Capitalism vs mercantilism

Capitalism vs mercantilism – Which economic system is better?

The aim of this post is to compare these two economic systems by looking at today’s world as well as some economic theory of the past.

Mercantilism definition and criticism

Though the encouragement of exportation, and the discouragement of importation, are the two great engines by which the mercantile system proposes to enrich every country. – Adam Smith

Adam Smith went on to write something that might seem very unsettling at first glance. But in reality makes perfect sense if you yield to the logic of his argument.

Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer.

The maxim is so perfectly self-evident, that it would be absurd to attempt to prove it. But in the mercantile system, the interest of the consumer is almost constantly sacrificed to that of the producer; and it seems to consider production, and not consumption, as the ultimate end and object of all industry and commerce.

  • The average citizen in a mercantilist country does not benefit much. Only the owner of the factory. It is really just an extension of feudalism. Workers receive wages but wages or money that is not worth much if their quality of life is not improved.
  • An oligarch class is formed
  • Karl Marx was really criticizing mercantilism, not capitalism

Adam Smith went on to write:

In the restraints upon the importation of all foreign commodities which can come into competition with those of our own growth or manufacture, the interest of the home consumer is evidently sacrificed to that of the producer. It is altogether for the benefit of the latter, that the former is obliged to pay that enhancement of price which this monopoly almost always occasions.

The average citizen pays for the oligarch’s lifestyle. Much of Smith’s book Wealth of Nations was a criticism of the mercantilist economic system. For nations and people, there is a difference between acting on enlighten self-interest (capitalism) and selfishness (mercantilism).

Chinese neo-mercantilsm vs US and EU capitalism

Although mercantilism does not exist today, neo-mercantalism lives on in countries like China, Japan, and Russia. The Chinese neo-mercantalist economic model is often praised by outsiders as the only country in the world that is really manufacturing, exporting and growing. Many people point out the USA and EU should protect their own industries and pursue a course of capitalism mixed with encouraging and export-driven economy.

Let us compare a citizen in China or the Czech Republic, Hungary or Poland.  I live in Poland. I would 100% rather be a Polish citizen which participates in free movement of labor and capital in the EU the largest free trade zone in the world, than a citizen in China, the largest mercantile economy in the world. Poland had nothing in 1980. Now in a few us it is pretty rich.  Some Chinese are rich but most are not.

Look at Russia another mercantilist country ( trying to play t[topicblocks id=”/en/mercantilism” comment=”When you publish this post, this WordPress shortcode will display the TopicBlock you created about ‘Mercantilism’.” params=”blocks=%5B%7B%22block%22%3A%22weblinks%22%7D%2C%7B%22block%22%3A%22full_info%22%7D%5D”]his game with the former members of the Soviet Union). There is no way I would want to be an average Russian citizen. Oligarchs who benefit from mercantilism makes the rest of the country pay for this.

Wealthy USA and UK capitalist countries

Is capitalism bad? People in the UK and USA criticises capitalism because they have never lived under another system. Lets some of these neomercantilists or anti-capitalists or socialists live under another system and they will change their minds fast. If you compare counties that use capitalism and observe how rich and happy the citizens are vs other countries and how the citizens are not as free or wealthy I think you will see the answer to which is  economic system is better capitalism or mercantilism.


Marx on Religion

It is well known that Karl Marx believed religion was opium for the masses. God was an illusion as religion was nothing more than an instrument of the bourgeois. Marx again was wrong in his logic. Further, it puzzles me why some many people naively quote Marx and do not think about his irrational fuzzy logic.

Why Marx was totally wrong about religion

Even if the idea of God was opium for the masses, something that the capitalist class used to calm the workers and keep them down in their place, it does nothing to prove or disprove the reality of God. The reality and existence of God are independent of what I think. Similarly just because Freud said God is an infantile illusion does not prove or disprove God. What I think has no bearing on the reality of something.

Just because at one point in time some people thought the world was flat did not change the reality that the world is round.  To swallow Freud’s and Marx’s arguments about religion and God is nothing more than flawed logic and magical thinking.

Just because sunny weather makes people feel relaxed and the bourgeois takes advantage of this to keep people from rebelling has nothing to do with the fact it might rain. Two different things. One is connected to the reality of existence and one is connected to economics. It is beyond me how many people do not understand this.

If anything evidence that religion almost seems to be programmed into human thinking and gives people peace is evidence that maybe people have always perceived the complex stratification of reality (Hegel).

