In Our Time - Mercantilism

Episode Date: April 13, 2023

Melvyn Bragg and guests discuss how, between the 16th and 18th centuries, Europe was dominated by an economic way of thinking called mercantilism. The key idea was that exports should be as high as possible and imports minimised. For more than 300 years, almost every ruler and political thinker was a mercantilist. Eventually, economists including Adam Smith, in his ground-breaking work of 1776 The Wealth of Nations, declared that mercantilism was a flawed concept and it became discredited. However, a mercantilist economic approach can still be found in modern times and today’s politicians sometimes still use rhetoric related to mercantilism. WithD’Maris Coffman Professor in Economics and Finance of the Built Environment at University College London Craig Muldrew Professor of Social and Economic History at the University of Cambridge and a Member of Queens’ Collegeand Helen Paul, Lecturer in Economics and Economic History at the University of Southampton.Producer Luke Mulhall

BBC Sounds, music, radio, podcasts. Thanks for downloading this episode of In Our Time. There's a reading list to go with it on our website, and you can get news about our programs if you follow us on Twitter at BBC In Our Time. I hope you enjoy the programmes. Hello, between the 16th and 18th centuries, Europe was dominated by an economic way of thinking called mercantilism. The key idea in mercantilism is that exports should be as high as possible

and imports minimised. For more than 300 years, almost every ruler and political thinker was a mercantilist. Eventually, Adam Smith, in his groundbreaking work, The Wealth of Nations, 1776, and other economists declared that it was a flawed concept, and it became discredited. However, a mercantilist economic approach can still be found in modern times, and today's politicians sometimes still use rhetoric related to mercantilism. With me to discuss mercantilism are Damaris Kaufman, Professor in Economics and Finance of the Built Environment,

at University of College London, Craig Muldrew, Professor of Social and Economic History at the University of Cambridge and the Member of Queen's College, and Helen Paul, lecturer in economics and economic history at the University of Southampton. Helen, in general, what type of policies

the governments implement when they pursue nationalism? They try to restrict trade, so they do all kinds of things to increase exports and to decrease imports. And that could be setting up a regulatory body like a board of trade.

It could be something like tariffs. It could be simply banning the export of bullion. There are all sorts of things that they do to try to increase exports and decrease imports. But haven't they been doing that all their lives? What's new about this? Well, I think the focus is on trying to have a restriction on imports and not paying any attention to what they might be used for. So the luxury goods you could import.

try to go without those, try to increase domestic production. It's very much an idea of trade being a zero-sum game. And it becomes almost a trade war then leading to hot wars. It means that you become willing to back up your trading policies with military force and naval force. I'm glad you brought up zero-sum so early so we can get it out the way. Can you tell the listeners what it means? Well, it's a bit of jargon from game theory.

it basically means that if I win, you have to lose, and if you win, I have to lose. There's no kind of gains from cooperation or gains from trade, and therefore it's a very, shall we say, cynical, world view. So if I win £100 of view, you lose it, but there's no difference to the economy? If we're in the same country, then yes. But if we're talking about different countries

that are competing against each other, they're using trade and warfare together to try to be dominant. So there's not this sense of cooperation between countries. You're at war with each other in some way. It would be worth restricting your own economic activities if you can somehow restrict someone else's economic activities. So you deny yourself goods that might be useful to you in order to stop somebody else from selling to you.

It becomes a way that incorrectly ignores the gains from trade. Mechanicalism's linked to another idea, bullionism. Would you explain what bullionism is and how it differs from mechanelism? Well, bullionism is just that the wealth of the country is its gold and silver reserves. And that's a very simplistic view of money, of capital, of wealth. It's just a great heap of gold and silver. Why is it simplistic? because in reality people are trading with things like bills of exchange

and all sorts of other types of monies including book money it's not very convenient to take gold coins around the place by ship and also there are impacts of how if you bring in a lot of gold say into a country you might have inflationary pressures and all these kinds of issues so just building up a great stockpile of gold and silver that is an idea that really has a much older history and it's often connected to things like royal power

and wish to pay for military power to pay your soldiers with gold coins. But we know that we don't go around using gold coins so it's quite an unsophisticated system. But it obtained for quite a while, didn't it? And the splendor of the Spanish in the Amid Adais or pre-A-A-Mahididid was a great deal down to Bullion. Well, they certainly thought that they were doing well by importing a lot of silver from potter C, for example.

But they also then had a problem that it damaged their home economy in many ways that they weren't necessarily all that aware of. Because if you affect how useful, how easy it is for you to export your own goods. Marys, will you tell us something about whether and why mechanicalism came into being? Certainly. I think that in a formal sense, mechanicalism came into being when Adam Smith undertook to critique it because Adam Smith was collecting a body of writings with some underlying ideas that he wished to critique in the wealth of nations in order to disprove.

