ECO 305 — HISTORY OF ECONOMIC THOUGHT: Lecture Note

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LA-NET | ONLINE LEARNING VIDEO PLATFORM FOR POST-SECONDARY & HIGHER INSTITUTION STUDENTS Course Code: ECO305 Course Title: HISTORY OF ECONOMIC THOUGHT Course Units: 2 units Series 1: Early Economic Thought – Physiocrats and Mercantilism Series 2: Classical and Neo-Classical Schools of Economic Thought Series 3: Marxian, Marginalist, Positive and Welfare Schools of Thought Series 4: Institutional Economics, Keynesian and Monetarist Perspectives Series 5: Rational Expectations, Supply-Side Economics and Contemporary Developments Series Outline Part 1.1: The Physiocrats • 1.1.1 Origins and historical context • 1.1.2 Core principles: natural order, agriculture as the source of wealth • 1.1.3 Major contributors: François Quesnay and the Tableau Économique • 1.1.4 Influence and limitations of Physiocratic thought Part 1.2: Mercantilism • 1.2.1 Historical background and rise in Europe • 1.2.2 Core principles: bullionism, trade surplus, state regulation • 1.2.3 Key thinkers and policies • 1.2.4 Criticisms and decline of mercantilist doctrine Part 1.3: Comparative Analysis of Physiocrats and Mercantilists • 1.3.1 Similarities and differences in their approaches • 1.3.2 Contributions to the separation of economics from political economy • 1.3.3 Legacy and relevance to modern economic thought Introduction In this Series, we explore the earliest schools of economic thought that laid the foundation for economics as a distinct discipline. The Physiocrats, emerging in eighteenth-century France, emphasised the role of agriculture and natural order in wealth creation. Their ideas, particularly those of François Quesnay, marked one of the first systematic attempts to explain economic processes.

LA-NET | ONLINE LEARNING VIDEO PLATFORM FOR POST-SECONDARY & HIGHER INSTITUTION STUDENTS We then turn to Mercantilism, a doctrine that dominated European economic policy between the sixteenth and eighteenth centuries. Mercantilists stressed the accumulation of precious metals, trade surpluses, and strong state intervention as the basis of national prosperity. Finally, we compare the two schools, highlighting their similarities, differences, and contributions to the separation of economics from political economy. This comparative perspective helps us appreciate how these early thinkers shaped the trajectory of economic analysis. --- Series Learning Outcomes By the end of this Series, you should be able to: • SLO 1.1: Define the core principles of Physiocratic thought and explain their historical context. • SLO 1.2: Analyse the main doctrines of Mercantilism and evaluate their impact on European economic policy. • SLO 1.3: Identify key contributors to both schools and describe their major works. • SLO 1.4: Compare and contrast Physiocratic and Mercantilist ideas, highlighting their contributions to the development of economics as a discipline. • SLO 1.5: Assess the limitations of these early schools and their relevance to modern economic thought. 1.1 The Physiocrats 1.1.1 Origins and Historical Context The Physiocrats were a group of eighteenth-century French economists who believed that the wealth of nations was derived primarily from agriculture. The term Physiocracy means “rule of nature”. They emerged during a period when France was facing economic difficulties, and their ideas were a response to the inefficiencies of mercantilist policies. They argued that economic processes should follow natural laws, similar to those governing the physical world. ITQ: The term Physiocracy literally means “rule of ______”. --- 1.1.2 Core Principles: Natural Order and Agriculture as the Source of Wealth The Physiocrats emphasised the concept of natural order, which they believed was divinely established and should guide economic activity. According to them, agriculture was the only productive sector because it generated a surplus beyond the costs of production.

LA-NET | ONLINE LEARNING VIDEO PLATFORM FOR POST-SECONDARY & HIGHER INSTITUTION STUDENTS Other sectors such as manufacturing and trade were considered “sterile” since they only transformed or exchanged goods without creating new wealth. ITQ: According to the Physiocrats, only ______ created a surplus and real wealth. --- 1.1.3 Major Contributors: François Quesnay and the Tableau Économique François Quesnay, a physician at the court of Louis XV, was the leading figure of the Physiocrats. His most famous work, the Tableau Économique, was the first attempt to represent the circular flow of income in an economy. The Tableau showed how agricultural surplus circulated through different classes in society, sustaining economic activity. This was a pioneering step towards modern national income accounting. ITQ: The Tableau Économique was the first model to represent the ______ flow of income. --- 1.1.4 Influence and Limitations of Physiocratic Thought The Physiocrats influenced later economists, including Adam Smith, by stressing the importance of production and the idea of economic laws. Their advocacy for free trade and minimal government interference foreshadowed classical liberalism. However, their narrow focus on agriculture limited the applicability of their theory, especially as industrialisation gained prominence. ITQ: One major limitation of Physiocratic thought was its exclusive emphasis on ______ as the source of wealth. --- Pilot Questions 1.1 1. What does the term Physiocracy mean? 2. Why did the Physiocrats consider agriculture the only productive sector? 3. Who was the leading figure of the Physiocrats, and what was his major contribution? 4. What did the Tableau Économique attempt to represent? 5. Mention one limitation of Physiocratic thought. 1.2 Mercantilism --- 1.2.1 Historical Background and Rise in Europe Mercantilism was the dominant economic doctrine in Europe between the sixteenth and eighteenth centuries. It arose during the age of exploration and colonial expansion, when European nations sought to strengthen their wealth and power. The central belief was that national prosperity depended on the accumulation of precious metals, especially gold and silver.

