NAME
Economics of HistorY ActivitY
Mercantilisml The Gold Standard
on the
far thousands of years, tnde was base.d or
services'
goods
Oi**i tytt**-tie exchanging of
new ideas
As nations became powerfulty wealthy,
took shape about exactly what wealth meant'
By the eighteenth century. mercantilism had
popular economic theory across Europe'
becorne
io mercantilism, the amount.of wealth in
i
;;;;ilid
could only increase
it" woi.I was fixed, and a nation of
another nation'
iii **irtn
by reducing the wealth
of gold'
Wealth was measurei Uy a nation's supply
to
had
it
ii, n.tion did not have its own mines,
ilffi
[r]"*
mercantilism an economy
based
on gold or moneY
balance af trade the difference
between the value of exPorts and
imports
subsidY rnoney Paid bY a
government to an industry to keeP
the price of a Product comPetitive
country traded
id lJo ana oiiu. piu.ioui *ritulr rhroush trade. A
its
*itlrials for gold or silver, thereby strengthening economy.
that the home country
colonies became farms and factories for raw materials
of trade, nations tried to buy
sold to other countri"i] ro *uinirin u balance
Govemments paid
imported'
they
less than they sold, oi'"rpol"t *o|," than
produce
rnore raw materials
to
them
their colonists subsiji€; i; encourage
countries'
other
goods
from
import
to
need
unJ to ."Orce their
Rawmaterialsfromaroundtheworldfoundnewmarkets,creatingnew
people began to view
demand and increas*g t..d". Eventually, however,
restricting imports only hurt
mercantiltsm as an ltiu'sion. iritics said tnat
imports and exports between
il;';;no;y and il.,aiirle fade-open
for everyone'
economy
niiioni-*ould create a healthy
Applying Economics to HistorY
1. Using Conte:G Clues Using information from the passage' explain
the meanings of the three boldfaced words:
mercantilism:
a
t
2
a
5
0
I
J
o
o
*
-
;
pI
=_
-o
!
1
9
o
a
a
batanee of trade:
)
G
&
o
o
o
subsidies:
E
b
a
q.
o
d
AnalyzingHoWdldtheconceptofmercantllismlnfluencethespread
of nei, foids, plants, and animals around the world?
q
@
NAME
Economics of History Activity
conr'
3.
Identifying Central Issues Why did governments pay their
4-
MakinglnferencesWhydoyouthinktheideaofmercantilism
colonists subsidies?
became so PoPular?
Mercantilism v. Free Market 1500-1776
FREE MARKET
II;IERCANTILISM
Economic ayslem ot Europe from 15OOs to 170Os. It
farrored a balance of sxports over itnports {more
gioods sold to forsign counlriss lhan purchased).
In earh nalion. the economy was regulated by govemmsnt in ordor to achieve this end. Mercanlilism
facilitated the development o, the poliftcal sys{em of
absolutisrn (alFpowerful rule). lt also provided a basis
tor the grolvth of capita{ism, by enrpha$izing capital
saving and strengiflening nation-states so that th€y
could estalrlish social mnditions n€cessary tor eco-
Msrcartilis{ id€as werB c{iticized in lhe 18th century
by economists ad\scating a frao ma*et-the Bow of
comnerce wiftout gp\€tnment rsgulatlon {sometimBs
called laissez-faire, or "leaw alone'). Free market
policy is part of a wider economic s)l|slem cdled
capitalism, r,1,hich de\reloped dufrE rtle late Midde
Ages. Capitatism is based on lle or,nrship of land,
labor, and other means ot produclion by prirate
indviduals !i*B compet€ with one another 10 produce
goods and services offarod on a lree rnarket for profit.
nomic developmenl.
PfloilOTERS 18th certury
PROMOTERS 17th cefttury
England: Thomas Mun and Sir James Steuart
Ffance: Jean-BaPtiste Colbert
Itaty: Antonio Sena
France: Economic theorists who called themseh8s
physiocrats
Scotland: Adam Smith
OBJECTIVE
To croale weallh and power ior the nafion
OBJEGTIVE
To creale weallh ard po!rcr torlhe nation-
MAIN PFIHCIPLE
Govemments should reguiate a nattorl't €conomylo
ircrease wealth at the expense of rival natroG atxd
proteci homs trade from roreign competilion.
