Mercantilism/Classicalism

Question 1

What are the goals of Mercantilism?

Answer 1

Establishing a favorable balance of trade, amassing gold, consolidating state power.

Question 2

How does Mercantilism accomplish its goals?

Answer 2

Export finished goods (vice versa). Imports reduce jobs.

Question 3

What are some examples of Mercantilist policies?

Answer 3

1. 70% tariffs established by finance minister, Colbert
2. Navigation Acts - All goods need to be carried on British ships
3. Staple Act - You can only buy certain staple goods from England.

Question 4

Why does Mercantilism fail?

Answer 4

Hoarding gold → higher prices, hurting ability to acquire more gold.

Question 5

Who were the important thinkers for Classicalism?

Answer 5

1. Adam Smith - biographer of economics, attacked mercantilism
2. Jean-Baptiste Say - supply creates its own demand; gov should encourage production
3. David Ricardo - comparative advantage
4. Thomas Malthus - population growth trap
5. John Stuart Mill

Question 6

What are the four key principles of Classicalism?

Answer 6

1. Wealth comes from division of labor and trade thanks to subjective value, invisible hand
2. Comparative advantage
3. Money is an organic market-driven entity
4. Unemployment naturally disappears as wages adjust