Income=Expenditure
Expenditure=consumption+taxes+investment+government expenditure+international trade
Do we get economic gain by spending more?
Physiocracy: The first modern school that emphasizes freedom and claims that the source of wealth is Production.
Physiocracy emphasizes agriculture.
Mercantilism's source of wealth:
(1)Gold in treasury
(2)Wealth that the king has
(3)Positive balance of trade
Idea:
(1)Wealth is fixed, so trade is zero-sum.
(2)Money is wealth.
(3)Gold is fixed.(It reinforces idea1)
King should control trade and make sure that the nation's export is larger than import.
Irony:
(1) The nation's individual's desire is to purchase but the social interest is not to let money leave. But a society is made up of individuals.
(2) When trade happens domestically, it's OK,but when occurs internationally, no way.
Scottish moral philosophers:
They think that nature people are innately compassionate and generous and good economics is about prudence.
Hutchson: Virtuous activities yield pleasure because they conform some preexisting moral and good notion.
Hume: Anything we do is morally OK.The science of man first established that impressions from senses,and memories of impressions are the foundation of all ideas.Passions are a part of human nature and they rule over reason in determining our actions.Morality is based on necessary actions,those which we would certainly make as a reaction to a certain set of circumstances, and is therefore natural.However,morality is founded on self-interest,which includes the pleasure we find in sensing the pleasure in others.
He thinks that the core of economics is commerce.
(1)Price specie flow mechanism
Monopoly actually raises price and the prices around the world about a certain good should be equal.
If France's sweater is cheaper, then British will go to France to buy, and exchange domestic money to gold. Then the price of sweater in France will rise because of the increasing demand; in contrast, the price of sweater in Britain will drop. This is the change of prices, which the mercantilists failed to see.
Money is neutral, wealth is actually what good and services we can get.If there's a lot of money floating around in the market,money will depreciate and the price will rise, vice versa.
Focus on gold actually has nothing to do with wealth and if a country merely emphasizes export, domestic people actually can buy less commodities and thus the living standard will decrease.
(2)Mercantilists have a poor understanding of the dynamic.
good points of trade:
<1>Competition. Force of innovation, efficiency and improvement.
<2>Learning and innovation: Domestic companies can learn advanced skills and techniques from others and be more efficient.
<3>Division of labor. In mass market, the division of task can be crucial since it can make people more productive.
No comments:
Post a Comment