Ch3. Classic Trade Theory*Preparation before learning theory You should know: A Economist; A Background; A Literature（文献）; A Assumption; A Contents; A Policy; A ReviewThe success factors of a great theory: nThe different research object; nThe different assumption; nThe novel methodology;新方法 nThe creative idea.John Maynard Keynes(1883-1946) *Ch3. Classic Trade Theory Mercantilism m:kn,tailizm Absolute advantage theory (Adam Smith) Comparative advantage theory (David Ricardo)*Mercantilism Mercantilism was the dominant school of economics throughout the early modern period (from the 16th to the 18th century), that the prosperity繁荣兴旺 of a nation depends upon its capital, and that the volume of the world economy and international trade is unchangeable. Economic assets, or capital, are represented by bullion 金银 (gold, silver, and trade value) held by the state, which is best increased through a positive balance of trade with other nations (exports minus imports). Mercantilism suggests that the ruling government should advance促进 these goals by playing a protectionist role in the economy, by encouraging exports and discouraging imports, especially through the use of tariffs.*Mercantilist Doctrine of Wealth The exclusiveThe exclusive唯一的唯一的representativeof the social representativeof the social wealth: Precious metals, such as gold and silver.wealth: Precious metals, such as gold and silver.Christopher Columbus once wrote in Christopher Columbus once wrote in a letter from Jamaica牙买加 of 1503: Gold is a wonderful thing! Whoever possesses it is master of everything he desires. With gold, one can even get souls into paradise. Mercantilist staticMercantilist static静止的静止的 point of view toward the point of view toward the stock of social wealth: stock of social wealth: The total amount of gold and The total amount of gold and silver in the whole world is a constant quantity.silver in the whole world is a constant quantity. The process of accumulating wealth for the The process of accumulating wealth for the kingdoms kingdoms is nothing but to re-distributing the given is nothing but to re-distributing the given amount of precious metals.amount of precious metals. *Mercantilist View on Trade The overseas trade: the only way to accumulate gold and silver for the kingdoms since there were few gold and silver mines in the western European countries . Trade must be a zero-or-sum game. One country benefits from trade implies its trade partners losses in trade. Trade with the overseas nations must bring back wealth in terms of gold and silver. Particular balance(货币平衡论) and general balance（贸易平衡论）Thomas Mun (1571 - 1641) : Englands Treasure by Foreign Trade *Trade Policy Measures of Mercantilists The objectives of mercantilist trade policy: Accumulating gold and silver from the overseas trade. Typical mercantilist trade policy measures措施:Absolutely forbidding exporting gold and silver to the other countries.Strictly managing trade business of the kingdomExtremely monopolizing mnplaiz trade between the suzerain su:zrein宗主国 and the overseas colonies殖民地*Mercantilism: Characteristics特征 Precious metals are the exclusive representative of the social wealth; Trade must be a zero-or-sum game; Encouraging export and restricting import.Early mercantilist writers embraced bullionismbuljnizm buljnizm信奉金银通货主义(主 张钱币可直接兑换黄金或白银) , the belief that that quantities of gold and silver were the measure of a nations wealth. Later mercantilists developed a somewhat 颇为 more sophisticated view.*Ch3. Classic Trade Theory Mercantilism Absolute advantage theory (Adam Smith) Comparative advantage theory (David Ricardo)*Absolute Advantage Theory The idea of Smiths free trade The model of absolute advantage theory The meanings and limitations of absolute advantage theory*Adam Smith Adam Smith (1723-1790) was a Scottish moral philosopher and a pioneer of political economy. He is the author of The Theory of Moral Sentiments道德情 操论 and The Wealth of Nations(1776), the later is considered his magnum opus and the first modern work of economics. Adam Smith is widely cited as the father of modern economics. You can see: http:/en.wikipedia.org/wiki/Adam_SmithAdam Smith (1723-1790)*The advantage of labor division(1) “In every period, indeed, of every society, the surplus part both of rude and manufactured produce（产品;农产品） , or that for which there is no demand at home, must be sent abroad in order to be exchanged for something for which there is some demand at home.”（无论在什么时候，也无论 在哪个国家，无论是原料生产，还是制成品生产，剩余的 产品，或是在国内没有需求的产品，的确都必须向外国出 口，以换取国内需要的某些产品。） “But the study of his own advantage naturally, or rather necessarily leads him to perfect that employment which is most advantageous to the society.”（但每个人琢磨自己的利 益自然而然地，或者说不可不免地将驱使他对资本予以最 佳的运用，这就会实现全社会的最大利益。）*The advantage of labor division(2) “It is the maxim of every prudent ma