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Course Code: ECO 214

Course Title: History of

Economic Thought
Table of content


MERCANTILIST SCHOOL.................................................................................................

It refers to domestic servant or servant to a master.

The theory of slavery indicated that slaves were obtained in two main
By raising them
By capture
- Raising slaves involved giving security and taking good
care of them. If slave master take good care of his slaves,
they may reproduce themselves or even grow in number
and the master will lonely get the interest on the investment
and not a replacement cost. Though raising slaves was
expensive, it was more valuable.
- On the other hand, capturing was cheaper method of
obtaining slaves.
- The Africa Kings provided most of the slaves for America
each, as long as his power lasted, have control for his
operating area and had a strip of the coast. If he raised price
more than his competitors, would lose.

Types of slavery

Chattel Slavery
- Form where people are treated as personal property of the
owner and a bought and sold like commodities

Bonded labour or debt bondage

- Is when a person pledges himself against a loan. The
services required to repay the debt may be undefined and
the services duration may be undefined. May be passed on
from generation to generation. It is widespread today. (A
situation where a person is born in debt, live in debt and die
in debt).

Forced labour (Serfdom/conscription/penal

Person is forced to work against his will ( he given a threat of
violence or punishment or his freedom restricted).

This system was valuable when there is plenty of land. In

Europe, the institution declined as population grew but it
increased in new lands e.g in the American plantations.

Human trafficking

Is an illegal trade in human being to work as slaves.

Gang system was practice in Brazil (Minas ) in the 19th


Factors leading to rise in slavery trend in a


Causes are:

Population pressure, conflict and social unrest,

Low food production and other resources
High infant mortality rate
Governmental corruption
Abuse of political rights, breakdown of social moral values/fabrics
in the society
Trafficking to the country
When a county is carrying high debt load (burden).

Eric Williams (1944), Trinidad and Tobago prime minister, on

capitalism and slavery, contented that it was economic self-interest
and not moral conviction that ultimately led to the abolition of slavery.
It was after slavery came to be regarded as an impediment to
industrial progress that abolition in Europe and US succeeded in
suppressing the slave trade and abolishing slavery.

Slave trade

~ Refers to the selling/buying of human beings.

~ The practice of slavery and trade can be traced back to earliest
records 1760 BC. It was practiced in Greece, Roman empire,
Europe as a whole (Britain, Ireland), Arab world, Africa (East,
West and North by Arab slave traders) it was legal.

~ It has been practiced since ancient times, through middle ages

and even in modern times.
~ In Africa, it is common in countries like Nigeria, Ghana, Togo and
Benin where children (girls) are traded for ritual servitudes and
sex-slaves, domestic slavery is still practiced by educated

~ In Americas, it is still practiced among the indigenous people.

Abolition of slave trade

The resistance against and the abolition of slave trade began in the
19th century. The personality most remembered for fighting tirelessly
for abolition of slave trade is Sir. William Wilferforce. The factors that
influenced the fight against slavery were: the church which regarded
the institution of slave trade as immoral and evil, intellectuals like
Adam Smith who advocated for free labour as being better than
slave labour, and also since the system was considered as retarding
technological advancement.

Implications of the institution of slavery

The institution inflicted a lot of sufferings to the captives, blacks in

Africa were seized and shipped across the Atlantic Ocean under
appealing conditions. It inflicted great harm like depopulation
breakup of families, intensification of tribal wars etc, without
providing any compensating gains.

Slavery abolition Act of August 1833 outlawed slavery in British


American colonization society : The primary vehicle for

returning black American to
greater freedom in Africa, established the colony of Liberia in 1821-
22 on the premise former America slaves would have greater
freedom and equality there. The movement assisted in the
movement of thousands of African- American slaves to Liberia.

