Friday, June 14, 2013

Adam Smith Did Not Defeat the "Mercantilists" - They Just Ignored Him

Dirk Ehnts, Econoblog101 posts HERE
“What defeated mercantilism was Adam Smith (The Wealth of Nations, 1776) and his idea of the specialization of labour.”
Yes, the link between the headline and the text is tenuous, but it includes a photoshot of the words on the headstone, situated at Adam Smith’s grave-site in the Canongate Church yard, Royal Mile, Edinburgh, Scotland.**
However, Dirk Ehnts makes a fallacious statement claiming that Adam Smith “defeated” mercantilism by his book, Wealth Of Nations.
The idea is quite wrong.   If it only took an idea to “defeat” long-established policies imposed by Governments, be they ever so mistaken, social evolution would be quite different.
Mercantile political economy had been followed by successive governments for centuries, and were strongly believed to be appropriate by “common” consent, and not just by those who benefitted from them, such as domestic “merchants and manufacturers”.  
The basic compulsion behind mercantile prejudices is that foreign trade imports are “bad” for a domestic economy, particularly when exports are less in value than the imports, and the appropriate remedy for deficient trade balance includes discouraging foreign imports into the country and encouraging domestic exports to foreign countries. If every country does this, economies would be smaller and people less well off.
Where outright prejudices favouring exports were weak, the remedy was for the state to impose tariffs on foreign sourced imports, even impose outright prohibitions on them, and in England’s case, to use indirect means, such as the by-product of the defensive “Navigation Acts” that required, from Cromwell’s times, all shipping of goods to be landed in English ports to be carried into the country in English owned ships, manned by English crews only.  This would ensure that in times of war, England had sufficient ships and crews to keep needed supply lines open from marauding foreign navies.
The Navigation Acts were extended to Scotland on the 1707 Act of Union and remained on the statute book until the 1840s.
Moreover, mercantile political economy also carried far more policy implications than just tariffs and prohibitions and also continued in various forms in the 19th and 20th centuries.  In fact, these ideas continue today across the world and occasionally break out in political discourse, summed by David Hume, as “jealousy of trade”, such as demands to buy  “American” or buy “British” and warnings about “Chinese” trade “destroying” our jobs.
Therefore, beyond the clear fact that mercantile ideas survived, despite Adam Smith’s – and many others' –warnings about their negativity, we should be wary about glib statements than “Adam Smith defeated mercantilism”. He didn’t – unfortunately!   Nor could he nor anybody else.  Important though ideas are they are not decisive alone in promoting change, as politics across the world have shown in practice.  We see this regularly on LOst Legacy when somebody, alone or in company, proposes a new economics system to replace "wicked, corrupt, immoral" capitalism with something entirely different, such as "benign", humane", "socially good".   First they have to persuade only 7 billion others; meanwhile they fad away in their utopian dreams.
As for the “specialisation of labour”.  That is another misleading claim, long practiced for millennia before Adam Smith.  Much better to focus on what he did say and why he was pragmatic, not romantic, and observed "everything" as a philosopher should, especially the past for clues as to how we get to the present, but he said nothing about the future.
** Well worth a visit if you come to Edinburgh.  It’s almost next door to Panmure House, where Adam Smith lived from 1778 until his death in July 1790.   Interested visitors can arrange with me a guided walking tour of Adam Smith’s Edinburgh, from where he worked in the Custom's Office to where he lived at Panmure house, including his grave site, conducted by my good self, if mutually convenient. Just email me well ahead of your visit.


Blogger Royforge said...

Damn! Wish I had read that before my recent visit to Edinburgh!

10:06 am  

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