LA-NET | ONLINE LEARNING VIDEO PLATFORM FOR POST-SECONDARY & HIGHER INSTITUTION STUDENTS Mercantilist policies were closely tied to the interests of monarchies, which used them to consolidate political power. ITQ: Mercantilism emphasised the accumulation of precious ______ as the basis of national wealth. --- 1.2.2 Core Principles: Bullionism, Trade Surplus, and State Regulation The doctrine of bullionism held that a nation’s wealth was measured by the amount of gold and silver it possessed. To achieve this, mercantilists advocated for a favourable balance of trade, meaning exports should exceed imports. Strong state regulation was considered essential. Governments imposed tariffs, restricted imports, and encouraged domestic industries to maximise exports. Colonies were often used as sources of raw materials and markets for finished goods. ITQ: A favourable balance of trade means that ______ exceed imports. --- 1.2.3 Key Thinkers and Policies Prominent mercantilist thinkers included Thomas Mun in England and Jean-Baptiste Colbert in France. Mun argued that trade surpluses were the key to national prosperity, while Colbert implemented policies that strengthened French manufacturing and protected domestic industries. Mercantilist policies often involved chartering trading companies, granting monopolies, and regulating colonial trade. ITQ: Thomas Mun emphasised the importance of maintaining a trade ______ for national prosperity. --- 1.2.4 Criticisms and Decline of Mercantilist Doctrine Critics argued that mercantilism was too focused on hoarding metals and neglected the role of production in creating wealth. The restrictive policies often led to inefficiencies and stifled innovation. By the late eighteenth century, mercantilism declined as classical economists like Adam Smith promoted free trade and the idea that wealth was created through production rather than accumulation. ITQ: Classical economists criticised mercantilism for neglecting the role of ______ in wealth creation. --- Pilot Questions 1.2 1. What was the main goal of mercantilist policies? 2. Define bullionism in the context of mercantilism. 3. What is meant by a favourable balance of trade? 4. Name two prominent mercantilist thinkers and their contributions. 5. Why did mercantilism decline by the late eighteenth century?

LA-NET | ONLINE LEARNING VIDEO PLATFORM FOR POST-SECONDARY & HIGHER INSTITUTION STUDENTS 1.3 Comparative Analysis of Physiocrats and Mercantilists --- 1.3.1 Similarities and Differences in Their Approaches Both the Physiocrats and the Mercantilists were early schools of economic thought that sought to explain the sources of national wealth. However, their approaches differed significantly. • The Physiocrats emphasised agriculture as the sole productive sector, while Mercantilists focused on trade and accumulation of bullion. • Both schools recognised the importance of economic policy, but Mercantilists advocated strong state regulation, whereas Physiocrats promoted natural order and free trade. • Each school attempted to provide systematic explanations of economic processes, laying the groundwork for later theories. ITQ: While Mercantilists emphasised trade and bullion, Physiocrats considered ______ as the only productive sector. --- 1.3.2 Contributions to the Separation of Economics from Political Economy The Physiocrats contributed by introducing the idea of economic laws that govern production and distribution, independent of political decisions. Their Tableau Économique was a pioneering analytical tool. Mercantilists, although less systematic, highlighted the role of policy instruments such as tariffs and trade regulation. Together, these schools helped distinguish economics as a discipline concerned with wealth creation and distribution. ITQ: The Tableau Économique was an early attempt to show how ______ circulated through the economy. --- 1.3.3 Legacy and Relevance to Modern Economic Thought The Physiocrats influenced classical economists like Adam Smith, particularly in their advocacy of free trade and recognition of production as central to wealth. Mercantilist ideas, though criticised, continue to resonate in modern debates on protectionism and trade policy. Thus, both schools remain relevant as historical foundations of economic analysis. ITQ: Modern debates on protectionism often

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