The 1926 slavery convention, an initiative of the League of Nations

has a turning point in banning global slavery. Article 4 of the
Universal declaration of Human Rights, was adopted in 1948 by the
UN General Assembly, and explicitly banned slavery. The United
Nations 1956

supplementary convention on abolition of slavery was convened to

outlaw and ban slavery worldwide. In December 1966, the UN
General Assembly adopted the international convention on Civil and
political rights, which were developed by Universal Declaration of
Human Rights banning of slavery. The treaty came into force in
1976 having been ratified by 35 nations and in November 2003, 104
nations rectified the treaty.

Meaning of Federation

Federalism refers to a collection of separate colonies that come

together to form an independent union. Federations may form to
provide their members with collective goods.

Functional federation a regime where individuals organize

themselves in a pattern of overlapping jurisdictions where different
states of divergent economies form cooperative agreements without
passing through the higher jurisdictional level

Why federation?

To provide public goods, federal policy making, federal bargains

affect the legislative process

To spur economic growth

Better governance
Increase in efficiency
Market integration
Redistribution measures
Collective decision making that provides the antithesis to the
Decentralization of governments functions
To reduce administrative costs and reap economies of scale in
the production of different goods (products)
The constitutional principles of federalism have managed to surface
in economic thought in two very different ways: First, is as part of
mainstream economics, there is fiscal federalism its

aim is to establish whether certain budget competences should be

attributed to sub-national bodies.

The second principle might be labeled as international federalism,

according to which some internationally shared public goods, such
as peace (conflict resolution), monetary stability, transport and
communication infrastructures, research, even the exchange of
military services and taxes.

The collective public goods concerning Supra-national collectivities

suggest the need to reshape the economic governance of
institutions like the European Union and design at least a double-
layer institutional arrangement and enforceable global institutions to
tackle global problems along with national governments.

For easy provision of public goods; the nations must work out and
agree on decision making process which allows collective choices to
be taken and institutional arrangements be designed to guarantee
the operation of the market.

During the 19th Century, the state becomes the only institutional
framework where collective public goods are provided. This stage of
history concides with the formation of an autonomous status for
social sciences, that methodological nationalism is born and grows
It helped both the consolidation of the nation-state, providing
intellectual legitimacy to its political-cultural consolidation of the
nation-state, providing intellectual legitimacy to its political-cultural
consolidation and to the provision of nation-collective public goods.
This was a step in the evolution of the production of collective public
goods, in the satisfaction of shared human needs.

NB Interdependence has grown in economics (as well as political,

social and cultural)
relations. This interdependence weakens the capability of monolithic
absolute and exclusive sovereign states to achieve the objectives
which come out of a national decision making process. This implies
potential conflict and a systematic effort to escape problems of
collective action at a supranational level- hence the attempts for
decentralization, coordination and governance among states.

Mercantilism emerged about 1500 1776/1800. It is a term
associated with trade or commercial activities of an economy. The
aim was to organize the internal economic affairs of the country in
such a way that it might help import as much gold and silver as
possible. The spirit of nationalism led to the policy of mercantilism

In Germany mercantilists were called kameralists and in France it

was caaled Golbertism due to finace minister Golbert who influenced
the adaptation of commercial.

~ For becoming a world power, it was necessary to accumulate

wealth in order to maintain a big army, possess a powerful
navy and purchase large quantities of arms and ammunitions.
~ Thus the fundamental principle of mercantilism was the
accumulation of wealth which was believed to be possible
only by accumulating precious metals, such as gold and
Silver. Gold-was thus to mercantilists a symbol of wealth and a
basis of all political power.
~ They assumed that gold was to come from the foreign land and
so foreign trade was the only source of collecting gold.
~ Therefore, control and regulation of imports and exports with a
view to achieve a favourable balance of trade was the basic
practical policy of mercantilists and all other activities of the
state were subordinate (secondary) to it.

Fundamental objectives of mercantilism

The country should develop national power through

maintenance of a large and healthy population, maintenance of
national food supply, development of naval strength, and
development of industry for which national state regulation was
preferred to local or sectoral regulation and control.
Vast accumulation of precious metals; export was discouraged
and import of precious metals was encouraged.

