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Keynesianism is Mercantilism

Keynesianism is Mercantilism

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Published by: Mises Fan on Jan 27, 2014
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27.1.2014Keynes and Rothbard Agreed: Today's Economics is Mercantilism - Forbeshttp://www.forbes.com/sites/nathanlewis/2014/01/23/keynes-and-rothbard-agreed-todays-economics-is-mercantilism/print/1/3
1/23/2014 @ 1:35PM |392 views
Keynes and Rothbard Agreed:Today's Economics isMercantilism
Today’s high priests of economic foofoo actively promote a narrative: that ourmainstream economic understanding is the culmination of decades of steady improvement and research. Earlier times, particularly the pre-Keynesian times before 1950, are regarded as a dark age of superstition and fallacy.This is a narrative that seems plausible, because it applies to technology.There’s no question that electronics, materials science, manufacturing and soforth have made steady progress, which, over decades, have amounted toalmost unbelievable advancements.However, this narrative does not apply to economic understanding at all. Weactually live in a dark age of economic understanding right now — a time of superstition and fallacy. Most of today’s prominent economic ideas are really  just warmed-over versions of Mercantilism, the patterns of British economicthinking dating from about 1600 to their culmination in the writings of JamesDenham Steuart in the 1760s. Adam Smith’s great triumph, in the 1770s, wasto finally flush away the last vestiges of Mercantilism from British economicdebate. All of today’s premier economic policies, notably monetary manipulation andfloating fiat currencies, attempts to “manage the economy” via governmentdeficit spending, and the never-ending concern over “imbalances” in trade, arestraight-up Mercantilism. We really won’t make much progress in our economic understanding until thisis recognized. The entirety of today’s Mercantilist agenda should be discarded;first, at an intellectual level, and then at the level of public policy. Britain didthis, and went from an economic backwater overshadowed by tiny Holland, tothe birthplace of the Industrial Revolution and the center of the largest empireof the nineteenth century.The trend towards Mercantilism was actually led by politicians andgovernments. In dealing with the Great Depression of the 1930s, they did whatgovernments often do in crisis — devalued the currency, and spent a lot of money. Not a lot of economic understanding is needed for this. Politicians dothis in much the way that dogs bark and fish swim.Economists were actually late to the party. The significance of Keynes’
General Theory of Employment, Interest and Money
of 1936 was not that it showed anew way — by that time, world governments had been busily implementingMercantilist policies for over six years. Rather, it showed economists how they could update their blather to the new political realities, so that they could
Nathan Lewis
, Contributor
I write about monetary and tax policy for the 21st century.
27.1.2014 Keynes and Rothbard Agreed: Today's Economics is Mercantilism - Forbeshttp://www.forbes.com/sites/nathanlewis/2014/01/23/keynes-and-rothbard-agreed-todays-economics-is-mercantilism/print/ 2/3
This article is available online at: http://www.forbes.com/sites/nathanlewis/2014/01/23/keynes-and-rothbard-
reclaim their prized sinecures as elaborate justifiers for what politicians wanted to do anyway. Keynes’ book is essentially unreadable; the title alonetells you where Keynes intended to get his employment from.Keynes himself understood what he had done. An entire chapter of the GeneralTheory (chapter 23,
 Notes on Mercantilism
 …) is dedicated to cheering thereturn of the Mercantilist agenda.Does that sum up the past several years of Bernanke and Quantitative Easing?Murray Rothbard wrote extensively and wonderfully on this topic, especially inhis fantastic book
 Economic Thought Before Adam Smith.
This used to be alittle-known text buried in university libraries, but it is now  available for free ineBook form from mises.org.One of Rothbard’s points is that Mercantilism reflected big government; theClassical or “laissez-faire” view reflected small government. Today’sMercantilism is a reflection of the expansion of the U.S. government, from 7%of GDP in 1900 to about 40% today . This  brief excerpt is also from mises.org: That sounds a little familiar …Here’s Rothbard, talking about Mercantilism in 1963:It appears to me that we are in a crisis period, which may last until 2020 or so.This crisis era should clear out the old forms and allow for the creation of new forms. It is too early to do much now. Rather, today is a time to get thingsclear, in your head, about what the next era should look like.The crisis of the Great Depression and World War II resulted in the transitionfrom small government to big government worldwide. The transition fromClassical to Mercantilist economic thinking was just one aspect of this.Ideally, the next era will be a time of smaller government and a return toClassical economic understanding — what I call 21st Century Capitalism. Abandoning contemporary Mercantilism, in all its forms, is one step on thatpath.
“[the Mercantilists] were emphatic that an unduly high rate of interest was the main obstacleto the growth of wealth … and several of them made it clear that their preoccupation withincreasing the quantity of money was due to their desire to diminish the rate of interest.”
 ”As the economic aspect of state absolutism, mercantilism was of necessity a system of state- building, of big government, of heavy royal expenditure, of high taxes, of (especially afterthe late 17th century) inflation and deficit finance, of war, imperialism, and the aggrandizingof the nation-state. In short, a politicoeconomic system very like that of the present day.”
 ”Mercantilism has had a ‘good press’ in recent decades, in contrast to 19th-century opinion.In the days of Adam Smith and the classical economists, mercantilism was properly regardedas a blend of economic fallacy and state creation of special privilege. But in our century, thegeneral view of mercantilism has changed drastically.Keynesians hail mercantilists as prefiguring their own economic insights; Marxists,constitutionally unable to distinguish between free enterprise and special privilege, hailmercantilism as a “progressive” step in the historical development of capitalism; socialistsand interventionists salute mercantilism as anticipating modern state building and centralplanning.Mercantilism, which reached its height in the Europe of the 17th and 18th centuries, was asystem of statism which employed economic fallacy to build up a structure of imperial statepower, as well as special subsidy and monopolistic privilege to individuals or groups favored by the state.”

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