Isegoria

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.

Bryan Caplan describes his notion of The Idea Trap:

The motivation of the idea trap is twofold.

First of all, I had these empirical results out of public opinion that said pretty strongly and surprisingly that people who have higher income do not think more like economists, but people who either have experienced or expect higher income growth do think more like economists. So the level doesn’t matter, but the change does.

Essentially, the more optimistic view seems to actually push people in this economist direction. So there is that fact in my mind.

And then there was also this big literature on non-convergence where, at least for a very long time, economists were expecting that poor countries would tend to catch up to rich countries. Then they looked at the data and weren’t seeing it happening. Further, there’s this literature saying at least a lot of the reason why this is happening is that countries that are poor just very persistently have bad policies.

So I took these three facts and said, “Let’s come up with a little model. The model will have three variables, which we’ll call growth, policy, and ideas.”

The model will have the following laws of motion: Good ideas cause good policy, which is almost a tautology. Good policy causes good growth, and that’s almost a tautology. And then the last thing is, how does growth affect ideas?

What I said is, there’s a usual view that if you have bad growth, then people realize they’re making mistakes, and then ideas get better. On the other hand, maybe if you’re having good growth, people said, “We can afford to live a bit. We don’t need to worry about this so much,” so ideas get worse.

In that model, that actually gives you growth convergence, and basically, all countries tend to be mediocre. But I said if we tweak the models in light of that public opinion finding, where supposed good growth actually gives you good ideas, bad growth gives you bad ideas, this actually gives you a model of multiple equilibria, where you can have one equilibrium where everything is good.

You have good policy, good ideas, good growth all mutually supporting each other. Or you could have bad ideas, bad growth, bad policy all mutually supporting each other.

In terms of 2018, at least the story you might tell in a lot of countries is, there are countries that are in the bad equilibrium where, say, they’ve had some bad growth, which then led to bad ideas, which I generally in the paper equate with populism, leading then to populist policies.

2018 is not that great, just because the actual growth for most countries is good right now. It made more sense during the Great Recession when there was bad growth, and then there were a lot of kooky ideas coming around.

In a way, I would think of the last few years as cutting against my model because it seems like people are getting very angry and very populist when it’s hard to even find what the supposed cause of it is.

“What are the most socially valuable delusions or shared erroneous beliefs?” Bryan Caplan takes at stab at answering:

That is a good one. Hmm. I am tempted to say something along the lines of God will punish you for bad behavior. But the problem is that’s mixed in with — so many things of the bad behavior is actually good behavior and the good behavior is actually bad behavior that I’m not convinced that is all that socially useful.

Probably a better answer is the delusion that money will buy happiness. There is an enormous amount of progress that is caused by people desperately going and trying to get rich. I think the actual psychological evidence is the money won’t actually lead to all that much happiness, but the things they produce are quite a bit more likely.

Probably, in terms of the most happiness-producing stuff, I would think may be actually in the arts, where so much of the stuff was produced by people where, if they just did a reasonable ex ante calculation, would have said, “This isn’t worth it.” But the reason why we have it is because they ignored the odds or overestimated themselves, so maybe that.

“Which mistaken shared beliefs would he like to see adopted?”

Let’s see. Probably the idea that there would be some kind of eternal, horrible punishment for holding power and not having a very high degree of epistemic rationality, especially if there were a view that God hates a politician who takes any action without calmly and studiously studying the facts, and that God will punish you in a way that voters never could.

God would punish you in a way that’s far worse than the simple loss of power. If that were widely believed by people of power, I think there would be a lot more effort to actually double-check that what they’re doing really makes sense. The Spiderman Principle — with great power comes great responsibility.

You’re sent back in time to the year 527 AD, Tyler Cowen posits:

Let’s assume you’re good enough at learning languages. Where would you pick? And why?

Bryan Caplan chooses Byzantium:

First of all, of course assuming you’re good at languages, Greek as a Western language would be easier. I think that is actually the biggest city in the Western world at the time. It’s the one where you’d still have at least a modest amount of Greek and Roman thought which has been preserved. Really center of civilization by that point.

That would be the place where you’re most likely to have smart people around — there’s things that you can do with your mind — and least likely to get ripped apart by barbarians.

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The temptation to become a government adviser under those circumstances would be painfully high. As to whether I could actually find some role there where I would not be morally horrified is a tough call.

If I could get away with just being a teacher, if I have what I know, then to actually go and found a school and teach economics 1,300 years before the rise of modern economics and try to jump-start the Industrial Revolution and economic growth and social science and everything else. Emotionally, that would have by far the strongest pull on me.

If that weren’t available, then there’s room in business, banking, moneylending, shipping. I think I could learn those. Wouldn’t be thrilled. But it beats rowing an oar.