(iii) There should be a favourable balance of trade with a view to

encourage the inward flow
of gold

As the name suggest, mercantilism attached greater importance to

trade than to industry or agriculture, and similarly more importance
to foreign trade than to domestic trade. British companies made
huge profits by engaging in distant trade with Asia, America and



Intellectual movement
Intellectuals/writers like Serra 1613 (Italian) and Thomas Mun
led a strong campaign that gains from commerce and
international trade were principal factors for promoting
national power.

Religious movement
At the time of the growth of mercantilism, the reformists and
the Protestants were agitating for the reform of the Roman
Catholic Church. Both the movements of Reformation and
Protestantism laid great importance on individualism, personal
freedom etc and strongly challenged the traditional structure,
communal outlook and customary sequence which dominated
the declining feudal life.

Renaissance period in Europe

- The period was characterized by the spirit of human inquiry
and strong reactions among people against scholasticism.
Also the movement of Humanism whose essence was
materialistic at bottom and tended towards an emphasis
of the material basis of happiness (i.e the concern for well
being of human beings).

Both renaissance and Humanism encouraged nationalism and

strong central government and helped free the human intellect.

Decline of feudalism at the turn of the 15th

- The decline was followed by the rise of the age of
commercialism. Rich and powerful nations sprang up
promoting trade and commerce all over the world.
- The rise of these national states provided a strong
impetus to a greater concern for
wealth and a quickening of economic activity.

Growth of free labour class

- This led to the fall of old institutions of slavery and facilitated
the growth of the free labour class.
- The movement of precious metals into Europe as a result of
discovery of gold and Silver mines in America and other
colonies The supply of money increased.
- This led to large expansion in currency and credit structure
the popularity of money boosted commerce and trade
commercial policy of mercantilism. Competition began to
take a place in controlling industry.

Maritime discoveries

Adventurous travelers opened up new ways of trade routes.

There was also invention of new modes of sea transport.Under
such circumstances, mercantilism received
encouragement by both the national states and big traders and
merchants. Mercantilists argued that if a country has no monies,
the only way to get gold and Silver is through trade. Trade must be
conducted and regulated in such a way that gold may come into
the country and to have more bullion, there must be favourable
balance of trade i.e. exports exceeds imports. This was a primary
principle of the typical mercantilist.



1. A unifying system - (doctrine of nationalization

one religion, one law, one king)

Advocated for: integration of life uniform custom system (removal

of the existing all-round disintegration of life); removal of divergent
weights and measures; creation of a purely ideal monetary unit for
international coinage and trade purposes, and creation of a struggle
for self-


sufficient which led to the development of a sense of unity among

the people. The main objective to achieve national unity which is
made possible by the nationalization of regulation.

National policy

Development of a national outlook in various spheres: commerce,

trade. The doctrine created conditions for the adoptions of a national
commercial policy by almost all European countries.

A system of power

Advocated a strong relationship between the state and the national.

It held the belief that interest in power should be applied to the
economic activities. For this reason, Cunningham regard
mercantilism as an economic system of power

National unification
- Mercantilism organized the merchants led to the
development of merchant colonies where traders and
businessmen had their centres. Their contact with one
another increased and they developed a strong bond of
- The unity led to the formation of merchant association in
trading centres and abroad.

A system of production
Mercantilists believed in buying cheap and selling clear in the
interest of society. They
followed :
Staple policy in intermediary trade and provision policy in
reference to supply of food grains and other goods and also
Protection policy to protect trade (Protect manufactured
products and safeguard employment opportunities).



The main doctrines were:

1. Role of the state

Believed that state intervention was necessary for paper

management of societys economic affairs.

There was so much state regulation of economic activities. For

example in England, with the aim of maximizing exports and
minimizing imports, the government imposed heavy imports
duties on imports and gave bonuses / bounties and other tax
concession to exporters.

The English government also issued potent of monopoly

whenever new processes were introduced by companies. It also
allowed direct importation of foreign workers in order to
establish a new industry. It fixed prices and wages in order to
encourage production. It passed navigation Acts to encourage
shipping and navy. It created privileged trading companies and
helped in the establishment of colonies in order to secure raw
materials as well as a market for finished goods.