But what he was doing is looking at a body of economic writings from the late 16th really through the 17th and into the early 18th century. And those economic writings in the first instance were primarily by those who were advised. the Crown on trade policy. Many of them were actually members of prominent trading companies, directors of the East India Company, or for that matter, their adversaries who were critiquing the activities of the East India Company. And what these individuals were arguing is that policies that would be beneficial to the East India Company would also be beneficial to the King

and to the country as a whole. So it was very much special pleading. But Adam Smith saw in it, he understood that there were some underlying economic ideas that tended to connect this body of material and he tried to impose a degree of coherence on it in order to refute it. So in some sense, where capitalism came into being with Adam Smith's critique, but that body of economic writings was very indeed influential for 200 years before Adam Smith. Why was it so influential? It was its simplicity. It sounds very simple.

People listen and say, okay, you were saved more than you spend. What's complicated about that? Well, I think there were several things that were attractive about it. One is the notion that the people who are advising the king were identifying the wealth of the nation with the king's treasure, the king's household, the resources at the king's disposal. They were also using writings that we regard as mercantilist to justify the expansion of the colonial empire, the slave economy in the Americas. The idea that the desirable thing to do would be to extract resources from overseas empires to then enable the expansion of domestic manufacturers, then to do. either sell back to those empires or to sell to Africa or elsewhere. So the idea really was that this seemed to explain the economic world around them in a way that was straightforward, legible, and convincing.

It also gave the king some idea of how to raise revenue by taxing, by erecting protective tariffs, not only to protect domestic manufacturers, but also to generate a source of revenue for the crown. So it seemed to explain economic life. And I think in some ways, Adam Smith's characterization, of recantalism was a bit risible because he conflated elements of it and didn't do justice to all of the writers. But he did identify a set of coherent ideas that people did broadly accept because it seemed to explain their world. So can you just say a little more about the coherent ideas in mechanicalism? Well, so we wouldn't say that it was a coherent ideology from a programmatic standpoint because people had different programs. But in terms of the assumptions that underlie it, to say coherence and more of a Gramshian sense, what we see is this notion of economic scarcity, the idea that the total resources are limited

and that the Spanish get them or the French get them or the British get them and that it's a struggle amongst the great trading nations. It's the idea that you benefit if you have a positive balance of trade at the expense of your neighbor, that in order to do that, you need to ensure that they're protective tariffs that protect your industries, that people aren't able to trade goods on using their own fleets, using their own fleets, their own navies to poach on newer trading privileges, that it's the proper role of the state to protect domestic monopolies, to protect patents that give exclusive access to trade. So these elements of mercantilism were, again, not necessarily programmatic because there were

disagreements. And Thomas Moon, for example, disagreed very vehemently with Edward Mizzledon, Josiah Child, disagreed with his contemporaries as well in their attempts to attack and defend the East India Company, but in reality, there were some common assumptions underneath it in which these debates played out. But from what you said earlier in just a few sentences before the end of there, there was also plenty of potential for antagonism. Oh, there were loads of disagreements, of course, just as there are loads of disagreements today within mainstream economics, you know, people do have debates about all sorts of things. But the assumptions about the nature of the world were generally held. And I think what's important in terms of understanding

mechanicalism is coming into being through Adam Smith's critique is that Adam Smith was in a sense saying this new world is different from that world. That we're, you know, Smith saw himself as a modern and saw these people almost as medieval and was trying to characterize this as bad economic thinking. That was a product of a medieval superstitious era. And he particularly was keen to critique the slaving empires in that context as well. Yeah. So Smith's program, he's very famous, obviously, for the division of labor, but he also, he also. was a great proponent of creating a financial system based on banking. So he takes the authors that DeMars was talking about

and turns them into straw men saying what Helen said, they just want to pile up money because he wants to promote the use of paper money throughout society. And so to do that, he has to say, you know, using gold and silver coins is ridiculous. And in many ways, by the time Smith was writing it was, but in the 1620s in England, and there's a big shortage of coins.

And, you know, there's not much paper credit at all. Most of the credit is oral and informal. So gold and silver does play a limited but important role in the society. So what they were saying was not ridiculous in terms of the exact dates when they were writing. I'd just like to get a grip on why my mechanicalism had such a hold for so long. I guess there are a number of reasons. They're attractive to rulers because they need to. to borrow money from merchants. They're attractive to, you know, the merchants themselves

that want to engage in more trade, overseas trade, make more profits. And there's one aspect of mercantilism, which I like to stress, but isn't that common in the literature, which is a concern with employment at home and the creation of industry. So the industry happens at home, the employment happens at home, but what you really want to do is sell those industrial products abroad. Helen, you want to come here? Yes, and certainly I think there's something to do

with the fallacy of composition that people understand, say, the fallacy composition is when you look at one part of something and you think that that's the same as the whole. So if I look at my own household and then I think, well, that's the same as the national economy. What I do should be done by the government. So if it's bad for me to be in lots of debt,

the government should have no debt. That kind of idea is very hard to overturn, because it seems to be common sense. So if you're a merchant, or if you're someone who works in a cottage industry, or whatever, you produce a lot of stuff and you try to sell it out to your neighbours,

and you're very cautious about buying in a lot of imports into your house. But that doesn't mean that the nation can operate in that way, because if you start restricting imports, your neighbouring country ends up in a trade war with you and that could end up in a war. So you're not the same as the state. Yeah, can I just go back to you for a moment, Craig?

