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Democratized Privilege: The New Mercantilism

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Throughout the 17th and 18th centuries, most of the governments of Europe established a set of economic policies which became known as mercantilism. Kings, princes and parliaments implemented and vigorously enforced detailed and pervasive controls and regulations over almost every aspect of economic life. Many imports were prohibited, and exports were often subsidized. The state imposed wage, price and production controls. And there were severe penalties for all violations.

Moreover, as part of the mercantilist system, the government gave certain individuals the legal privilege of being the single producer or seller of certain goods and services. Consequently, many trades and industries were controlled by these private monopolies.

In the last half of the 18th century, political economists in both France and England began to argue against this system. The Physiocrats in France and the “Scottish Moralists” (e.g., David Hume and Adam Smith) in England forcefully made the case for a free economy. Individual liberty, private property, open competition and free trade, they argued, should replace mercantilism. Not only would men be free to live their lives as they chose, but the free play of market forces would generate a “wealth of nations” that mercantilism could never provide.

Slowly the power of their ideas began to influence men’s minds. And by the early 19th century, the “spirit of the age” was rapidly becoming one in support of both human freedom and free enterprise. For example, at the stroke of midnight on December 31, 1833, the church bells throughout Germany chimed in celebration; they were hailing the elimination of all of the internal customs barriers that had economically separated one part of Germany from another.

In 1839, under the leadership of such people as Richard Cobden and John Bright, a free-trade association known as the Anti-Corn Law League was formed in England. Cobden and Bright lectured, wrote pamphlets, held public meetings, and helped elect free-traders to Parliament. In 1846, their efforts succeeded. The last of the trade restrictions and import barriers was repealed. Free markets and free trade had come to England. And on July 4, 1846, its work done, the Anti-Corn Law League dissolved. By the 1850s, economic liberty had become the ideal of much of the civilized world.

Yet, by the turn of the century, the “spirit of the age” had changed. In 1902, the German historian, Hermann Levy, began his book entitled Economic Liberalism by pointing out “The Manchester School of laissez faire has of recent years been brought face to face with two very momentous phenomena — socialism and neo-mercantilism…. Both agree that industry should be organized by the state. Manchester liberalism has been undermined bit by bit by the union of these two forces.”

On October 3, 1990, the church bells chimed again in Germany, when the two Germanies once more became one. They symbolically tolled the death of socialism around the world. One of economic liberty’s deadly enemies has perished. Socialism has died because it denied man his freedom and ignored human nature. And by doing so, it created slavery and stagnation.

But unfortunately, the death of socialism has not meant the triumph of economic liberty. In spite of all of the heralding of free markets’ having triumphed over central planning, economic liberty prevails in neither the crumbling socialist East nor the supposedly “capitalist” West.

The Western world is in the grip of the neo-mercantilism to which Professor Levy referred almost ninety years ago. Trade barriers of all sorts bar the way of the free flow of goods among nations. Wages and prices in many industries are either controlled, regulated or influenced by government. Methods of production and rules for the marketing and sale of goods and services are prescribed by governmental laws and decrees. The income earned by many is seized through taxation by the state and redistributed to numerous privileged groups and special interests. A vast bureaucracy oversees and manages the affairs of millions in practically every aspect of personal, social and economic life. The state is everywhere. And the state intrudes into everything.

But there is a crucial difference between the mercantilism of the 18th century and the new mercantilism of the latter part of the 20th century. That difference involves those who are the beneficiaries of the state’s privileges and largess. In 18th century England, for example, the political privileges and benefits were primarily bestowed upon a few select members of the society: landowners who were given agricultural protection from the competition of less expensive food suppliers on the European continent; and particular merchants and manufacturers who were given the monopoly privileges to buy, sell and trade various goods and services. The vast majority of the society paid for the protections and privileges given to those few. They paid in the form of higher prices, inferior products and fewer consumer choices. And their meager income and wealth were severely taxed not only to pay for the state subsidization of selected industries and exports, but also to finance the government bureaucracy that supervised it all.

As a consequence, the success of the free-trade movement in the 19th century was partly due to the fact that the advocates of economic liberty could point to the injustice of a system that gave privileges to a few, while making the vast majority bear the burden. The old mercantilism went against the grain of the new beliefs in political democracy and equal treatment before the law.

With the spread of the democratic ideal and the enlargement of the voting franchise, people increasingly came to view government as no longer the master, but rather the servant. But a servant for what? For equal protection before the law, certainly. For equality in civil liberties, increasingly. But unfortunately, government also came to be viewed as an agency that did things for the people, rather than only protecting them from the violence or fraud of others.

And what people wanted government to do was: guarantee their jobs and their income; protect them from foreign competition and limit the entry of new competitors at home; assure them “living wages” for their labor, and “fair” and “reasonable” prices for their products; protect them from the common mistakes of everyday life; and relieve them of any responsibility for the community efforts that would otherwise demand of them charity and the giving of some of their free time. And all of these guarantees, protections and securities were to be provided at someone else’s expense.

As the ideal of a government for the people spread, those who hoped to gain some privilege from the government formed themselves into groups of common economic interest. In this way, they aimed to pool the costs of the lobbying and politicking required to obtain that which they increasingly came to view as their “right” — that to which they were “entitled.”

No longer were privileges to be limited to the few, as under the old mercantilism. No, now privileges and favors were for all. The Age of Democratized Privilege had arrived. The new mercantilism was born. And unfortunately, it now permeates the Western world.

More and more people are dependent upon governmental spending of one form or another for significant portions of their income. And what government does not furnish directly, it provides indirectly through its industrial regulations, price and production controls and occupational licensing procedures.

As dependency upon the state has expanded, the incentives to resist any diminution in either governmental spending or intervention have increased. All cuts in governmental spending, and any repeal of intervention, threaten an immediate and significant reduction in the incomes of the affected, privileged groups. And since all of the benefits to society which accrue from greater market competition are not immediate, there are few present-day advocates of it.

The dilemma we face is captured in the phrase, “We have met the enemy, and it is us.” To a greater or lesser extent, all of us are part of the privileged political elite. All of our fights in the political arena are about increasing our share of the plundered pie, and shifting the burden of our privileges and favors onto someone else. We have created a political order which the French, 18th-century, free-market advocate, Frederic Bastiat, warned could never be more than a fiction — a world in which each of us hies to live at someone else’s expense.

Where will it all end? History records the decline of many civilizations that have crumbled under the weight of privilege and corruption, tax burdens and governmental spending, monetary debasement and inflationary debauchery.

Our task is more difficult than the one which the opponents of the old mercantilism faced. Then it was the privileged few against the burdened many. Now it is the privileged and burdened many against themselves. The enemy is now within each of us.

Never before has the fate of a truly free society relied so much on the understanding, personal character and individual will of each member of the society. Because only if each of us is willing to give up the particular privileges which he is receiving, will all of us finally be free of both the dying socialism and the persisting new mercantilism. Destiny is in your hands!

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    Richard M. Ebeling is a professor of economics at Northwood University. He was formerly president of The Foundation for Economic Education (2003–2008), was the Ludwig von Mises Professor of Economics at Hillsdale College (1988–2003) in Hillsdale, Michigan, and served as vice president of academic affairs for The Future of Freedom Foundation (1989–2003).