Wednesday, January 9, 2008

Merchantilism a 5-7 minute Toastmaster Speech

Tomorrow, I will be giving a 5-7 minute speech at my Toastmasters meeting. I am a strong proponent of Toastmasters and would be happy to discuss why with anyone interested.

I am not an economic historian. The information in the speech if from research I've done recently on the internet. I am trying to be concise. I'd welcome any thoughtful comments.



Merchantilism

The term Merchantilism is like Capitalism and Socialism except that it didn’t have a single “Father” or document out of which it emerged. It refers to the economic policies and practices of the dominant European powers in the period before the Industrial Revolution and the emergence of Capitalism.

It’s important to understand, as this history is prologue to the economic debates of this day, particularly as we head into a contested presidential election.

While some believe Capitalism is written into our Constitution and Declaration of Independence, it wasn’t. In fact, Adam Smith’s Wealth of Nations was published in England in 1776, the same year as the Declaration of independence. And while both represented death knells for Merchantilism, it took many decades for Capitalism to take hold in society in general and in turn its excesses to cause the rise of Socialism.

In the next few minutes I will share two of the key aspects of Merchantilism, their ramifications and some remaining vestiges in today’s economic world.

An underlying aspect of Merchantilism was the rise of bullion, specifically, the role of bullion coins, silver and gold. In general, the goal of the state became one of acquiring and hoarding gold and silver. This was in turn used to field permanent armies and navies to protect the merchant interests of a nation.

The need to protect merchant interests from piracy and competition created a self renewing bond between the Crown, the military and the merchant classes.

This process accelerated the consolidation of power, and fueled the transition from feudal states into the rise of the nation state. It also led to the European wars that so dominated that continent for the majority of the past 3-400 years. These wars in turn arguably sped the technological advancement of European states, particularly in the military arts.

When we think of Spanish galleons sailing the seas, pieces of 8, and of pirates and buccaneers sanctioned by differing nations, we are seeing just one vestige of the era.

Within the United States the persistence of this “gold lust” is seen in the fact that it was only in 1972 under President Nixon that the US finally moved off the gold standard. And Fort Knox still sits as an icon to the day when gold reserves were the sole measure of a nation’s wealth.

A second key aspect of Merchantilism was that trade was considered a win-lose proposition, with the winner of the gold - the winner. This led to trade policies which placed high tariffs on imported goods, and low tariffs on imported raw materials. Export was the key and retaining technological advantages was critical. Thus England and other countries forbade not only the transfer of technological know-how, but also prohibited the emigration of skilled people.

It wasn’t until 1793, that Samuel Slater opened America’s first Cotton Mill in Pawtucket, RI using memorized plans and starting the industrial revolution in the US.

The goal of producing wealth from the colonies prevented colonials from trading with other nations even when in the colonial interest, in deference to the Sovereign’s needs to hold that market captive to its merchant interests.

Colonies were considered marketplaces for goods from the home country and hegemony was enforced. Britain for example was successful in prohibiting any ships not of English origin to transport goods around England or her colonies that were not flying the Union Jack, with the exception of direct imports from the source country. That meant a Dutch ship could not transport French goods to an English port, but a French ship could as long as it didn’t also carry goods from Holland or elsewhere.

The Declaration of Independence in part, denounced the crown for “cutting off our Trade with all parts of the world.”

Today in the United States we have a similar law known as the Jones Act which only permits US ships the right to haul materials from one US port to another.

The central need to raise wealth for the crown also led to the taxation that so infuriated the American Colonies, leading up to the Boston Tea Party. Rather than allow direct import of tea, the colonies were obliged to buy tea only after it went through the offices of the Crown Company and additional taxes applied.

One of the breakthrough theses of Adams Smith’s Wealth of Nations was that Trade rather than being a one way street, was actually beneficial for both sides. A fact that is still being debated today in our Free Trade - Fair Trade debates.

Alexander Hamilton is today on the $100 bill because he bought into Adam Smith’s ideas and envisioned a trade economy that bolstered both despite the objections of Thomas Jefferson who favored restrictive trade practices designed to protect the growth of the American agricultural economy.

While one can certainly not do full justice to Merchantilism in a 5-7 minute speech. I hope that I have accomplished two things. First, to inoculate you from any arguments that Americanism = Capitalism based on a spurious belief that American was established as a capitalistic country. And second, to demonstrate that even today, we harbor policies within our country that have antecedents to colonial and pre colonial times that are not inherently capitalistic.

To understand the economic issues of today, it helps to have a perspective on the economic polices of the past, and the why and wherefores. I hope you found the information interesting.

etn

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