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Text 4

The development of modem nationalism during the 16th century shifted attention to the problem of increasing the wealth and power of the various nation-states. The economic policy of the leaders of that time, known as mercantilism, sought to encourage national self-sufficiency. The heyday of the mercantilist school in England and Western Europe occurred during the 16th through the early 18th centuries.

Mercantilists valued gold and silver as an index of national power. Without the gold and silver mines in the New World from which Spain drew its riches, a nation could accumulate these precious metals only by selling more merchandise to foreigners than it bought from them. This favorable balance of trade necessarily compelled foreigners to cover their deficits by shipping gold and silver.

Mercantilists took for granted that their own country was either at war with its neiors, recovering from a recent conflict, or getting ready to plunge into a new war. With gold and silver, a ruler could hire mercenaries to fight, a practice followed by King George III of the United Kingdom of Great Britain when he used Hessian troops during the American Revolution. As needed, the monarch could also buy weapons, uniforms, and food to supply the soldiers and sailors.

Mercantilist preoccupation with precious metals also inspired several domestic policies. It was vital for a nation to keep wages low and the population large and growing. A large, ill-paid population produced more goods to be sold at low prices to foreigners. Ordinary men and women were encouraged to work hard and avoid such extravagances as tea, gin, ribbons, ruffles, and silks. It also followed that the earlier that children began to work, the ter it was for their country's prosperity. One mercantilist writer had a plan for children of the poor: "When these children are four years old, they shall be sent to the county workhouse and there taught to read two hours a day and be kept fully employed the rest of the time in any of the manufactures of the house which best suits their age, strength, and capacity."

As a coherent economic theory, classical economics starts with Smith, continues with the British economists Thomas Robert Malthus and David Ricardo, and culminates in the synthesis of John Stuart Mill, who as a young man was a follower of Ricardo. Although differences of opinion were numerous among the classical economists in the three-quarters of a century ween Smith's Wealth of Nations and Mill's Principles of Political Economy (1848), members of the group agreed on major principles. All believed in private property, free markets, and, in Mill's words, that "only through the principle of competition has political economy any pretension to the character of a science." They shared Smith's strong suspicion of government and his ardent confidence in the power of self-interest represented by his famous "invisible hand," which reconciled public benefit with individual pursuit of private gain. From Ricardo, classicists derived the notion of diminishing returns, which held that as more labor and capital were applied to land, yields after "a certain and not very advanced stage in the progress of agriculture steadily diminished."

Through Smith's emphasis on consumption, rather than on production, the scope of economics was considerably broadened. Smith was optimistic about the .chances of improving general standards of life. He called attention to the importance of permitting individuals to follow their self-interest as a means of promoting national prosperity.

Malthus, on the other hand, in his enormously influential book An Essay on the Principle of Population (1798), imparted a tone of gloom to classical economics, arguing that hopes for prosperity were fated to founder on the rock of excessive population growth. Food, he believed, would increase in arithmetic ratio (2-4-6-8-10 and so on), but population tended to double in each generation (2-4-8-16-32 and so on) unless that doubling was checked either by nature or human prudence. According to Malthus, nature's check was "positive": "The power of population is so superior to the power of the earth to produce subsistence for man, that premature death must in some shape or other visit the human race." The shapes it took included war, epidemics, pestilence and plague, human vices, and famine, all combining to level the world's population with the world's food supply.

The only escape from population pressure and the horrors of the positive check was in voluntary limitation of population, not by contraception, rejected on religious grounds by Malthus, but by late marriage and, consequently, smaller families. These pessimistic doctrines of classical economists earned for economics the epithet of the "dismal science."

Mill's Principles of Political Economy was the leading text on the subject until the end of the 19th century. Although Mill accepted the major theories of his classical predecessors, he held out more hope than did Ricardo and Malthus that the working class could be educated into rational limitation of their own numbers. Mill was also a reformer who was quite willing to tax inheritances heavily and even to allow government a larger role in protecting children and workers. He was far more critical than other classical economists of business behavior and favored worker ownership of factories. Mill thus represents a bridge ween classical laissez-faire economics and an emerging welfare state.

36. The heyday of the mercantilist school in England and Western Europe occurred _____.
a) in the 16th century
b) in the 17th century
c) in the 18th century
d) during the 16th through the early 18th centuries

37. Which of the following statements is not true? ___
a) Mercantilists valued gold and silver as an index of national power.
b) Mercantilists emphasized the importance of agriculture.
c) Mercantilists took for granted that their own country was either at war with its neiors, recovering from a recent conflict, or getting ready to plunge into a new war.
d) Mercantilism also inspired several domestic policies.

38. As a coherent economic theory, classical economics starts with _________.
a) Smith who wrote the Wealth of Nations.
b) Mill who wrote the Principles of Political Economy.
c) Ricardo who wrote the Principles of Political Economy and Taxation
d) Malthus who wrote An Essay on the Principle of Population

39.Which of the following statements is false? ______.
a) All the classicists believed in private property, free markets and competition.
b) All the classicists believed in the interference of government.
c) All the classicists shared Smith's strong suspicion of government.
d) All the classicists agreed with Smith's famous "invisible hand," which reconciled public benefit with individual pursuit of private gain.

40. Who represents a bridge ween classical laissez-faire economics and an emerging welfare state? ______.
a) Adam Smith
b) John Mill
c) David Ricardo
d) Thomas Robert Malthus