Free Trade vs. Mercantilism

Is it better the USA is a mercantile or free trade nation?

The populist mercantile argument, of protectionism, is gaining momentum. It is not only harmful to the US economy (you), but President Obama supports it. It is beyond me why our President would lead us down a path of doom with a failed economic philosophy that has been out of date for about 250 years.

I understand why people favor mercantilism vs. free trade. It is because it seems logical. But the reality is the biggest optical illusion of economics. It is unfair to the have nots and favors the rich and empowered.

The definition of mercantilism

The mercantilist industrial policy aimed at encouraging productive activity within the national territories by the concession of monopolistic privileges, State subsidies, and tax exemptions to national enterprises, as well as by the importation of advanced technology, the acquisition of manufacturing secrets, and the encouragement of the immigration of skilled workers. – An outline of the History of Economic thought -Ernesto Screpanti and Stefano Zamagni.

Now read this:

Capitalism should not be condemned since we haven’t had capitalism. – Ron Paul

How would you compare these two quotes? What policy do you think the US pursues?

It comes down to this, would you rather live under a controlled economy or a free economy, Adam Smith capitalism vs. mercantilism?

Under a controlled economy, you get higher prices and less choice as well as less opportunity in terms of professional career and work. To make a metaphor, what if each town in the USA were to pursue a protectionist economic policy and erect barriers to trade against the next. It would protect the people who live in the town but also impoverish all the towns. Life would be hard.

Or imagine if your household had to do everything from A to Z. You would only sell things but not buy, sure you would have much work to do, but your life would not be as rich.

The counter-argument by labor unions and politicians is jobs outsource and offshore never come back. When I was a kid, all the Pineapple came from Hawaii. Now they come from abroad like Costa Rica. I do not think Hawaii is a poorer place to live, do you?

Consider nations that have tried mercantilism compared to free trade

Many people, despite 250 years of prosperity in the USA, want to turn back to a mercantilist model of economics. On paper is sounds good. But I can tell you it was tried. It was tried many times in the past, and the free trade capitalist model always worked better in every case. The mercantilist countries become poorer weaker, and unable to defend themselves.

Think of Spain and France and Portugal in the 18th century. Now think of England and America. Think of Germany in the 1940s and how it had to create war to sustain the boom that was about to collapse.

In the 17th and 18th centuries, the French tried the mercantilist model. Jean-Baptiste Colbert was the chief architect.

The art of taxation consists in so plucking the goose as to obtain the largest amount of feathers with the least possible amount of hissing – Jean-Baptiste Colbert

Do you want this type of political economy? I do not.

England leaned more towards Adam Smith ‘s prescription of free trade and markets after the publication of Wealth of Nations. The result was obvious to historians. I can show countless other historical examples of this from Hong Kong to Singapore, where when humans are given freedom, society flourishes.

If anyone wants to drag the USA into a French economic model from the 17th century, I would highly advise we bring back a king and his armies to control the people also.

Russia pursues a mercantilist economic policy today as do many Arab, South American, and African nations. Export is driven, but only the rich benefit, and the masses remain poor. This is always the case with mercantilism. Mercantilism is for the ‘haves,’ and the ‘have nots’ get a pittance to survived on and are told the myth that if free trade was an introduction, their jobs would be taken away. Do you want to live as an average person in these countries?

It is not true. People lose their jobs because they are unable to change with the market. I see it in Eastern Europe where I live. Under communism, people wanted a job for life. That system collapsed. It destroyed the human spirit and created the structurally unemployed. People had the expectation that life does not change. For these people to work is hard because they have bad attitudes and a sense of entitlement. They are rude when dealing with customers and lazy on the job. In contrast, in Eastern Europe, the majority of people understand that what capitalism and free trade are about and even in old age have their businesses going.

Why Americans what to adopt a failed economy philosophy and apply it to such a beautiful country like the USA is beyond me, I can only attribute it to ignorance or politicians who have not had a classical education but willed their head with googly goop at law school or something. Read Adam Smith on why countries become rich.

If free trade and capitalism did not cause the economic crisis, what did?

The economic crisis was caused by the government monopoly on the control of money. This is that simple. This happened in the Great Depression and the current great recession. Market failures are caused by market distortions. The Central bank exacerbated a cycle of boom and bust by trying to find tune economics.

Then why are things more competitive in the US workplace?

Because after WWII, the rest of the world was in ruin or had communism. It was easy for the US to prosper. There were no real competitors, as the world was trying to survive. However, do not be foolish in thinking the rest of the world would stay behind and not try to improve themselves. This would happen regardless if the US was mercantilist or free trade.

The only difference would be the relative position of the United States, depending on what economic system they pursued. The more the US goes towards a mercantile system or centrally controlled system of economics, we have problems. The more we gravitate towards freedom and liberty, the economy grows.

If this is true, why do people believe in mercantilism?

The mercantilist argument gets popular support as it sounds nice, but people have not studied history and failed economic systems of the past.

It is an elitist policy that reinforces ‘the haves’ and does little for the ‘have nots.’ It is very unfair for the average person who wants to make something of their lives. It is a centrally planned industrial policy that favors special interests. I created a Wealth of Nations for free if you are interested in this topic.

One last thing if you do not care about Political Economy, history or logic

If you are still not convinced, try this Play the game Civilization, which is largely based on a computer model of countries competing economically. In the game, as soon as your nations switch to capitalism, free movement of labor and capital, free trade, and democracy as opposed to centrally controlled governments, your civilization starts to take off and prosper. Citizens and workers become rich and happy and scientific advances. Try it, and then you decide if you would rather have the US a Free trade nation or a mercantilist country. If you are still not convinced, please leave your best argument for protectionism, and I can easily rebut it. Obama, if you are reading this, you are also welcomed.

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4 responses to “Free Trade vs. Mercantilism”

  1. Logan

    Okay, now how did the mercantilism lead to or evolve into free enterprise over time? Who helped it, what caused it, where was it, when was it, to evolve?

  2. George Muzea

    I am concerned what Trump’s Mercantilism will do to the stock market.

    1. Mark Biernat

      Do not worry about Trump, if elected he will lower taxes and that is much more important than free trade or not. I do agree free trade is better for society as a whole because we all get rich. I think the objection is free trade is not fair trade because governments distort the market like China does to gain market share.

  3. Alexander Hamilton

    Both Great Britain and the United States achieved industrial supremacy through Industrial Policy and tariffs. So has every other 1st world economy without exception.

    Can you name one economy that has ever advanced to 1st world status through free trade? You can’t do it because it has never happened. The Founding Fathers of the United States wanted free markets internally, and a common economic border externally protected by tariffs. You can say they were wrong if you like, but that would make you anti-American. George Washington, Benjamin Franklin, Thomas Jefferson, John Adams, John Quincy Adams, Abraham Lincoln, Theodore Roosevelt etc. all explicitly rejected free trade in favor of the American System of Industrial policy and tariffs.

    After this system was fully implemented after the Civil War with no interference from the free traders in the defeated south, American quickly surpassed Great Britain and became the richest country in the history of the world. That is what happens when you trade strategically and use tariffs correctly.

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