Decadence, Free Trade, & Mercantilism

That boredom, sexual perversion, consumerism, and the general malaise of the West are to a great extent the fruits of past economic growth is long record­ed…

“Conquest or superiority among other powers is not, or ought not ever to be, the object of republican systems.” —Charles Pinckney of South Carolina

The Rise of Neo-Mercantilism.

If deca­dence is the loss of the proper object in life, then America is clearly decadent. Our lack of higher purpose to guide and inform public policy is evident in the ongoing debate over international trade and our relations with such countries as Japan and Germany, which is part of the general deterioration of economic integration predicted by German economist Wilhelm Roepke. With the apparent surren­der of American industry to these and other foreign competitors in the last decade, the “free trade doctrine” has been challenged by various stripes of mercantilism. America, they say, must respond realistically, not mere­ly to protect its economic and military strength, but to make America the world’s pre-eminent power. We need to increase exports and bring back and keep key indus­tries in our own country. While there is both good and bad news in this ap­proach, it is argued here that, ultimately, even a “conser­vative mercantilism” is not a good economic policy for a sound America.

The Good

Among the good aspects of the conservative mercantilist view is the simple realism which escapes the dogmatic libertarian who insists on absolutizing the free trade doctrine. A vigilant govern­ment is required for both domes­tic and foreign policy to maintain and protect legitimate national interests, and this implies a need to be mindful of the consequences of trade for America’s long-run economic future as well as for the non-economic aspects of national security, culture, and our identity as a people. For example, it makes no sense for America to remain vulnerable to Middle Eastern oil, and after three oil shocks, it is surely prudent to reduce that dependency through appropriate policies.

The Bad

However, there are three main errors conservative mercantilists make that finally render their approach unsuitable for a conservative or traditionalist base of public policy. First, they misun­derstand the nature of a liberal or “free” economy with its free trade doctrine. In their dominant rheto­ric, they vigorously reject “free trade,” equat­ing it with nineteenth century economist David Ricardo’s law of “comparative advantage.” Secondly, their goals of increasing material growth and so economic and military power, and their love of country and its culture, are not compatible. Thirdly, their vision of what America is all about is contrary to any conser­vative conception. Their hero is Alexander Hamilton, not Thomas Jeffer­son.

What is a “liberal” or “free” economy? It is certainly not the laissez-faire or libertari­an vision which some think-tanks in Washing­ton, D.C. would promote. In their distorted version of things, a free economy is cast in the philosophy of social Darwinism and often overlies an implicit nihilism. Their advocates can’t really believe in any values except a bald egotism. In the context of such decadence, they literally believe anything goes in the economy and sometimes in morals. This is defended intellectually by an appeal to the more extreme versions of Austrian economic thinking that claim a Simon-pure capitalist system will always produce perfectly satisfac­tory results. If there’s anything wrong in the real world it’s always government, or some other outside corrupt­ing influence. Mercantil­ists who wish to distin­guish themselves from this drivel can be forgiven if they flatly refuse to truck and barter in a Disney world of “ostrich economics.” And yet such dogma­tism is not reflected in the premier classical economist, Adam Smith, who’s justly famous for insisting that defense is more important than opulence but was neither a mercantilist nor had the instincts of one.

Rather, mercantilists must understand that their legitimate concerns are realizable within the classical free trade paradigm prop­erly understood. Because shouting “fire” in a crowded theater is illegal, we don’t disclaim belief in “free speech.” We understand the prerequisites beneath responsi­ble free speech are really only a concern for the welfare of all citizens. All freedom presupposes a corre­sponding and limiting “civic virtue,” no less for a free market than for a free republic. In fact, proper intervention by a vigorous state jealous of the welfare of its people is not simply fully consistent with the liberal free trade model but logically necessary. Policies that define when and how government is to intervene in economic freedom to prevent it from destroying its own prerequisites actually legitimize that freedom. The abuse of eco­nomic power, such as a monopoly keeping out smaller competitors, is precisely what govern­ment should prevent or remedy. When in 1982 the government failed to prosecute IBM for its predatory practices in driving out smaller competitors, it was arguably a major blow to the principle of economic freedom; certainly, it represented the Reagan adminis­tration’s lax views on anti-trust enforcement. Neither does free trade require private firms to compete with foreign (or domestic) govern­ments. More broadly, protecting one’s cultur­al and ethnic heritage by imposing immigration restrictions can be perfectly consistent with “free trade.”

