Explicates fundamental ideas of Mercantilism and Physiocracy. Suitable for UG Students.

1. Unit - I
Mercantalism and Physiocracy
Dr.S.Vigneswaran
Assistant Professor
Department of Economics
Mannar Thirumalai Naicker College
Madurai - 04.
Mobile: 9943338882; 9385537882
E-mail: vigneswara.s@gmail.com
Website: vigneswara.moodlecloud.com

2. Mercantalism
Meaning:
Mercantilism is a school of economic thought that is
focused on maximisation of the trade of a country and
beleived that convene of gold and silver is the key to
prosperity.

3. Factors Causing and Shaping Mercantalism
Introduction:
Eventhough the factors leading to mercantalism are
many, the following heads are very important.
a. Economic Factors
b. Political Factors
c. Religious Factors
d. Scientific Factors
e. Cultural Changes

4. a. Economic Factors
• Base of economy changing from Agriculture to
Manufacturing.
• Increased use of money in exchange instead of barter.
• Increasing importance of money led to banking system.
• Expansion of Commerce and Industry helped in creation
of Infrastructure.

5. b. Political Factors
• Feudalism replaced by nationalism.
• Despotism advocated.
• Enterprises, International Trade and Feudal Army were
used to make powerful monarch.
• Navigation laws and customs were used as tools for
earning gold and silver.

6. c. Religious Factors
• Supremacy of Roman Catholic Church was challenged.
• The power of the Church dwindled.
• Protestantism was developed and supported by the King
Henry VIII.
• Henry VIII encouraged the middle class and mercantile
class to make more revenue.

7. d. Scientific Factors
• Great invention and advancement in science and
technology helped a lot in trade.
• Mariner's Compass Discovery of America, New sea
route to India opened up the gates of wider market.
• Invention of Printing Press helped to spread ideas and
knowledge.

8. e.Cultural Changes
• People began to realise the value of material, comfortable
life in this world than the life after death.
• This led to sharp change in the field of culture.

9. Mercantalists' Ideas
I. On Population
II. On Wages and Rent
III. On Interest
IV. On Production
V. On Taxation
VI. On Value

10. I. On Population
Favoured increasing population.
Reasons:
to get strong military force
to get cheap labour
Encouraged family life and parenthood.

11. II. On Wages and Rent
Mercantalist did not favour regulation of wages.
Believed that the value of labour depended on its product.

12. III. On Interest
Favoured taking interest in money-lending.
Opposed to high rates of interest.
No clear-cut view on the functions of money and capital.

13. IV. On Production
Advocated an increase of labour and resources.
Believed that foreign trade alone was the most productive.
 Made distinction between productive and unproductive
labour

14. V. On Taxation
Favoured on the principle “quid pro quo” (pay according
to the benefits received).
Advocated Expenditure Tax.
Favoured low customs and excise duties.

15. VI. On Value
 Advocated two types of values.
 a.Intrinsic value - Utility of the commodity.
 b.Extrinsic value - Cost of Production.

16. Introduction:
Time: Middle of the 18th century.
Country: France (Physiocrats)
Other Name: First School of Thought
Spokes Man: Francis Quesnay (A Doctor)

17. Ideas (or) Doctrines of Physiocrats
• Central Theme of the physiocrats was based on:
a.The Natural Order
b. The Net Product
c. The Circulation of Wealth

18. a. Natural Order
• It is the order which God has ordained for the happiness
of mankind.
• Property and authority to be very basis of natural order.
• The system should be free and no man-made artificial
regulations.

19. b. The Net Product
• Physiocrats held “Agriculture” as supreme occupation.
• Net Product = Quantum Produced - Quantum utilised in
the production process.
• Surplus could not be realised in other occupations.
• Advocated a light tax on agriculture.

20. c. The circulation of wealth
• Physiocrats were the first to analyse the problem of
distribution.
• Distinguished Three social classes:
i. Producers ii. Proprietors iii.Sterile class
The wealth created by the producers will run the economy.
Finally the wealth comes back to the agriculturists.

21. Thank you