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Monday, August 08, 2005

Mercantilism

The forerunner of Mecantilism was Thomas Mun, a 17th century British merchant-economist. He proposed the following theories.

For Britain to prosper economically, it has to run trade surpluses.

Nations become wealthy for the same reasons that families become wealthy i.e when the income is more than the expenditure.

Importation of necessities was good, while luxuries were considered as bad, unless these luxuries could be re-exported and profits could be earned. Rich metals is an example of re-exportation.

Only international trade would bring about trade surplus and not domestic trade.

The money which Britain earned should not be spent for unproductive purposes. Nor should it go to the hands of individuals, because it would lead to an increase in the aggregate demand, leading to a price rise. In order to avoid that, it should be reinvested in the economy. Thus he stressed the importance of capital investment in an economy.

These are some of the principles he talked about. I feel, as students of economics, it is highly necessary for us to know about the works of the great economists.

1 comment:

Domo said...

long time no update