Han Kung gives a pretty detailed roasting of the Marxist theory of religion in his book Does God exist.  he says Marx (and Freud) may describe something about society but speaks nothing about existential or scientific realities.

Religion liberates not represses

In a modern global economy, belief in God transcends all social classes. In fact, most people I know who believe in God do not see it as something of a drug like Marx saw it, but a call to action. Clearly in the Bible Jesus had a metaphor of the person who buried his ‘talents’ and the master was angry on his return because he did nothing with what he was loaned. In my experience religion brings people to rise up from their situation and take responsibility for their lives, be entrepreneurs and use what they have. It is no coincidence that the Amish are Americas most successful business community.

I live in Eastern Europe and I invite you to go to Russia and see how the absence of religion has if anything made people more ruthless towards each other and more prone to repress. While in Poland, a country that kept its religion even during communism is civil and the church was a rallying point to bring down the repression of communism.

Let us look at Marx quotes on religion for entertainment purposes.

Marx quotes on religion

These are from the communist manifesto by Karl Marx and Friedrich Engels.

Law, morality, religion, are to him so many bourgeois prejudices, behind which lurk in ambush just as many bourgeois interests.

This sounds ridiculous to me. It sounds like some pseudo-intellectuals smoking, wearing a black t-shirt and hanging out in coffee shops with no experience in the real world or reality. Some people believe Marx was out of touch mentally with reality and lived in an illusionary world.

Karl Marx’s false economics brought more suffering to the world under the Soviet Union than perhaps any other system the world has ever seen. Some people think Marx was the devil. I think he was just a man out of touch with reality. What he wrote was something like a form of spam or something to get people’s emotions going, but useless.

Here is another Marx on religion quote.

There are, besides, eternal truths, such as Freedom, Justice, etc. that are common to all states of society. But Communism abolishes eternal truths, it abolishes all religion, and all morality, instead of constituting them on a new basis; it therefore acts in contradiction to all past historical experience

Would you trust a man who thinks this way? To abolish all classical understanding of justice and truth, 4000 years of human wisdom from the ancient Greeks like Plato to Issac Newton to Adam Smith gone in once stroke of a pen. Sounds like someone not too well-balanced and like a rebellious teenager who is screaming it is wrong, all wrong, everything is bad.  Karl Marx gave nothing to humans except suffering and trouble, it was a false religion a false light.


Was Karl Marx right?

Was Karl Marx right and relevant today?

With capitalism in trouble and society becoming more stratified, many people are asking the question, was Karl Marx right? Maybe not in full but partly, did Marx’s economics make some sense?  People have dismissed Marx, however, why was he so wrong? There is a very clear answer. It is so fundamental, that you do not have to look further. Karl Marx was horribly wrong and incorrect. In fact, I can not imagine how thinking people can not see this. Why anyone would think differently after they understand his basic flaw in his economic theory.

Karl Marx on price

In the communist manifesto Marx wrote:

But the price of a commodity, and therefore also of labour, is equal to its cost of production.

On this one sentence, all of his economic theory is wrong. In fact, his economic doctrine is nothing more than an optimum for the masses. Marx was wrong because the price of any good is determined by supply and demand. The price of labor is determined by supply and demand.

How crazy is it, that people somehow connect the cost of production with a price. When did cost have anything to do with the price? So does that mean if I make some expensive useless thing that no one cares about I can charge a high price? Does that mean if I am some expert on door hinges on Medieval outhouses and I did my Ph.D. on this I should be paid more for this?

I live in Kraków, Poland and a builder here told me he will be selling each unit in a building he completed for 10,000 a meter. Did I ask him why? He said he calculated the cost of production and factored in a nice profit. I said that is too much given the market conditions. People do not make that much and will go for alternative solutions, the demand will not be there.  The apartment complex has been empty for years and the bank is taking it. The market does not care what you paid for something. If you buy a stock do you think the person you are trying to sell it to cares about your investment cost?

If you buy anything the value of something is determined by the aggregate demand and aggregate supply. This is marginal economics. It is illustrated in something called the diamond water paradox, that is diamonds are expensive but have no utility or value. While water is necessary for life but is cheap. Because supply and demand determine price not some abstract notion of the cost of value.

A few of my friends are anti-capitalist. They never can answer in a direct way about the question what about the Marxist theory of price and wages? Marx was more of a fictional novelist and anti-capitalist then an economist.

