Cantillon's opinion on a self-regulating economy asserts that increase in specie originating from export surpluses stimulates trade rather than increase in new money due to the expansion of paper. He applies this theory to the production of new gold. If the new production is not followed up by an increase in output, otherwise known as the self-regulation process, prices will increase. Increased prices naturally make people expand their purchases from countries in which prices are still low, thereby depressing the home market. Gold will be exported to pay for foreign imports until prices rise again, but still remain low enough to encourage domestic buyers to make local purchases rather than buy abroad.
John Locke developed a theory about the governance of property rights, stating that although the earth is common to every living thing, humans only have exclusive rights to themselves. The labor of the human body is a personal property and whatever a person adds from nature/the state, s/he can join it with personal labor to come up with a property. Accumulation happens with an unused property, and Locke describes it as a waste and offense against nature. Introduction of legal tenders like money, gold, and silver makes the unlimited accumulation of property to be impossible.
The Cantillon effect refers to the effects of injecting money into the structure rather than the level of prices with consideration to the source and effect on recipients. Cantillon concluded that inflation sometimes results from the injection of metallic and paper money into the economy. Nevertheless, inflation caused by paper money is likely to be disastrous since paper lacks intrinsic value and has a high possibility of facing refused acceptance.
Hume deducted the essential argument that stocks of specie adjust the needs of trade. Accordingly, nations must use specie to pay the differences in international balances of payments. The assumptions made here are that the quantity of money is determined by the price level and that the volumes of both imports and exports depend on relative prices at home and abroad. This theory corrects the former theory that a nation can add indefinitely into its wealth by stating that if a country has a favorable balance of payment and ten acquires more gold, it will experience rises in domestic price levels and consecutive loss in export trade.
David Hume states that specializing in international trade is the basis of prosperity. It challenges the basis of mercantilists' quest for a favorable balance of international payments.
The physiocrats had origins in agriculture where they introduced and applied the economic idea of economic surplus. Agriculture played a solid economic role in the economy and is the only economic sector that produces surplus products. After discovering the source of wealth, physiocrats defined how the wealth produced by agriculturalists circulates to all classes of the economy. All wealth is produced by the productive class, who take a fraction of their production for self-maintenance, a fraction of the production will be used for buying industrial goods, and another fraction will be used to pay rent and taxes. The assumption here is that there is a natural order that secures pleasure in people by taking maximum advantage of economic matters to enjoy maximum happiness.
At the time that the physiocrats' theories originated, France's social system was divided into strata of three social classes. One was a productive class that consisted of farmers who cultivated and paid rent to landowners. The second class included the king who collected taxes and the landlords who collected rent. The third class included the sterile people, who engaged in industrial occupations. They included government servants, teachers, lawyers, house servants, and doctors.
According to Sir William Petty, political arithmetic refers to principles of new policy science of numbers that offer solutions to problems within the political economy, civil government, and social sciences. He introduced the concept of calculating national wealth and income. His opinion was that national wealth exceeded the proceeds derived from gold and silver and so he estimated that a person's average income was $6 per annum, and with a population of 6 million, the total annual income would be $40 million. This theory was dependent on estimates and continued to include the different subcomponents of national income such as housing and land.
Cantillon established Par by assessing the quantity of land that would be necessary for the production of subsistence food and the required number of laborers. This version of Par reached an impasse and related to the causes of commodity values. On the other hand, Petty's Par broke a path and represents subsistence wages of labor attained by calculating the value of land. Petty describes value as the value of a product and value in exchange for the amount of either goods or services that one may obtain in exchange for something else in the market.
Physiocrats called for less intervention by the government by stating that there was little for monarchies to do since all reasonable people ought to obey the rule of nature as long as they were acquainted with it. Jacques Turgot held the idea that free domestic trade of grain prevented scarcity, which prevented satisfaction. Abundance made satisfaction value less difficult because the exchange value is either less or greater, depending on the quantities available depending on the prevailing demand.
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