Unit 3: Economic Change

Outcome 15.5

As trade expanded across the globe, European countries sought to gather as much wealth as they could because they assumed wealth was finite: only a specific amount to go around.

Definition: economic policy from 16th-18th centuries under which nations sought to increase their wealth and power and become self sufficient by:

obtaining large amounts of gold and silver and

Maintaining a positive balance of trade

The country sold more goods than it bought (exported more than it imported)

Mercantilism was based on countries acquiring as much wealth as possible. This resulted in:

1. Colonization-some countries acquired overseas territories for the purpose of securing resources and creating markets for the sale of goods (examples: Newfoundland, Columbian Exchange)

2. Strict Government intervention- governments controlled business activities through charters that gave government owned companies exclusive rights to operate in a certain region (example: British East India Company)

3. Increased wealth- for European countries

What was beneficial about the Columbian Exchange?

What was harmful?

Who benefitted the most?

Sketch the economic relationship between the colonies and the home country.

List three ways the home country benefitted from the colonies.

Gov’t controlled economy (heavy tariffs, trade restrictions for other merchants and nations)

Drove quest for colonies

Increased wealth for European nations (but majority of people remained poor)

Magnified the horrific slave trade

Inspired nations to build up their navies (for conquest and protection of colonies)

WHO MIGHT BE OPPOSED TO MERCANTILISM?

Trade restrictions hurt many merchants and companies—you can’t make $$ if you’re not allowed to play!

High tariffs on foreign products (imports) hurt international trade—you can’t profit from another country if they won’t buy your stuff!

Since both of these are caused by strict government involvement in the economy, what might be a new approach?

Idea that the best way to generate wealth is if government does not intervene with or regulate industries and businesses.

French for “let do” as in “let industry do as it will”

Argued heavy tariffs and restrictions hurt generation of wealth (we all stay “stuck” or lose)

Based on idea that wealth ISN’T finite. ALWAYS more wealth to be created if government adopts a “hands off” approach to business

Advocated free trade—the flow of commerce in the world market without gov’t regulation

His 1776 book The Wealth of Nations argued economic freedom from government involvement would guarantee economic progress

Why?

1. The law of self-interest—People work for their own good

2. The law of competition—Competition forces people to make better products

3. The law of supply and demand—in a free market economy, prices would rise and fall based on consumer wants and availability of products/raw materials

In other words:

High demand= Rising prices (Example___________________________)

Low demand= Falling prices (Example__________________________)

Plentiful supply= Low prices (Example:___________________________)

Scarce supply= High prices (Example:________________________)

What are some benefits?

What are some problems?

How might people or governments address those problems?

Mercantilism Laissez-Faire economics