I Push Back Against the Anti-Mercantilists
Don’t worry kids, I’m not angling for a spot in the Trump Administration. But lately I’ve been uncomfortable with some of the standard rhetoric “my side” puts out, regarding free trade and in particular in their critiques of mercantilism.
From p. 279 of Larry White’s (excellent) book The Clash of Economic Ideas, we have this quote from Nassau Senior:
“that extraordinary monument of human absurdity, the Mercantile Theory–or, in other words, the opinion that wealth consists of gold and silver, and may be indefinitely increased by forcing their importation, and preventing their exportation: a theory which has occasioned, and still occasions, more vice, misery, and war, than all other errors put together.”
Now to be sure, I am 100% opposed to mercantilist policies. However, I think sometimes free traders take things too far. It’s NOT a fallacy to think that your nation is richer, OTHER THINGS EQUAL, the more gold and silver it has.
Or at least, it’s no more a fallacy to think that of your nation, that it is to think that of a business or household. And surely not even Nassau Senior (or Don Boudreaux in our time) would tell a business owner, “You’re committing a fallacy if you think your checking account balance is a form of wealth.”
So I think the real problem with mercantilism was not that they thought gold and silver were forms of national wealth, but rather that they may have believed they were the only forms of national wealth, and that they consequently used coercion to artificially accumulate gold and silver at the expense of other desirable outcomes, thus making the nation poorer.
If you doubt me, just keep going back to an individual business. It would be stupid for an outsider to say to the owner, “Hey, I’m gonna help you get richer by punching you in the face every time you try to spend money.” But when you try to explain why it’s stupid, it’s not that you would say, “Because if you just have more money, prices go up; you’re not really any richer.”
Remember your Adam Smith: “What is prudence in the conduct of every private family, can scarce be folly in that of a great kingdom.” And every family would agree that the household is definitely richer, other things equal, if it has more gold coins. There’s no fallacy involved.
Well said.
The devil is in the “all else equal” clause. If accumulation of more gold necessarily implies that all else is not equal, then this is something of an oxymoron.
I think this sort if is your point – it is the costs in other ways that pursuit of gold entails that is the problem, not the gold itself. However, is this not assumed by those that argue against mercantilists?
I agree with you and Bob.
I guess sometimes “obvious” assumptions/implications should be spelled out. Especially if you are talking to people who do not agree with your opinion, which is why you tell them in the first place..
And also very often, like here, it means spelling out a fact of common ground. Finding common ground is imo is the most important step when you discuss matters with others. People (me included) are too quickly going into the meat of the matter, instead of laying a good solid (common)groundwork. That is my observation at least.
Bullionism is a form of Mercantilism but Mercantilism was more about hoarding industries in the home country.
The more industry, the more things produced and sold and thus cash inevitably piles up. But it wasn’t about the money, it was about the production.
It was about being at the top of the production food-chain. Import raw materials and export finished goods and try to make sure the home country has monopolies or near-monopolies on the highest value items. All with an end to making the home country an economic hegemon with a high-skilled, high-paid population with little unemployment.
So to say all Mercantilism or Mercantilists were about hoarding money is misleading. Perhaps it’s some form of a human figure made out of a common food for cows.
If you want to argue about this, argue against the main arguments. This is like someone arguing against Christianity by concentrating on the snake-handler folks.
If you believe in technological positive feedback, then hoarding industries from high in the “food chain” works nicely, because you gather all the people together who are likely to be the center of whatever new technology comes along. Thus, with every disruptive paradigm shift, you already own it.
I’m aware that classical economics outlaws positive feedback, but I think that the Mercantilists intuitively understood that it can exist (although difficult to predict exactly where it will turn up, so no doubt people can point to blunders). Thing is the British Empire (and Europe in general around the 18th and 19th Centuries AD) was pretty darn successful and they didn’t achieve that by playing fair at any stage. You might be tempted to say the same about the USA during the 20th Century (but they got a convenient boon when Europe decided to smash itself after that unfortunate little misunderstanding between Chamberlain and Hitler).
Anyone who hasn’t read Paul Ormerod, “The Death of Economics” or something similar should probably at least get some passing familiarity with the idea of positive feedback. I’m sure there’s other books with similar gist to them.
There’s a secondary problem with protected industries which is complacency… you need competition to strip out the junk, which leaves the difficult judgement of trying to keep hold of those industries that are most likely to spawn tech breakthroughs without leaving them too comfortable and coddled to the point where they can’t bother trying. Doesn’t entirely matter where that competition comes from… could be domestic, could be overseas. The British Empire was made of colonies which were quasi-independent while the USA is made of states with a similar quasi-independence. I think that’s part of the secret.
Complacency can be handled by being totally laissez-faire at home and if that’s not enough, give fair warning to the industry that in some months time all the protection for their industry will be withdrawn and foreign-made goods will be allowed to flood in and grab market share.
That should light a fire under them.
Of course the bureaucrats would have to somehow know that the industry is being complacent and needs to be challenged and shaken up.
I don’t recalling hearing your standard “I’m not a Trump fan” in ContraKrugman episode 121. So, when you are offered a spot, are you accepting it?
“Remember your Adam Smith: “What is prudence in the conduct of every private family, can scarce be folly in that of a great kingdom.” And every family would agree that the household is definitely richer, other things equal, if it has more gold coins. There’s no fallacy involved.”
Remember your Methodological Individualism: Nations don’t get rich – individuals do.
Appendix B: “Collective Goods” and “External Benefits”: Two Arguments for Government Activity
[www]https://mises.org/library/man-economy-and-state-power-and-market/html/p/1159
“Secondly, the very concept of “collective goods” is a highly dubious one. How, first of all, can a “collective” want, think, or act? Only an individual exists, and can do these things. There is no existential referent of the “collective” that supposedly wants and then receives goods.”
Adam Smith was wrong.