Thursday, September 07, 2006

Capitalism, or mercantilism?

I've been having an interesting discussion with David about whether the industrial expansion (and personal liberty contraction) of the late 19th and early 20th centuries are the result of capitalism or mercantilism. He's quite right that the "anything for a buck" ethic that permeated certain parts of the "gilded age" did huge damage to the prior culture of small businesses and farms. Real quality has trouble competing with authentic-looking forgeries, as anyone who competes with Wal-Mart knows all too well.

However, he's also absorbed the same lesson we were all told in school; that the excesses of the gilded age were representative of capitalism, and that the 20th century shift to mild socialism occurred due to the excesses of capitalism. Unfortunately, this explanation of history is one of the most egregious examples of bait & switch that I can think of.

Let's start with definitions. "Capitalism" is an economic system based on free markets and minimal government intervention. "Mercantilism" is an economic system where governments make intensive use of tariffs, subsidies, and colonization to create markets for industrial goods and achieve a positive trade balance.

The bait is obvious; the late 19th century featured, at least in comparison to today, very few of the governmental regulations which today amount to a 14% or so tax on all business conducted here. So at least at a superficial level, the late 19th century does appear to be a great example of laissez faire capitalism.

Now the switch; the late 19th century also featured a 45% tariff, massive subsidies of railroads and other enterprises, and aggressive colonization of the Great Plains, Mexico (U.S. Southwest), and the South. Emphasis was placed (and remains to this day) on the balance of trade.

In other words, government policy of the time (which continued to the mid-20th century) was strongly mercantilist, not capitalist.

Now let us consider the case of a factory owner in New England. Does it matter how greedy or wicked he is if the means to get his product to consumers in Iowa, Alabama, and so on is more expensive than manufacturing that item locally, or importing it from England?

One sees rather quickly that the key element in the formation of huge factories in the U.S. is not capitalism, but rather the mercantilist ethic which subsidized internal transportation (railroads) and levied huge tariffs on foreign competition. What a tragedy that this horrendous bait & switch by Marxist historians promotes the problem (government involvement) and slanders the solution (free markets).

And how to fight "anything for a buck" and monstrous factories? Learn to recognize junk, and stop buying it. Corporate product managers can't resist the urge to cut another penny from the bill of materials, and hence the products made by the millions tend to be junk.


Anonymous said...

This is a very good explanation of our discussion. In your original post on my blog you were correcting my terminology when I said it was "capitalism" that the Southern Agrarians opposed. You said I should have used "mercantilism". Here you say,

"the late 19th century featured, at least in comparison to today, very few of the governmental regulations which today amount to a 14% or so tax on all business conducted here. So at least at a superficial level, the late 19th century does appear to be a great example of laissez faire capitalism."

Oddly enough, this is exactly what I'm talking about. It was the period around the turn of the century (19th) when the Southern Agrarians e.g., the Fugitive Poets, were speaking out about the abuses of laissez faire capitalism. If, like you have said here, "the late 19th century does appear to be a great example of laissez faire capitalism."", then why is not plausible that they had this in mind when they were writing during this period and immediately after?

I'm not going to quibble about the exact date, but there was a change from captialism back to mercantilism (sometimes called neomercantilism) that took place during the first part of the 20th century. That is not in question. And it has led, like you've said, to the socialistic system of today.

Thanks for the post.

Mercy Now said...

Bert, you cannot expect the avg viewer to use the scroll bar when reading blogs. Guess I'll have to do it in two settings:o)

Mercy Now said...

Ok, I read it in one setting and my fingers are tired from the scrolling. Nevertheless, are you saying that the US, the free-est enterprise system of the world, is very much socialistic? Do you see us moving away from it since the economy is much more global now or vice versia depending upon whether our politicians are protectionists or not?

Bike Bubba said...

David; yes, southern agrarians did complain about "laissez faire capitalism," but that doesn't change the fact that the central tendencies of economic policy--tariffs, subsidies, government schooling, and colonialism--are hallmarks of mercantilism.

Again, you've GOT to get back to the definitions. If something is BY DEFINITION not free market capitalism, no number of statements by Marxist historians or southern poets can change that fact. It is "by definition" excluded, PERIOD.

Mercy, we are to be sure talking about degrees. However, it is a fact that when 40% of income goes to government and another 14% or more is absorbed in regulatory costs, we are by no means "capitalist" anymore.

The most capitalist places in the world today are, moreover, some of the former USSR/Warsaw Pact nations and Singapore.

Which way will we go? That probably depends on whether our nation embraces sound economics or not. I'm frankly not optimistic, given the degree of misinformation out there. Again, if we can't figure out that tariffs and subsidies aren't exactly free markets, calculating the long term disaster of Social Security and Medicare will almost certainly be beyond our abilities.

Mark said...

I wouldn't mind a bit of a return to mercantilism. We need to make things here in this country. We can't expect to import our army boots, tanks, and airplanes from our enemies or our "allies." Same goes for computers, tools, etc.

Unfortunately "capitalism" (is it "anti-mercantilism"/globalism?) is what drove New Balance (once a dedicated "Made in America" running shoe company) to China and ~$0.3/hour wages.

Does RedWig make running shoes, Bert? Otherwise I'm at a loss for a USA manufacturer. :^/ Bah.

-- posted by Marklark using a new old Blogger account

Anonymous said...

Thanks bubba for your reply. I don't disagree with your definitions or capitalism or mercantilism. And the idea that we're under a new form of (neo)mercantilism never really occurred to me. I thought we had moved from capiltalism to socialism, but mercantilism does seem to fit rather well between the two.

I guess my question is, do you see mass production, specialized labor, factories, materialism, fiat currency, debt-based ecomonics, interest-based banking etc. more as characteristics of capitalism or mercantilism?

Bike Bubba said...

Mark, David, probably best to answer in another post.