The mercantilist Economic System (2)

Mercantilists saw the economic system as consisting of three components: a manufacturing sector ,a rural sector (domestic hinterland).and the foreign colonies (foreign hin -terland).They viewed the merchant class as the group most critical to the successful functioning of the economic system,and labor as the most critical among the basic factors of production. the mercantilists,as did the classical writers who followed ,employed a labor theory of value, that is, commodities were valued relatively in terms of their relative labor content.Not surprisingly,most Writers and policy makers during this period subscribed to the doctrine that economic activity should be regulated and not left to individual prerogative.Uncontrolled individual decision making was viewed as inconsistent with the goals of the nation-state,inparticular,the acquisition of precious metal .Finally ,te mercantilists stressed the need to maintain an excess of exports over imports ,that is,a favorable balance of trade or positive trade balance. this doctrine resulted from viewing wealth as synonymous with the accumulation of precious metals (specie) and the need to maintain a sizable war chest to finance the military precious required of a wealthy country .the inflow of specie came from foreigners who paid for the excess purchases from the home country with gold and silver.this inflow was an important source of money to countries constrained by a shortage in coinage . crucial to this view was the implicit mercantilist belief that the economy was operating at less than full employment ;therefore ,the increase in the money supply stimulated the economy ,resulting in growth of output and employment and not simply in inflation .hence ,the attainment of a positive trade balance could be economically beneficial to the country.Obviously ,an excess of imports over exports_an unfavorable balance of trade or a negative trade balance_ would have the opposite implications.