1.Mercantilism or the “Nation” as an economic doctrine. 2.Ideas in transition: Petty, Boisguilbert Mandeville, Cantillon and Hume. 3.Physiocracy or the agriculture as the source of wealth. II. Toward the classical economy

1. Mercantilism 1.The rise of national states  Militar and economic power to position in the international system. 2.Enlightment and trust in reason to unveil the natural laws  mechanical visión of the world Historical context Colonies and bullion Global commerce

1. Mercantilism Not really a school but a way of approaching and devising solutions for the economic problems and for the empowering of the nation. The more important authors were themselves merchants ant its writings and pamphlets aimed to favour their trading companies. Impetus to sever economics from the purely ethical and normative approach of medieval times. Justice and personal salvation gives its way to powerful and wealthy states Two periods: from bullion to foreign trade 1.2. General ideas

1. Mercantilism Gold and silver were the substance and the definition of both private and national wealth. Relevance of the “good money” and rejection of the debasements because “bad money expels good” (Gresham’s law) Credibility of national currency Balance of payment  the government must favour the sale of raw materials (inflow of bullion) Discourage the imports Authors  Thomas Gresham and John Hales 1.3. Bullionism

1. Mercantilism 1.4. The balance of trade Wealth, considering both a stock of foreign currency and a quantity of products. The main source of the increase in national wealth is a surplus trade balance  favour the exports of manufactured commodities* (instead of raw materials) Favour the importation of raw materials at low costs: the lower price of imports, the higher the trade surplus. Cheap inputs lower the cost structure and make national commodities more competitive. Money wages must be kept low in order to favour the competitiveness via moderate prices and prevention of workers laziness. «England’s Treasure by forraign Trade» (1664)

1. Mercantilism To inspect the country's soil with the greatest care, and not to leave the agricultural possibilities of a single corner or clod of earth unconsidered... All commodities found in a country, which cannot be used in their natural state, should be worked up within the country... Attention should be given to the population, that it may be as large as the country can support... gold and silver once in the country are under no circumstances to be taken out for any purpose The mercantilist manifest, Philipp von Hörnigk (1684)

1. Mercantilism The inhabitants should make every effort to get along with their domestic products... [Foreign commodities] should be obtained not for gold or silver, but in exchange for other domestic wares......and should be imported in unfinished form, and worked up within the country... Opportunities should be sought night and day for selling the country's superfluous goods to these foreigners in manufactured form... No importation should be allowed under any circumstances of which there is a sufficient supply of suitable quality at home." 1.5. The mercantilist manifest, Philipp von Hörnigk (1684)

1. Mercantilism Money constitues the essence of wealth (individual/country) (*) and it is given/constant. Inner wars, for instance, not disminish the wealth Commerce as zero-sum game. (*) Main purpose  Empowering the nation and Increase wealth  Positive balance of trade (*); (relevance of statistics to elaborate balance of trade) Militarism and Colonialism. Mutual interest among governants and merchants to favour protectionism of own industries and commerce. High population and low salaries. (*) 1.6. Summary

1. Mercantilism Dudley North: “Discourses Upon Trade”; Free trade benefits to all exchanging parties and government can’t succeed in limit the strong market rules Early Critics Gerard de Malynes and Misselden.- should we prevent any export of bullion or allow imports of raw materials?. Not directly opposed to free trade and discourage regulatory rules

1. Mercantilism John Locke “Some considerations on the Consequences of the Lowering of Interest, and Raising the Value of the Money” (1691) 1.7. Early Critics Differentiation between value in use and value in exchange (*); The exchange ratio between two commodities depends on abundance and scarcity of a good relatively to the demand for it; Labour as the foundations of property rights Cuantitavism (similar to Hume): Inflow of gold  increase of prices  national goods more expensive  lose of competitiviness  decrease of exports  increase of imports interest cannot be fixed by law, because it depends on the quantity of money in circulation, as well as on the overall amount of trade in the kingdom, that is, the level of economic activity.(**)

