The Greek economic crisis demonstrates how Greece and, for that matter, most of Europe, remain mired in a highly regulated economic system that harkens back to the mercantilist era. Greece’s economic system also reminds us of the revolutionary economic system that our American ancestors implemented when they called the federal government into existence in 1787. And it reminds us also of the major counter-revolution by which later Americans abandoned our country’s original economic system and installed a Greek-type a system in its place, a system under which Americans live today.
According to an article posted yesterday on a website named Quartz,
Breads can only be sold to consumers in a few specified weights, and the traditional bread roll (koulouri) is subject to an arbitrary weight, 40 grams (1.4 ounces).
Rules set the shelf-life of pasteurized milk at no more than five days, half of the limit in most other EU countries. This makes transporting or importing milk impossible — as a result, milk prices in Greece are 34% higher than the EU average.
As Quartz has covered before, pharmacies are one of the most coddled industries in Greece. One rule that bothers the OECD in particular is that pharmacies must be owned by licensed pharmacists.
Shops are only allowed to offer seasonal promotions during four fixed periods in a year. In addition, the law forbids advertising these discounts for 30 days before the promotions.
With a few hard-won exceptions, most shops aren’t allowed to open on Sundays.
According to an article in yesterday’s New York Times, the new austerity package will mean, among other things, the “deregulation of closed markets and professions.”
That means that bakers like Spyros Kyriakopoulos are likely to experience a major change to his work life. He’s a Greek baker — a licensed Greek baker. The license, issued by the government, authorizes him to sell bread to consumers. No license, no selling of bread.
That means that supermarkets in Greece are not permitted to sell bread. That’s because the government hasn’t issued them a license to sell bread.
Not surprisingly, that’s fine with Kyriakopoulos and, no doubt, with all the other Greek bakers who have a license to sell bread. As he put it, “I think it’s better for the bakery to sell bread, for us to have pastry, for the supermarket to sell its products.”
That was how life was in the era of mercantilism in the 1600s and 1700s. Economic activity was strictly regulated by the state. Prices were controlled. Middlemen were prohibited. Profiteering was condemned. Guilds protected members from outside competition. Welfare was provided to the poor.
The mindset was that because there was such widespread poverty, government involvement in economic activity was necessary to protect people from the likes of profiteers, middlemen, price-gougers, unfair competitors, and exploiters, and also to ensure that society was provided such essential items as food and clothing.
Then, along comes Adam Smith and in 1776 publishes one of the most revolutionary books in history, entitled An Inquiry into the Nature and Causes of the Wealth of Nations. One of Smith’s theses: The reason people have remained mired in poverty is because of government controls on economic activity. Release the controls and people will prosper. In France, Smith’s idea came to be known as laissez faire, laissez passer. Let it be. Let it pass.
By and large, however, Europe has always been unable to let go of its commitment to mercantilism. That’s why there are still strict government controls over economic activity to this day.
Not so with the Americans — our American ancestors in 1787, that is. After the Constitution called the federal government into existence, Americans brought into existence the most radical economic system in history — one in which there was virtually no governmental control over economic activity.
No guilds, no occupational licensure laws, no income taxation, no IRS, no anti-profiteering laws, no anti-middle-men laws, and no welfare for the poor. In essence, a separation of economy and the state.
Needless to say, Europeans and the rest of the world were stunned. In their minds, people could not survive without strict government control over economic activity and high taxation to provide the means to enforce the regulations and to provide welfare for the people.
They were even more shocked as they witnessed the biggest surge in economic activity, prosperity, wealth-creation, and standards of living in history here in the United States during the 1800s. People were going from rags to riches in one, two, or three generations. Many of them included immigrants who were fleeing the highly regulated economies of Europe to come to the free-enterprise economy of the United States. (Our American ancestors had also implemented a system of open immigration.)
For our American ancestors the term “free enterprise” did not mean what it does to Americans today — i.e., an economy subject to government regulation. For our ancestors, “free enterprise” meant a system in which economic activity was free from government control and regulation.
In the latter part of the 19th century, things began to shift in America. A growing number of Americans began adopting the mindset of the Europeans — the mindset that had characterized people during the age of mercantilism.
They began advocating governmental controls over economic activity, especially at the state and local level. That’s what the famous 1909 case of Lochner vs. New York was all about, a case which ironically involved the bakery industry in New York. The New York legislature imposed a maximum number of hours that baking employees could be made to work. They said that the law was necessary to protect employees from being exploited. Actually, it was an artificial device to protect the big, established bakeries from the competition of home-operated bakeries by increasing costs on the latter with the aim of running them out of business.
In Lochner, the U.S. Supreme Court declared the New York law in violation of the U.S. Constitution, specifically the Fourteenth Amendment, which prohibited the states from depriving people of life, liberty, and property without due process of law.
In the 1930s, however, the statists finally prevailed in establishing a controlled, regulated economy and welfare state in the United States. Lochner was effectively overruled by judicial cronies appointed to the Supreme Court by President Franklin Roosevelt. In 1937, the welfare-state, regulated-economy counter-revolution became complete.
And so it is that we live under an economic system that is no different, in principle, from that of Greece. Licensure for doctors, lawyers, hair-dressers, shoe-shiners, stockbrokers, taxi drivers, and, for all I know, maybe even bakers in some localities. Minimum-wage laws, price controls, farm subsidies, education grants, public housing, insider-trading laws, banking regulations, Federal Reserve, fiat (i.e., paper) money, and much more. And of course, there is the gigantic welfare state, a system by which the government plunders people with ever-increasing taxation in order to give the loot to seniors (Social Security and Medicare), the poor (Medicaid and food stamps), the middle class (aid to the arts and sports stadiums), big corporations (bailouts), farmers, students, foreign dictators, and countless more.
At least the Greeks understand that they have long lived under a statist economic system. All too many Americans are convinced that they live under a “free-enterprise system.” Who is the bigger serf: the serf who knows he’s a serf or the serf who thinks he’s free?
