The Thought of Economic Theory from Philosopher, The Merchantilist and Physiokrat

Writer: Yohan Naftali
Supervisor: Prof. H. Masngudi, PhD.
Jakarta 2006

PART I
Analysis of the Philosopher Thought
Thought of the philosopher has influenced thoughts of economists after. Economic theories have been built for centuries and continue to be refined at this time. The Philosophers proposed the basics of economic thinking that will be adopted, updated and tested by scientists in the next period. Economics is not started by Adam Smith (1723-1790), known as the father of economics, but economics has been far introduced before.

Thought economics theory had been introduced by the philosopher, starting from the Greek philosopher. Adam Smith (1723-1790) itself is actually a scientist in the field of philosophy. Actual science of economics has a very closely with the philosophy. So, economics is the development of the philosophy. Therefore need to learn the very thought of the philosopher to increase knowledge.

Xenophon (440-355 BC) and Plato (427-347 BC) contributed in the early thinking about economic theory about cost and benefit of the division of labor. In the work of Plato (427-347 BC) The Republic supports the ideal city-state dominated by a controlled by the wise king. This thought started early thinking about the economy. Plato (427-347 BC) explain that division of labor can provide the opportunity for people to choose jobs that match with theirself.

Thought Plato (427-347 BC) also affects thought Adam Smith (1723-1790) that proposed the free market economic system. However scientists that support free market economic think that Plato (427-347 BC) does not support freedom of the market because of a strong government role in managing the economy. This is different from the thought Aristotle (384-322 BC), which provides support for the freedom of thought and influence the Adam Smith (1723-1790) about the role of government restrictions.

Aristotle (384-322 BC) also has theory of economics. Aristotle distinguished between oikonomi, who investigate domestic regulations which is the original meaning of the term for the economy, and chrematisti who learn the rules and the exchange, this ideas can be called as a precursor for the development of the theory of economics.

Aristotle explained that the head of the household must strive for fulfilment. If an "oikos" has the own advantages, so excessive can be exchanged with goods. Based on this it can be concluded that the goods can be used with two-way, that is to be used or to be exchanged with other goods. Consequently there can be obtained from understanding the economics about use value and exchange value. Activity of the exchange of goods done by the trader as their livelihood, it is in line with the goals of chrematisti, even though the Greek philosopher had less appreciated with traders profession.

Lack of appreciation for trader profession continues until the 18th century in which the physiocrat considered as "classe sterile”, so the Christian expert state that trader profession as inappropriate profession. Next St. Thomas Aquino (1225-1274) review the economic from the point of morality is not that trade is a contemptible, but the way the traders in the trading of blame. Calvijn Johannes (1509-1564), born in france called Jean Chauvin, also known as John Calvin, defend interest and money collection is the “fruit” from the diligence and activities of the trader. Calvijn Johannes (1509-1564) defend the proof that interest is not rejected by the Bible.

Martin Luther (1483-1546) also revealed traders’ profits should only as the replacement of the risks and their works, not because profit from the lack of goods situation. Calvijn Johannes (1509-1564) defends the profit came from trader’s diligence activities, Calvijn Johannes (1509-1564) also defend the collection interest.

Aristotle (384-322 BC) stated that interest on money has influence in many centuries, according to him money was to facilitate the exchange of goods among households, and the money will be measured so that it can be comparable. Based on the opinion money can be used as a means of trade, the unit value and a means to store wealth. While the views expressed interest that "is the money cannot bear interest" because of the benefits received by the creditor is not as a result of economic power that is part of the money, but it does not act other than a disadvantage against debtor. St. Thomas Aquino (1225-1274) also submitted disclaimer of money’s interest, the scholastic in the mid-century, and in the environment of Islam. However, in the realization, borrowing money requires works, costs and potential hazards, then the thought about interest can replace the loss arises.

Views of philosopher enrich the views of economists and provide a basic idea in the next economy. Their thought had pioneering the development of economics. By learning the views of the philosopher, can provide insight about the dynamics of the theory of economic development from time to time.