1. Mercantilism (+) Mechanical and causal “vision” o the universe/world  It is possible to analyze the economy and unveil its general laws (similar to natural laws). (+) Relevance of statistics to grasp the economic reality (+) Evolution toward less radical positions regarding the balance of trade: mutually beneficial trade, advantages of the division of labor… which anticipates some ideas of classical liberalism. (-) Populist economic and political thinking which consider that the economy is a zero-sum game; that the trade barriers will improve the economy; and, that the constant inflow of bullion will not affect the price level and competitiveness Legacy

2. Ideas in transition «Political Arithmetic» (1690) Policy proposals more than systematic analysis Sir William Petty Knowledge based on cuantitativism and empirism is preferred to subjectivism and Aristotelian logic Moral (aims) is distinctively different from science (means) Metaphor of society resembling a human body  division of labor Producers: of necessaries, food and clothing; of exports; and of luxury goods Non producers: the governors, the learned professions and the traders.

2. Ideas in transition Agriculture yields a surplus  There is activities different for agriculture and a rent superior to zero Technical division of labor allows increase productivity (*) Exchange value of commodities depends on permanent or long run forces (conditions of production) and temporary causes (oscillations from the actions of sellers and buyers) Land an labour as the ultimate determinant of value  a production process vertically integrated (**) Capital not only as a financial magnitude but also as an input in the production. National wealth more linked to the organization of production rather than trade… … Nevertheless, sometimes bullionists views 2.1. Sir William Petty

2. Ideas in transition «Dissertation of the Nature of Wealth, Money and Taxation» (1704) Crucial role of agriculture in a society organised on the principle of division of labour (*) Foreign trade benefits all trading countries. An orderly circulation is essential for prosperity Exchange must take place at appropriate prices (the gain should be shared in a fair way between buyer/seller) Prices need to be in proportion to the expenses incurred. Risk economic crisis: Excessive taxation in agriculture Excessive gains at the expense of his trading partners Excessive expenditure on luxuries could undermine the rest of the economic activities 2.2. Pierre le Pesant Sieur de Boisguilbert

2. Ideas en transición «The fable of bees» Private Vices (self-interest) leads to Public Benefits (common good) (*) 2.3. Bernard Mandeville «Vast Numbers thronged the fruitful Hive; Yet those vast Numbers made 'em thrive Millions endeavouring to supply Each other's Lust and Vanity… …Thus every Part was full of Vice, Yet the whole Mass a Paradice

2. Ideas en transición «Essai sur la nature du commerce» (1755) Synthesis on economic discipline Richard Cantillon Envision economic like Newton el Cosmos  Mechanism in continuous movement of adjustment depending on the Law of the self-interest (Gravitational Law). Economist in transition : Partly mercantilist.- Ideas about international trade Partly physiocrat.- Relevance of agriculture Partly Classic.- Interdependence among economic sectors 1680?-1734

2. Ideas en transición Increase of population as a part of the economics process. Explanation about the geographical location of populations and industries. Differentiation between the market price and the intrinsic value (balanced price) Changes in the speed and quantity of money are similar. Influx mechanism of the currency over prices. Mechanism of price adjustment in international market. Analyse of flows on income between economics sectors Richard Cantillon

2. Ideas en transición 2.4. Richard Cantillon 1. Market system System of interconnected and interdependent agents (consumers and producers) which automatically adjust itself (without State’s intervention) following the law of the self-interest of the entrepreneurs. Intrinsic value  quantity and quality of land and incorporate work in a product. That of the market can be superior due to demand reasons and lack of coordination between producers-consumers. Prices  signalling mechanism, which coordinates the desires of the buyers and the sellers on the market of the goods and products.

2. Ideas en transición 2.4. Richard Cantillon 2. The role of the entrepreneur Competition as rivalry between entrepreneurs. Agents who takes risks (they buy to a certain price and sell to an uncertain one) and they make the circulation and the exchange of goods.. 3. Money, prices and production He links the production level either with the quantity of money required or with velocity. Distinction between relatives’ prices and the general price level  Depends on the class who is receiving the income: consumers or savers. He links interests with offer/demand of money Metallic money can be lent (low interest) or spent (rise of the demand and production).

