Podcast
Questions and Answers
According to mercantilist thought, what is the primary reason for a country to export more than it imports?
According to mercantilist thought, what is the primary reason for a country to export more than it imports?
- To promote cultural exchange and understanding.
- To accumulate gold and silver, thus increasing national wealth. (correct)
- To encourage innovation and technological advancement.
- To foster stronger diplomatic relationships with foreign buyers.
Which of the following government actions would be most consistent with mercantilist principles?
Which of the following government actions would be most consistent with mercantilist principles?
- Investing heavily in education to improve workforce skills.
- Allowing completely free trade with no government intervention.
- Providing subsidies to domestic industries to boost exports. (correct)
- Eliminating tariffs on imported goods to lower consumer prices.
Why do mercantilists view trade as a zero-sum activity?
Why do mercantilists view trade as a zero-sum activity?
- Because they focus solely on employment and not overall economic growth.
- Because they believe that the total amount of goods and services in the world is fixed.
- Because they don't account for benefits to domestic producer interests.
- Because they equate wealth with precious metals, where one country's gain is another's loss. (correct)
What argument did economists like Adam Smith use to refute mercantilist thinking?
What argument did economists like Adam Smith use to refute mercantilist thinking?
How does 'neo-mercantilism' differ from the classical mercantilism?
How does 'neo-mercantilism' differ from the classical mercantilism?
Flashcards
What is mercantilism?
What is mercantilism?
The economic philosophy that guided European thinking about international trade before Adam Smith.
Central Belief of Mercantilism
Central Belief of Mercantilism
National well-being is based on national holdings of gold and silver. Exports are good and imports are bad.
Government Actions Under Mercantilism
Government Actions Under Mercantilism
Taxes and prohibitions limit imports, while subsidies encourage exports.
Mercantilism as Zero-Sum
Mercantilism as Zero-Sum
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Neo-Mercantilism
Neo-Mercantilism
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Study Notes
Mercantilism
- A philosophy that guided European thinking about international trade for centuries before Adam Smith's "Wealth of Nations" in 1776.
- It viewed international trade as a source of major benefits to a nation.
- Merchants, especially exporters, were considered beneficial, hence the name "mercantilism".
- Government regulation of trade was deemed necessary to maximize national benefits, as merchants alone would not prioritize the national interest.
Core Beliefs
- National well-being equates to national holdings of gold and silver (specie or bullion).
- Exports were considered good, while imports (except for raw materials not produced domestically) were seen as bad.
- A country with more exports than imports receives payment in gold and silver from foreign buyers.
- Accumulation of gold and silver increases a country's well-being.
- Imports are undesirable as they reduce the country's ability to accumulate precious metals and may be unavailable during wartime.
- Gold and silver were valuable for maintaining a large military.
- Governments imposed taxes and prohibitions to limit imports and subsidized/encouraged exports.
Trade as a Zero-Sum Activity
- Trade was viewed as a zero-sum activity, where one country's gains resulted in another country's losses.
- Promoting exports and limiting imports benefited domestic producer interests.
Critiques of Mercantilism
- Adam Smith and later economists argued that mercantilism turned social priorities upside down.
- National well-being is based on the ability to consume not suppress imports now and in the future.
- National production and exports provide income to buy products for consumption.
- Exports are useful because they pay for imports.
- Freely transacted trade between leads to gains for all countries, making it a positive-sum activity.
Self-Defeating Aspects
- Acquiring gold and silver can lead to domestic inflation of product prices if the domestic money supply expands.
- David Hume first expounded this argument before Adam Smith.
Modern Relevance (Neo-Mercantilism)
- The focus is on employment, with exports seen as creating jobs and imports as taking jobs away.
- Trade is still seen as a zero-sum activity.
- Neglects the idea that trade can bring gains to all, especially in employment with rising prosperity.
- Mercantilist thinking still influences discussions of international trade worldwide.
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