Dr.D.Uma Associate Professor Department of Economics Ethiraj College for Women Chennai

1. MERCANTILISM
&
INSTITUTIONAL SCHOOL

2. INTRODUCTION
 The economic ideas and policies which were followed by European statesmen
from the 15th century until the second half of the 18th century is described as
‘Mercantilism’.
 Mercantilists believed in the thought that wealth of a nation could be increased by
trade. The wealth of a nation consisted in the amount of bullion (gold and silver)
 Different names given to Mercantilism –
• Europe – Bullionism
• Germany – Kameralism
• France - Colbertism

3. FACTORS GIVING RISE TO MERCANTILISM
 Political factors
Feudalism came to an end; Nationalism became strong
Emergence of strong and powerful state to regulate the political activity of the people
 Economic factors
Exchange economy became the rule; Supply of money increased
Competition took place – controlling the industries
 Cultural factors
The Reformation movement or Protestantism was against the supremacy of

4. FACTORS GIVING RISE TO MERCANTILISM
Roman Catholic thought; The Monarch had started supporting trade and commerce
in order to accumulate more wealth
 Scientific and Technological developments
The invention of mariner’s compass, printing machine, steam engine paved way for
discovering new countries and gave thrust to foreign trade
Mercantilism flourished mainly in European countries like England, France,
Germany, Italy, Spain and Russia in the 16th and 17th centuries.

5. CHARACTERISTICS OF
MERCANTILISM
 Nationalism
The emphasis was laid on increasing the power and the prosperity of the nation and
hence the individual interest became completely subordinate to the wider national
interest
 Significance of wealth
Wealth consisted of money and precious metals, gold, silver, etc which was the core
of mercantilist thought
 Favorable balance of trade
Their favorable balance of trade was by exporting the maximum of manufactured
goods and importing the minimum of the most essential goods

6. CHARACTERISTICS OF
MERCANTILISM
 Population
They supported a vast population with its rapid growth in order to make the nation
military powerful and exploit the national resources. They even suggested freedom of
immigration with equal rights.
 Factors of production
Importance was given to labor for it brought development to land and trade
 Interest
They favored charging a proper rate of interest on the money lent as it provides
capital to the poor merchants and small producers for enhancing foreign trade

7. CHARACTERISTICS OF MERCANTILISM
 Value
Value was an inherent characteristic of commodities which depends upon human
demand
 Taxation
They advocated a multiple tax system based on the basic principle of ‘Each should
pay according to the benefits received from the state.’

8. REPRESENTATIVES OF MERCANTLISM
 Thomas Mun (1571-1641)
Book – England’s Treasure by Foreign Trade (1664)
 Antonio Serra (1580 -1650)
Pamphlet – A Brief Treatise on the causes which can make gold and silver abound
in Kingdoms where there are no Mines
 Philipp Von Hornick (1638 – 1712)
Austrian pamphleteer

9. IDEAS OF THOMAS MUN
Mun has suggested 12 methods by which a country could have a favorable balance of
trade.
“The ordinary means to increase our wealth and treasure is by foreign trade, wherein
we must ever observe this rule: to sell more to strangers yearly than we consume of
theirs in value.”
 Mun recommends the cultivation of wastelands
Would reduce the import of hemp, flax and tobacco

10. IDEAS OF THOMAS MUN
 Restrain on domestic consumption of foreign goods
Reduce imports and refrain from unnecessary change of fashion
 “We must consider our neighbor's necessity”
Export requires proper attention, it is better to sell as cheap as possible rather than
lose the market.
 Value of country’s exports could be increased by confining them to their
own ships
Restriction to use foreign ships, emphasize on earnings from shipping services

11. IDEAS OF THOMAS MUN
 Frugal use of natural wealth so that more resources can be used for export
 Fishing in the adjacent seas should be developed by English people
Compete with the Dutch – their wealth and strength may fall
 England should be the distributing center to increase shipping, trade and the
King’s customs
 Encourages trade with far off countries

12. IDEAS OF THOMAS MUN
 Allow export of money
“Money begets trade and trade increases money”
 Provide employment and increase exports
Foreign materials such as velvet silk should be allowed to be exported for free
 We must endeavor to make the most we can of our own

13. DECLINE OF MERCANTILISM
 Mercantilists had given undue importance to gold and other precious metals
neglecting the other valuable commodities
 They undermined the value of agriculture and gave priority to trade and commerce
 Favorable balance of trade cannot bring prosperity and richness to the country

14. DECLINE OF MERCANTILISM
 Their thought on value, utility, capital and usury was almost vague, imperfect and
complicated
 Their idea that the gain of one country would necessarily be the loss of another
was also wrong
 They did not recognize the view that the interest of the nation and the individual
were in conflict with each other

15. INSTITUTIONAL ECONOMICS
 In 1870 , the contributions of Americans to economics started in the area of growth and
development of INSTITUTIONALISM.
 The chief contributors to this school are
 THORSTEIN BUNDE VEBLEN [1857 – 1929]
 W.C. MITCHELL [1874 – 1948 ]
 J.R. COMMONS. [1862 – 1945 ]
 Institutional school had a lot of influence on government policies , during
 ‘’NEW DEAL ‘’ period.

16. CHARACTERISTICS OF INSTITUTIONALISM
 The central theme of economics should be group behaviour of human beings and
not the value.
 Economic laws should be relative to time and place.
 The organisation of economic system should be based on customs,human habits
and laws.
 Its assumed that individual behaviour cannot be measured.
 The institutionalists considered non-equilibriums in the economic system as a
normal incidence.

17. THORESTEIN BUNDE VEBLEN
 Veblen was born in Wisconsin [1857 – 1929 ]
 He got his education in Economics from J.B.CLARK.
 In 1892 , joined as Assistant Professor in department of Economics in Chicago
University in 1892.
 He was the editor of the ‘JOURNAL OF POLITICAL ECONOMY.’
 His famous works are – “THE THEORY OF THE LEISURE CLASS “ and
 “THE THEORY OF BUSINESS ENTERPRISE “.

18. VEBLEN S ECONOMIC IDEAS
 He wanted to develop economics as an evolutionary science based on instincts
and institutions.
 Veblen acknowledged the civilisation as a scheme of the Institutions.
 Human behaviour ultimately develops in the form of an institution –
 Present institutions are results of gradual process of cultural development –
 Being undertaken during the last many centuries.
 Institutions have developed under a process of evolution.
 The role ,nature,scope of functioning of institutions ,change,with the changes in
the social habits of people.

19. THE THEORY OF LEISURE CLASS
 He recognised the Leisure class as an ancient institution ,they are exempted from
productive work occupy honourable positions.
 It indicates superiority in the society.
 The leisure class is the properited class in the society ,found to be living in
comfort and having pronounced desire to multiply money ,than to produce the
necessities of life.
 It’s a kind of powerful instinct in them causing waste and destruction.
 This class spends money carelessly as they have not earned it,whereas the poor
class,work under them with faith and confidence,without food.s