One of the earliest statements on a cantalism policy was discourse concerning Western planting published in 1584. What did that say? Hello, this is by a fellow called Richard Hackloid, who is a sort of writer about colonial expansion in general, merchant as well. So the planting he's talking about there are like the Ulster plantations. This is the planting of colonies or people rather than crops or something. And what he's arguing in that, which is a manuscript presented to the Privy Council for Government

Policy, is very much a policy paper to try to counter the power of the Spanish Empire in the Atlantic, just a little while before the Armaged. So there's a purpose to it. And he points out that, you know, as we've been talking about, the Spanish have a lot of silver coming in from their minds in Peru. And they can use that to build huge armies, which are fighting in Europe, the wars of religion. And he says, well, we can't get any of that silver. We don't have it. There's no mines in British Isles.

But what we can do instead is go to North America. and plant colonies. And he suggests we can also find some natural resources to trade. Resin, tar and things like that. There's some blue sky ideas. And then once we start exploiting those natural resources, we can send more people over, create colonies, and they will then be a source of demand for home industry.

So they'll send back natural products and we'll send back finished products. and that's what happens, not the way he described it, but tobacco became the first agricultural product produced in North America. I think Craig's very nicely indicated the extent to which this is about interstate competition. This is about competition between the French, the Spanish and the British. And as the late Istophan Hunt said, the jealousies of trade, the mercantiless writings seem to justify those jealousies of trade and suggest ways in which they might be realized to the advantage of a particular nation.

similar things could be said about the East India Company and... Well, let's say them. They play an important part in this argument. So could you tell us about the East India Company and what part is play and why it was allowed to play such a big part? Well, the important thing about the East India Company is that it was really founded in the latter years of Elizabeth's reign

to contest the Portuguese control of the East Indies. And likewise, the Dutch did the same thing. They established the Dutch East India Company with the idea of resting control of the East Indies from the Portuguese who would come to dominate that part of the West Indies. world and the trading prospects. And the East India Company did indeed import on both raw materials and luxurious goods from the East Indies. And there were some people who, as Craig alluded to the controversies about silver, saw the East India Company as responsible for the export of silver to pay

for the luxurious goods. Other people saw the importation of raw materials, which then led to more domestic manufacturers and the export of those to be a positive aspect of the East India Company. But most of the writers that we regard as mercantilist are certainly at least Thomas Moon and Josiah Child, who were engaged as directors of the East India Company in defending the East India Company. And also writers like Edward Missilden, who was attacking the East India Company from his point of view of a director of the merchant adventurers, were arguing about whether these great trading monopolies were good things or not. And the mercantilists were generally defending their trading monopolies or they were attacking somebody else's and saying, actually their company would be at a better position to do this than the company that was doing it.

And the senior company was the size of a state, did it its own army and its own administration? Well, by the 18th century it certainly was. It was controlled about half of the world's trade and controlled large swaths of British India. But of course, in the early days when it's just getting going, it is nothing like that size. And there were people who made credible attacks on it. And there were moments in the 17th century when it appeared as if it might lose its monopoly. And many of these mercantiless writers were controversial. who were working on behalf of the company's interest in order to convince the crown to let them keep their monopoly.

This seems to be directly to lead to protection, isn't? It can do, certainly, and I think that the idea that elements of the Navigation Act can be seen in Hackalut, elements can also be seen. Can you talk to what Navigation Acts are? So Navigation Acts very simply just say any goods being traded into Britain or any of its colonies or out have to be carried in British ships. So it's total protection, pure and simple. Well, there's a debate about that because it's obviously very hard to enforce, especially in the colonies. So writers on trade say it worked best when British naval ships could take a prize ship and then take all the goods from the prize ship. But in the colonies, it's quite easy to bribe port officials and things.

So some historians argue that it wasn't necessary. It probably helped, but wasn't that important. say it's quite crucial. I mean, how you prove that one way or the other? I don't know. But anyway, certainly it did work in the sense that the British merchant fleet grew quite sizably.

What seems to be the case? Is two of the leading English writers on Mechanalism in the 17th century, Thomas Moon and Josiah Child, what points were they making? Helen? Well, they were both merchants, and they were both trying to support the East India Company, about which we've been hearing quite a lot.

Support them in such a way. In which way? Basically, one of the problems of the East India Company is that it wasn't suitable for the bullionists. Back to the bullionists. They may get as much silver and gold as they could.

So the charter of the East India Company said it could send out bullion, but on the grounds that it had to then bring back bullion eventually by basically bringing about something that could be then sold on. So re-export, perhaps, of a manufactured good, or a luxury good or something of that kind. Munn was happy with that idea,

the idea of it's fine to let Bullion leave temporarily because you're going to get it back later on as you have this luxury trade. Because you sell East India goods to somebody else. So you sell goods that you've imported, you then re-export them, you send them out of your country to someone else and that other country sends you, Bullion.

So it's a triangle. So it becomes triangle, exactly. So that's all fine, and conveniently, it then backs up the Stindia Company, which is what Munn and indeed Child wanted because they were both associated with it. What Munn also does is he starts to develop other ideas about things like how to set prices.