PART II
Analysis of the Merchantilist Thought
Before the 16th and 17th century trading voted as a low degree profession, the mercantilist has focused attention on the economic activities in trade, especially foreign trade. Thought the mercantilist was the view of society and the state of the trade. Gold that flows from foreign to domestic trade as a result has been to strengthen the state. They also often called mercantilist carpenters economics in the 16th – to 17th century.

The old mercantilist also known as the bullion, such as the Hales, Miles, Gerald de Malynes (1586-1641) and Edward Misselden (1608-1654) states that the country should bring gold as much as possible and keep the gold, in this view, money is equated with prosperity.

Gerald de Malynes (1586-1641) and Sir William Petty (1623-1687) argued that the decline in interest rates and increased trade, as a result of the increase in the money circulating. Opinion is that interest rates for money rejected by the classical economists and thereafter up to John Maynard Keynes (1883-1946) wrote a book titled General Theory of Employment, Interest and Money that ask for the attention of the truth Mercantilist. In this opinion Keynes who defend the Mercantilist with the theory that is known as liquidity preferences motivation.

Charles d'Avenant (1656-1714) states that the property in the form of wealth is just dead money. Therefore, the level of consumption should be enlarged to the community, especially luxury goods produced in the country. Further recognized by the mercantilist noble metal will flow to Western Europe in the century to 16 and thereafter result in improving the general level of prices in the country, thus emerge the quantity of money theory. In that simple theory stated that the balance between the prices level with the amount of money circulating. Raised one percent of money circulating will cause price increase one percent. It therefore means that the price elasticity coefficient of the outstanding amount of money equal to one.

John Locke (1632-1704) revealed that in this case to be considered not only the amount of money circulating, but also the speed of money circulation. In this case, the rotating speed of the money is not the same for all economic subjects. According to his estimation, volume of money needed for a country with the same 1 / 15 of annual wage income plus ¼ of the large land owners each year plus 1 / 20 of income each year the merchants. Richard Cantillon (1680-1734), an Irish banker and adventurer who emigrate to Paris, says the amount of money that is required is the same as the 1 / 9 of the national net.

The simple form of quantity of money theory later is enhanced by Irving Fisher (1867-1947), professor in economics from Yale and founder of the flow of monetarist, with the formula M x V = P x Q (M Money is the quantity of circulating money, V is the Velocity speed money or money's annual rotation, P Price is the general price level, Q is the quantity of trade goods produced / are for one year). This means that in terms of speed of money circulation is fixed (constant) and the same amount of goods sold, the price level determined by the amount of money. Irving Fisher (1867-1947) in this case was to distinguish between the money that is base money like a coin, paper money and other money in the form of giro money, deposits, and so is in the bank.

The bullion argued that export of gold should not be allowed, but the export value must be greater than imports. Pieter De La Court (1618-1685) from the Netherlands make proposals to his government:

• To promote the shipyard with the low taxation to carry goods from abroad.


• Collect tax from overseas ships.


• All items that can be made at home should not be burdened too much tax.


• All raw materials should never be burdened tax.


• All import items must be burdened foreign customs.

David Hume (1711-1776), a classic economic leaders, criticizing the idea merchantilism with the automatic mechanism of the Price Mechanism Flow-Spice or PSFM. Idea from the mind merchantilism says that the state / king of the rich / prosperous when X> M so that the LM will be more and more. This means that the Money supply (Ms) or the amount of money circulating more. Money supply or when the amount of money circulation increased, while production still / does not change, there will be inflation or price increase. Growth rates in the country will increase the price of goods exports (PX), so that the export quantity (Qx) will decrease.

With critics from David Hume (1711-1776), the theory of pre-classical or merchantilism considered irrelevant. Then Adam Smith (1723-1790) contribute their thoughts in a book titled "An Inquiry into the Nature and Causes of the Wealth of Nations" in the year 1776. So that the classical theory appears or absolute advantage of Adam Smith (1723-1790). Adam Smith Society (1723-1790) are as follows:

• Size prosperity of a country is not specified the number of LM too.


