Mercantilism Revisited
BROCKWAY, GEORGE P.
The Dismal Science MERCANTILISM REVISITED BY GEORGE P BROCKWAY I have been happily working my way through Fernand Braudel's tangled, lumpy, unmade-bed of a book whose three volumes have the...
...This outcome can be dramatized by asking what would happen if our present peacetime military budget were cut back, not to a rational peacetime level, but merely to the level of 10 years ago, when we were still winding down a war in Vietnam...
...On a more personal level, once you have a television set in every room of your house, your demand for television sets tends to subside...
...The secret of mercantilist success lies in the increased employment of labor...
...And we can do this without importing gold or silver to control the interest rate...
...As it happens, we are giving mercantilist theory another and more direct test...
...and gold and silver have nothing to do with it...
...But military spending (because it does not and cannot face a test of profitability or indeed usefulness) has the political advantage of being supported by conservatives who insist the rest of the government be "businesslike...
...was closer to the mark when he wrote in Works and Days: "From men (he source of life has been hidden well./Else you would lightly do enough work in a day/To keep you the rest of the year while you lounged at play...
...But as Braudel reads the historical record of the actual world, he is forced to recognize that the mercantilist policy was in fact successful...
...To export more goods, it must produce more goods...
...To produce more goods, it must employ more people...
...Since employed citizens are able to make purchases— create demand—these two purposes can work together, though they do not necessarily do so...
...For the power of labor is very great...
...As far as the GNP is concerned, it doesn't make much difference what the government spends its money on...
...Italy and Flanders their linens, so long as our capital can enjoy them...
...the only thing it provesisthatallcountriestrainj ourney-men for Madrid and that Madrid is the queen of parliaments, for all the world serves her and she serves nobody...
...The military budget would then be reduced by approximately $200 billion (or roughly the size of the deficit everyone fusses about...
...About halfway into the second volume Braudel makes some observations about mercantilism, and they have given me furiously to think...
...Holland herchambrays...
...The classical theory fails here (as elsewhere) because it is both ahistorical and asocial...
...To have a favorable balance of trade, a country must export more goods than it imports...
...The laziest, least competent, least efficiently applied labor will today produce far more than it needs to sustain itself...
...Yet no matter how useless the things they produce, the newly employed people earn newly augmented incomes that they spend (up to a point), thereby increasing their own standard of living...
...Therefore, the output of every previously unemployed worker we manage to put to work will raise our standard of living a bit more above subsistence...
...From the point of view of the investor, the purpose of investment is to produce goods that are in demand...
...Their employment, too, would have fallen...
...Reading Braudel on mercantilism in the War of the Spanish Succession, I was struck by the parallels with our current business "recovery...
...It would be greater if the newly employed people built housing here on earth instead of stations in space...
...Criticism of the English policy of 1703 silently assumes that purchasing war materiel overseas would have had no effect on English farms and factories...
...Investment is not stimulated— not stimulated rationally, that is—for its own sake...
...The increase in the standard of living would of course be greater if the newly employed people rehabilitated highways and subway systems instead of battleships that were militarily useless two generations ago...
...It describes an instantaneous slice of a world without time...
...A deficit, in short, has the same salutary effect on the GNP as a favorable balance of trade...
...It bled the colonies for the benefit of the homeland, and consequently the colonies revolted...
...Let's carry the argument a step further...
...He observes that a favorable balance of trade, by bringing in gold and silver, increased a country's money supply, which forced down the interest rate (Federal Reserve Board please note), which stimulated investment...
...Keynes cites the uselessness of two railways from London to York...
...If such a reduction were not immediately offset by an increase in domestic spending, can anyone doubt the economy would forthwith crash into a depression that would make the Nixon-Ford recession of 1975 and the Reagan-Volcker depression of 1981-82 seem like paradise...
...Hesiod (eighth century B.C...
...and it concerns things, like the GNP, not people, likeyouandme...
...Milan her brocades...
...Since even at our present Reaganite shabbiest, we allow almost no one to fall through thesafety net and actually starve or freeze to death, it is plain that we do not need additional workers to provide for their own subsistence...
...Our strong dollar, which is a euphemism for an unfavorable balance of trade, enables some of us to buy Pakistani sports shirts and Japanese automobiles at bargain prices...
...I'll give them a hint: We perversely distribute the benefits of our economy in a way that additionally punishes those who lose their jobs by denying them income to demand the bargains...