So if you have monopoly power, maybe you should rack up prices but if you are trying to sell English made goods and there's a lot of competition then what you should do then is drop the price so you can try to flush out your competitors by undercutting them and get into a price wall so he has a lot of more sophisticated ideas

generally he's one of the better meccantalist writers and that's why he's well known today child is famous for being extremely wealthy and connected to the East India Company but amongst other things he thought that he told people the East India Company was a good thing because it brought together merchants and the aristocratic class

and this was therefore some sort of improvement socially. Through this time it's mechanalism maintaining an intellectual coherence and is it a theory that's running things that people say oh, we're not quite mercantiless enough. We'd better be mercantilist to jump on the manned wagon. What's happening?

There's no programmatic element. There's no kind of ideological purity to mercantilism. It is something that was constructed by Smith in order for the purpose of critiquing it. But there are commonly accepted economic ideas, which Helen and Craig and I have alluded to, that most people would take as reflections of reality. And it's not until Smith comes along and critiques these. And part of it's also the vantage point,

because as Helen says, there is this notion that mercantilists are thinking about the wealth of a nation as an extension of the king's treasure and the wealth of the crown and the crown domain, whereas Smith is coming from it in a different level entirely and is essentially saying the merchants are not acting in the interest of the kingdom because they have managed to align their interest with the king's interests. And in fact, actually, the wealth of the kingdom comes from land and the value of labor and that this is an entirely different way of conceiving the economy. So it looks like a coherent ideology if it's being attacked by people who are

proposing an entirely different model of the economy, as Smith and the physiocrats were doing. But actually, the mercantilist writers themselves in the 17th and early 18th century were disagreeing with each other as much as they were agreeing. But they were disagreeing from a common set of assumptions, which then Smith attacks wholesale. Do things get better after he's attacked it? It certainly is the case that Smith won the argument. Smith and Hume won this argument. And for the better part of the following 230 years, people have essentially said that Smith and Hume were correct, that there are gains to trade, that free trade is better than protectionism, that state aid and industrial policy distort the economy and create welfare losses. Much of the basis of modern economics is built on that critique. But it's a question of what you read into it, because I think one thing, that is quite interesting is that we're talking about mercantilism in terms of protectionism, but there are people in North America with the Adam Smith Society and others who would see the state intervention in the economy,

including protectionism, but the protection of monopolies is just as much central to the point. And there were certainly plenty of advocates of state intervention in the economy in France and Germany at the time, whose chief preoccupation is not overseas trade, but is in fact the regulation of the domestic economy, Colbertism in France and Camerolism in Germany are examples of that. Well, let's move out. We're concentrating what's happening in this country for a time. It's very much European phenomenon. Can you touch on how mechanicalism is working or not working in France?

So in France, it's principally associated with Colbert, who's the finance minister under Louis XIV, and his challenge is to encourage domestic manufacturer and to reform the French economy, which is still freighted down by mineralism and feudalism and tax farmers who are making large economic grints at the expense of the Crown. And his program of reform is very much top down. And it's a program of reform that has components of it

that we would associate with industrial policy or state aid today, protecting domestic manufacturers, nurturing domestic manufacturers, taking strategic decisions about monopolies and patents. And he was allowed to do this on impede. He was allowed to do this unimpeded, and I think what's interesting in terms of the connections with mechanolism is that his Chancellor, Seguer, commissioned the Code Savaree. Jacques Savaree was a very successful merchant. He also asked Savarie to produce a manual called the Perfect Merchant that gave instructions for the conduct of both domestic and overseas trade. And this was something that merchants were expected to read and internalized that disciplined the French merchants to this new world in which they were competing with the Spanish and the British. for the Americas, as well as within Europe.

And that top-down approach is the chief feature of French recantalism or Gilbertism, and certainly has echoes by the 18th century in the Camelos writings in Germany. Yes. Craig, there was a religion. Yes. How did they affect what was going on? They engulfed Europe in the 17th century. Yeah.

Well, I've already referred to the Spanish, so I won't do that. but on the 17th century, it flows nicely from our discussion of France, although we bring it back home again, because it was specifically after Louis XIV, invaded the Dutch provinces, and then England was brought into the war with the glorious revolution and William coming over, that England really started enacting in Parliament a lot of what we would call classic mercantilist protectionist measures,

and especially focusing on wool. So the wool and cloth industry is by far England's largest export industry, largest home industry. So how did this affect mechanicalism? Well, they wanted to keep the wool in England. So they made it illegal to export any raw wool or certainly spun yarn to France. So it all had to be done with. Is this a cross wool?

Relatively. I mean, there's always quite a bit of smuggling, and the French have sources of their own wool, but the Europeans thought the English will was the best. But yes, they do spend quite a bit on policing the coastline to try to prevent the wool. Did that give me a cantalism a bit of a jolt? I guess so, yeah. I think in general, I mean, certainly not everyone supports this,

because the woolen interest is not as powerful as East India Company, but it's pretty powerful. There are merchants that would want to engage in what they call free trade. We haven't talked about free trade, but free trade in England is a really big intellectual concept. It doesn't mean free trade the way Adam Smith thought of it. It means free trade amongst English merchants, so against monopolies like the East India Company

and against the woolen interest. But overall, I think nationally it was thought to be a good thing because the woolen interest is very clever in arguing that it supports employment. There are perhaps as many as one and a half million women and children employed by the mid-18th century in the woolen cloth industry. They say, you know, we need to protect the jobs of those people who are supporting our poor families in England.