Importance (role) of Money

- That precious metals (gold and silver) were the most desirable
form of wealth (preferred these metals to all other goods and
services) Slogan more wealth more power. They advocated
for the storing or accumulating of wealth in form of precious

Size and character of population

- Believed that on increase in population meant both an increased
in the potential number of soldiers and sailors and an increase
in number of cheap productive workers. That this would enable
a country to compete successfully and so laws and regulations
encouraging matrimony and parenthood was put in place.

- Education, especially instruction in business matters and

commerce was encouraged.


Balance of trade.
- They advocated for foreign trade as a tool for increasing a nations
wealth and treasure.
- That there should be favorable balance of trade and this could be
attained through state commercial regulations or intervention the
policy of discrimination, regulation and protection in trade was

- Discourage the exportation of bullion but inflow of precious metals

was encouraged.
- Their ideal seemed to be zero- imports and exports only in precious
metals a zero sum game.

Interest rate

- Advocated for low rate of interest which the accumulation of

precious metals would tend to lower the rate of interest and
increase the availability of credit.

Industrial regulation
- That to encourage exports and reduce imports, there should be
strict govern regulations like imports duties and export bounties.

Natural Resources
- That there should be maximum use and exploitation of natural
resources like land to increase good supply, development of
fisheries so as to encourage navigation and foreign trade, full
protection of agriculture so as to reduce importation of food, and
the establishment of colonies to provide supplies of raw materials
for home industry.

Thomas Mun (1571 1641)

- He was an English and worked for his country the in East India
- He wrote a book on mercantilist principles called England Treasure
by Foreign Trade
which was published in 1664.
His contributions were:

Balance of trade. He stated the theory of balance of trade by

saying 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 their value.
Methods of attaining favourable balance of trade. He
suggests methods a country can attain a favorable balance of
trade as:
Cultivation of wasteland helps reduce imports.
Restraint on domestic consumption of foreign goods Helps
reduce imports.
That for export regarded as necessities by neighbors / imports, if
they have no other source, then they may be sold at high prices.
And as for other goods, it is better to sell cheaply so as not to
lose the market.
That the value of a country exports could be increased by
transporting it using own ships emphasized the earnings from
shipping services (invisible item) and use of foreign ships was
That fishing in the adjacent seas should be developed by the
English people so that in the long run the country would be in
control of both land and seas and grow wealthier and stronger.
England be made a distribution centre so as to enhance trade,
shipping and collection of customs.
Encourage trade with other far off countries.
That in certain cases exportation of money be allowed his
argument was: money begets trade and trade increases
money. He argued that merely keeping money in the country
will not make a quick and ample trade. This was a deviation
from normal mercantilist view.
Manufactures of foreign materials such as Velvets and Silk should
be allowed to be exported free. This would provide employment
and increase exports.
Suggested for wise /frugal use of natural wealth so that more
might be left for export.


Like other mercantilists, he praised industry and condemned idleness

and luxury. He pointed out that for money to serve its purpose /
functions, there must be enough goods and services to buy.

ANTONIO SERRA (1580 1650)

He was an Italian.
His works includes the pamphlet A brief treatise on the causes
which cant make gold and silver abound in kingdoms where
there are no mines which contained his mercantilist views.

According to Serra, the presence of gold and silver may be

attributed to :
Quantity of industry,
The quality of population.
Extensive trading operations and
The regulations of the sovereign.
He gave reasons for the preference of industry to agriculture by
mercantilists as:
Industry is safer than agriculture in terms of risks and
Industry is subject to law of increasing returns
Industry has a sure market
Industry is more profitable
~ Like Mun, Antonio Serra pointed out that in certain cases it would
be beneficial to allow export of money. But he emphasized that if
money is exported it must be with an objective. If money is
exported for any purpose whatever, it must return with a profit
into the kingdom from which it was sent.



He was an Austrian pamphleteer.

