Mercantilism: Old and New

Dr. Gary North wrote:

Keynesianism is almost universally believed today. Therefore, mercantilism is almost universally believed. This connection is not intuitive, but it is nonetheless true. What the economics textbooks do not say, because they are written mostly by Keynesians, is that Keynesianism is mercantilism with equations.

The textbooks are officially anti-mercantilistic. There is a reason for this. Mercantilism is officially wrong, because it is undeniably old. Textbooks promote that which is new: “The latest is the greatest.” Mercantilism was believed from 1650 to 1750. It is therefore outmoded.

Yet it is in fact the dominant economic philosophy today. But it operates under cover. The cover is called “managed trade.” It is sometimes called “fair trade.” The high priests of mercantilism baptize the new convert in the name of free trade, but then they catechize him in terms of modified mercantilism. Modern mercantilism is “free trade with modifications for justice’s sake.” “Justice” is defined operationally as “protecting a politically favored voting bloc.”

Keynesianism is an economic philosophy based on the idea that the free market requires forceful intervention from the government in order to maintain justice and efficiency. The free market is both inefficient and unfair to the common man. This is also true of Mercantilism.

Wikipedia says:

Mercantilism is the economic doctrine in which government control of foreign trade is of paramount importance for ensuring the prosperity and military security of the state. In particular, it demands a positive balance of trade. Mercantilism dominated Western European economic policy and discourse from the 16th to late-18th centuries.[1] Mercantilism was a cause of frequent European wars in that time and motivated colonial expansion. Mercantilist theory varied in sophistication from one writer to another and evolved over time. Favors for powerful interests were often defended with mercantilist reasoning.

Neo-Mercantilism seems to be the predominate economic theory of the present age. The USA has bases all over the world and controls, in many varied ways, the governments of countries globally. It is not only about the oil.

Original mercantilism was the widely held, incorrect theory of trade that insisted that a nation grows rich by exporting more than it imports. Britain had a huge navy and army to force other nations into a position whereby Britain could control trade between nations; thinking that by doing so they would become more wealthy.  Since a nation gets rich only if its residents get rich this idea was a major error. It was refuted by various famous economists, but as modern truth-telling by the Austrians shows; that rarely sways politicians.

Modern mercantilism in the West has changed the direction of the import/export idea. Now mercantilism says a nation grows rich by importing more than it exports. You go into debt to buy from foreign exporters and this “borrow to grow rich” idea seems to make sense to modern Western politicians. This is Western Keynesianism.

The Asians still believe in old style mercantilism so they lend to us to buy their products and we happily borrow from them to buy these products.

This modern mercantilism or Neo-mercantilism is called by another name: Keynesianism. No matter the name: the idea has been refuted by economists and by history time and again. Yet the USA still thinks outspending the rest of the world on the warfare machine will make us more wealthy. This is Lunacy.

The thing to remember is that “mercantilism” has been discredited and no one believes in that system anymore. The textbooks even say so. But mercantilism is just the old name for Keynesianism so Keynesian economic theory is bunk also. Remember that when you listen to politicians.

 

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