Let's turn to Italy. What contribution did they make to mechanicalism? Well, the idea about the re-exports that we've mentioned with Munn, that came from an Italian thinker called Serra, and he was the person who influenced Munn. Munn was working in sport of the East India Company. So he had to explain why it was necessary for Bullion to leave the country. Why was that a good idea?

Well, if you brought something back in that you could then sell on to a different country and they would send Bullion to you, then a bit more complicated system you'd actually be better off in the longer run. So you'd get more bullion after a couple more transactions, if you like. Are these manuers helping anybody?

Are they helping the Italians or the British or the French? Well, they're helping whoever's the middleman. And that would be... Who are the main middleman in this? That would be the East India Company. So obviously Munn is writing in favour of that. But he's using an idea from the Italian thinker, Sarah, who thought of it first.

And also in terms of Italy, it's really not Italy as we would think of it as a modern country. It's more city-states that are often. in competition with each other and often at war with each other and particularly these issues about paying for large mercenary armies and that sort of idea

we can associate particularly with Machiavelli and his ideas of really cut-throat competition between different city-states that has an impact as well in this idea that you have to compete in this zero-sum game or you will be trampled down can I now turn to Germany

as we sweep across Europe and their reaction to, and Prussia in particular, and their reaction to this. Okay, certainly. The Prussians are late arrivals to this to a degree, and the real challenge for the Prussian state in the late 17th and 18th century is one of state building.

And certainly Frederick the Great, but also his father, became interested in the science of public administration, as it were. And Cameralism, which is the name that's given to this, is a body of thought in Germany, Saxony and in Prussia, which divides public administration into public finance, public administration, and policymaking, and is a really technocratic, bureaucratic approach to understanding the economy and the relationship between the state and other stakeholders in the economy, and with the aim of encouraging domestic manufacturers, encouraging domestic employment to the extent possible, and also creating a other locuses of economic power that could challenge lands and elites and as a consequence help provoke land reform because Prussia is seen is very backward. But it's also something that is taken up by what we would loosely call enlightened absolutists or enlightened despots in

Austria and elsewhere, including in the Austrian-Italian lands like Bakari, who are very interested in state intervention and state monitoring and state involvement in the economy. And camelism really is about that. It's not. principally concerned with overseas trade, although it is talking about state aid in the form of protectionism, but it's talking about trying to understand and order the economy in such a way as to promote the growth of domestic manufacturing. Do they apply it as a system in Prussia? And if so, is it successful? Well, it certainly, it depends on your vantage point. Prussia is the huge success story

of the 19th century, and if you look at it from the standpoint of 1870, then yes, it's stunningly successful because the Prussians end up in control of the German Empire. But it is true that there is tension between camaralism as it develops, particularly after the Napoleonic wars, and what the British perceived as economic orthodoxy by that point. So there are plenty of British envoys to Prussia who come back and say they obviously haven't read Adam Smith. Their economic policies are antiquated. They're medieval. So it came under attack. But yes, within the German-speaking lands, that is the economic consensus. And you see it most fully expressed in the 19th century with someone like Friedrich List, who is seen as somebody who's very concerned about

industrial policy, innovation policy, and protectionism. So, yes, it does remain the economic orthodoxy in German-speaking lands. So why are you saying that Prussia gang ascendancy in Germany because of mechanicalism? No, I didn't say that, but I'm saying that. I'm just asking with you, it. I wasn't quite clear about it. That's all. What I'm saying is when you say is it's stunningly successful. I was saying it's a question of how you measure success. That what happened, it's not so much do we measure the success of the Prussian economy in terms of its growth, but that if you think about the way state competition plays out in the 19th century and you think about nation building, the Prussians did win in the sense that ultimately the unification of

Germany happened with Prussia at the helm. Now, there were political reasons for that, but the notion of the famous Prussian bureaucracy, the Prussians, state building, Prussian top-down control of the economy in the 19th century, does have its antecedents in 18th century Cameralism. I don't think it's why Prussia ended up in the helm of Germany, but I do think that when you say, was it successful, it's a question of it looks very different in 1870 that it did in 1815 or 1848. But certainly there are those within Germany who would look to Friedrich List and say, you know, what happened with the Customs Union, and it began a process of unifying Germany with Prussia at the helm.