...The assumption is that the goods purchased on the Continent would have been added to those produced at home, and that the English wealth would have risen accordingly...
...Those who listened a little longer also know that the mercantilist striving for a "favorable" balance of trade meant exportation of goods and importation of precious metals, a policy that is ultimately self-defeating because, as Midas found out, gold and silver are not good to eat...
...Any spending increases demand, for the simple reason that spending is demand...
...Every American boy or girl who paid even the slightest attention in school knows that mercantilism was a bad idea...
...As it turned out, for lack of trained journeymen Spain fell into a slough of stagnation it has yet to escape three centuries later...
...As I remarked in this space a year ago ("All You Need to Know about the Deficit," NL, October 29, 1984), military spending increases aggregate demand, which increases employment...
...There are limits to some sorts of spending...
...It is surely more sensible to collect what you can use than to squirrel away what is of little or no use in bank vaults...
...The spending increases employment even when the newly employed people produce battle tanks that won't run on rough terrain and fighting planes too complicated to service in the field...
...Less poetically, we know that agriculture now produces more food than we should or can eat, more than enough natural fibers to clothe us, more than enough lumber to house us, with less than 3 per cent of our labor force (or less than 1.5 per cent of our population...
...And the addition of their new demand to the previous aggregate demand calls forth still further employment, and so on...
...These bargains for some people, however, cause unemployment and underemployment for many people in North Carolina and New York and Michigan and ultimately throughout the nation...
...The Dismal Science MERCANTILISM REVISITED BY GEORGE P BROCKWAY I have been happily working my way through Fernand Braudel's tangled, lumpy, unmade-bed of a book whose three volumes have the overall title Civilization and Capitalism: 15 th-18th Century...
...the Indies their beaver and vicuna...
...Florence her cloth...
...As an example of mercantilist foolishness, he tells us that in 1703, toward the start of the War of the Spanish Succession, the English were advised to send "grain, manufactured products and other goods" from home to their troops fighting in the Low Countries...
...These drops in employment would have meant a decline in the English standard of living...
...Any follower of Adam Smith or David Ricardo can see that this policy led England to waste real wealth (usable goods) and save nominal wealth (unusable metal...
...They could have bought these supplies easily and presumably more cheaply on the Continent, but the government was "obsessed by the fear of losing its metal reserves...
...Flying in the face of classical economics, the more advanced economies exported usable goods and imported gold and silver...
...Braudel knows all this, too...
...Carlo M. Cipolla, \n Before the Industrial Revolution (a marvelous book that covers roughly the same ground as Braudel in about one-tenth the space), has an excellently apposite quotation that dramatizes the failure of the classical theory...
...In the early modern world of the mercantilists, the interest rate was, as Keynes said, held down indirectly (and very possibly unintentionally) by fostering a favorable balance of trade...
...The mercantilist policy preserved that standard of living (such as it was...
...From the point of view of the nation, the purpose of investment is to provide employment for its citizens, and to produce things that are wanted...
...But in the real world, English farmers, deprived of part of their market, would have cut back production expenses (which is another name for employment) even if production stayed highforatime.AndEnglish manufacturers of soldier suits and the like would surely not have continued producing them if the government didn't buy them...
...Critics of the mercantilist theory of a favorable balance of trade should ask themselves why an unfavorable balance has such unhappy consequences...
...What Marx called surplus labor is exponentially greater than the 11.1 per cent his admittedly arbitrary calculations yielded...
...In 1675 one Alfonso Nunez de Castro wrote, "Let London manufacture those fabrics of hers to her heart's content...
...We simply have to get some sense into the Federal Reserve Board...
...Inanycase," he writes, "every time we have to deal with a comparatively advanced economy, its trade balance is in surplus as a general rule...
...In the infrequently noticed catch-all Chapter 23 of The General Theory of Employment, InterestandMoney, John Maynard Keynes includes some "Notes on Mercantilism...
...In the world of theory, the mercantilist passion for a favorable balance of trade seems indefensible...
...theclassical theory would have reduced it...
...Even putting to one side the facts that capital is the result of past labor, and that natural resources can be exploited only by labor, labor power is our ultimate power...
...It would be greater if the newly employed people were cleaning up existing toxic wastes instead of producing new poison gases that will have to be burned or buried...
Vol. 68 • October 1985 • No. 13