Now there is no need to explain this further or go into his theory further. However, I invite you to read the rest of this post as it has great internal resources that further illustrate the fabric of Marxism and socialism.

Living in a post-communist world

I live in Poland. You will find no followers of Karl Marx’s. I wonder why? Herein Eastern Europe everyone knows it is all fake. Marxism, socialism is about big government and corruption. If prices are not determined by the market, there is something called non-price rationing. Everyone suffers as it is a system built on unfairness. It does not work. Marx’s theory has not a shred of truth in it because Marx did not understand how prices or economic value is determined.

The world I live in, that is a post socialistic country is trying to rebuild from socialism. I have no idea why people living in rich America believe capitalism has failed and America will collapse.  America in crisis is so rich you can not believe it. Americans are spoiled if they think capitalism has failed and socialism and Karl Marx was right. People who think Marx was right or capitalism is bad or is capitalism over, need to live in a socialist country or post-socialist country for a while.

Now that you understand why Karl Marx was wrong to take my poll on whether capitalism is good or bad.


Was Malthus right?

Was Thomas Malthus right about population growth and the ability to sustain this population? The answer is found in games. What? Yes, computer games hold the answer. I want to first look at Mathus’ own words, not recycled words about him. This is important to understand exactly what he was trying to convey and why economics is often called the dismal science.

What Malthus actually wrote about population

Malthus wrote about the increase in the number of people in the world and food supply:

  • First, That food is necessary to the existence of man.
  • Secondly, That the passion between the sexes is necessary and will remain nearly in its present state.

These two laws, ever since we have had any knowledge of mankind, appear to have been fixed laws of our nature, and, as we have not hitherto seen any alteration in them, we have no right to conclude that they will ever cease to be what they now are, without an immediate act of power in that Being who first arranged the system of the universe, and for the advantage of his creatures, still executes, according to fixed laws, all its various operations.

He believed these two above mentioned ideas would result in the following:

  • Assuming then my postulata as granted, I say, that the power of population is indefinitely greater than the power in the earth to produce subsistence for man.
  • Population, when unchecked, increases in a geometrical ratio. Subsistence increases only in an arithmetical ratio. A slight acquaintance with numbers will shew the immensity of the first power in comparison of the second.
  • By that law of our nature which makes food necessary to the life of man, the effects of these two unequal powers must be kept equal.
  • This implies a strong and constantly operating check on population from the difficulty of subsistence. This difficulty must fall somewhere and must necessarily be severely felt by a large portion of mankind.

This is the most important point in Malthus’ theory on population and the ability for the world to support itself:

  • Taking the population of the world at any number, a thousand millions, for instance, the human species would increase in the ratio of—1, 2, 4, 8, 16, 32, 64, 128, 256, 512, etc. and subsistence as—1, 2, 3, 4, 5, 6, 7, 8, 9, 10, etc.

Why Malthus was wrong

His above assumption that population will expand exponentially is not true. When a civilization develops the population eventually levels out or falls. Mathus’ assumed technology would increase in a linear fashion. This is untrue. Technology increases like an S curve or exponentially. This is why Malthus was not right.

The question is how long can this technology increase in an accelerating fashion and will population slow in time. Where are we on the technological S curve?

If history is a gauge of the futures, I think everything will be alright, even is statistics and the latest census lets the pessimist have their day. Pessimism is more fun to report on as people love to worry. However, who is measuring technological leaps? Innovation is only starting to increase. Every time people think this is it, we have achieved all that can be achieved and the only advances will be incremental, some revolutionary breakthrough changes the world. These things can not be predicted, they just happen out of the blue. Looking at history they keep happening with no end in sight.

The environment of the earth (global warming) and civilization will not be ripped apart by humans as people will hopefully adjust and build things like fusion to replace fossil fuels. People are collectively evolving. People adapt and change is the rule. All the world is in flux. But this does not be complacent. Rather the fact that we are not all doom and have time should be a call to action to continue to protect the planet.

Malthus and civilization

I used to be addicted to the game civilization.  After playing it, the history of man from 5,000 B.C. to the future, I realized basically technology always saves the day. The Civilization has been tested for over ten years will millions of players and is a better model of the earth than any academic ivory tower theory written by some professor with an agenda or ancient economist writing on very limited information. Malthus’ theory is to be respected and he is a good writer like others of this time like Thomas Paine etc. However, I do not see the world ending up where we are all eating some rice soup and waiting for the end.