Economic thought has developed over centuries of debate and reform. It can be traced back to the 17th and 18th centuries and a worldwide group called the mercantilists. Mercantilism was a response to a decline in European feudalism, the rise of the modern nation-state, and an increase in both international and domestic trade(aided by improvements in water transportation technology). The mercantilists were the first substantial group to define wealth and
devise a plan to increase national prosperity and ensure economic
growth. These individuals narrowly defined wealth as specie(gold and silver). This implied a fixed amount of wealth. It also centered around the concept of a zero-sum game of trade: in any exchange, one country always gained only what another lost. The only way for an economy to grow was at the expense of another. The mercantilists advocated a strong central government to impose trade restrictions(quotas, tariffs) and maintain a trade surplus, meaning exports exceeded imports. This ensured a net flow of specie into the country, thereby increasing the nation's wealth, per their definition. They focused on colonization to monopolize markets for their exports and to mine the land for any specie. Mercantilists advocated rapid population growth as a way to maintain low wages. Low wages meant minimal labor costs and minimal price of exports, allowing the country to maximize the quantity of their exports. The resulting trade surplus was maximized along with the country's supply of gold and silver.
However, problems existed with the mercantilists' rudimentary ideas. First, should wealth be limited to specie? Second, is protectionism conducive to economic growth?
Monday, January 27, 2014
Governments
Government is a collective or group decision process where the government has coercive power, the power to force people to do things. Governments exist in a free market economy to carry out the following tasks:
- Provide stabilization policies
- Provide a stable and acceptable monetary system
- Provide an unbiased court and legal system
- Provide income redistribution(the tax and transfer system)
- Correct for market failures
- Enact antitrust laws for monopolies
- Regulate prices for natural monopolies
- Address externalities, such as pollution, via EPA(Environmental Protection Agency)
- Provide public goods
- These include: national defense, public safety, education, infrastructure, parks and recreation
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