Mercantilism vs. Microeconomics

This is a very interesting and provocative piece on the relative merits of mercantilism - as represented by the Whig party's American System of the 1800s - and what the author call the Iron Laws of Capitalism - perhaps best summarized as basic microeconomics.

Two points to build on, after you've read it.  Waiting.  Waiting.  Waiting... Done?  Good.

First, Britain pioneered industrialism, then moved to advocate free trade, because Britain was the world's foremost industrial power.  Being the world's foremost industrial power, meant that Britain would benefit from open competition.  Closed markets - via mercantilism - would hurt British manufacturers.  So... free trade!

America embraced free trade most wholeheartedly after World War II.  The perils of closed, insular markets as typified by the Fordney-McCumber and Smoot-Hawley tariffs had helped create the Great Depression.  Free trade would mean more markets and - the theory goes - more peace.  The fact that around the time of the Bretton Woods conference America produced roughly half of all manufactured goods on the planet probably helped cement America's embrace of free trade.

Second, we have seen much genuflecting before the altar of Chinese awesomeness.  Ironically, a lot of those flogging Chinese awesomeness - people like Thomas "My Head Is Flat" Friedman - are also ardent free traders.  It's ironic, because as the piece above explains, China has embraced a mercantile philosophy.  What we see in China is a real partnership between the government and business.  We see central organization - not Stalinesque central planing - where the government coordinates efficiency.  This is not that dissimilar to the German economic miracle of the '50s and '60s and up to today.  Germany coordinates between government, business and labor in order to create an economy based on harmonic national needs rather than pure free market competition.

Paradoxically, this allows them to compete better in the international market.  Just like China.

The US - like Britain before it - is largely ruled by the ideas of pure capitalism (the laws of microeconomics).  Like Britain, the US is currently seeing its preeminent place as the world's leading manufacture slip away.

The response has been to sink further into the orthodoxy of microeconomic law.  Obama did mention something about needing a national industrial policy, but can you imagine the batshit wailing from the right if Obama actually proposed that the government, business and labor sat down and figured out what was best for the country and how to get there together?  Death panels would seem quaint by comparison.

So, what we will get is more of this Wisconsin nonsense.  Not just the union busting, but the other stuff slipped into the odious bill: things like the no-bid sale of the state's power plants to private companies (why do you think the Koch's bankrolled Walker's campaign?).  We will continue to see Americans as a whole fisted by the Invisible Hand in order to further enrich the now effectively stateless American millionaire class.

Britain eventually met its collapse as the world's factory with a powerful welfare state borne of the travails of World War II.  I can't see a way to that place for the US right now.

But it will be interesting to see how far we can travel down the road of "comparative advantage" and "the iron law of wages" before we start to finally look at how "other countries" do it.

And how much wealth will be funneled off to the wealthy before we do.

UPDATE:  Here is something more about Germany via Bondad.  It excerpts a Time Magazine piece that describes Germany's mercantile impulses, but without really calling it mercantilism (at least not in the excerpt).