Introduction
In ancient Chinese and Greek, Mercantilist/ later pre-classical approaches to political economy had different characteristics compared to today’s economic structures. There were different ways of handling things at that time. For example, there were theoretical approaches like physiocrats and mercantilists. The aspects of the economy at that time were very different from those in place today. The modes of interest rate, taxation and value of labor were not as elaborate as they are in today’s ideal economy. Confucius economies were characterized by the monarch authorities oppressing the public. They charged very high taxes on the public, the people had little freedom. The Confucian authorities were selfish individuals who were opposed to utilitarianism. They oppressed the public to their own personal advantage and interests. The Confucius thoughts embraced agricultural production but despised commercial activities, in fact, merchants in ancient China were ranked bottom in the social hierarchy. Precisely, Confucian thoughts supported the idea of people living in poverty and the economies lack any spark of growth.
Mercantilism is one of the ancient economic approaches that were used by strong monarchs and countries. This was rampant in from the 15th to the 18th centuries. Strong economies such as France, England and the Spanish all adopted the mercantilist system. Mercantile economies had some basic principles that all economies that supported this approach adhered to. The mercantile economies all had the aim of accumulating a lot of wealth so that they could become the strongest nations. To satisfy the above objective, these nations heavily regulated the economic activities around the nation. These economies analyzed the economy’s wealth according to the reserves of silver and gold rather than the living conditions of the citizens. These countries concentrated on exporting their products so as to accumulate more wealth. In the process, they ignored imports for the citizen’s requirements. For example, the Great Britain exported its products to its colonies in Africa in the 18th century.
This system of maximizing on export trade and minimizing imports was aimed at making the nation accumulate wealth. The exports earned the nation foreign exchange. Goods were traded using bars of gold and silver as currencies. The governing authorities emphasized on production, especially agricultural and industrial production. The produce would be sold as exports to neighboring states or colonies. Merchants at that time were not very popular with the government. This is because merchants traded using the same currency of gold and silver. Authorities argued that these merchants reduced the amount of wealth from the national economy. When the merchants exported products, they earned currency but the currency belonged to them. The only benefit the authorities got was taxes. The merchants would also import products for sale. These imports implied that the currency in form of gold and silver were given away to foreign nations. The governing bodies tried their best to discourage the imports. They believed this reduced the level of national wealth. These nations, especially the Greek and the Chinese of the 15th to 18th century, encouraged a balance of payment that was favorable to the national economy. They wanted to accumulate as much silver and gold as they could. This would also imply that domestic employment is maintained.
The economic logic behind mercantilism was that it strengthened regional power of nations. It made the nations strong enough to compete for colonies, develop agricultural production and commercial links. This generally improved trade activities. At that time of mercantilist era, there were frequent military invasions and wars. The governments had to form strong armies. Therefore, they had to accumulate a lot of wealth in order to cater for the military and other defense mechanisms. They had to have a lot of hard currency support so that the expansion of territories.
The governments encouraged internal economic growth. They promoted industrial growth by giving tax cut incentives for the starting industries. The best producers were also rewarded. Prohibiting imports encouraged the development of new industries in the country. There were also prohibitions on the export of tools and equipment of capital. Export of labor in the form of immigration was also not allowed in these ancient countries. This was aimed at retaining the economic potential of the nation and avoiding equipment of foreign nations. These mercantilist nations also encouraged the foreign investors to invest in the country.
The mercantilist nations had very distinct features. They involved industrial development, free trade promotion, and protectionism in form of defense, international trade and foreign exchange accumulation. This approach of the economy was considered to be the most protective. The government defended its territory and people from foreign invasion. They spent a lot of the national income on defense mechanisms. They paid for weapon production and paid armies and navies. This was very costly. The nations only wanted to declare their supremacy over other nations. This was a massive risk because it left the people exposed and poorer than they were before.
However, this economic approach was not favorable to the nation’s economy, the government and the citizens as well. The economy was adversely affected when the balance of payment was uneven. These economies accumulated wealth by increasing exports and reducing imports. This led to surplus balance of trade. A surplus balance of trade implied that there were a lot of foreign reserves in the economy. As much as the economy will be stable, the high level of expenditure will reduce the amount of wealth in the economy. Most of the wealth created will be used by the nation’s authorities on other expenditures. The mercantilists were spendthrifts; the senior government officials led lavish lifestyles. The leaders took massive amounts of government wealth for themselves. This kind of mismanagement of public funds led to wastages and reduced economic growth. The citizens, who paid very large amounts of taxes to the government, remained poor. The governing bodies did not consider the welfare of the public when analyzing economic growth. They people worked on agricultural production mainly and sold their excess produce to the government which in turn exported these products. This was not an effective economic approach. It had many gaps, for example, the senior government officials did not pay taxes, and they utilized government resources at will. There was corruption and mismanagement. The kind of budgeting done was also ineffective. Most of the budget allocation was channeled towards making the defense system strong.
Conclusion
Therefore, mercantilism is an economic school of thought that worked in the ancient Greek and China because the economic environments had not evolved like they are today. This economic approach is built on the basis of wealth creation and development. However, for a country to encourage wealth creation, it has to spend and invest in the economic systems. The mercantile nations only create wealth and store it as a show of supremacy. The citizens of these nations do not benefit from the wealth created. The heavy taxation system does not benefit the people; it leaves them worse off than they were initially. Nations that adopted the mercantile economic approach had a capitalist kind of economy. The wealth accumulated is used by a few individuals who hold influential positions. The merchants and the rich were the highest beneficiaries from this type of economic approach.
Works Cited
Daft, Richard L. Organization Theory and Design. 10. London: Cengage Learning, 2009.
Hu, Jichuang. A concise history of Chinese economic thought. Beijing: Foreign Languages Press, 1988.
Kuiper, Edith. History of Economic Thought. illustrated. New York: Spring, 2012.
Magnusson, Lars. Mercantilism, Volume 1. London: Routledge, 1995.
