Free Essay sample on Mercantilist Approach in the Creation of Wealth

Introduction

The mercantilist theory was that the nation's wealth could be created by increasing exports and minimizing imports to collect prestigious and precious metals such as gold and silver. The theory primarily emphasized the nation's self-sufficiency through favorable and conducive trade balances. The mercantilist approach was first domiciled in the European countries in the 1500s that replaced the "feudal economic system" in the Western European nations. During this period, England was the British Empire's hub though it had limited natural economic resources (Prašcevic, 2017, September). To create and increase its wealth, England used the mercantilist theory to create fiscal policies that helped in discouraging colonists from purchasing foreign goods and services to promote the purchase of products from British goods. For example, the 1651 Navigation Act discouraged distant vessels from merchandising along the British Coast shores and requested all the colonial exports to pass via the British control before redistributing the exported products across Europe. Such a program led to a favorable trade balance that helped Great Britain to increase its national wealth.

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Under the Mercantilism technique, many nations across Europe used military prowess in ensuring that their community and local markets were protected, encouraging wealth accumulation through promoting local production. In a nutshell, mercantilist theory emphasized the adoption of vast trade barriers that prohibited and restricted colonial businesses' growth. Many countries benefited from many raw materials that they received from colonialists that helped them increase productivity in their manufacturing industry, consequently leading to increased wealth accumulation (Magnusson, 2019). Thus, mercantilism's primary objective was to make nations stronger through the accumulation of more wealth; mercantilism believed that gold was the backbone of power and wealth, hence the slogan "more gold, more wealth and more power."

The Role of Trade

Physiocrats are a group of French economists who developed the economic theory, which believed that a given nation's wealth could be solely be derived from the value of land that is agricultural land and developmental land. This theory was domiciled in France during the middle of the 18th century. Physiocracy was one of the well-developed first approaches to economics. Physiocrats contrasted with the mercantilism schools of thought in the sense that Physiocrats found labor as a source of value, unlike the mercantilism that emphasized on wealth accumulation or the balance of trade. Physiocrats argued that it should maximize the value and output in the agricultural department for a nation to create wealth. Before the emergence of the Physiocrats, the agriculture sector in France was trapped in medieval rules and regulations that had shackled the sector, such as increased tariffs that restricted the free movement of grains between and within the regions hampering the agricultural industry (Maddaluno, 2019).

Farmers in the most productive regions faced shortages in labor forces due to increased inflation in wage s and costs. To promote trade and increase wealth creation, Physiocrats emphasized the removal of restrictions on labor migration and internal trade, the destruction of the corvee' and the removal of the sponsored state monopolies. They also pushed for a single tax on land rents because they believed that land was the only source of wealth; thus, the burden of all the taxes was carried by the landowners. In conclusion, Physiocrats identified the interdependence of varied and different classes in the economy that encouraged the inflow of income from class to class; Physiocrats also encouraged the free trade and advocated more on the direct taxes, thus encouraging the creation of wealth.

Creating Wealth

The forerunners' school of thought is commonly referred to as the classical school, which is primarily associated with a Scottish economist, namely Adam Smith. The classical school of thought's main thought is that markets tend to work extremely well without internal or external forces. The theorem strongly believed in the efficiency of free markets to generate and create economic development; this means that forerunners' economic theory was based on the doctrine of laissez-faire that emphasized the promotion of private property, personal liberty, and control of the enterprise. To create wealth, the classical economic theory emphasized the development and the creation of a conducive economic environment that boosted the private sector (Kates, 2020). Thus this enhanced capital accumulation and the development and growth of the economy.

Its emphasis on the private sector helped expand the production base, which was one of the greatest needs of the society leading to increased wealth accumulation among the private sector. Forerunners' school of thought enhanced the market's enlargement by promoting free international trade and the urban labor force. The enlargement of the market and the free international trade promotion led to wealth creation and accumulation. Forerunners such as North, Cantillon, and Hume made significant contributions to the classical theory of economic. For example, the North was one of the world's greatest free-traders, who argued that trade provided a mutual advantage to a given country. The enhancement of free international trade would lead to the creation of wealth, even without the existence of either silver or gold.

Conclusion

Mercantilist theory believed that wealth was created through the increase of exports and decline in imports; in contrast, Physiocrats argued that the wealth of a given nation could only be derived from agricultural land while the classical theory emphasized the promotion of private property, personal liberty, and control of the enterprise. In my opinion, I find the forerunners school of thought interesting this because. In contrast, mercantilist and Physiocrats school of thought were important during their time; they provided wide limitations that hampered trade and creation of wealth.

For example, mercantilists imposed tariffs and used the military to discourage imports; Physiocrats emphasized agriculture as the main source of wealth, whereas manufacturing and other industrial sectors are important in creating wealth. The Forerunners school of thought is interesting because it attempted to promote maximum economic development and growth and viewed the economy through the modern macroeconomic technique. The classical school of thought also incorporated industry, commerce, and agriculture as sources of wealth. In conclusion, the classical school of thought argued that trade provided a situation in which all countries gained i.e., positive-sum game trade.

References

Kates, S. (2020). Classical Economic Theory and the Modern Economy. Edward Elgar Publishing.

Maddaluno, L. (2019). De Facto Policies and Intellectual Agendas of an Eighteenth-Century Milanese Agricultural Academy: Physiocratic Resonances in the Società Patriotica. The Economic Turn, 395-438. http://www.academia.edu/download/60493563/Cambridge_Core-De_facto_policies_and_intellectual_agendas_of_an_eighteenthcentury_milanese_agricultural_academy_physiocratic_resonances_.pdf

Magnusson, L. (2019). Mercantilism. In The Elgar Companion to John Maynard Keynes. Edward Elgar Publishing.

Nechaev, V. I., Saifetdinova, N. R., & Bogoviz, A. V. (2017, December). Theoretical aspects of state regulation of agriculture within the classical and physiocratic schools: a modern view. In Perspectives on the use of New Information and Communication Technology (ICT) in the Modern Economy (pp. 870-884). Springer, Cham.

Piqué, P., Navarro, L., Harracá, M., Benchimol, P., & Aldama, C. (2017). Research on the transition between mercantilist doctrines and the birth of Political Economy. An analysis of the contributions of Thomas Mun, James Steuart and David Hume. Civilizar Ciencias Sociales y Humanas, 17(32), 119-132.
http://www.scielo.org.co/scielo.php?script=sci_arttext&pid=S1657-89532017000100119

Prašcevic, A. (2017, September). Rebirth of Mercantilism in the Global Economy. In Proceedings of 2nd International Conference on Scientific Cooperation for the Future in the Economics and Administrative Sciences (p. 99). https://www.researchgate.net/profile/Kahraman_Kalyoncu/publication/320035987_Din-Iktisat_Iliskisi_Riba_Rehin_ve_Ekonomik_Islem_Kavramlari_Cercevesinde_Bir_Inceleme/links/59ca38e945851556e97df484/Din-Iktisat-Iliskisi-Riba-Rehin-ve-Ekonomik-Islem-Kavramlari-Cercevesinde-Bir-Inceleme.pdf#page=106.