Mercantilism was never about economics

Monday, July 9th, 2018

Mercantilism was never about economics, Ben Landau-Taylor explains:

I believe mercantilist policies were the central government’s solution to the problem of taxation. While modern governments can impose taxes almost arbitrarily, early modern governments could not. Royalty made money from the farmland they owned, but as the economic center of gravity moved from the farms to the towns, this became less important, and they needed more money. The royalty lacked the local knowledge and “boots on the ground” to collect taxes outside of their demesne, and so had to act through the local power holders. In the manors, this meant acting through the nobility. (That’s a complicated topic beyond the scope of this piece, so I’ll just gesture at the British Parliament and the civil wars that accompanied its origins as an example of the power struggles this provoked.) In the towns, this meant acting through the guilds.

It wasn’t practical to simply extort money from the guilds, so they ended up in a more symbiotic relationship with the state. Essentially, the deal was that that the state would use force to shut down the guild’s competition, and in return the guild would pay taxes and help administrate their collection. In other words, the state would sell a monopoly to the guild. The guild would then submit to the collection of tariffs, or to paying duties on their merchandise, or some other tax on their transactions. (Notably, I know of no cases in this period where income or wealth were taxed directly. States couldn’t get away with that until later.) Jean-Baptiste Colbert pursued this policy more brazenly and systematically than anyone else I’ve looked at.

Through this lens, the mercantilist policies make more sense. The focus on money was because the purpose was to collect money, and so the central government wanted to bring more money into the country and track it as precisely as possible. The hodgepodge of regulations follows no systematic rule of economics, but does follow the pattern of a symbiotic trade between the state and the guilds. For example, a punitive tariff on imported wine will raise some money for the state, and more importantly, it is a favor to the domestic winemaker’s guild (which pays taxes, unlike foreign winemakers). Granting a monopoly to a favored shipping company makes no sense as an economic policy, but does make sense as a taxation policy.

Of course, whenever the state is pursuing a course of action, there will arise a demand for intellectual arguments that the state policies serve the common good, and thinkers will arise to fill this demand. Such thinkers made arguments for mercantilist policies, and some then generalized these arguments and made further recommendations. However, I have seen no evidence that these thinkers were influential or their recommendations adopted, and suspect that they had negligible effects.

Nevertheless, these intellectuals made a convenient foil for Adam Smith and his peers. By casting them as his foes, Smith was able to demolish them and demonstrate his superiority, thereby associating his own program with progress and rationalism, and leaving his opponents no intellectual ground to retreat to. (Smith was a capable persuader with sophisticated models of his audience, although many of his peers were not.) I think the real story is that Smith’s program was possible because his true foes, the guild merchants, were no longer necessary to the state due to the institutionalization of taxation infrastructure and/or the nascent factory system. However, because every historian of economics has read Smith, his account is widely known; and because his narrative of progress and rationalism matches modern sensibilities, his account is widely accepted.


  1. Graham says:

    I’m starting to wonder if all the little tin gods of the conservatism I embraced in youth are like that.

    There’s still more than enough to be said in favour of free trade, but the British already proved it can harden into pretty unhelpful dogma.

    As for mercantilism, well, yeah. State building through revenue collection, competition with other governments for military position, and securing the support of powerful political/economic constituencies to support a relatively weak state system are all perfectly rational goals.

    Maybe Adam Smith, et al were just the period equivalents of Less Wrong or RationalWiki. Dread thought. But then again, I’ve started to think of Jefferson that way.

    Apropos of the latter, I just discovered revolutionary and Jeffersonian statesman Joel Barlow. He sounds like someone who would have been extremely tedious to have a beer with.

  2. Harry Jones says:

    The great thing about LessWrong is they don’t claim to have it all figured out; they just claim to be onto something.

    I’m way past the point of refusing to respect something at all simply because I disagree with large parts of it. But if none of it makes sense… that’s another matter.

    Anything that lasted as long as mercantilism had to serve some important function adequately. It’s enlightening to know what the actual function was. The only thing I take at face value is survival. I often hear “reality is what refuses to go away when you stop thinking about it.” I say reality is what refuses to go away.

  3. Graham says:

    Harry Jones,

    Fair distinction. I don’t spend a lot of time on Less Wrong and I don’t want to lump everything together.

    RationalWiki is a different level of thing and I go there mainly in search of manic rage, and I find it quickly enough.

    Less Wrong is an altogether more serious intellectual enterprise.

    Still, I have found over the past ten years a sort of superiority complex among those in net-based movements for “rationality”, whether or not also identifying as libertarians, centrists, technocrats or whatever. The characteristic features for me include taking one’s own moral axioms for granted, or not recognizing them as such. We all do this, and certainly all can do it, but most of the time we are conditioned by society or by opposition attack to look again.

    To take a very broad generalization as an illustration, if I were to accept that nations are effectively all the same or should be, and their sole purpose is to serve as administrators of geographic areas and economic engines, and to compete with one another for market share, skilled labour, and comparative advantage, then many other values, preferences, goals and choices will follow. All perfectly rational. But the base assumption is not the only one available and the choice among them is not a rational one but a preferential one.

    I am prone to letting that sort of thing colour my attitude, so there’s that.

    On mercantilism, I still after a day find Landau-Taylor’s assessment remarkable. I can’t say any historian necessarily explained mercantilism so pithily, or so specifically in terms of revenue-maximization, but I rather assume that many have done the state-building and state power angle and I absorbed that explanation in history classes.

    Confronting his piece now it is as though I have just learned that economists have just discovered something obvious to political and social historians for centuries, coming down directly from the times mercantilism was in its glory.

    If I ever think of myself as trapped within a conceptual bubble of professional training, core professional/intellectual assumptions, or political values/goals (which I am, and who is not? Mmm. Bubble.) I can at least do two things:

    1. Remember that my interlocutor may share none of my values, identifications, or goals, and his choices may be rational within his set of goals or moral assumptions.

    2. Remember this cautionary tale.

  4. Djolds1 says:

    A friend’s analysis of this posting:

    Equine droppings

    The problem wasn’t money. It was making war. Feudal levies were fine for localized raids and sieges. To actually make war you had to pay the troops. Most feudal dues limited time served and how far from home. To get them to go further you need specie. Ditto for mcercenaries and no one had enough troops from their levies, even the kings of England who could offer rich French loot. Money was gold and silver. You could steal the food more often than not [not so in long sieges which is part of why the obsession with fortifications - most times the fortified place only had to hold long enough for the besieging force to starve or disband from lack of pay or get wasted by disease or...].

    Now you could steal all the gold and silver from your subjects. Problem was you couldn’t do it often. Once a generation roughly. More frequently would see them hide it better or emigrate with it. Now add that back to Roman times what we now call Europe had a serious balance of payments problem with India and China. Europe didn’t make much of anything those places wanted except specie. So it kept leaking east for spices, silks etc.

    Mercantilism amounts to don’t buy abroad anything that must be paid in specie. Sell sumptuary laws to try to stop leakage for abroad what can be sold for specie. Use eastern ‘luxuries’. This gives a monarch the ability to make largescale war, especially foreign offensives.

  5. Graham says:

    I assumed warmaking was implicit in both the original post and, at minimum, my own comment.

  6. Sam J. says:

    Maybe that’s the reason Mercantilism started but Mercantilism worked for the US, it worked for the Japanese and is now working for the Chinese. Hopefully Trump will stop it working for others.

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