Maritime Security on a Broad Scale - Essay Example

1 Introduction The earliest recorded notion of wealth comes from the great Greek philosopher and thinker Aristotle (384 – 322 BC) in Nicomachean Ethics written in 350 B.C.E and translated by W. D. Ross. “The life of money-making is one undertaken under compulsion, and wealth is evidently not the good we are seeking; for it is merely useful and for the sake of something else”. This description is however an Aesthetic one and does not denote any economic significance to it. Generally speaking, Wealth is the stock of resources accumulated over a period of time. It can be attributed to an individual, a group or to a nation. Quantity does not matter as wealth can be limited or abundant as the case may be. It is different from Income which is a flow and represents increase in wealth while and Expense is a representation denoting decrease in wealth. Mathematically speaking wealth is the difference between income and expense that has been accumulated over a fixed period of time. But wealth in economic term has a wider meaning and nuance. Wealth has been used to describe various states of creation of wealth and along with it the economic state is sought to be explained. The components of wealth have been different in different ages and resources have meant diverse things to assorted thinkers and nations. Nationally the importance of wealth came into play around the fifteenth century when its explanations began to describe the actions of rulers and resulting legislations. It also explained how and why some people exploited others for creating wealth. Prior to that wealth was just an expression of power over a group of people or in a kingdom. 2 The theory of Mercantilism Mercantilism is a 16th century theory that symbolizes gold as wealth and propagates that exports should be subsidized to meet competition and imports should be penalized with tariffs to protect home industry. This severely limits the benefits and is a zero sum game. (Miller. David., et al 1987). This was the time when kingdoms evolved into nation states, and they came into existence to explain the new found trading power of a nation. It is an economic theory that states that the global trade volume is not changeable. The reason forwarded is that the capital or the economic assets of a nation is the sum total of gold and silver bullion that it holds. Since that sets the limit of capital, the nation’s prosperity is dependant on and calculated by its supply or availability. Therefore to hold on to this prosperity the nation should endeavour to increase it by having a favourable balance of trade with other nations by exporting more and importing less to either keep this economic asset at the present or higher level. This would mean discouraging imports by encouraging protectionist policies. In turn this would bring down international trade as everyone with clout would enforce similar policies. Only those nations that could produce gold or silver would be increasing their capital and be able to export it to others in exchange of other goods and services. The object of the theorists was to evolve an economic system for the nation state that was compatible with the religious doctrines of goodness and fair dealing. Their focus was on individuals and local conditions. During this period many thinkers had a variety of views and each took only one aspect to be the main concern. Hence the theory of Mercantilism as such did not exist except that it came to be recognised as such much later when all these thoughts were put together for evaluation as a theory. The adoption of Niccolo Machiavelli’s Realpolitik as well as the idea of National Interests came about during this period. Mercantilists thought of trade as a zero sum game in which a nation’s gain or loss is exactly balanced by the losses or gains of the other nation. This idea was incorporated in the writings of Thomas Hobbs where each side was seen to be ruthlessly competing with each other. The fact that cooperation would be better for each of them was not understood at all hence was overlooked in Mercantilists works. The dark view of humanity that prevailed in the religion of the time was the Puritan view and led to such stringent, protectionist and restrictive legislations like the Navigation Acts passed by the British Parliament under Oliver Cromwell. The result of the Mercantilist theories was seen to be significant as government interventions for control on markets led to wars. Indeed many European nations went to war over the control of available markets and mercantilism can be said to be a contributory factor. This is how the first capitalists system evolved. This was the theory that encouraged, in fact legitimized, wars and colonialism as a way to increase the wealth of a nation. The outcome was that nations like Great Britain, France and Holland undertook great conquests to overtake economies that had great wealth. Huge empires were built by small nations and this theory gave legitimacy to these endeavours. There was significant intervention by the governments on behalf of merchant traders to undertake these ventures for the vested interests. The advent of this theory resulted in the mercantile system as an enormous conspiracy by manufacturers and merchants of the time against consumers and labour to reap higher profits aided by the governments of the time. The objective was to increase the wealth of the few at the cost of suppression of many. 3 Physiocrats The severity of the Mercantilist theories came under great criticism from the French thinkers. During the second half of the 18th century Anne-Robert-Jacques Turgot and Francois Quesnay propagated that the wealth of nations was not gold and silver bullion but was derived from agricultural produce. These thinkers were called the Physiocrats and were very popular in their times. Perhaps this was the first well developed theory that was comprehensive in its notions of economic wealth. This was the most significant contribution of describing the source of national wealth. This is complete contrast to the Mercantilists idea of national wealth which was confined to the wealth possessed by the ruling government or the ruler based on gold and silver or the favourable balance of trade. However the Physiocrats considered only agricultural labour as a valuable input ignoring the manufacturing activities altogether, considering them to be derivative of agricultural efforts. The Physiocrats abhorred cities and considered that the natural way of living was the best, praised farmers, hence the lofted position of agriculture in their theories. The called themselves economists but were named Physiocrats which is a Greek derivative meaning “Government of Nature”. On fundamental issued the Physiocrats believed in open trade without restrictions as this would foster the ownership of capital by farmers, as opposed to the few in the ruling class, as well as ownership of private property like land. The also understood that capital and capital formation played a vital role and were the first proponents of individualism. They were the first in the 18th century to promote the ideals of Lassaise Faire meaning Free Market opposed to the interference of the government in trade. Under the laissez-faire vision, the state has no responsibility to intervene for maintaining wealth distribution or to create a welfare state to protect people. The system instead relied on charity and the open market system. Laissez-faire also represents the concept that it not the government’s function to be in the business of granting dispensation to any business venture. Therefore they believe that governments must not create legal monopolies nor interfere in the creation of de facto monopolies. 