====================== HES POSTING ================== [NOTE: This abstract was submitted on the Economic History Abstract service, but will be of interest to some historians of economics as well.--RBE] EHS Abstract Submission (c) 1998 EH.Net ----------------------------------------------------------- Name: Guillaume Daudin Email: [log in to unmask] Institution: London School of Economics Co-author: None Title: A Mercantilist Model of Growth and Trade in 18th Century France Internet Address of abstracted work: Not available on the internet. By mail: London School of Economics 21, Godfrey Street London SW3 3TA United Kingdom Language: English Abstract: Early cliometrics challenged the traditional vision of the role of European empires, slavery colonies and worldwide trade domination. They easily showed that the external sector was so marginal compared to European domestic economies that gains could only be of minor significance. This of course was in contradiction with the whole of economic thought before the rise of liberalism starting in the mid 18th century. By using modern formal economic tools, this paper shows that it is possible to justify and even defend the mercantilist view of the relations between world trade and domestic prosperity. The tools it uses are endogenous growth theories and "thick-thin-market" multiple-equilibrium macroeconomic models developed in the '80s to explain the persisting under-utilization of production factors in the long run. This was the case of peasant labour in Ancien Regime economies. The way out of this low equilibrium was the extension of domestic trade, alongside with the development of proto-industrialization and market agriculture: subsistence goods could be replaced by goods exchanged on a much wider basis, leading to a better use of production factors. Considering the high scale of this kind of exchange, this could only be done through intermediaries. However, trade had a cost and traders had to deal with opportunistic behaviour, lack of information, uncertainty, the costs of transport and conversation and the financial burden of capital immobilized in inventories. All this required specific knowledge, social capital and circulating capital. As all but the last of these production factors had a very strong depreciation rate and could be socially accumulated only with difficulty, long-run global extension of domestic trade was only possible if the stock of circulating capital extended as well. This extension of the stock of circulating capital depended crucially on the development of monetary aggregates. The paper emphasizes the fact that the stability of this expanding financial system required a steady increase of its monetary base, i.e., mainly of the stock of precious metals in the domestic economy. This explains the chryshedonism of many mercantilists, which followed from an awareness of the economic role of money which was lost in classical and neoclassical thought. Precious metals and high-powered financial assets were only to be found on the world market, either through exportation of goods or the taking over of world trade, which is equivalent to the exportation of trade services. The actual organization of world trade was deeply uncompetitive for many reasons: the very high entry cost in it for a trader community, the oligopolistic behaviour of trader communities and the willingness of the states to intervene. This allowed for supra-normal profits to be generated for individuals. According to an heart of growth mechanism, these profits were the basis of accumulation and the increase of the circulating capital stock in the domestic economy. The study of Ancien Regime economies requires abandoning the use of the simple '50s and '60s economics which were developed to understand modern economies. This has already begun for micro-analysis. We hope this paper helps macro-analysis to catch up. Bibliography: Daudin, Guillaume. "A Mercantilist Model of Growth and Trade in 18th Century France." Paper presented at 1998 Cliometrics Conference, Washington University, St. Louis, May 8-10, 1998. Subject: D Geographical Area: 4 Country/Region: France Time Period: 6 ============ FOOTER TO HES POSTING ============ For information, send the message "info HES" to [log in to unmask]