2. Ideas en transición Empatía.- Capacidad de ponerse en situación del otro. Sobre el dinero Mecanismo de flujo-especie de dinero  imposibilidad del objetivo mercantilista de una balanza superavitaria permanente. Patrón-oro, inflación y perdida competitividad. Beneficios de la inflación a corto plazo  El desfase temporal entre aumento de dinero y precios, incrementa la masa monetaria real a CP y estimula la economía. 2.5 David Hume Proto-utilitarismo.- Principios morales pueden buscarse en la utilidad que promueven. No desde el punto de vista de la “adición” de utilidades sino… … si favorecen nuestros intereses y los de los que nos rodean

3. Physiocracy Fisiocracia.- Gobierno de la naturaleza ¿Primera escuela de pensamiento?  Visión de la realidad económica sistemática Concepto medieval de ley natural y defensa de los derechos individuales. Defensa autoridad absoluta (absolutismo), interés propio y libre comercio. Vertiente económica de ilustración Introducción

3. Physiocracy Corriente heterogénea circunscrita a Francia y al período en torno tertulia económica Mirabeau 3.2. Autores Marques de Mirabeau.- Merciere de la Riviére.- «L'ordre naturel et essentiel des sociétés politiques» (1767) Dupont de Nemours Nicolas Baudeau Guillaume-François Le Trosne François Quesnay Más relevante es François Quesnay y su obra «Le Tablau Economique» (1758)

3. Physiocracy Existe un orden económico natural que determina el desarrollo de una sociedad  la intervención pública puede acelerar ese desarrollo (Inglaterra) o bloquearlo (Francia) Defienden libertar económica (libre comercio, propiedad privada y el interés propio) pero… « laissez faire, laissez passer, le monde va de lui même” (Vincent de Gournay) … alaban el absolutismo, si bien critican el poder arbitrario frente al cual oponen un poder mayor: las leyes de la naturaleza El orden natural

3. Physiocracy Producto o Excedente Neto.- Diferencia entre inputs (Adelantos de capital, tierra y salarios) y outputs. Crecimiento producto neto aumenta el bienestar sociedad Agricultura  único sector productivo. El resto de sectores «Transforman» pero no generan más output del input que consumen. La acumulación de capital aumenta la productividad El concepto de riqueza

3. Physiocracy Economía  conjunto relaciones interdependientes de ingresos y gastos entre todos los sectores. Representad en el Tableau Economique (Quesnay) Visión organicista.- Si se altera un sector afecta al resto El circuito económico

3. Physiocracy El sistema económico tiende a reproducir los bienes de subsistencia y la estructura de clases en un proceso circular. Terratenientes (aristocracia e Iglesia) o “clase parasitaria”. Se apropian de la renta neta y la gastan en consumo suntuario. Trabajadores “industriales” (artesanal) o “clase estéril”: incluye a los comerciantes. Agricultores o “clase productiva” El concepto de sociedad

3. Physiocracy Impuestos deben gravar la renta y no el capital  reduce el consumo terrateniente  aumenta capital y la productividad agrícola  aumenta la renta (y también los impuestos) Librecambio (con restricciones).- Permite a Francia exportar productos agrícolas  capital fluye al sector agrícola  aumenta el flujo circular renta según «las leyes de la naturaleza» 3.7. Recomendaciones políticas

3. Physiocracy Críticas ¿Agricultura como único sector productivo y fuente de riqueza? Contribuciones Influencia directa en Adam Smith.- Enfoque sistemático y global de la Economía Concepto de excedente.- Fundamental en Economía Clásica y en Marx Enfoque circular de la economía.- Influencia en esquema de reproducción Marx, Equilibrio General Walras, Multiplicador Keynes y sistema precios Sraffa Legado