Gowmrnenfs shorid trot iflbrtero wilh a rration's
trade, buslnssq or industry, or FrreYent or disoourage
ils citiz€fls lrom buying foreign goo{h-
UI{BEHLYING BELIEF
The vvorld contains onty a {ixed amount of vraalth' To
increase its share of weaith, a nalion has to lake
some wealth away lrom anolhor nalion'
MASII PHIHCFLE
UiDEFLYING BEUEF
Denial of tfle idsa that a nation can gruw dch or{y at
tite ex$ense oI another. Befiai that a nation befl€fits
kom all trade, wtrstherG}mesth orfureign'
POLICIES OF MERCANTILISM
ADAM SMITH'S IDEAOFA FREE MARKET
Bulllonlsm
tlls Argumert (fhe Wealth at t'la{tarls,1T76\
a
r
Seek to incraass overseas colonigs ln ordsr to
increase naiion's share ol !,l,Drld's w€althEmure a sl-bsiantia! share of tft€ limited stpply of
precbus metals, such as gold and $tuer-eitlrr by
owning mines or bY trade-
Favorable Balance of Trade
r
a
l
a
Beduce arnount o{ goods irnponed ifilo counay by
imposing taritfs (impon taxes) on loreign goods.
(Resullhg h(;her price is irtended ro discourage
people from buying foreign goods.)
irsease competitiv€noss ol home indus#ies by
givir€ linancial aid to domestic finris and irdustbs
so tfrat they can lowsr the prices of thek exports'
lrprease value oi count ys expod$ by granting
money {subsidies) ro halp establish new industries
and expand exisling indus&ies'
that it does not
Ensure nalion is selr-sufficient
have to depend on foreign courrtries for goods or
labor (has the advatttage of a!€iding deperdeocy
on nations that could become frosttle)-
Thrift and saving t(] be encouraga{ by theee
rneans peoplo and nations create capital (profrs,
or excess of produdion over consrrrption) Srat can
be used to expand Production-
O Oiagram VlnEl
affg&s o tE
Thel*lahral Laws ol Economlcs
I t w of selFintBt€t Peop*a acd ior sd{ish
reasorB; thsy prodilce goods trd u,o* lor their
2
$
Accumulatlon of CaPltal
r
ld a lree €6nomy, the nafiJral la'.YS of ecorEnuos can
opsrate, reulling in goods being prodrced at the
hwest possibl€ p;ce. tn an economy rBgulated by
govemment, ths flatural laws ot economics canfiot
operate, Io the detrimont ol all.
lobmartln
Ltd-
36coid edilin o 2006 hfohss Psblish&€-
3
owr advantag€.
Law ol competltlon ln a fr€€ malket, everlone
competes: e,g., each textile manu{aEiurer, !o
gJcceed in business, m$$ make chttles rnore
efficiedly and sell them at a hwergice *un dvals'
Conpelilion in a fteB markd anprg selfish
individuats results in econornic prngress becaure it
enmurages innovation and effcbncy. Gompetilion
betwoen home and {ordgn futdusti€9 h6lps to
improre home industries.
Gw of euppy and demand Ths amount of goods
a nation n6dds ard produces will au:tomatlcally be
regulated bythe opergliori of a frg€ rnatket e.9.,
wtren Ure supply {quantity arrailaHe) exceeds the
d€mand tneed) for do{Es, rranurac:turers have
to lower their prkes b aflract IrBre crl$orErs.
The low ptie e/iI *iYe sorne ntanulactl.r€ts out
of business.
RICiEhdl bv lnl&ffia Pi6!€hioE- Afl d€cforc Eilor8g€.
r agioi s t *t Hd b 69t/igld Est€ded by ttu R${stFr