But such legitimizing interventions are possible only if there is a separation of gov­ern­ment from normal market operations, or what Roepke referred to as the separation of political imperium from economic dominium. We call it decentralization, and the old meta­phor of the umpire in the ballgame is not inappropri­ate here. Centralized or collectivist forms of governments such as National Social­ism or Communism are characterized by increasingly blending economic and govern­ment functions and blurring the distinc­tion further between society and state, between Caesar and all other human institutions and activi­ties. Therefore, when mercantilists admiringly recommend that we more or less copy the Japa­nese model—closer cooperation between firms and with government—in order to respond to their economic penetration of our markets, they are asking us to betray this tremendous achieve­ment of Western culture, to become, as it were, oriental.

This is especially important in view of the pragmatism which necessarily follows from mercantilists who, by a wholesale rejec­tion of the free trade doctrine, are left without any guidance in international exchange other than the coherency provided by a desire to expand national power and perhaps the habit of following certain existing laws. Free trade, they claim, is useful sometimes, such as directly after World War II, but it isn’t any more. We are freighted with bad policies like the set of “archaic ‘antitrust’ laws” which are, as one mercantilist writes, “better fitted to the medieval fairs than to the modern world econo­my.” Times have changed and so must we.

At the heart of this pragmatism is the rejection of the Ricardian concept of “compar­ative advantage.” This doctrine of classical economics claims that in international trade (as with trade in a country or a region) there will be mutual gains from a division of labor between distant territories (and so very often, though not always, nations). Let each country do those things it does best and trade with others for the remaining things it wants. But mercantilists insist this means letting go of industries that, while they may be uneconomi­cal to pursue at the moment, could be impor­tant in the future, for example, the ability to capture spin-off discoveries. The key is to retain industries with potential for future growth lest these be perma­nently or tempo­rarily lost to the economic or military detri­ment of the country. Comparative advantage is an outdated, static concept unsuited for a “dynamic” world of mobile capital, where many industries can be set anywhere in the world. What need is there to specialize and trade? Exam­ples are then cited from modern industry, especial­ly electronic computer com­ponents, along with familiar references to the auto industry. Histori­cally, the removal of the Corn Laws (1846) is cited as evidence that Britain’s free trade policy ruined its agricul­ture, driving more Britons off the land to join the ranks of the “urban proletariat.” Free trade is destructive.

Yet, they seem to admit reluctantly that Ricardo’s doctrine of comparative advantage is still useful. Their own examples confess that America has insufficient oil for its needs and Saudi Arabia can’t provide its own food, so the two countries concentrate on what they can do well and trade; and South Africa has a comparative advan­tage in critical raw materi­als which we need. Such an admission is important since it suggests the need to recon­cile, rather than repudiate, the Ricardian doctrine with at least some of mercantil­ists’ legitimate concerns.

For example, one can adjust Ricardo’s doctrine to accommodate possible changes in productive capacity—”dynamic” comparative advantage as it is called in the literature—which does nothing to affect its essential truth. Aside from natural endowments, there remain other costs (sacri­fices) associated with any industry which are related to a country’s history, culture, and previ­ous experiences; the very things that neo-mercan­tilists rightly argue preclude a uniform global economy also preclude comparative costs from being zero or negligible. For a country to pro­mote an industry it still must give up not just money, but some other indus­try that could be promot­ed. To get that other industry’s products it must trade. Preserv­ing these possi­bilities is noth­ing more than what environ­mental econo­mists long ago called “option value”: conservation practices involve greater present costs but allow a fuller range of choices in the future. But no matter how diverse, say, a farm is, it still involves trading and a level of specialization. There are still compara­tive advantages for it.

