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Mercantilists : - Coggle Diagram
Mercantilists :
Although its difficult to identify a fixed set of ideas for it, a key idea associated with it is Bullionism
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Many Bullionists did not believe that the wealth should be used to increase the welfare of the person/people
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The circulation of wealth within the nation meant a guaranteed extensive tax base to fund government activities
Thus, they had a belief that the outflow of precious metals out of their nation had to be protected
Thus, they had a belief that the outflow of precious metals out of their nation had to be protected
They did this by:
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Encouraging companies engaging in international trade to pay for imports with goods rather than currency
Interestingly, the crown often engaged in clipping of the currency
Reducing the metallic value in relation to the face value or increasing the face value in relation to the metal content --> both of these damage the value of the currency
Prices
Jean Bodin (1566) showed that the main cause of the increase in prices was the increase in the amount of gold in circulation.
However, from the middle of the seventeenth century there was an important theoretical change.
The quantity theory was was no longer interpreted as an explanation of price levels; instead it was seen as a theory of the level of transactions
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Generally, Mercantilists positively viewed the idea
of reducing interest rates since that was believed to encourage more spending
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Value
In the sixteenth and the first half of the seventeenth century economists had utility based explanation of value. Later some theorist attempted cost of production theories. The mercantilists looked mainly to exchange as the real source of wealth and profit
The merchant's profit comes from the difference between the selling and buying prices. They believed, it originates from trading, and as a result knowledge of the determinants of market prices is required. Attention is focused on the determinants of demand. With demand being linked to utility.
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