So, yes, there are people who would make that argument, even though I would not myself want to suggest for a moment that German unification was the results of Cameralism. Yeah. Why did you remain successful for so long with casualism? Part of it is that it appeals to some sort of idea of common sense. So the general public can understand this. And this is going back to this fallacy of composition issue

that, well, if I'm producing lots of goods and I'm not buying a lot in, that must be better. If I value the gold stores that I have in my house, clearly the state should have lots of gold. And you see that even now. But also, as we move on in time, and economics becomes its own discipline, it becomes taught at university, becomes more complicated. Why does it become more complicated? Well, because you start building models and then you start building using a lot of data, and then you start using a lot of mathematics, and it goes out of the basic common sense understanding

of the average person. So it becomes a science, our social science, more to the point, that somewhat becomes a little obscure to most people. That the sensible thing you said at the beginning doesn't apply. People don't understand why it doesn't apply anymore. I think some people do, but then they're vulnerable to campaigns,

like by British, that would be better. So sometimes you've got to say, well, you've got to learn about Ricardian comparative advantage. Ricardo showed people how trade could be beneficial to both countries. And that idea of trading isn't necessarily a bad thing. Having an import that you actually use isn't a bad thing if you care about the welfare of the general public. What we've been talking about is the welfare of people in the elite,

the king, the political leadership, the very wealthy merchant, and everything else has to be extracted for that small group's benefit, whether it's environmental damage, whether it's enslavement, whether it's the warfare that goes on with these trade wars. Whatever it is, it's not really borne by them. Maris, can you put your finger on why mechanism declined when it did? I think there are many answers to that question. I think the one that I would tend to favor is actually in terms of the Atlantic Revolution.

So I am American, the American Revolution, but also the other revolutions in the Atlantic world. Because that fundamentally changed the political reality. And certainly Adam Smith was trying to argue, well, Adam Smith and Edmund Burck were opposed to slavery, certainly, and were actually on the side of the American colonists at the same time. And the reality is that once... That was quite tricky, wasn't it? Well, it is quite tricky. and certainly would have been even trickier 20 or 30 years later.

But at the time, there was that sense for Adam Smith that the best way to dismantle slavery is to argue that it's economically unviable and economically unhinged. And he was employing his critique of the mercantilists in part to argue that actually slavery is a flawed economic system and these overseas empires and their slaving economies are flawed economic ideas are based on flawed economic ideas.

And what would be better is for all nations to trade on an equal basis with each other in a world of free trade. And I think absolutely... Isn't that sort of a buy in the sky? Well, it is, whether it actually ever happens that everybody trades in an equal basis or ever will happen, it's very much baked into

the World Trade Organization and the post-war consensus after the Second World War about how trade should be organized. So Adam Smith won the argument for a very long time. And my point is that what really killed off mercantilism is the fact that these overseas trading empires in their 17th and 18th century form collapsed with the Atlantic revolutions. And although the East India Company continued well into the 19th century, as for that matter, did the South Sea Company, the focus of mercantilism around the organization triangular trade

with the American colonies was a non-starter after that. And I think that Smith and Burke in that sense did win the argument. As Helen alluded to, mercantilism failed to describe the economic realities of the, of the late 18th century in Britain with budding industrialization and the loss of overseas colonies and the reorganization of economic life in such a way that you were no longer thinking about

this jealousy of trade and instead we're thinking about Britain's industrial revolution being the engine of growth, not trade but industrialization. Do you want to come in there, hello? Yes, I think there's certainly something to be said for all of that, but also the growth of people power. So the idea of people being allowed to vote,

and therefore you have to concern yourself with what we might call the utility value of trade or various products or working conditions. The economic life changes because the underlying political systems change as well. Does anything, as it will, replace mechanicalism? It slowly leaves the scene, is it, on left, does anything come in stage right? Well, I mean, England in the 19th century has been termed the free trade nation,

And so it does become an ideology, if so it's a convenient ideology, because England rules the globe in terms of trade. But it is an ideology that people believe in, and it does replace the old mercantilism. Now it takes a big hit after the First World War, and then you get a period of nationalism, where economies are sort of not autarkic, but much more focused inwards,

or the British focused on the empire, but perhaps the most interesting phase is after the Second World War, after Bretton Woods and the post-war consensus, where some economists like John Kenneth Galbraith and others say there is a limited role for protectionism now. As DeMoris said, most economists at this time really believe in free trade, but they say with developing emerging nations, they perhaps need a bit of protection to help them kickstart their indifference.

industries. But for various reasons in the 70s, you know, that is stagnating and not working that well. And then free trade really takes over. But again, you know, look at how long the easy and how many rules it takes to create what you want to call free trade. It's a very rule-based type of free trade. It's not quite what Adam Smith had in mind. So we still think of that. And again, it goes back to Helen's point. about democracy because politicians have to think about what the newspapers are writing and by British or, you know, against European regulations. We're very familiar with that kind of discourse recently. And it is an idealized system, and we certainly have a lot more free time than we did 30 years ago because of things like NAFTA and European Union. But it's still a very difficult thing because we live. in national political systems.

People pay much more attention to the people we vote for in Parliament than perhaps the people negotiating free trade deals. Is mercantilism wiped out altogether then? It's difficult to deal with mercantilism as a state, nation state ideology when you have multinational companies that are so very powerful.

And that's part of this very complicated supply chains that mean that you are bringing together workers and products in different countries to form the final product. A little political rhetoric often ignores that, doesn't it? Well, thank you all very much. Thank you, Helen Paul, Demaris Kaufman and Craig Muldrewan to our studio engineer Andrew Garrett.