Though mercantilists are fond of citing examples from the 17th century (e.g., the decline of Dutch national power), the seventeenth century, as well as the entire mercantilist era, was hardly admira­ble. With the rise of modern nation-states the international economy of the Middle Ages col­lapsed and ushered in a period of Machiavellian business, politics and the general anarchy of eco­nomic warfare. Between 1600 and 1667 there was only one year of peace among the major European pow­ers. Economies were less differ­entiated and much of Europe­an history there­after revolved around efforts to overcome this problem.

These efforts were rewarded in the 19th century. Between 1815 and 1914, Eu­rope and other nations enjoyed a remark­able period of relative peace. It had a lot to do with free interna­tional trade, respect for international law, and a reasonable division of labor among nations (i.e., comparative advan­tage). British agriculture suffered, not from free trade, but from large landed estates, the same lati fundia problem that destroyed Rome. By 1846, the year of the repeal of the Corn Laws, its agriculture had been denud­ed of its healthy peasant­ry and small proprietors, a result aided and abetted by mercan­tilist policy. Al­ready as early as 1770, Oliver Goldsmith could lament in his famous poem, The Desert­ed Vil­lage: “But a bold peasantry, their coun­try’s pride, / When once destroyed, can never be supplied.” Increasingly, only tenant farm­ers and their rural workers were left on the land; and the Corn Laws benefit­ted pri­marily the aristo­cratic landlords. Their repeal was more of a coup de grace: “rural prole­tarians” were driven from the land to the city to be­come “urban proletari­ans.” In Den­mark, by con­trast, free trade during the latter part of the century and healthy peasant agriculture flour­ished together. In Germany, meanwhile, free trade was abandoned in favor of Bismarck’s tariff policy (1879) and German agriculture was corresponding­ly damaged.

In the U.S., after the defeat of the South in the Civil War, American protection­ism grew unchecked, contributing significantly to the forma­tion of monopolies and trusts. The social and environmental consequences in general, and the deplorable influ­ence exerted on American agri­culture during the Gilded Age make for dismal read­ing. Though President Cleve­land pointed out that protective tariffs were the “mother of trusts,” Republi­cans were so wedded to protectionism that they had to de­vise a way to retain tariffs while controlling trusts; the sel­dom-used “answer” was the Sherman Anti-Trust Act of 1890.

Ultimately, the growth of mercantilist policies during the latter part of this otherwise promising era of international trade contribut­ed significantly to the collapse of peaceful relations, which such trade presupposes, and so to the Great War. Since then, the nations have not been able to achieve international integration again and are now, after a brief post-World War II respite, floun­dering around talking of regional trading blocs and vari­ous trade asso­ciations.

Finally, if Japanese trading success is “dependent upon access to markets more open than its own,” then when other nations follow suit there will eventually be no open markets to penetrate. As nations integrate govern­ments and economies more, the interna­tional order disintegrates more, as seen in successive rounds of protectionist wall-building. The world economic trade becomes increasingly unstable erupting into crises and shortages, and even foreign ex­change inter­ventions to achieve national objec­tives of employment and economic growth, just as in the protectionist interwar period. Many countries will retaliate and others will simply feel compelled to go along the double tread­mill of unlimited eco­nomic expansion and protectionism for fear of being left behind or outgunned; and national frustration and insecurity will grow. As Roepke reminds us: Disease, not sanity, is contagious.

But the same dog-eat-dog power games that bring divisive changes between nations, also visit divisive changes within them. These changes expose the second major flaw of conservative mercantilists: the inconsistency of their goals. If they are rightly concerned about certain outcomes of trade at the international level, they should also be concerned about them at the national and local levels, asking, as the late Russell Kirk did, what the cultural and moral effects are on American life from end­lessly increas­ing material growth. How are their tradi­tional values and their com­mitment to unlimited growth compat­ible? Indeed, how is the commitment of endless increas­es in per capita consumption consistent with Christian teach­ing?

British economist E.J. Mishan identi­fies the per capita “growth” ideology as the source of the post-World War II phenomenon of “rising expectations.” Aside from being the primary cause of inflation in this age, in contrast to earlier periods, growth has be­come, he writes, the “mon­omania” and “ob­session” of every government. Mercantilists, too, are as much obsessed with growth as most, if not all, of their libertarian counter­parts.