4 The Absolute Advantage This brought about the theory of Absolute Advantage propagated by the father of modern economics, Adam Smith. He wrote a treatise The Wealth of Nations in 1776 that was mainly a criticism of Mercantilism but became the cornerstone of modern economics. He endorsed the theory of Lassaise Faire with great vehemence. Various thinkers had earlier found flaws with Mercantilism but Adam Smith came down heavily upon it saying that it failed to understand the philosophy of absolute advantage or comparative advantage and the benefits of trade. Later in 1817 David Ricardo expounded further on the absolute and comparative advantages. Smith argued that Mercantilism was narrow in perception and cruel by design. It was restrictive of the individual and protectionist in nature. It promoted wars and was against the working class and the consumers. He proposed the practice of Lassaise Faire meaning Free Market Economy. The reciprocal benefits to two nations engaging in trade were enormous and overlooked by Mercantilism. Trading is not a zero-sum game and in modern economy both nations will benefit with trade and without it both will be poorer. The undue importance given to bullion and silver was targeted especially by Adam Smith. According to him the Mercantilist were confusing wealth with money as gold and silver were another form of money or legal tender. He also rejected the mercantilist sole focus on production and disagreed by stating that consumption was the only way to grow an economy. In his view it was consumption that was the driver of production. He further defined four kinds of fixed capital that was required for production and they are machines or instruments, buildings, improvements of lands and the human capital meaning labour. He explained the last as being as useful as machines as it was the labour’s skill that was valuable. This was calculated as his cost of acquiring those skills through education, apprenticeship, and maintenance during this acquisition period. These represented a fixed cost akin to other fixed costs. This too repays itself by way of profits as does a machine. This productive power of labour is again dependant on the division of labour as different skills are involved and each individual possesses a variety of them. The agility and nimbleness employed by the labour results in improved production and is his contribution towards profitability. Thus human capital was seen as skills, dexterity, and judgment combined. With Adam Smith, followed by several eminent economists that followed, the notion of wealth underwent a dramatic change. Britain and Europe gave up the Gold standard and new monetary policies were devised. USA however disagreed with dispensing with Gold as standard and it was seen during the Great Depression that they went back to it for stability. But they too accepted the fact that Gold was not wealth. 6 The Modern Era Adam Smith had rejected the Mercantilists focal point on production and argued that consumption was the only way an economy could grow and prosper, But Arthur Maynard Keynes argued that encouraging production was equally important as consumption. He also pointed out that in the early modern period the focus on the bullion supplies was reasonable as in an era before the invention of paper money an increase for bullion was one of the few ways to increase the supply of wealth. Keynes and other economists of the period also realized that the balance of payments is also a central concern, and since the 1930s, all nations in the world closely keep an eye on the inflow and outflow of capital, and agree that a favorable balance of trade is indeed desirable. It was Keynes idea that some intervention by the government is required and is a necessesity in any economy. This was another central idea under Mercantilism. Keynes theories have a major impact but the word Mercantilism has not found favour with the economists of the day. The word still represents a repressive system of the past. The similarities of Keynes ideas with the Mercantilists have however not gone unnoticed and a new term neo-mercantilist was coined to denote the influence of the old over the new. Indeed some nations like Japan and China practice this neo-mercantilism to their advantage. In fact many nations practice it in small doses and thus we find protectionists policies in France and USA where they choose to protect some segments of their industries for internal reasons. 7 Conclusions The fallout of criticism of Mercantilism by Adam Smith the belief began to fade and by late 18th century most nations began adopting the theories put forth by him and other classical economists. Beginning with British Empire and followed to a lesser degree by European nations Mercantilist theories were replaced by Free Market Economies. International Trade began to flourish and the result is the Global economy as we embrace today. The idea of Wealth has changed from gold and silver to capital in many forms including human resources. Resources themselves now embrace physical capital represented by Plant and Machinery besides Land and Buildings; natural resources such as raw materials from nature and agricultural produces; infrastructure capital that is facilitating technology; and finally the human capital represented by skilled labour and technically qualified workforce. Adam Smith foresaw wealth creation as the combination of all above resources comprising of materials, labour, land, and technology in such a way as to capture a profit (excess above the cost of production). Now whether one defines wealth as the combined total of all the money supply, n form or currency, the M1 money supply; or in boarder terms includes money, securities, property etc., wealth is now not fixed and can be flexible. It can increase or decrease and there is room for an individual, a group of people, or even a nation to gain wealth without a corresponding reduction in someone else’s coffers. After all wealth is not a zero-sum game. 6 References Miller. David,. et al eds, The Blackwell Encyclopaedia of Political Thought (Oxford, 1987) Ricardo. David,. The principles of political economy and taxation 1817 Smith. Adam,. The Wealth of Nations, London 1776 Read More