According to him the might and eminence of a country consist
in its surplus of gold and silver.
That all other things necessary or convenient for a countrys
subsistence should be derived from its own resources without
dependence on other countries. A proper survey of resources of
the nation undertaken exploited in best manner.
He advocated for the accumulation of gold and silver and laid
down the following rules: a. The countries soil should be used to
the maximum extent (If possible, gold and silver mines be

Commodities should be worked up in the country.

Population growth should be encouraged.
If gold and silver are discovered in the country, must not be
allowed to go out.
If it becomes absolutely essential to import certain goods,
payments should be made in kind by export of commodities.
Further finished goods should not be imported but instead should
be imported in the unfinished form and worked up in he country.
Commodities in sufficient supply should not be imported even if
they are of inferior quality or their prices are high.
People/citizen should be trained in various skills and activities
and encourage to adopt useful occupation
Consumption of imported goods, especially luxuries must be
I. Necessary imports should be paid in terms of exports and not the
precious metals


JEAN BODIN (1530 1596)

His economic ideas/contributions were:

1. Theory of inflation and quantity theory and money

~ He attributed the rise in inflation to five main causes as explained
in his quantity theory of
~ He is credited for the quantity theory of money
~ He suggested believed that the causes for increase in process were:
Abundance of gold & silver (Increase in supply of money)
Monopolies (monopoly tendencies)
Luxury for nobility
Scarcity of goods (cause by exports and wastage)
Debasement of coins which was prevalent

Exports and the Gains from trade

~ He accepted mercantilist position on balance of trade
~He showed an appreciation of the gains from trade as advocated by
mercantilist that trade
had/has a wealth-creating effects.
~That trade bound nations together in mutual benefit. In
contradiction of all accepted
mercantilist tenets, he argued that imports, by reducing
shortages, could be positively
beneficial in the effect on the price level.
~ Though he believed in fair/kind treatment of foreigners, he dislike
the Italians as rogues.

Demand for money

~ In explanation of the quantity theory of money and inflation, he
failed to, or neglected the analysis of demand for money. But in
his publication, the Responses, there is some


indication that he understood the demand for money and thus

the velocity of
circulation-was related to the stage of economic development.
~ That more developed economies would exhibit a greater demand
for transaction
~ Analysis of value of money.

4. Effects of inflation and remedies

~ He wrote the effects of inflation in his book the response. He
emphasized the harmful effects of rising prices that: both the public
and private sector suffer from the economic uncertainty when the
standard of value was no longer stable -contracts will be uncertain,
charges, taxes, wages, pensions and fees will be uncertain, fines
and penalties fixed by laws and customs will also be changeable
and uncertain. In short, the whole state and finances and of many
public and private matters will be in suspense.
~ He believed that debasement was the only remediable cause of
inflation. That other cause could be encountered.
That debasement made it impossible to stabilize prices
introduced difficulties in foreign exchange markets and trade.
Solution could be currency reform i.e. introduce coinage system
that coinage was stable & more recognized. The system of
coinage would make it harder for monarchs to falsify. He
recommended for small value coinage that could be phased out
and of copper coin for the poor.

5. Greshams Law
~ An idea coined by Sir Thomas Gresham (1519 1579) - that it not
possible to maintain bimetallic currently within a fixed mint rates
which must necessarily diverge from the relative world price of gold
and silver but in terms of the effects of debasement. In this
context, the law is summarized by the phrase bad money drives
out good. Debased coinage which still has the same legal value as
undebased coinage, will remain


in circulation while the undebased coinage (with a higher market

value) flows abroad to
take advantage of its greater purchasing power.
~ If there is a shortage of gold coins, the value may increase, so
that more coins of Silver
or other metals are given in exchange for them.
6. He believed in supreme power of the state and natural law

Bodins Achievements

Formulated Quantity theory

Works (publications) includes: the Response and the Republic
Provide the first proper analysis of inflation (mid 16th Century).


