Pre-Classical Economics: Key Words and Concepts Flashcards
Mercantilism
Definition: An economic theory that wealth is measured by the accumulation of precious metals and can be increased through a positive trade balance.
Historical Context: 16th-17th century Europe, during the rise of nation-states and wealthy merchants.
Physiocracy
Definition: An economic theory that wealth is derived solely from agricultural production and the “natural order” governs economic activity.
Historical Context: 17th-18th century France, amid growing capitalist farming and class conflicts.
Notion of Wealth (Mercantilists)
Definition: Wealth is measured by the accumulation of gold and silver, achieved through trade surpluses.
Policy Focus: Buying low, selling high, and promoting exports over imports.
Notion of Wealth (Physiocrats)
Definition: Wealth comes exclusively from agricultural production, as it generates a surplus beyond consumption.
Contrast: Other sectors only circulate pre-existing wealth rather than create it.
Trade Balance
Definition: A country’s wealth is built by exporting more than it imports, leading to a positive trade balance.
Mercantilist View: Essential for accumulating precious metals and national wealth.
Natural Order (Physiocrats)
Definition: The belief that economic order is governed by natural laws, requiring minimal government interference.
Key Idea: Policies like tariffs and protectionism violate this “natural” structure.
Tableau Économique
Definition: A model created by François Quesnay to illustrate the circular flow of income and wealth among economic classes.
Structure: Divides society into productive (agriculture), proprietor, and sterile classes.
Circular Flow of Income
Definition: A two-factor model where households provide labor and expenditures to businesses, which return goods, services, and income.
Physiocratic Contribution: Emphasizes the importance of agriculture in generating wealth within this flow.
Productive Class (Physiocrats)
Definition: Agricultural workers and farmers who produce surplus wealth.
Importance: Only this class contributes to net wealth creation in the economy.
Sterile Class (Physiocrats)
Definition: Merchants, artisans, and liberal professionals who only circulate existing wealth rather than generate it.
Contrast: Their activities are vital but not directly wealth-creating.
Proprietor Class (Physiocrats)
Definition: Landowners who collect rent from the productive class.
Role: Facilitate the initial injection of wealth (e.g., purchasing grains and goods).
Zig-Zag Process
Definition: A sequence in the Tableau Économique describing how wealth circulates through transactions between classes.
Importance: Demonstrates how agricultural surplus drives economic activity.
Positive Trade Balance
Definition: A situation where the value of a country’s exports exceeds its imports, leading to wealth accumulation.
Mercantilist Policy: Essential for national economic growth through metal accumulation.
Hoarding (Physiocrats)
Definition: The practice of retaining wealth instead of spending it, which the Physiocrats viewed as harmful to economic circulation.
Alternative: Advocated for low taxes and consumption to stimulate spending.
Protectionism (Mercantilists)
Definition: Economic policies aimed at reducing imports and encouraging domestic production through tariffs and restrictions.
Goal: Prevent the outflow of precious metals and foster local industry.
