Posted on 10/28/2017 2:57:56 PM PDT by TBP
The year 2017 is a milestone in both economic history and the history of economics. The Marx-inspired Red October coupe d’état took place in Russia one century ago. The 1st volume of Marx’s Capital, a Critique of Political Economy was published 150 years ago. David Ricardo’s Principles of Political Economy and Taxation was published 200 years ago.
Death Blow to Mercantilism
The bicentennial of Ricardo’s book is worth commemorating because this book finished a crucial debate over the merits of international trade. 18th Century Mercantilists believed that a nation could become wealthier through trade surpluses- by having exports greater than imports. Taxes on foreign goods create a surplus of exports over imports. 18th Century Economists David Hume and Adam Smith each demonstrated flaws in the economic nationalism advocated by Mercantilists. Hume demonstrated that trade surpluses just cause an inflow of money, gold back then, which makes exports more expensive. Smith proved that free trade can make all nations wealthier by allowing each nation to specialize in areas of absolute productivity advantage.
Smith and Hume dealt severe blows to Mercantilism, but Ricardo ended the debate between Mercantilists and Economists. Ricardo proved that free trade will make everyone wealthier by allowing each nation to specialize in areas of comparative productivity advantage. Ricardo pointed the way to both modern economic theory and prosperity. Ricardo’s Law of Comparative Advantage is an application of what economists now term Opportunity Cost. People who choose between goods according to the cost of not having some other real good maximize expected real wealth. The emergence of global trade in the modern world has raised productivity by allowing people to choose the most advantageous options, not just domestically.
The progress achieved from Ricardo’s insight has been limited by two factors. First, Mercantilism remains popular. Second, a third set of ideas emerged to challenge Ricardo. Smith and Ricardo both erred by thinking that the price of a good ultimately depends on labor content. Ricardo pointed the way out of this intellectual error (Opportunity Cost), but Karl Marx took a different path. Marx argued that since all value comes from labor, all profits come from exploiting labor. Marx’s initial critique of Smith-Ricardo political economy was published in 1867, with two additional volumes published posthumously. Marx argued that workers would overthrow capitalists to end misery brought on by capitalists paying them mere subsistence wages.
Problems with Marxism
Problems with Marxism were ascertained during a half-century of debate. In 1917 the leader of the Bolshevik faction of Marxists, Vladimir Lenin, admitted that the notion of capitalists exploiting workers in each in their own nations was wrong. Why did Lenin concede this point? Because it was obvious that wages and living conditions for workers in the most advanced industrial nations were rising.
Since wages in capitalist nations were obviously moving away from, not towards, subsistence levels, Marxists sought some new basis for justifying their belief in capitalist exploitation. Perhaps imperialist powers, like Belgium, France, and England, exploited workers in colonies. Is this theory plausible? No decent person could excuse abuses by the English, French, and especially Belgians, in their colonies.
Can Lenin’s revised Marxism explain capitalist development in the United States, Germany, or Sweden? Germany and the US accumulated capital for decades without colonies. How could the initial phases of German and American industrialization be the result of “surplus value” extracted from future colonies? Furthermore, Germany and the US acquired relatively small colonies, very small compared to ongoing industrialization in these nations. The U.S. acquired its’ colonies from the 1898 Spanish-American war. Why didn’t Spain develop more substantially while it had colonies?
Do the examples of France and the U.K. actually fit with Lenin’s imperialism theory? No. Industrial development in France and the U.K. began while these nations were just beginning to acquire colonies, and continued even after these colonies were lost around a half-century ago.
Experience over the past 200 years has also shown that Ricardo was right about Mercantilism, yet this repudiated theory remains popular today. Experience over the past 150 years has shown fatal flaws in both Marx’s original and Lenin’s revised version of Marxism, and the theoretical defects of Labor Value theory were completely exposed by Carl Menger in 1871.
The defects of Mercantilism and Marxism are hardly trivial. Red October created a wave of Marxist states, which perpetrated atrocities that dwarfed the abuses of French and Belgian colonials. Yet somehow Marxism is resurgent and popular in academia. Mercantilists stood in the way of the unprecedented economic progress achieved through globalization, yet Mercantilism is resurgent and popular in the White House. One century ago this year the rise of Bolshevism rose to threaten modern progress. Bolshevism drove many others into the extreme nationalist movements of Mussolini and Hitler. Now, a century later, the twin threats of Fascism and Marxism appear resurgent. What can we learn from the resurgence of Nationalism and Marxism? Those who have failed to learn the correct economic lessons of modern history may doom all of us to repeat its worst aspects.
ping
quote “18th Century Economists David Hume and Adam Smith each demonstrated flaws in the economic nationalism advocated by Mercantilists. Hume demonstrated that trade surpluses just cause an inflow of money”
um...
yeah... that’s kind of what we want... an INFLOW of money!
Mercantilism is popular in more than the White House. This article needs to address China.
Economics is not an exact science, and many of the conclusions are made on certain assumptions, which may, or may not, be valid, depending on the circumstances.
Free trade is like true love. If true love means you don’t have to say you’re sorry, then free trade means you don’t have to say you’re sorry (to the millions of your countrymen who lose their livelihoods to globalism).
A lot of folks go to a great deal of effort to compare the merits of Smithsonian Free Trade to Mercantilism.
However, Smithsonian Free Trade has never existed in the entire history of man. Never, not once.
And Mercantilism is universally practiced by all nations, and they always have. At least since the inception of the Nation-State.
I content that any nation that tries to practice Smithsonian free trade is THIS world, will shortly cease to exist.
contend
Mercantilism Reduces competition, promotes inefficiency and leads to distortions in capital markets.
Increasing the money supply through such policies results in inflation as well.
Economics isn’t about money. it’s about goods and services. Money is simply an exchange commodity.
What will raise our standard of living? More money (but nothing else) or more houses, cars, computers, oil, and other commodities to buy and sell?
“Be productive and ye will prosper” or non productive inefficiencies mandated by government fiat leads to poverty. The creation of real wealth correlates best with the extent of social justice in any culture or no capitalism, no wealth, no justice. All true but difficult to persuade people with average and below average intelligence who are easily seduced by the siren songs of socialism and the false promises of the politicians who prosper and live well within the bureaucratic swamp.
Bump
To Read Later
Free market economics not only works, but works extremely well.
Communism is an abysmal and exceedingly dangerous failure.
Banks, while being a necessary evil, need to be kept on a short leash.
The natural state of governments is to evolve into monsters.
in my opinion ... your either a seller or a buyer a customer or the business.
Never seen many customers get rich buying sellers products.
No. You can't eat money. What you want are the things money buys. You get that through trade. The wider you trading choices are and the more efficient the producers you trade with are, the richer you will be.
trade is only important if you can produce everything in house affordably.
A country like the US can produce nearly anything affordably, and thus trade imports are not necessary.
Dathblow to Mercantilism? Fake?
Mercantilism is alive and well and supported by some FReepers. Mercantilism is the opposition to free trade advocated by Adam Smith.
As with Socialism, no matter how many times it fails, wishful thinking keeps it alive.
1. If you pay people for not working they won’t work.
2. If you extort money earned by Peter to give to lazy Paul, Paul will always demand more and Peter will find ways to give less.
Neither have the Keynesians:
Well. Here’s what I think. There are plenty of theories and plenty of debates on what the ideal economic system should be. The reality of the world and the human beings representing each country involved in trade is far different. No system can survive widespread cheating, official lying and omission, and corruption, especially that aimed at taking down the strongest economic player from inside. If we need to be more authoritarian for a while, so be it.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.