged in foreign trade. It restricted free entry into business at home to limit competition. Agriculture, mining, and industry were promoted with subsidies from the government and protected from imports via tariffs.
That all raw materials found in a country be used in domestic manufacture, since finished goods have a higher value than raw materials.
All imports of foreign goods to be discouraged as much as possible.

Physiocrasy

The physiocrats appeared in France toward the end of the mercantilist epoch. Physiocracy was a theory of wealth. The physiocrats, led by Quesnay, believed that the wealth of nations was derived solely from the value of agriculture. Quesnay’s understanding of value-added was rather primitive—he could not see, for example, how manufacturing could create wealth. Farmers, on the other hand, could. As Karl Marx explains in "Das Kapital", "the Physiocrats insist that only agricultural labour is productive, since that alone, they say, yields a surplus-value".
Physiocracy is an economic theory developed by an Franch Economist Francois Quesnay in the 18th century. The Physiocracy ideology opposed mercantalistic ideology. They believed govt. Policies should not interfere with natural law. They believed land was the natural source of all wealth, so agriculture & land development were source of all wealth. Physiocracy is considered to be the first. We developed theory in Economics & became most popular in the second half of 18th century.
The most significant contribution of physiocrates had an economies that they emphasis on productivity being the source of wealth. This was an direct opposition to mercentalism which focused on nations accumulation of Gold as what determines the nation's wealth.

Major Tenets of Physiocracy:-

The physiocrats introduced the idea of natural order to economic thinking. The term physiocrat itself means “rule of nature.”
They put economics on a scientific basis by applying scientific methods.
Economic development was a major concern of the Physiocrats. They realised the importance of agriculture which give surplus for capital formation.
The physiocrats insisted that the government should restrict its functions.
They advocated direct taxes rather than indirect taxes.
The physiocrats realised the interdependence of different classes in the economy.
The physiocrats were the first school of economists to analyse capital and capital formation.
Laissez-faire policy should be there , means “let people do as they please without government interference.” Governments should never extend their interference in economic affairs beyond the minimum absolutely essential to protect life and property and to maintain freedom of contract.
Physiocrates emphasis on agriculture. The physiocrats thought that industry, trade, and the professions were useful but sterile, simply reproducing the value consumed in the form of raw materials and subsistence for the workers. Only agriculture (and possibly mining) was productive, because it produced a surplus, a net product above the value of the resources used in production.
Physiocrates are of view that landowner should be taxed because thought that because only agriculture produced a surplus, which the landowner received in the form of rent, only the landowner should be taxed. All taxes imposed on others would be passed on to the landowner anyway. A direct tax on the landowner was preferable to indirect taxes, which increased as they were passed along to others.

Mercantalism vs Physiocrasy:

Mercentalists were unorganized while Physiocrates were organized with a leader (Quesney)
Mercentalists were independent thinkers while as Physiocrates were dependent.
Mercentalists area of activity was well spread like in England, Germany, France, Italy, Austria while as Physiocrates were confined to France.
Mercentalists believed in control or regulation while as Physiocrates believed in natural order/ Lassiz-Fair.
In Mercentalism Trade was a source of wealth while as Agriculture was a source of wealth in Physiocrasy.
For Mercantilists value lies in Exchange & value lies in production for Physiocrates.
In Mercantilism manufacturing to be promoted while as in Physiocrasy Agriculture to be emphasized.
Mercentalists also advocated there should be surplus in Balance of Payment or Trade.

 

 

 


Email:----aamirecon@gmail.com


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