Page 1 of 11 Dr. Peter Ng’ang’a
EAE 307
International Economics
(International Trade)
By
Dr. Peter Ng’ang’a
Kenyatta University
School of Economics
Department of Applied Economics
, Page 2 of 11 Dr. Peter Ng’ang’a
Topic EARLY TRADE THEORIES
Mercantilism and the Transition to the
1 Classical World of David Ricardo
Learning Objectives;
1. Explain the basic concepts and policies associated with Mercantilism
2. Distinguish the analyses of David Hume and Adam Smith from Mercantilist views.
MERCANTILISM
Mercantilism refers to the collection of economic thought that came into existence in Europe
during the period 1500 – 1750. It cannot be classified as a formal school of thought, but rather as
a collection of similar attitudes toward domestic economic activity and the role of international
trade that tended to dominate economic thinking and policy during this period. Many of these
ideas not only were spawned by events of the time but also influenced history through their
impact on government policies.
Factors that Contributed to the Development of Mercantilist Thought
a) Geographical explorations that provided new opportunities for trade and broadened the
scope of international relations,
b) The upsurge in population,
c) The impact of the Renaissance on culture,
d) The rise of the merchant class,
e) The discovery of precious metals in the New World,
f) Changing religious views on profits and accumulation, and
g) The rise of nation-states
Mercantilism is often referred to as the political economy of state building.
THE MERCANTILISM ECONOMIC SYSTEM
Central to Mercantilist thinking was the view that national wealth was reflected in a country’s
holdings of precious metals. In addition, one of the most important pillars of Mercantilist thought
was the static view of world resources. Economic activity in this setting can be viewed as a zero-
EAE 307
International Economics
(International Trade)
By
Dr. Peter Ng’ang’a
Kenyatta University
School of Economics
Department of Applied Economics
, Page 2 of 11 Dr. Peter Ng’ang’a
Topic EARLY TRADE THEORIES
Mercantilism and the Transition to the
1 Classical World of David Ricardo
Learning Objectives;
1. Explain the basic concepts and policies associated with Mercantilism
2. Distinguish the analyses of David Hume and Adam Smith from Mercantilist views.
MERCANTILISM
Mercantilism refers to the collection of economic thought that came into existence in Europe
during the period 1500 – 1750. It cannot be classified as a formal school of thought, but rather as
a collection of similar attitudes toward domestic economic activity and the role of international
trade that tended to dominate economic thinking and policy during this period. Many of these
ideas not only were spawned by events of the time but also influenced history through their
impact on government policies.
Factors that Contributed to the Development of Mercantilist Thought
a) Geographical explorations that provided new opportunities for trade and broadened the
scope of international relations,
b) The upsurge in population,
c) The impact of the Renaissance on culture,
d) The rise of the merchant class,
e) The discovery of precious metals in the New World,
f) Changing religious views on profits and accumulation, and
g) The rise of nation-states
Mercantilism is often referred to as the political economy of state building.
THE MERCANTILISM ECONOMIC SYSTEM
Central to Mercantilist thinking was the view that national wealth was reflected in a country’s
holdings of precious metals. In addition, one of the most important pillars of Mercantilist thought
was the static view of world resources. Economic activity in this setting can be viewed as a zero-
