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History of Economic Thought - Term Paper Example

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Mercantilism Name: Institution: Mercantilism is a socio-political theory that hails the state’s superiority and hence unchallenged power to control the economy. This doctrine supported the government’s domination of trade and especially foreign trade (Murphy 2010, p.287…
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History of Economic Thought
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Download file to see previous pages These colonies after annexation could only trade with its colonizers. Policies such as export subsidies and tariff trade barriers further promote biased foreign trade. In essence, the aim was to encourage exportation and explicitly discourage importation (Murphy 2010, p.288). However, capital equipment or tools that would benefit foreign countries could not be exported. Nonetheless, governments supported exploitation of raw materials within the countries boundaries. Other states supported the growth of home industries by use of incentives such as exemption from tax or earning of pension for successful industries. Even immigration of competent laborers to foreign countries faced restriction to maintain competitive advantage (Harris 2004, p.3). Undoubtedly, governments saw this as a sure way of making their countries rich. As such, this theory spread quickly and lasted for over 200 hundred years as the dominant guideline to foreign trade. However, Vaggi (2003, p. 16) argues that mercantilism rose in relation to the existing problem rather than a school of thought. The Renaissance period in Europe saw by far the greatest influence of this theory. Between the 15th and 18th century especially, governments embraced this doctrine that extended up to the early modern period. Countries such as France, Britain, Germany and Italy are some of the examples of countries that utilized this theory. These periods marked the decline of the feudal systems in Europe (Murphy 2010, p.289). There was tension within and outside Europe states as a result of wars mostly resulting from resistance to colonization and political aggregation caused by territorial expansion. The measure of wealth was in terms of precious metals, for instance, gold and silver and as such government sought out these metals with valor. The wars fought during this period aimed to acquire more gold and silver or alternately to prevent from losing gold and silver (Vaggi 2003, p.16). The main advocate for this theory is the French man Jean-Baptiste Colbert. During his reign as the finance minister for France, he implemented many policies that endeavored to support this theory. For instance, foreign vessels received higher port duties while French vessels did not pay port duties. This theory in regard to Colbert’s policies took on a monopolistic structure. This is because the aim was to ensure that the state is the sole producer and hence supplier of products. The state also had complete control of the prices for both suppliers and consumers. In England, the most noted mercantilist was Thomas Mun. This form of trade had its advantages, and it helped the economy of those nations to grow considerably within that period. Case in point is the considerable reduction of the price of products within the economy because the state creates economies of scale. However, this is only realistic in regard to a purely competitive market structure. Economies of scale arise from the states ability to make abnormal profits from its trading activities. Secondly, industries are not afraid to take risks because the government supports them. This theory led to the growth of local industries and trade. Local companies became international trade powerhouses for instance former British East India Company. In regard to politics, this theory is by far the greatest advocator of Nationalism because its survival depended on it (Harris 2004, p.5). While the most noted influence to the decline of the ...Download file to see next pagesRead More
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