~According to Schumpeter, Bodin failed to distinguish between

~ Theory of money does not contain demand for money.
~ Brought confusion in explaining the measures of depreciation (of

Criticism of Mercantilism

- It laid too much emphasis on gold and silver than other

- It overestimated the importance of commerce,
- Went wrong in supposing that favorable balance of trade
necessitated a benefit in the long run,
- Went wrong in assuming that what was a gain from one nation
was loss for another. Mercantilism, in essence was an economic
policy and an economic doctrines of nationalism.

- Mercantilists were practical merits not a school of economists

Adam Smith challenged it Mercantilists doctrine of that money is
a so and termed the ideas as little better than non-sense- and
that the wealth of nation can be increased


by adopting the principle of division of labour. The size of the

market will depend upon the volume of international trade.
Mercantilists failed to realize that international trade would be
of mutual advantage to the trading nations
They went wrong in overemphasizing trade and
underestimating the importance of agriculture and other
Their overemphasis on protectionism policy was wrong.

- The principles were based upon a distorted

interpretation of the aims of mercantilism and that:
The policy of national self-sufficiency was definitely less
beneficial to mankind than the international division of labour
and free interchange of industrial and agricultural commodities.
That it lacked cosmopolitan character
Mercantilism aimed at sectional self-sufficiency (Zero-sum
game) and in this respect stands condemned.
The confusion of the function of gold and silver with wealth
regarded the precious metals as the only form of wealth. This
notion is very defective as it was said to overlook other forms
of wealth.

However it must be noted that the importance of precious metals

and bullion was given more by the Bullionists who wanted direct
control over the flow of bullion.

The mercantilists pursued those aims which were mutually

contradictory and lacked consistency. The Navigation acts were
intended to foster a mercantile marine but they hampered
industry and commerce upon which the carrying of trade
depended: the protection governs to one branch of industry
was often detrimental to other branches: the old colonial
system served as the products of the mother country.
It increased national rivalries caused by internal and external
trade and heavy duties imposed upon imported goods. Besides,
one country looked with jealousy upon the prosperity of other
countries. The basic standpoint was that of a merchant who
finds his


opportunity in the misfortunes of his rivals. As a result of this the

commercial jealousies between nations proved a fertile source of
wars, for which a heavy price was exacted in the dislocation of
industry, the increase of unemployment and the creation of work
It was sternly felt that the mercantilist policy proved injurious to
the various colonies they remained predominantly
agricultural and backward.
The policy was not mainly responsible for economic
development and supremacy of Britain (17th and 18th
The reasons for supremacy of Britain are: energetic and
resourceful character of business, leaders, freedom of
enterprise, rule of law which protected the liberty and property
of the individual, abundance of natural products (especially corn
and wool), the geographical situation of England in relation to
Europe and America, the adventurous spirit of the merchants,
the scientific discoveries in agriculture and mechanical
inventions in industry, the settlement of aliens, the flexibility of
the fiscal system, the rise of a banking system and the
cumulative effects of centuries of unchecked and thus
unprecedented economic growth.
Critics argued that the values for international trade would be
closed if, following the mercantile doctrine, all countries started
discouraging imports and encourage exports. Under these
circumstances, all sources of foreign trade would be killed. It
would also affect the international division of labour. The
ultimate result would be the end of both internal and external

Justification for government interference

Classical economists criticized the failure of mercantilists to
justify adequately the need for government interference for
purposes of augmentation and presentation of the supply of gold
and silver, yet they did not advocated for the need to protect
and preserve other commodities.

Gold is not an indispensable article


Classical economists refused to accept that gold was

indispensable article. They considered money a precious metal
capable of performing the important economic function, a
medium of exchange. They held the view that even if there was
shortage of gold and silver, paper currency might be used.

Plus points of mercantilists

Developed a sort of macroeconomic approach to the problems of
the society.
Some of the modern theories of money and interest are
mercantilists ideas.
Mercantilists were among the early pioneers of economic
Mercantilists paved the way for many western nations for their
transformation from commercial capitalism to industrial


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David B. D. (1999) The Problem of Slavery in the Age of

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Frank H. (2001) Atlas of the Transatlantic Slave Trade, Yale

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Economic Thought, Prakashan Kendra, Lucknow.

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