• Kemakmuran a country determined by the size of the GDP and foreign trade contribution to GDP formation of the country.


• To increase the GDP and foreign trade, the government should reduce the interference so that the hands are free trade.


• With the free trade will lead to competition or competition is increasingly tight. This will encourage each country to do the specialization and the international division of labor based on the benefits of absolute or absolute advantage of the country respectively.


• Specialization and the international division of labor based on the absolute advantage, will spur increased productivity and efficiency so that it was increasing GDP and foreign trade or international.


• Increased GDP and international trade is synonymous with the increased prosperity of a country.

Sir William Petty (1623-1687) in the year 1679 has been calculated that UK national income next birth knowledge "Political Aritmathic". The calculation of national income continues to grow and become important issues in the economy until today. National income has made measurements on the success of a government in managing the economy.

Gregory King (1648-1712) in the year that is almost the same materials to create the same image kurva demand for grain in a concrete incident. According to the law changes in the King preferred wheat in succession with 1 / 10, 2 / 10, 3 / 10, 4 / 10 and 5 / 10, make a price change in the direction with the 3 / 10, 8 / 10, 16 / 10, 28/10, and 45/10. Thought is being developed in the theory of demand and supply by the economist.

It is observed that but one-tenth the defect in the harvest may raise the price three-tenths, and when we have but half our crop of wheat, which now and then happens, the remainder is spun out by thrift and good management, and eked out by the use of other grain; but this will not do for above one year, and would be a small help in the succession of two or three unseasonable very destructive, in which many of the poorest sort perish, either for want of sufficient food or by unwholesome diet.

"We take it that a defect in the harvest may raise the price of corn in the following proportions:

Defect raises the price above the common rate
1 tenth ............... 3 tenths
2 tenths ............... 8 tenths
3 tenths ............... 16 tenths
4 tenths ............... 28 tenths
5 tenths ............... 45 tenths

So that when corn rises to treble the common rate, it may be presumed that we want above one-third of the common produce; and if we should want five-tenths or half the common produce, the price would rise to near five times the common rate." (The Works of Sr William D'Avenant Kt, vol. ii, pp. 224, 225, edited by Sir C. Whitworth, London (1771)).

PART III
Analysis of The Physiokrat Thought
The physiokrat's figures are François Quesnay (1694-1774), Pierre Samuel du Pont de Nemours (1739-1817) and Charles Gide, in which flow from this understanding of how important the mastery of nature. If the pioneer of economics is the merchantilist, then the physiokrat referred to as base of economics.

The physiokrat as a first look of the economy as a system that has been determined and as a system that is governed by laws apart, and on the basis of the calculation can be made and the forecast-forecast and they try to formulate the laws of this. The cohort is physiokrat sect Mercier De la Riviere (1720-1794), Boudeau, Robert Jacques Turgot (1727-1781), le Trosne, and Karl Friedrich von Baden-Durlach.

According to François Quesnay (1694-1774), a medical doctor, see the economic circulation (the flow of goods in society) such as the flow of blood in the human body. View of the basic principles physiokrat is in life to have to build natural order. A human organization that each individual knows their own interest, and further the best interests of the self that each person is himself. Finally own interests and the public fall together, so that when each individual to defend the interests exempt themselves, then the public will be well once chipped. (leisser faire, leisser Passer, le Monde de luis va alors meme).

The physiokrat develop the theory of harmony, ie harmony between individual interests and the interests of public (community). Next explained economic principles that made the basis of general economic theory physiokrat in which every individual seeks to obtain a certain result of the small-small. This theory of harmony will be the classic that read: every individual seeks to obtain as much income, and income can only be increased when the subject of economics to offer each other goods and a better or cheaper, and the government need not intervene. The government only served in the field justice, militia, and public works. This is a reaction on the intervention of the government so far is taught by the merchantilist.

If the merchantilist place foreign trade in the center view of economy, then the physiokrat place in the agricultural economy. Only agricultural give results that can be productive.