Next week, Solon the Lawgiver, the father of ancient Athenian democracy, they say. Thanks for listening. And the In Our Time podcast gets some extra time now with a few minutes of bonus material from Melvin and his guests. What did you think we missed out? And what do you not say you like to have said? Have it to you, Helen, to start with.

Why is this all about Europe? Why are these European writers? And basically, Europe is a lot of small states that are at war with each other and competition with each other relative to, say, a country the size of China that's massive and doesn't need to worry, so much about these ideas of trading games. So that's why, as well, it's very Eurocentric historiography

that leads into, and as Damaris is saying, of course, Smith's great torch shone down on mercantilism. It's all right as he would be aware of coming out of the European tradition. I think it really links again what Helen was saying about this competing states in Europe and merchants being so important and trading between states, whereas in a huge empire like China, you know, the trading is within the state.

I mean, there is trade into the sea of China and into the Indian Ocean as well. And there is a very strong Chinese Confucian tradition, a bit more like camelism. And I don't think I would want to call it mercantilism because the merchants in China are always sort of kept on a leash a bit by the government to create social harmonies to not have a powerful interest group in the state. But certainly there's an awful lot of trade in the empire, and it's a very prosperous area.

And the state takes a big role in the well-being of the citizens through the national grain, try, you know, build the great canals and or state granaries all over the place to try to move grain and rice around the kingdom in case of any bad harvests. So we do have a very strong sense of the state looking after the well-being of the people. And as I said, that was a part of quite a few European mercantilist writers. They couch it very much in terms of let's create employment for a market-based solution, whereas the Chinese one is more based on keeping local harmony rather than – it's a non-Smithian solution, so we say. The Chinese aren't that interested in importing a lot of goods,

not because they have some kind of theory about them because they just don't particularly want them. They've got all these great things like porcelain and silk that other people really want, and they don't want English woolens or what have you in return. So there's that kind of underpinning of telling people, don't buy this good. It's not really necessary if they don't want it in the first instance. I think the other interesting thing about China is that it's certainly the case that there are many writers that we might roughly describe as mercantilist or at least friends of people who would describe as mercantilist who were interested in the East for its exoticism.

and we'll talk about the exotic goods you could obtain from the East. But actually, the French physiocrats, so Adam Smith's interlocutors in France, Francois Kenny and Turgot, were interested in China for a different reason. They were more in keeping with a kind of a camelist mentality. They were interested in China for its administration. And Kenny wrote a treatise, which we would roughly translate as the enlightened despotism of the Chinese. Although they didn't mean despotism in a particularly bad sense. They were proud of themselves as being enlightened despotism.

spots as well. But that sense that the Chinese case was interesting because the Chinese had cracked public administration and that they were very good at ordering their empire with this aim towards balance. Now, he did have critiques of it, but he was interested in reflecting on China for that reason. He wasn't particularly interested in its trading policies, but rather the organization of the Chinese empire as a whole. So there were thoughtful reflections on Asiatic empires. There were also more exoticized, what we would call Orientalist reflections. as well on Asiatic empires, but there was certainly a sense on the part of Mercantilus that they were trading with these people to bring exotic luxuries to the metropole.

And I think that that's not really what Smith's allies elsewhere or interlocutors elsewhere were interested in, they were interested in a more comparative account, almost in a sociological sense. I'm quite interested in how he sort of caught on. not all of a sudden, but quite soon, an awful lot of companies in England and European countries also taking on the same ideological notion about how to do business, how to do trade, why this is the obtaining thing, almost like a religion really. I'm not going to push that or oppress it.

But it is, I just find it intriguing. Why did it all, after a few decades, why was everybody a capitalist? I think it's become. are all connected by trade. It just shows the importance of trade within the European system by the late 16th and 17th century. So I mentioned, you know, the English woolen trade. So since Roman times, English wool has been exported to the continent and in the medieval period, the cloth centres of Florence and Flanders, the lowlands were importing a lot of English wool

and then turning it into wonderfully colourful cloth and, you know, the English sort of mercantiless pick up on this, let's control this wool trade and give us a big advantage. But what they never mention is, of course, you need underwear. If you're going to wear woolen clothes and that's linen, right? And linen is coming from Europe. mostly from Salisia and northern Europe. But there is a sort of reciprocal trade very much in the spirit of Ricardo. You know, they can produce linen, we produce wool.

But they don't think of it that way. And if you look at the trade statistics, so you can see quite clearly that, you know, there is a reciprocal, not quite a, you know, it's not a balance, but it is quite large trade going both ways. I mean, I agree with everything Craig said, but I think that there is actually something baked into the discourse of mercantilism that explains why it caught on. Because in a book that made it quite an impression on me when it was written Taming Capitalism before its triumph by Kojiya-O-Monto, who's in Tokyo, who's trained economic historian who works in Japan, this argument that all of these people who are mercantilist writers and many other more besides were essentially projectors. They were proposing concepts to the crown in exchange.

