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EPPE 3033 Task 2 Question 1 and 2

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45 views2 pages

EPPE 3033 Task 2 Question 1 and 2

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Taren Raze
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We take content rights seriously. If you suspect this is your content, claim it here.
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EPPE 3033 – TASK 2

Question 1 - Analyse the divergent views of mercantilism, physiocrats, and the classical
school of thought regarding the connection between domestic prosperity and global
trade.

Mercantilism
Mercantilism was based on the principle that the world's wealth was static, and consequently,
governments had to regulate trade to build their wealth and national power. It was a form of
economic nationalism that sought to increase the prosperity and power of a nation through
restrictive trade practices. Mercantilists also believed that a nation's economic health could be
measured by its ownership of precious metals, such as gold or silver. Their levels tended to
rise with increased new home construction, increased agricultural output, and a strong
merchant fleet that serviced additional markets with goods and raw materials. By the early
16th century, European financial theorists understood the importance of the merchant class in
generating wealth. Cities and countries with goods to sell thrived in the late middle ages.
Consequently, many believed the state should allow its leading merchants to create exclusive
government-controlled monopolies and cartels. Governments used regulations, subsidies, and
(if needed) military force to protect these monopolistic corporations from domestic and
foreign competition. Citizens could invest money in mercantilist corporations in exchange for
ownership and limited liability in their royal charters. These citizens were granted shares of
the company profit. In essence, these were the first traded corporate stocks.

Physiocrats
The Physiocrats were a group of French economists who emerged in the mid-18th century.
They believed that the source of a country's wealth was its agricultural productivity. They
argued that agriculture was the only productive sector of the economy and that other sectors
such as manufacturing and trade were unproductive. The Physiocrats believed that global
trade was beneficial because it allowed countries to specialize in their areas of comparative
advantage and to exchange goods based on their relative prices.

The Classical School of economics


The Classical School of economics emerged in the late 18th century and was dominant until
the mid-19th century. The Classical economists, such as Adam Smith and David Ricardo,
believed that a country's wealth was determined by its productivity, rather than the
accumulation of precious metals. They argued that free trade and specialization based on
comparative advantage were the key to economic prosperity. According to the Classical
economists, free trade allowed countries to specialize in the production of goods they were
most efficient at producing and to exchange these goods with other countries. This
specialization led to an increase in productivity and economic growth.
Question 2 - Describe the intellectual revolution that influenced the growth of the
economic discipline that forms the foundation of classical thought.

The intellectual revolution that influenced the growth of the economic discipline and formed
the foundation of classical thought can be traced back to the Enlightenment period of the 18th
century. This period was characterized by a shift towards reason and empirical observation,
and a rejection of traditional dogmas and superstitions.

The Enlightenment thinkers, such as John Locke and Francis Bacon, emphasized the
importance of using reason and scientific inquiry to understand the natural world. This
emphasis on observation and empirical evidence paved the way for the development of
economics as a discipline grounded in empirical analysis.

One of the most influential figures in the development of classical economic thought was
Adam Smith, whose work "The Wealth of Nations" (1776) is widely regarded as a
cornerstone of economic theory. Smith's ideas were influenced by the Enlightenment thinkers
and their emphasis on reason and empirical evidence.

Smith argued that the economy was driven by self-interest and that individuals acting in their
own self-interest would naturally lead to the efficient allocation of resources. He emphasized
the importance of specialization and division of labor, which he believed could increase
productivity and economic growth.

Another important figure in the development of classical economic thought was David
Ricardo. Ricardo's work focused on international trade and the theory of comparative
advantage. He argued that countries should specialize in producing goods that they are most
efficient at producing and then trade with other countries for goods they cannot produce as
efficiently. This theory of comparative advantage became a fundamental concept in
international trade theory.

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