But just as it is unrealistic to overstate the harmony between nations, so also it is unrealistic to overstate it between culture and endless techno­logical change. Why is it deplorable if U.S. workers lose their jobs in the semi-conductor industry to the Japanese, but it’s quite all right for them to be displaced by automation? Why should workers be diligent to retrain when their new skills will also become obsolete in a few short years? Unlimited economic growth renders not only skills but entire ways of life obsolete. Fur­thermore, as we acquire more goods over and above the basics of food, shelter and clothing, we compete for those things which only a few can have but not all, like an acre of secluded lake frontage. That boredom, sexual perversion, consumerism, and the general malaise of the West are to a great extent the fruits of past economic growth is long record­ed by conser­vative thinkers such as Russell Kirk, Wilhelm Roepke and Richard Weaver. Yet, conserva­tive mercantilists blithely continue to recom­mend more of the same.

Also, economic growth makes an ab­straction of the very nationhood so much admired by mercantilists. It not only disturbs our life, but it also weakens affections for our country. It’s hard to love Wal-Marts, parking lots or silicon chips. We watch TV shows from around the world, travel by jet, commu­nicate by phone and fax anywhere. These devices bypass borders as if they didn’t exist. As one author writes: “capitalism cannot be conservative in the true sense as long as its reliance is upon industrialism, whose very nature it is to unsettle any establishment and initiate the endless innovation of technological ‘progress.'” Even Adam Smith, hardly the apostle of industrial capitalism some take him to be, spoke favorably of small farmers and was quite critical of “projectors” (innovators). Is it not naive to harness such already-too-attenuated emotions to increase the very forces that will undermine them still further? Striv­ing for the economic “edge” through material growth is surely the road to cultural seppuku.

In this context the appeal to American “economic patriotism” involves the very fusion of imperium and dominium whose separation we should be eager to preserve. If a genuine patrio­tism were sought, one should hear not rousing calls for expanding cornuco­pia via big corpora­tions/big government partnerships, but for (eco­nomic) sacrifice. If Japan is to be defeated in this economic war, let us give up buying their consum­er electron­ics; if our dependency on OPEC makes us vulnerable, a loss itself arising from past growth, let us reduce our oil consumption. But mercantilists want Americans to continue consum­ing these things—only from American producers.

The third major flaw with mercantilists is their wrong vision of what America is all about. For them, America means empire-building through the consolidation and militar­ization of economics. But originally, America was founded on the idea of “civil freedom” based on a settled way of life, not military and economic “pre-eminence,” imperial­ism, or world conquest. As Richard Weaver explains: “The Constitution was, especially in its bill of rights, a creation of eighteenth-century classi­cal liberalism, which looked upon the free­dom of the individual from state coercion as the highest political object.” In fact, the Ameri­can War of Independence was itself arguably fought to oppose the tyranny of British mer­cantilist policies. Certainly, its watchwords were “Liberty” and “Independence,” not “union” and “pre-eminence.” But in 1830, the hitherto largely recessive evil of nationalist power reared its head in the person of Daniel Webster who argued for “union,” consoli­da­tion, and an expanding economy. His oppo­nent, Senator Hayne of South Carolina, like most Southerners, wanted free trade and the keeping of their traditional way of life, the precondition of true liberty. Unfortunately, the empire-builders won, a fact which changes nothing about the original purpose and vision of the founding. Indeed, the history of the policy rather inclines us to affirm again the classical view.

As to the effort of some to make Alexan­der Hamilton a hero of a conservative mercantil­ism, Russell Kirk’s assessment of him may serve as an adequate reply. Hamil­ton “was not really a conservator of old ways, but a planner of a new order: the indus­trial and consolidated America which he intended to create truly was a more radical vision than any of Jefferson’s, and a public suspicion that Hamilton was somehow alien to the political tradition of America barred him from the presidency.” For these reasons, the conservative, says Kirk, is ill-advised “to make Hamilton into the founder of our conser­vative politics.” Need we add that the modern history of Germany can be seen as a didactic exercise in the consequences of the Hamilto­nian system as applied by his admiring pupil, Friedrich List, and further by Bismarck?

