Mercantilism Never Went Away
The debate over the Export-Import Bank continues, with the bank's friends in Congress and other high places claiming that the Bank serves an indispensable function in the American economy. Larry Summers, for instance, defends the bank on the grounds that foreign authoritarian and "mercantilist" countries subsidize trade more aggressively than does the United States, therefore the bank is necessary. Summers also seems to be under the impression that the US and the West practice something called "open market capitalism." This exchange exhibits a way of thinking among some mainstream economists in which The US economy is capitalist while "mercantilism" is something that foreigners or people of ages past engaged in. In this article, however, political scientist Dani Rodrik at Harvard states what we have long already known: "mercantilism never really went away," and perhaps inspired by people like Summers, he observes that "Today, mercantilism is typically dismissed as an archaic and blatantly erroneous set of ideas about economic policy." Rodrik is no enemy of mercantilism, though, and then goes on to sing the praises of mercantilism, which he regards as under-appreciated. It is no doubt true that many scholars (either honestly or dishonestly) claim mercantilism to be dead and buried in the West, but many who are familiar with the details of economic history will be forced to find mercantilism all around him. We can engage in semantic debates over whether or not modern "third way" economies are mercantilist, strictly speaking, but if these modern economic systems — that happily employ central banks, state corporations, and trade policies designed to benefit a certain group of people — are not mercantilist, then it's hard to see what else they could be. Michael Heilperin defines mercantilism as a subspecies of "economic nationalism," but we might also say this is a distinction without a difference. John Cochran, for example, has explained how the debate between libertarians and interventionists is essentially just a continuation of the historical debate between mercantilists and classical liberals. Apparently unknown to Rodrik, mercantilism has received plenty of good press before. Writing in 1963, Rothbard discussed the ongoing non-death of mercantilism. Prior to World War II, mercantilism was disparaged often by the free-marketeers, but following the rise of Keynesian orthodoxy, people began to discover that there were many similarities between their own system and the mercantilists:
Mercantilism has had a "good press" in recent decades, in contrast to 19th-century opinion. In the days of Adam Smith and the classical economists, mercantilism was properly regarded as a blend of economic fallacy and state creation of special privilege. But in our century, the general view of mercantilism has changed drastically. Keynesians hail mercantilists as prefiguring their own economic insights; Marxists, constitutionally unable to distinguish between free enterprise and special privilege, hail mercantilism as a "progressive" step in the historical development of capitalism; socialists and interventionists salute mercantilism as anticipating modern state building and central planning.
Keynes himself likely saw the connections, although he avoided using the term "mercantilist" to describe the core of his agenda. In a speech titled "The End of Laissez-Faire" Keynes was explicitly advocating for more mercantilism in the form of "public corporations" and "separate autonomies":
I propose a return, it may be said, towards medieval conceptions of separate autonomies. But, in England at any rate, corporations are a mode of government which has never ceased to be important and is sympathetic to our institutions. It is easy to give examples, from what already exists, of separate autonomies which have attained or are approaching the mode I designate - the universities, the Bank of England, the Port of London Authority, even perhaps the railway companies. In Germany there are doubtless analogous instances. But more interesting than these is the trend of joint stock institutions, when they have reached a certain age and size, to approximate to the status of public corporations rather than that of individualistic private enterprise. One of the most interesting and unnoticed developments of recent decades has been the tendency of big enterprise to socialise itself. A point arrives in the growth of a big institution - particularly a big railway or big public utility enterprise, but also a big bank or a big insurance company - at which the owners of the capital, i.e. its shareholders, are almost entirely dissociated from the management, with the result that the direct personal interest of the latter in the making of great profit becomes quite secondary. When this stage is reached, the general stability and reputation of the institution are the more considered by the management than the maximum of profit for the shareholders. The shareholders must be satisfied by conventionally adequate dividends; but once this is secured, the direct interest of the management often consists in avoiding criticism from the public and from the customers of the concern. This is particularly the case if their great size or semi-monopolistic position renders them conspicuous in the public eye and vulnerable to public attack. The extreme instance, perhaps, of this tendency in the case of an institution, theoretically the unrestricted property of private persons, is the Bank of England. It is almost true to say that there is no class of persons in the kingdom of whom the Governor of the Bank of England thinks less when he decides on his policy than of his shareholders. Their rights, in excess of their conventional dividend, have already sunk to the neighbourhood of zero. But the same thing is partly true of many other big institutions. They are, as time goes on, socialising themselves. Not that this is unmixed gain. The same causes promote conservatism and a waning of enterprise. In fact, we already have in these cases many of the faults as well as the advantages of State Socialism. Nevertheless, we see here, I think, a natural line of evolution. The battle of Socialism against unlimited private profit is being won in detail hour by hour. In these particular fields - it remains acute elsewhere - this is no longer the pressing problem. There is, for instance, no so-called important political question so really unimportant, so irrelevant to the reorganisation of the economic life of Great Britain, as the nationalisation of the railways. It is true that many big undertakings, particularly public utility enterprises and other business requiring a large fixed capital, still need to be semi-socialised. But we must keep our minds flexible regarding the forms of this semi-socialism. We must take full advantage of the natural tendencies of the day, and we must probably prefer semi-autonomous corporations to organs of the central government for which ministers of State are directly responsible.
Rothbard noted that mercantilists enjoyed similar positions in the milieu of ideology that Keynesians do today. The free-market proponents were criticized as doctrinaire while the mercantilists and Keynesians are defended by their friends in positions of economic privilege as "practical" men who did not go in for all that "extreme" free market talk.
The mercantilist writers, indeed, did not consider themselves economic theorists, but practical men of affairs who argued and pamphleteered for specific economic policies, generally for policies which would subsidize activities or companies in which those writers were interested. Thus, a policy of favoring exports and penalizing imports had two important practical effects: it subsidized merchants and manufacturers engaged in the export trade, and it threw up a wall of privilege around inefficient manufacturers who formerly had to compete with foreign rivals. At the same time, the network of regulation and its enforcement built up the state bureaucracy as well as national and imperial power.
We're lectured today by the neo-mercantilists who claim that if it were not for all the bailouts and quantitative easing and "priming the economic pump" of the state, the world would be in chaos. Those of us who oppose such flamboyant displays of crony capitalism (i.e., mercantilism) are dismissed as impractical. We find this in Rodrik's article which, in addition to explaining his liking for mercantilism, is a vehicle for trashing the gold standard and claiming that free markets and mercantilism can happily live side by side. Rodrik's overall position is that the growth in China and other Asian countries owes much to some sort of balance between capitalism and mercantilism. He concludes, however, that mercantilism will become more important in the future because capitalism has produced so much inequality and it has "spawned" the financial crises we see today. Naturally, Rodrik blames capitalism for all the ills that mercantilism has caused, because, well, it should just be assumed that capitalism causes inequality while mercantilism does not. The opposite is true of course, but Rodrik's article is probably nicely representative of what the interventionists regard as penetrating economic analysis.