The return of mercantilism

By Michael R. Allen
web posted April 1999

Politics is often repetitive, especially when the politicians have few ideas of their own. In the United States there is the constant growth of the power of government, and the consistently impotent movements to harness that growth. Analogies between Bill Clinton and nearly every president since Lincoln are regularly heard from the panels of unctuous historians that parade from MSNBC to the PBS NewsHour and back. The war in Bosnia can be compared to the Vietnam debacle.

Most of the continuity has been to the detriment of individual freedom; unfortunately the one trend that did not last was constitutional government. Recently, the protectionists have embraced another old idea that is neither economically sound nor prudent: mercantilism.

Patrick Buchanan, announced candidate for the 2000 Republican nomination for president, has usually denounced the various managed trade schemes that are indeed dishonest and destructive. He was the prominent leader of opposition to the North American Free Trade Agreement (NAFTA), and has rigorously complained about the other international institutions which perpetuate the loss of American manufacturing jobs.

On some points, he is correct. NAFTA, GATT, and other trade policies have intruded into our country's laws by forcing upon us labor, environmental, and patent regulations that are useless. These agreements are not healthy when they are coupled with embargoes, as the US has against Cuba, Iraq, Libya, and other nations where American goods are desired. Buchanan's argument is flawed, though, when he proposes his alternative.

He has supported ending the Iraq embargo, so Buchanan cannot be regarded as entirely wrong in his trade policy. But a statement on his website raises suspicion. He aims to "...reclaim our sovereignty over national economic policy, rebuild our manufacturing base, create, not export, good industrial jobs..."

The Buchanan trade agenda is not one of a free market, or even free trade with a uniform tariff. The underlying focus of Buchanan's economic plan is a nationally-directed effort to aid the "manufacturing base" which is becoming obsolete through global competition. Rather than allow for market adjustments in where and how goods are made, Pat Buchanan seeks to retain an industrial situation that is static. In this, he echoes the old mercantilist policies of the seventeenth, eighteenth, and nineteenth centuries.

The protectionist scorn for open trade resembles the situation in England that led to the Navigation Acts, which taxed competitors to aid English manufacturers experiencing tough competition from Dutch and new American industries that could sell Brits better goods for less. This disrupted the division of labor worldwide, crippling competitors, but also helping certain factory interests and their political assistants. Though he is not explicitly in favor of aid to industrial interests (as a matter of fact, he has criticized them for lay-offs), Buchanan promotes an economy in which industry would be protected from threats, and where consumers would pay higher prices as a result (another form of aid to industry).

More outward about his intentions is US Rep. Bob Barr (R-GA), the model of a politician who borrows liberally the ideas of others. In a March 5th column, he mocked free trade as "nice-sounding" and "high-minded" while attempting to explain how it could never work. It is not too surprising to hear this ersatz federalist promote an agenda rife with inconsistencies and contradictions; after all, he supports the federal drug war and obscene military budgets all while descrying world socialism and big government. Still, Barr's rejection of free trade does need an explanation, which he provides.

In the same column, the Georgia Republican mentions a conversation he had with textile magnate Roger Milliken about the loss of jobs to overseas competitors. By the word, there it is! Barr wants to protect his friends and supporters from having to actually compete in a free marketplace.

As the column notes, 109 000 jobs were lost since NAFTA was enacted. Omitted, though, is any mention of jobs gained lately, and what sort of jobs disappeared. In a competitive market where the world is open, competition is not going to be local in most instances. Asian manufacturers may well produce better textiles for less than Milliken can charge. To compensate, Milliken will have to alter his operations strategy or fail by being inflexible.

Of course, Milliken could more easily persuade one of his friends in Congress or the Commerce Department to work on raising the tariffs against competitors. Many people support this sort of move if mention is made of the common factory worker losing his job to a worker of a different racial background. Buchanan capitalizes on this, as do his fellow protectionists right and left.

Yet mercantilism did not help the working classes achieve any sort of advantage over the wealthy. As a matter of fact, the policies instituted in England under Elizabeth I were specifically designed to reward a small group of the rich:

"The statute [a forced labor law of 1563] also acted to restrict the growth of the woolen textile industry; this benefited two groups: the landlords, who would no longer lose laborers to industry...and the textile industry itself, which received the privilege of keeping out the competition of new firms and new craftsmen."[1]

Protecting Milliken and company from competition might seem beneficial to American workers but really is to their detriment as their industry eventually collapses through stagnation. And the costs of protectionism to consumers hurt every American worker.

To left-wing protectionists the hypocrisy is not as big as that which burdens the right-wing opponents of an open global market. Barr fancies himself a constitutionalist and Buchanan has opposed many functions of the government and its foreign policy. How do these views reconcile with their resurrection of old mercantilism?

To enforce protectionism, a strong central government is needed to intervene in economic affairs, the one area where these two men claim to be the most libertarian. With economic restrictions come economic failures, and before long there will be a demand from some people for more intervention to cure the ill effects of the first intervention. The old-time mercantilists understood this pattern and embraced it:

"Mercantilism was not only a policy of intricate government regulations; it was also a pre-Keynesian policy of inflation, of lowering interest rates artificially, and of increasing "effective demand" by heavy government spending and sponsorship of measures to increase the quantity of money. Like the Kenynesians, the mercantilists thundered against 'hoarding'..." [2]

Inflation, heavy government spending, and disdain for savings seem to be what conservative politicians abhor - though by embracing new mercantilist laws they are inviting all of these problems. Their economic plans are dangerous and must be avoided; mercantilism ought not be repeated any more so than it has been. Murray Rothbard warned of a "contemporary drive for a new mercantilism"[3] as early as 1964, and Buchanan, Ralph Nader, Ross Perot, and others emerged as political figures as the 1980s drew to an end. So far, the temptation for such a policy has been resisted as managed trade is implemented. NAFTA-style trade should be ended. Protectionism should not be tried again.

Notes

  1. Murray N. Rothbard, "Mercantilism: A Lesson For Our Times," in Essays on Liberty,
    Vol. XI (New York: Foundation for Economic Education, 1964) p. 194
  2. Ibid. p. 186
  3. Ibid. p. 200

Michael R. Allen is the editor-in-chief of the very fine monthly magazine SpinTech.




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