The Direction of Policy

The direc­tion for international trade policy should begin by remembering the purpose of an economy: to provide material security and private con­tentment. Traditional Christian teaching involves a principle of economic subsidiarity like that of political subsidiarity: One moves up to the next higher level of economic action only when the lower one fails. Instead of big economics which implies big gov­ernment, we should imitate Randolph of Roanoke and fight for the “dignity and autonomy of the smaller unit.” Security, which mercantilists them­selves rightly value, and contentment are best supplied by increasing the area of self-suffi­ciency of the “smaller unit,” the home, mak­ing it more productive. Many domestic and international economic problems are solved or reduced by making households less dependent on market exchange (not more dependent on domestic mar­kets and less on foreign ones). This is done by increasing home production in foodstuffs as Solz­henitsyn recommends in his Rebuilding Russia (1991), in clothing, in education, in home repair, and by policies that reduce the mortgage payment time, and yes, even by a judicious reduction in consumption, and then, by increasing the distribu­tion of productive assets ideally “to make every man a capitalist,” as it were, not a mere wage-earner. We must also revitalize small and medi­um-sized businesses and in other cases humanize industries and bring them to local communities. And finally, we must restore socially healthy forms of agriculture based on the labor capacity and skills of a single fami­ly, not on agri-business.

A family that is debt-free (no mort­gage, no big credit card payments) and par­tially self-suffi­cient is in a superior position to withstand reces­sions or variations of interna­tional trade. It will need little, if any, public assistance. It finds greater satisfaction in work. Internationally, this means that less will be demanded from the market, hence a natural lessening of international trade which is already too intense but at the same time an in­creasing resilience with the volume of trade that remains. Household production and international markets can act as flywheels for one another in times of economic imbalance: a surplus in one area can counter a deficiency in another.

Internationally, an economic policy proper to the American tradition would first of all pre­serve the separation between the politi­cal and economic spheres as explained above. Massive interlocking of companies and tight cooperation with the federal government to pursue a milita­rized growth and make Ameri­ca “pre-eminent” is not the aim. Instead, it should pursue a vigorous application of the principle of anti-trust to all firms, foreign and domestic, located within the country. Or possibly, outlaw the existence of monopolistic enterprises, and prosecute offenders under civil law.

At the same time we should work con­structively toward international economic integra­tion where possible, working to re-establish those prerequisites of international harmony which the classical economists could so comfortably assume, but which we cannot. These include pursuing multi-lateralism, not bi-lateralism or closed region­al trading blocs (with their corresponding implica­tions for national sovereignty), working to im­prove respect for international law, the law of na­tions and the sanctity of treaties, and to re­store a stable currency.

We also need to engage in a form of “growth detente” or containment and move away from this addiction to unlimited material expansion which is impossible to sustain environmentally and socially. By lowering the stakes in this irrational game, we ease the tensions in international trade and reduce the assault on our own culture and environment as well as on others. Or, by all means let us have “growth”—in the consumption of neigh­borliness, community, and social stability, and a genuine economic independence, a major prerequisite of an independent republic.

Such is the very radical program that addresses international trade problems at their origin, by affecting appropriate change on the inter­nal eco­nomic structure first. And though it is laughed to scorn by the “hysterical opti­mists” of materialis­tic progress, a fair reading of history and human nature reveals that they are the utopians, the obscurantists, the day-dreamers who think the present path can be pursued endlessly and benefi­cently. Hard-headed reasoning points in a very differ­ent direction, as outlined above. And so far as mercantilism is concerned, even of a con­ser­vative kind, Roepke’s conclusion of the matter five decades ago is still correct: “Either we will have to be prepared for the nations un­leashing…a terrible perpetual war for politi­cal domination of the entire globe; or, the barri­ers erected by short-sighted egoism will have to be torn down again. It can only be the one or the other: an unending scuffle for the greatest possible expansion of the closed territories, or return to the ridiculed princi­ples of a liberal world economy…” Amen to that.

This essay appeared in The Legacy of Wilhelm Roepke: Essays in Political Economy by Ralph Ancil. Republished with gracious permission from Wilhelm Roepke Institute, which holds the copyright of this essay.

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