Thursday, January 24, 2013

A teeny defense of mercantilists

I always feel obligated when it comes up to throw in a teeny defense. Today we just read "mercantilist" and think "protectionists that thought money was wealth". I obviously don't agree with that perspective. But I want to defend the historical mercantilists just a little bit.

1. There was a wide range. You had real theorists, and you had merchant pamphlet writers of lesser value. All were jumbled under the label "mercantilist". Remember that whenever you think about "mercantilists" as a monolithic group.

2. Mercantilist wrote at a time before the Bank of England was established. Remember that Mun died a century before Smith wrote his repudiation of him - he was not arguing with a set of contemporaries. Much of Smith's complaints were that it was silly to want "treasure" from exports because we have banknotes and Navy bills and all sorts of other things. Of course they didn't have those when Mun wrote his book! The concern with "treasure" was primarily a monetary concern. When your domestic currency supply is inelastic, you have to start looking other places for cash.

3. Some probably did, but the more sophisticated mercantilists that were not just spinning out rent-seeking pamphlets did not identify money with wealth. Surprisingly, one of the most eloquent statements of this point is by Michel Foucault.

4. The mercantilists were early theorists of the mechanics of the balance of payments and made important contributions here.

So go ahead and keep denouncing mercantilism because everyone reads that as "gold obsessed protectionists" anyway. But know in the back of your mind that the actual mercantilists were not always the modern caricature.


  1. This comment has been removed by a blog administrator.

  2. No commenting anonymously please.

    I don't know if that was spam or not... it was all about economics but didn't seem to have anything to do with this post.

    Regardless - no commenting anonymously (if you can't figure the comment function out put a name at the beginning of your comment)

  3. Mercantilists in large part held the views that they did versus say Smith (or the physiocrats or lots of 18th century folks) because they viewed the nature of the colonies and trade with them differently. What precipitated this was a change of views re: empire.

  4. "Of course they didn't have those when Mun wrote his book! The concern with "treasure" was primarily a monetary concern."

    Daniel, that's an interesting theory, not sure if I agree. While Mun came before the Bank of England, he lived much of his life in Italy and was familiar with Italian banking. As a merchant he would have made use of the international system of bills of exchange - short term credit instruments. Banking and credit predated central banking, after all. I've glanced through his book "England's Treasure" and he does make some effort to grapple with these institutions.

  5. Often there is an over emphasis on consumption as the be all and end all of economics when in order to really consume one has to focus on production, something mercantilists never forget.

  6. "Of course they didn't have those when Mun wrote his book! The concern with "treasure" was primarily a monetary concern."

    I also don't agree.

    On this point I think the Chartalists have a plausible theory, here I'll mix their theory with a bit of Menger and come up with something neither would agree with :)

    Chartalists point out that before free-coinage was normal the value of money was determined by the state within it's boundaries. The state decided how much they debased the silver and gold coinage by. The limitations were physical wear, forgery and skimming. It wasn't fiat money, but it was closer to fiat money than commodity money.

    But, between nations things were quite different. Gresham's law may work within a nation but it doesn't work so well in international trade. Natives of other places are unlikely to accept highly diluted coins because they may have no way of passing them off. They could not use them on taxes or fines as natives could (the "final" source of demand for money in Chartalist theory). They could not be compelled to take them by legal tender law (not that legal tender law has ever really worked though). While they held such coinage further dilution would cause inflation in the other country and affect the value of the coins they owned. So, it was sensible only to accept goods, precious metals, or coins that were known to contain particular amounts of precious metals. Especially in wartime.

    Perhaps then, the desire for huge hoard of precious metals came from war. Nations needed them not to supply their monetary system at home, but rather to quickly buy supplies from other nations and groups during wars. Gold and silver hoards were weapons of war.


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