ECS3705 Exam Essays latest.

ESSAYS: Compare and contrast the mercantilist and the physiocrat school of thought: To provide a substantial comparison between the mercantilist and the physiocrat school of thought, it is important to analyse why each school of thought arose, as well as the major tenets of each, who benefitted from each school of thought and finally how each school of thought has affected todays perspective in economics. It is also significant to acknowledge that Physpiocracy arose as a reaction to mercantilism at the time. Mercantilism arose in the 1500s, after the feudal system lost its functionality and significance in the Middle Ages. Mercantilism lasted till about 1776. Physiocracy on the other hand, appeared as the first anti-mercantalist movement in Europe around 1756. Physiocracy developed as a response to rebuild France after French mercantilism caused France to become desperately poor at the time. The focus of Phisiocracy was to liberate the agriculture from mercantilist restrictions and tax burdens, as well as to decrease the corrupt and wastefulness of the government. The Physiocratic school of thought identified three classes, the landowners who provide capital for land improvement and social order; the cultivators who are the only productive ones because they extract raw materials from nature, and lastly the artisans which were industries seen as sterile as they provided no value added. - Mercantilism can roughly be characterized as an exercise in nation-building by way of an alliance between the city merchant and the monarch, both of whom had gains in power and prestige as a result of the trends. The major tenents of mercantilism school of thought consisted of gold and silver being the most desirable form of wealth. Mercantilists equated the wealth of a nation with the amount of gold and silver it possessed within its borders. According the mercantilists, a surplus of exports were necessary to generate payments in hard money. The physiocrats overcame this mercantilist bullionism by acknowledging that wealth consists of useful goods rather than precious metals. Another tenet of mercantilism was nationalism. Mercantilist school of thought promoted the wealth of one nation at the expense of another. they believed trade was a zero-sum game, and that not all countries could simultaneously export more than they imported. Mercantilism also promoted duty-free importation of raw materials that could be produced domestically, protection for manufactured goods and raw materials that could be produced domestically, and export restriction on raw materials. The interests of the merchant took precedence over those of the domestic consumer. Merchants received inflows of gold in return for their exports, while the restrictions on imports reduced the availability of goods for consumption at home. Mercantilism ultimately benefitted the merchant capitalists, the government officials and the monarch/king. It is identified as an example of rent seeking behavior, which is the behavior of securing favourable regulations and laws which attempt to increase the profits of those private parties. Phisiocratic thought instead benfitted the peasants and farmers. By promoting lassesfaire physiocratic thought indirectly promoted industry as well. They encouraged free internal gain trade and stimulated the export of farm products and the import of manufactured goods. This laissez-faire approach broke away the drastic mercantilist restrictions which required a strong central government to grant monopoly prilidges to companies engaged in foreign trade. Physciocratic thought focused instead on the emphasis of agriculture, they believed industry, trade and professions were sterile and did not produce a surplus. Physiocracy was a reaction to the mercantilists. The physiocracy was the first anti-mercantilist movement in Europe. It sought to rebuild France by liberating its agriculture from mercantilist restrictions and tax burdens also by making government less corrupt and wasteful. Physiocracy advocated and believed in the existence of natural laws which when given the chance would spontaneously steer the economy towards harmony and prosperity. Physiocracy advocated for “laissez faire”, a term that meant that people should be allowed to do as they please without government interference. They were therefore opposed to the mercantilists view of government intervention. They favoured freedom of business enterprise at home and abroad which is the total opposite of the fear of goods by the mercantilists. Physiocracy emphasised on agriculture meanwhile the mercantilists believed in the circulation of gold and silver. What are the views of the Physiocrats, Smith and Marx concerning the impact of mechanization (the use of machinery in production) on workers, that is, on their real wage and employment levels? The physiocrats favoured capitalist farms employing wage labour and advanced techniques. Big producers having surpluses for sale would be helped by the physiocratic emphasis on agriculture and free internal trade in grain. Adam Smith viewed the division of labour and the accumulation of capital as the primary factors that promote a growing stock of a nations wealth. Smith described the division of labour makes possible the introduction of machinery to increase peoples productivity. Smith failed to realize that new technology often creates new tools amd equipment that themselves cause the division of labour. He saw the introduction of capital as mainly being a result of the division of labour. The division of labour increases the quantity of output produced for three reasons: 1) Each worker develops increased dexterity in performing one single task repeatedly . 2) Time is saved if the worker need not go from one kind of work to another. 3) Machinery can be invented to increase productivity once tasks have been simplified and made routine through the division of labour. Marx’s view on capitalisms inexorable march towards self-destruction is that mechanization leads to a reduced profit rate, which immediately raises the question why capitalists would wish to mechanise at all. Marx answer is that mechnasation canbe beneficial to the individual firm even though it will harm the industrial sector as a whole; it raises the profits of one firm at the expense of the profits of the whole sector. Moreover, mechanization can reduce the necessary labour time(the time workers need to earn back their wages) which creates greater scope for exploitation