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International Economics 8th Edition by Dennis Appleyard, Alfred Field
Edition 8ISBN: 9780078021671International Economics 8th Edition by Dennis Appleyard, Alfred Field
Edition 8ISBN: 9780078021671 Exercise 1
Why were Mercantilist thinkers concerned with the acquisition of specie as opposed to overall productive capacity?
Explanation
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Mercantilism is an economic theory that was popular during the period between 16th and 18th centuries. Economic activity during this period was understood as a zero sum game and wealth was synonymous with the accumulation of precious metals ('specie'). As a result the right economic policy was to maintain a favorable or a positive balance of trade that encouraged and supported the constant inflow of and thereby the accumulation of 'specie'.
It was understood that as a consequence of this policy of maintaining a positive trade balance, there would be an increase in the money supply that would in turn stimulate the economy and result in the growth of output and employment. Hence mercantilists were mostly concerned with the accumulation of 'specie': by controlling its use and exchange, by generating higher profits through the exercise of excessive market power, by subsidizing exports and taxing imports and so on.
As a positive trade balance was understood as resulting in output growth Mercantilists were not concerned with the overall productive capacity of the economy. They understood it to be a natural consequence of maintaining a positive trade balance.
It was understood that as a consequence of this policy of maintaining a positive trade balance, there would be an increase in the money supply that would in turn stimulate the economy and result in the growth of output and employment. Hence mercantilists were mostly concerned with the accumulation of 'specie': by controlling its use and exchange, by generating higher profits through the exercise of excessive market power, by subsidizing exports and taxing imports and so on.
As a positive trade balance was understood as resulting in output growth Mercantilists were not concerned with the overall productive capacity of the economy. They understood it to be a natural consequence of maintaining a positive trade balance.
International Economics 8th Edition by Dennis Appleyard, Alfred Field
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