Revival of mercantilist thought among conservatives

Vijay K. Mathur

Published in Standard-Examiner, November 6, 2011, Ogden, Utah

Mercantilism prevailed in Europe after the decline of feudalism in the early 15^th century and the beginning of the Industrial revolution in 1780.   The term mercantilism is derived from the Italian word for merchant.  Mercantilists were a disparate group of writers and thinkers.   Professor E. Ray Canterbury states in his book, The Making of Economics, that mercantilism  “was the first major alliance in modern history between government and business.”

I see some parallels between mercantilist thought and the views of some right-wing conservatives in state governments, in the Congress, and our Republican presidential candidates.  Let me first discuss some salient features of mercantilist thought.  A detailed analysis can be found in the book A History of Economic Theory and Method by Professors Robert Ekelund Jr. and Robert Hebert.

Mercantilists were obsessed with material gain, a source of power to the state (monarchy).  They favored selective regulations, subsidization and taxation of industries, and monopoly in some sectors. Their efforts and writings were mainly directed at state actions to benefit the merchant-capitalists.  They even advocated import tariffs to achieve trade surplus, because it would  result in the accumulation of gold and silver (acceptable currency during those times), and therefore power and benefits to merchant-capitalists.  David Hume, 18^th century British philosopher-economist, discredited this idea, arguing that surplus in the trade account and hence accumulation of gold and silver will increase money supply and therefore inflation.  Inflation in turn will reduce exports and increase imports, causing the surplus to dissipate.

The most telling feature of mercantilist thought was their views on labor.   As Ekelund and Herbert state, interests of mercantilists and aristocrats converged on the issue of wages.   Mercantilists argued labor should be paid subsistence wages; high wages would make them work less.  Poverty  would make them industrious.  “Unemployment was, … , simply the result of indolence.”   They even advocated that children of the poor should not be educated at public expense because it is destructive to the poor and promotes idleness.  Education is only relevant for the livelihood of the business class.  

Now let us look at what today’s conservatives and their wealthy and corporate supporters are proposing.  As opposed to mercantilists, most tend to support free trade.   However, they want to restrict trade with countries that manipulate their currencies, do not follow humanitarian treatment of labor, subsidize industries, and have lax environmental laws.  Even some academic research is raising doubts about benefits of free trade based upon comparative advantage.

There are similarities between mercantilists and current corporate world, wealthy and conservative politicians.  Money spent by business class and wealthy on contributions to political campaigns and on lobbying congressional politicians to maintain and/or increase their share of income and wealth through favorable taxation, spending and regulatory policies has grown manifold; influence peddling in politics by corporations even has the blessing of the Supreme Court.   Researcher Lee Druutman reports in his paper that corporate lobbying expenditure increased 77% from 1998 to 2008.  A U of Kansas study, reported in The Christian Science Monitor, April 10, 2009, estimated that every $1 spent by corporations on lobbying Congress brought $220 in return.

Tax policies proposed by Republican presidential candidates would further worsen the income distribution problem.  There is no convincing evidence that prevailing income inequality is beneficial for economic growth.  Backed by deep-pocketed lobbyists, conservatives in state and federal government want to take away the countervailing bargaining power of labor unions, thus worsening income inequality.  Among many conservatives there is a belief, just like mercantilists, that poor people are poor because they are basically lazy and lack work ethics.  They also think that minimum wage laws should be abolished.  Herman Cain, Republican candidate for president, and Tea Party favorite, argues that it is the fault of unemployed that they do not have jobs.  Public education is also under attack, and some are advocating eliminating the US Department of Education.

In the present political climate mercantilist thought controls the overall ideology among right-wing conservatives, often legitimized by some conservatives in think tanks with a forum in conservative media.  

Right-wing conservatives’ ideology is even worse than mercantilism because it gives the impression to Americans that their policy actions, aimed at corporations and wealthy, will ultimately benefit low and middle income Americans.  It is high time to bury the idea that making rich richer and wealthy wealthier through government policy will generate more opportunity for non-rich.  What the political establishment has to do is to open up more avenues of opportunity aimed directly at non-rich, so that they can acquire more human capital and become successful entrepreneurs.  I hope that conservative politicians’ alliance with business and wealthy is a temporary phenomenon, because otherwise it will take the country’s progress back to the mercantilist era and dismantle the middle class—the fountain of entrepreneurship.   It will have a deleterious effect on democracy, free competitive markets and growth.

Mathur is former chair and professor of economics, and is now professor emeritus at Cleveland State University, Cleveland, Ohio.  He also writes original blogs for the Standard-Examiner at http://blogs.standard.net/economics-etc/.