Pre-Classical Economics (L2) Flashcards
Describe the notion of wealth according to the Mercantilists. How was wealth measured and accumulated in their view?
Key Points:
* Wealth was measured by the accumulation of gold and silver (bullion).
* Merchants increased wealth through trade—buying low and selling high.
* Positive trade balances (exports > imports) were essential for accumulating precious metals.
* Scarcity of metals in Europe encouraged colonial expansion and exploration.
Explain the Mercantilists’ understanding of trade balance. What policies did they recommend to maintain a positive trade balance?
Key Points:
* Positive trade balance (exports > imports) was seen as critical to increasing wealth.
Policies included:
* Reducing imports (protectionism) through tariffs and restrictions.
* Encouraging exports of finished goods.
* Limiting domestic consumption to maximize exportable surpluses.
Describe the policy recommendations of Thomas Mun and Jean-Baptiste Colbert to enhance national wealth.
Key Points:
Thomas Mun:
* Advocated for a positive trade balance to build wealth.
* Recommended monopolies on trade routes (e.g., British monopoly on transport ships).
Jean-Baptiste Colbert:
* Promoted domestic manufacturing and restricted foreign competition.
* Encouraged state intervention in developing industries.
Discuss how the historical context of the 16th-17th centuries influenced the Mercantilist emphasis on metal accumulation and trade policies.
Key Points:
* Mercantilism emerged during the transition from feudalism to nation-states.
* Wealthy merchants gained power and influenced economic policy.
* Scarcity of metals and the rise of colonial empires drove the focus on exploration, trade, and bullionism.
* Protectionist policies reflected the growing competition among European states.
What were the key critiques of Mercantilist policies, particularly their focus on protectionism and trade surpluses?
Key Points:
* Overemphasis on hoarding precious metals rather than developing productive industries.
* Protectionism restricted trade and innovation.
Ignored the benefits of imports and specialization.
* Focused on zero-sum thinking, neglecting the potential for mutual gains from trade.
Describe the role of agriculture in the Physiocrats’ economic theory. Why did they view it as the sole source of wealth?
Key Points:
* Agriculture was the only sector that generated surplus wealth (net product).
* It created more value than it consumed, unlike other sectors that only rearranged or circulated wealth.
* Land and natural resources were essential for sustaining economic growth.
Explain the concept of the “natural order” in Physiocratic thought. How did it justify their policy recommendations?
Key Points:
* Economic and social systems were governed by natural laws that should not be disrupted.
* Government intervention, such as tariffs and protectionism, violated this natural order.
* Advocated for minimal government interference and low taxation to allow the economy to function naturally.
Describe the role of the circular flow of income in the Physiocrats’ model. What does the Tableau Économique illustrate about economic activity?
Key Points:
* The Tableau illustrated how income flowed between the productive, proprietor, and sterile classes.
* Emphasized the centrality of agriculture in generating wealth that circulated through the economy.
* Highlighted the interdependence of economic classes in sustaining economic activity.
Discuss the significance of the “zig-zag process” in Quesnay’s Tableau Économique. How does it explain wealth circulation?
Key Points:
* Described how wealth moved between classes through transactions.
* Farmers used cash to buy goods; artisans used cash to buy raw materials.
* Agricultural surplus drove economic activity by injecting wealth into the economy.
Describe the Physiocrats’ views on trade and consumption. Why did they oppose hoarding and support low taxation?
Key Points:
* Trade was essential to distribute agricultural surplus and validate wealth.
* Hoarding wealth reduced economic circulation, stalling growth.
* Low taxes encouraged spending and consumption, stimulating demand.
What policy implications did the Physiocrats derive from their emphasis on agricultural production as the source of wealth?
Key Points:
* Advocated for a single tax on rents (the net product of agriculture).
* Opposed taxing industrial or trade activities, as these were non-wealth-creating.
* Promoted government support for agriculture while maintaining low overall taxation.
Describe the socio-economic context in which the Physiocratic school of thought emerged. How did their ideas challenge the Mercantilist framework?
Key Points:
* Emerged in 17th-18th century France, amid class conflicts and the rise of bourgeois farmers.
* Rejected Mercantilism’s focus on trade and precious metals, emphasizing agriculture instead.
* Viewed government intervention (a key Mercantilist policy) as detrimental to natural economic order.
Explain the distinction between productive and sterile classes in the Physiocratic framework. How did this classification shape their theory of economic growth?
Key Points:
* Productive Class: Farmers who generated surplus wealth.
* Sterile Class: Merchants and artisans who only circulated wealth.
* Economic growth relied on agricultural production to provide the surplus necessary for circulation and consumption.
Compare the Mercantilists’ and Physiocrats’ views on the source of wealth and how it is created.
Key Points:
Mercantilists: Wealth is created through trade surpluses and precious metal accumulation.
Physiocrats: Wealth comes exclusively from agricultural surplus, with trade only circulating existing wealth.
Describe the contrasting roles of government intervention in the Mercantilist and Physiocratic schools of thought.
Key Points:
* Mercantilists: Advocated strong government intervention through protectionism, monopolies, and trade regulation.
* Physiocrats: Emphasized minimal government interference, believing the “natural order” would regulate the economy.
