We defined mercantilism:
- an economic theory/system dominant in the 16-18th centuries
- intended to increase national power by hoarding gold/silver in national vaults
- indicated governments should use tariffs to control trade to seek a positive balance of trade (more exports than imports, thus increasing the amount of gold/silver within the nation)
- often led to "tariff wars" wherein political rivals imposed high tariffs on imports from one another
How did colonies help a mother country maintain a positive balance of trade?
- Colonies could produce gold/silver. (ex. South Africa, Peru, Mexico)
- Colonies provided markets to purchase exported goods from the mother country.
- Colonies provided raw materials inexpensively to the mother country, which then manufactured the raw materials into finished goods which it could export.
We used a demonstration to illustrate mercantilism and free market principles:
China produced red markers it imported into the U.S. and sold at $0.80/unit and the U.S. produced green markers it sold at $1.00/unit. Costumers, seeking their own self-interest, purchased the less expensive Chinese markers. In response, under mercantilism, the U.S. government would place a $0.25 tariff on imported Chinese markers, the cost of which the Chinese marker industry passed on to consumers, raising the price to $1.05/unit. Under these conditions, the consumer purchased the U.S. markers.
Who loses in this scenario? Clearly the Chinese marker industry. However, Adam Smith would argue that everyone actually loses. The consumer ends up paying an artificially inflated price. The U.S. marker industry looses an opportunity to either innovate to find more efficient production methods or to fail and invest the marker industry resources in a different area in which they would actually be more efficient and profitable.
Next, we asked the consumer to consider the quality of the markers. When she tested them, she found that the red markers did not work nearly as well. Under free market conditions, the costumer would have naturally purchase the higher cost but better quality green markers. This would require the Chinese marker industry to improve the quality of their product to remain competitive.
What is Adam Smith saying about failure?
- It is healthy because the threat of failure can drive innovation and efficiency and it redirects a nation's resources towards their most efficient employment.
How does a free market produce efficiency, quality, and innovation?
Next, I suggested that every moment of life is an economic situation. What is economics? The exchange of one thing of value for something we value more. To the man who manufactures markers and can easily produce thousands a day, he will willingly trade five markers for a sub sandwich from a restaurant. It would take him more time and effort (more value) to make the sandwich than to make the five markers. Likewise, the restaurant makes the trade because it would take more time and effort (value) to make the markers than to make the sandwich. Money is simply symbolic value that makes trade more efficient.
In the classroom, we do not exchange tangible goods or currency, but we still exchange things of value. Students choose to exchange their human effort (labor/time) for knowledge, skills, and experiences. When a student does not put effort into a particular class or subject area, it is because the student does not perceive the knowledge offered to be of greater value than the effort.
We considered that sometimes with knowledge, it is difficult to see the true value before acquiring the knowledge. Thus at times we act in reasoned faith, if we trust the teacher knows what is valuable. Like a man who believes there may be gold in a hillside which he cannot yet see, we might take a sample to test the value of what lies hidden beneath. Of course, even taking a core sample requires the investment of some resources, though this reduces the risk before investing greater resources in actually buying the hillside.
I suggested that I would like to have a free market in the classroom through the remainder of the year. We considered ways in which teacher-directed learning is sometimes efficient and ensures quality and sometimes terribly inefficient. We also considered how student-directed learning provides "competition" to the teacher's ideas and methods in a way that may foster innovation, efficiency, and greater overall value. We saw that there is a need for a balance of both in the classroom.
Before entrepreneurs launch a new business, they do a small-scale proof of concept market test. Likewise, tomorrow we will have individual students suggest their own method of measuring the value of what they have learned on the topic of Adam Smith. We evaluated various means of measuring learning.
Homework:
- Les Miserables reading through page 160 due tomorrow. There will be a reading check.
- Resume cover letters due tomorrow. Final draft, reviewed by adult.