Sir William Petty (1623-1687) states that "labor is the father and active principle of wealth, as lands are the mother." Farmers reap more than sowed and this excess (or the "produit net") as goods (product) to the new economic community circulation.

Economic life as a whole as a system, François Quesnay (1694-1774) describes the relationship between the three groups of people.

• Classe productive; namely the farmers.



• Classe prosprietaires; ie the land owner.



• Classe sterile; ie the traders and industrialist.

The three groups of people that this is considered berperanan revenue in the community (national) described in a "Tableau Economique". Further added that the workers referred to as passive classe fourth group that has meaning in relation to consumption, not production.

In theory, the division of community income (national) is François Quesnay (1694-1774) stated that the farmers (classe Productive) produce F 5 billion. Among F 2 billion flow to the classe prosprietaires and F 1 billion flow to the classe sterile and for the purposes of Productive classe F 2 billion for its own purposes, their flocks and seeds.

Next of classe prosprietaires, F 1 billion used to purchase food, which means that flow back to the farmers. While F 1 billion more is used to obtain goods industry, which means to flow classe sterile. Reception F classe sterile 2 billion used to buy food. Thus at the end of the process of national income classe Productive receive back 3 billion F in which F 1 billion comes from the classe des prosprietaires and F 2 billion comes from the classe sterile. Based on the "Tableau Economique" organized Quesnay it can provide insight to a book or a national input-output analysis.

François Quesnay (1694-1774) further differentiates the concept of value and price that matches with the system used. While the pricing is differentiated between the price of basic goods and the price consumers must pay. Basic price according to François Quesnay (1694-1774) depending on the costs incurred to prepare the goods for the market. While the sale price to consumers, traders usually try to get the margin as big money.

Selling price of industrial products with the same basic price, which in this case the trader can only gain profit with prejudice consumers. Conversely for the products of agriculture so that the selling price can be a big profit to be done to bring additional investment "produit net".

Calculation of the physiokrat to submit to 2 / 5 of national income to the landowner because it deems them as the backbone of the country. Rent from land it receives, must pay taxes, and other social obligations (including the order of purchase luxury goods to encourage the progress of the craftsmen). Thus, the owner of the land (classe des proprietaires) is a circulation booster as the economy. So next on a slogan "when poor farmers, then miskinlah country (kingdom) and also poor king (head of state)" Pauvre paysans, Pauvre royaume, Pauvre roi. "

But according to the wage physiokrat stated that the amount of wages the same as the costs of living. But wages will increase when grain prices rise. So according to them, high prices has no effect for the welfare of working class.

When analyzing the mercantilist in shoptalk economic devote much attention to the monetary shoptalk, the physiokrat shows that the "curtain of money" to make vague symptoms economy. Therefore shoptalk economy is actually to look for money behind the curtain this case which followed a similar opinion by the classic book rising up to the General Theory of Employment, Interest and Money is written by John Maynard Keynes (1883-1946).

Money according to a theory called physiokrat Robert Jacques Turgot (1727-1781) revealed that the exchange of goods in the system used a common tool change and desired by people in general, namely the count sheep. Slowly making the price list of sheep in the abstract (in the chimera only). "Sheep abstract" then this is a calculation unit. This Thought will soon become standard noble metal (gold), which is supported by Adam Smith (1723-1790), regarded as the benchmark currency is more stable.

According to the theory of interest physiokat explained by Robert Jacques Turgot (1727-1781) in which that money cannot have children, but using the fruit theory, so can bear fruit.

In the case of taxes, given that the government should be responsible for the cost of education that require large, they need sources of funding coming from taxes. But different types of taxes in a simplified "direct et impot unique" (single and direct taxes) imposed on the "produit net" of 3 / 10. Opinion about the tax physiokrat up to now still a lot of followers even with the reasons varies, of direct taxes and a single, as in the United States, Austria and Germany. This thought signals the bureaucratization on tax and justice of tax that still growing. More various taxes will lead the higher opportunities of illegal tax collection or corruption. Thought about the tax will continue to be refined.

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