What is the relationship between balance of trade and mercantilism

How is mercantilism related to balance of trade

what is the relationship between balance of trade and mercantilism

Mercantilism is the economic theory that says that a healthy economy must have Balance of trade is the relationship between a country's exports and imports. late discussion concerning the unprecedented balance of trade which now stands in those theories which are associated with the name of the mer cantile school of theories of the mercantilists were not effectually controverted until the time of that insane "jeal ousy of trade" which marked the commercial relations of the. BALANCE OF TRADE: the difference in value over a period of time between a According to the economic theory of mercantilism, which prevailed in Europe.

Nothing, however, can be more absurd than this whole doctrine of the balance of trade, upon which, not only these restraints, but almost all the other regulations of commerce are founded. When two places trade with one another, this [absurd] doctrine supposes that, if the balance be even, neither of them either loses or gains; but if it leans in any degree to one side, that one of them loses and the other gains in proportion to its declension from the exact equilibrium.

He was the leader of the British delegation to the United Nations Monetary and Financial Conference in that established the Bretton Woods system of international currency management.

Mercantilism: The Economics of Absolutism

He was the principal author of a proposal — the so-called Keynes Plan — for an International Clearing Union. The two governing principles of the plan were that the problem of settling outstanding balances should be solved by 'creating' additional 'international money', and that debtor and creditor should be treated almost alike as disturbers of equilibrium.

what is the relationship between balance of trade and mercantilism

In the event, though, the plans were rejected, in part because "American opinion was naturally reluctant to accept the principle of equality of treatment so novel in debtor-creditor relationships".

Every country would have an overdraft facility in its bancor account at the International Clearing Union.

Balance of trade

He pointed out that surpluses lead to weak global aggregate demand — countries running surpluses exert a "negative externality" on trading partners, and posed far more than those in deficit, a threat to global prosperity. His view, supported by many economists and commentators at the time, was that creditor nations may be just as responsible as debtor nations for disequilibrium in exchanges and that both should be under an obligation to bring trade back into a state of balance.

Failure for them to do so could have serious consequences. In the words of Geoffrey Crowtherthen editor of The Economist"If the economic relationships between nations are not, by one means or another, brought fairly close to balance, then there is no set of financial arrangements that can rescue the world from the impoverishing results of chaos.

For example, the second edition of the popular introductory textbook, An Outline of Money, [38] devoted the last three of its ten chapters to questions of foreign exchange management and in particular the 'problem of balance'. However, in more recent years, since the end of the Bretton Woods system inwith the increasing influence of monetarist schools of thought in the s, and particularly in the face of large sustained trade imbalances, these concerns — and particularly concerns about the destabilising effects of large trade surpluses — have largely disappeared from mainstream economics discourse [39] and Keynes' insights have slipped from view.

He proposed as an example to suppose that he, a Frenchman, exported French wine and imported British coal, turning a profit.

what is the relationship between balance of trade and mercantilism

He supposed he was in France, and sent a cask of wine which was worth 50 francs to England. The customhouse would record an export of 50 francs. If, in England, the wine sold for 70 francs or the pound equivalentwhich he then used to buy coal, which he imported into France, and was found to be worth 90 francs in France, he would have made a profit of 40 francs.

But the customhouse would say that the value of imports exceeded that of exports and was trade deficit against the ledger of France. By reductio ad absurdumBastiat argued that the national trade deficit was an indicator of a successful economy, rather than a failing one.

Bastiat predicted that a successful, growing economy would result in greater trade deficits, and an unsuccessful, shrinking economy would result in lower trade deficits. This was later, in the 20th century, echoed by economist Milton Friedman.

In the s, Milton Friedmana Nobel Memorial Prize -winning economist and a proponent of monetarismcontended that some of the concerns of trade deficits are unfair criticisms in an attempt to push macroeconomic policies favorable to exporting industries. Friedman argued that trade deficits are not necessarily important, as high exports raise the value of the currency, reducing aforementioned exports, and vice versa for imports, thus naturally removing trade deficits not due to investment.

This deficit exists as it is matched by investment coming into the United States — purely by the definition of the balance of payments, any current account deficit that exists is matched by an inflow of foreign investment.

The ships had to be manned by crews composed of British seamen.

The Acts also required that European nations must sell products to the colonies by first stoping at English ports where they would have to pay a customs duty tax. The products were checked and then were permitted to travel to the colonies. All products had to go through these ports controlled by England. This made the cost of the product more expensive but protected the trade of Great Britain.

Balance of trade - Wikipedia

Certain materials from the colonies could only be shipped in British or colonial ships and had to be sent to England first. The product was then taxed and allowed to be sent to its destination in whatever European nation.

Colonial products could not be shipped directly to any foreign nation.

what is the relationship between balance of trade and mercantilism

How does devaluation and the trade balance related? Due to devaluation the balance of trade of a country improves in the long run. Balance of trade refers to import and export of merchandise goods of a country. D…evaluation means decresing the external face value of domestic currency at international market compare with other countries currency.

The difference in value of goods that a country sells abroad compared to those it purchases from other countries.