Mercantilism and Fascism

Currently we see a growth in mercantilist type ideas with regard to trade policy and, some would claim, a growth in fascist ideas. Is there a connection? Just how closely related are mercantilism and fascism?

A paper published in the journal History of Economic Ideas (vol. 6, no. 2, 1998, pp. 97-122) looks at this question. Patrick J. Welch wrote on "Mercantilism and Fascism".

The abstract reads,

Parallels are drawn along several lines to support the argument that fascism is the closest 20th Century counterpart to mercantilism. The paper is divided into three sections. In the first, mercantilism and fascism are compared in terms of timing, empires, and problems of conceptualization. In the second are compared objectives relating to power and plenty, and tenets concerning trade and precious metals, wages and population mobility, and the place of the state and individual. In the final section are compared practices of mercantilism and fascism as they relate to the implementation of regulation, the role of business interests in regulation, and warfare.

Welch's conclusion includes

Such was not a concern for the 20th Century fascist regimes in Germany and Italy. Like mercantilism from the earlier time, their primary focus, without apology to the citizens, was on the wealth and power of the state.

The parallel between modern neomercantilism and mercantilism is limited largely to the place of government in, and objectives of, trade policy. Many more parallels can arguably be drawn between fascism and mercantilism. The timing of both with reference to the formation of the national state was similar. Empire was important in both mercantilism and fascism, although the short life of the fascist regimes did not offer enough time to realize territorial ambitions. The concepts of both mercantilism and fascism were criticized for being more pragmatic than founded on rigorous principles, of questionable use in describing specific situations, and carrying offensive implications. Relative power and unification were important in both mercantilism and fascism, and the relationship of power and plenty in its role in unification was in dispute in both cases. Mercantilism and fascism shared comparable tenets on trade policies and bullionism, low wage and migration policies, and the dominant role of the state and subordinated role of the individual. Finally, regulation was extensive and the business community appeared to be a beneficiary of regulation under both systems, and warfare ranked high among the priorities of both systems.

So the question is, just how close is what we see happening today to the mercantilism of old? In terms of trade policy, much of recent US policy could be considered mercantilism, or at least neomercantilism, and you could argue that the power of the state and the role of national state - "make America great again" - is important to the pragmatic policies we see being put in place. It's not clear there are any underlying principles driving policy in the US right now. And the dominant role of the state implies a subordinate role for the individual. Much of the industrial policy being put in place is more pro-business - at least for some business - than pro-market.

A challenge to mercantilists

A challenge from Don Boudreaux at the Cafe Hayek blog. Boudreaux issues the following challenge to any protectionist/mercantilist/economic-nationalist who might wish to take it on:

Identify one plausible economic problem caused by free trade that is unique to trade and commerce that spans political borders. Just one. That is, identify a problem with free trade that arises when people are free to buy and sell internationally but that does not arise when people are free to buy and sell intranationally.

In other words, what economic problems can we avoid by restricting international trade that we don't have to deal with in internal trade?  I've got to admit I've yet to think of anything even remotely plausible as an answer to this challenge.

Mercantilism and the firm

As is well known the classical economists had no serious theory of the firm. For them economics was more orientated towards marcoeconomic issues than microeconomic ones such as the firm. This situation is one they largely inherited from the mercantilists.

There were at times, in the mercantilist literature, much discussion of firms but it was a limited discussion. Limited in the sense that it dealt not with issues to do with firms per se but with the effects of firms on more macro issues such as the balance of trade. It was also limited in that it largely dealt only with the regulated companies and their monopolies.

When discussing the period 1640-1690, Magnusson (1994) argues that several mercantilist writes attacked the regulated companies. Some authors argued for the adoption of measures to end the monopoly position that regulated companies such as the Merchant Adventurers, the Russian Company, the Levant Company and the East India Company held. There were also debates about the effects of companies like the East India Company on the balance of trade. Gerrad Malynes, for example, argued that the East India Company was exporting money “beyond the seas” and thus hurting England’s balance of trade.

But other voices where added to the chorus against the regulated companies as the seventeenth century progressed. In 1645, for example, an anonymous writer, in a pamphlet entitled “A Discourse Consisting of Motives for the Enlargement and Freedome of Trade”, attacked the Merchant Adventurers. The author argued that there is nothing more “ … pernicious and destructive to any Kingdom or Common-wealth than Monopolies”.

But regulated companies also had their defenders. In 1602 John Wheeler defended the Merchant Adventurers saying that its traffic in cloth led to that “ … a number of labouring men are set to work and gain much monie, besides that which the Merchant gaineth”. That is, what’s good for the Adventurers is good for the country! In 1641 Lewell Roberts recommended that more regulated companies should be set up. He was of the opinion that “ … joyn one with another in a corporation and Company, and not to kase their Traffike by themselves asunder, or apart” would lead to increased strength and maximum benefits for a trading nation. In addition, Thomas Mun, Edward Misselden and Sir Josiah Child had all defended the East India Company from attack at different times.

It should be noted, however, that much of these debates were partisan rent seeking with each side just dressing up their position in terms of the public good. But as Magnusson notes for " ... at least one scholar, Thomas, the controversies around this company [The East India Company] was an overall  important factor propelling the economic discussion as such during most of this century".

Importantly for our purposes such a discussion is more policy orientated than economics orientated. One point is that although such arguments involve firms they do not require a theory of the firm. Just accepting that the firms do exist is enough for policy evaluation, there is no need for an explanation of what a firm is, what its boundaries are or what its internal organisation is.

So what we see here is much like the situation with the classical economists, a largely macroeconomic originated outlook with no need for a serious theory of the firm.

Ref.:

• Magnusson, Lars (1994). Mercantlitism: The Shaping of an Economic Language, London: Routledge.