They hope to win monopolies or they hope to win patents or they hope to win privileges of various trading privileges of various descriptions. And everybody was trying to convince the crown or the king or his ministers to grant them something. And these were all couched in terms of the best interest of this group of merchants was kind of synonymous with the best interest of the kingdom as a whole. And there was an echo chamber of this. Yeah, it is a great trick. But it was an echo chamber as well. because everybody couched their ideas this way and they recycled a lot of the same arguments

and as a consequence it became a dominant discourse almost in a Gramscian sense because everybody used it and that is one answer for why it became so heavily accepted. I suppose another thing is when you look at the luxuries that you can get from the Dutch East India Company and people wanted that.

That's part of it is that this is an elite and the elite-like luxuries. That's why they're going to pick up on mercantilist doctrines that say, you know, we can bring in East India luxuries to you. It isn't for the general public. It's not like a generalized discussion with an electorate the way we have today

where everyone has a vote. No, it's just often about the luxury trade and wealth for the top people. The same people today who are concerned about the loss of industrial jobs don't want to pay £4,000 for an iPhone. So the irony is that the attitudes that made people self-interested about consumption

at the elite level also. do trickle down. But the consumption question, being pro-consumption, is part of this. And I think that that's right, that it provides a justification for... It's really interesting. So nothing has replaced mechanicalism in the way that mechanicalism operated. No, I mean, as I think Craig alludes to, there are the exceptions that prove the rule. There are, you know, the people like Gailbrath and his support of import substitution or various heterodox economists today who attack elements of of the Washington consensus and argue that there's a place for industrial policy and for state aid. And you even see that in Britain in the discourses that are rising post-Brexit, that this gives Britain the opportunity to reintroduce state aid or reintroduce industrial policy. But this is very much – these are ideas that are somewhat marginal to the overall consensus

that the trading regime that developed in the post-second World War period of the World Trade Organization is something that it underpends globalization. and is desirable. There is a big tension between, you know, populism, if you want to call it that, and reality, because the reality is, you know, exactly what Helen said. And, you know, we've read a lot about the trade wars that Trump started with China, and yet U.S. trade with China has continued to increase every year after that. It hasn't had any effect, apart from political rhetoric.

I think two things. One is that I would agree, and I think that these great Harris Staddle trading companies of the 18th century, the East India Company, the Salsi Company had the might of the British Empire behind them, whereas now the large multinational corporations don't really require militaries behind them. They benefit from the architecture of global capitalism. But I'm actually quite struck by that trilemma that Danny Roderick posited of this notion that you can have any two of the following three, which is free elections, national sovereignty, or free trade. You can have free elections and free trade. You can have national sovereignty and free elections, and you can have national sovereignty and free trade,

but you can't have all three. Well, because of precisely the people power that Helen alludes to or the internal contradictions of this, that free trade does curtail national economic sovereignty by telling you that you can't erect barriers and you can't pursue certain policies. Likewise, free movement of labor and capital, may be desirable in economic terms, but to the extent that people feel threatened by interest groups feel threatened within a national economy, as we see with the immigration debate today, then the electoral calculus makes that impossible. Likewise, you could have free trade and free elections without national sovereignty, but nobody seems very keen to have that at the moment. If anything, nation states have reasserted themselves in the 21st century with a vengeance. and economic security and economic warfare have made a comeback in the last 10 years.

I think the question post-financial crisis, I think the question, though, is that are these doctrines neo-macantalist in any meaningful sense? I mean, is it possible to say that industrial policy, state aid, subsidies, is similar somehow to the East India company's attempts to protect its own monopoly or someone's attempts to obtain a patent? because there are some conceptual similarities, but they're very attenuated. And I do think that critics of globalization, and I'm not a particularly strong one, but critics of globalization would do well to find other arguments than reviving the mercantilists in the 17th century.

Yeah, and I think that's the point. So I think almost most economists would agree that globalization has led to a accelerate, growth in global wealth and certainly wealth outside what used to be called First Nations, no, that's the wrong term, first world countries. Yeah. In the rest of the world, you know, if you look at a lot of different statistics like life expectancy, child mortality, massive increases in countries that used to be called third world, but we can't even use that term anymore.

there's much of inequality going on. But the sort of populist wave that led to Trump and probably Brexit is one of formerly secure industrial jobs being eroded. And a lot of talk about inequality. And these people are then looking to the nation-state to try to address that inequality. and, you know, in part blaming globalisation free movement of capital as a cause of the inequality, which I think it is in a lot of ways.

So it's a sort of ironic situation where we definitely have an increase in wealth, but the way the wealth is increasing very rapidly as well has led to these political attentions within the nation states and the nation states have not been very good, as DeMaris alluded to, mostly because of the financial crisis before that everyone thought it was going swimmingly, actually addressing this problem in dealing with these sort of lost, or not lost jobs, because we have a lot of employment, but lost income, I guess you would call it. I would think that critiques of the global economic order going forward might pick up something that's actually present in physiocracy, which is that

the notion of natural limits to growth in terms of the physical world and the physical environment, and that actually it's from environmental economics that you'll get meaningful critiques of free trade and globalization in terms of climate change, the climate emergency, and natural limits to growth, then you would from mercantilist doctrines, which are about the jealousies of trade, and which were fundamentally extractive in their sense of the natural environment, extracting silver and other raw materials. So I think future will be different from the past in that respect. Here comes.

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