Monday, September 29, 2008

A Conversation (sort of)

Parked outside Pete's Coffee, lost in thought, soaking up the late afternoon sunshine while waiting to pick up my son from school, I was jolted out of my reverie when he yanked open the car door, plopped down in the front passenger seat and blurted out the following.

(paraphrased because I can’t remember his exacts words)

So, Mom. Today in history, my teacher said mercantilism has nothing to do with balance of trade. It has to do with colonialism. Balance of trade is just balance of trade. And what we have now isn’t mercantilism, it’s capitalism.

(what I would have liked to say, only conversations with my teenager tend to occur in short sentences, not paragraphs)

Whew! That’s a bunch of claims all at once. Let’s look at them one at a time.

Your teacher is partly right – mercantilism can be about colonies. More generally, mercantilism is about government controlling the economy in attempt to benefit its own country and businesses. You can think of it as a kind of "economic nationalism." One way to do it is through colonialism, as when Great Britain tried to use the colonies in North America to provide raw materials and customers for its home merchants. The king didn't want gold leaving Great Britain when her citizens purchased goods from other countries. He wanted to keep it as as taxes in order to pay for soldiers and other royal prerogatives. In other words, the government (the king and Parliament) wanted a positive balance in gold!

Today, people still talk about needing to keep a “positive balance of trade,” meaning; our country should sell more than it buys to avoid loosing dollars and jobs to other nations. The government enacts laws which restrict trade in the attempt to protect domestic businesses and workers from foreign competition. That, too, is economic nationalism, or mercantilism.

There's a lot of problems with the current concern over “balance of trade.” (In a free market there never can be an imbalance of trade because you can’t buy unless you also sell. That’s why it’s call trade.) But that's off track right now. If you think about what mercantilism means --the government using its political power to restrict trade in favor of its home country—then you can see how colonialism and current protectionist policies are both types of mercantilism.

(what I actually did say)

We don’t have capitalism today. Capitalism means a market free from government intervention. We have a mixed economy- some free trade and a lot of government intervention in the form of tariffs, regulation, minimum wage laws, trade quotas, most of which is done in the name of creating a positive balance of trade. That's mercantilism!

But we are mostly capitalist because you can’t have total free trade anyway or you would have to let North Korea trade nuclear weapons with Iran. You think its ok for government to interfere there, so you really aren't for completely free trade either!

Whoa. Now that’s an interesting point, but something's not right about that argument. Let me get back to you after I give it some thought.

(That last point was moot because, by that time, we had arrived home and he was already out of the car and half way up the drive way to the house.)


John said...

Hi, Beth,

Though I've never had children of my own, young people have a unique way of "intellectually" stumping us when we least expect it. Guess it keeps us on our toes. This exchange of ideas even intrigued my mind.

One thought is that even in a totally unregulated free-market economy (capitalism), criminals may still trade with each other, but (and a very important 'but') like any other citizen, criminals may not use the initiation of physical force against any other innocent individuals or businesses without paying the consequences of that forceful action (such as being met with police action and/or private self-defense, or being arrested, fined, and thrown in jail).

In a free-market society, criminals, as well as the normal citizenry, have to know clearly that if they engage in any criminal actions against other innocent individuals or businesses (meaning they are violating the individual and property rights of others), that such criminal action will be meet will equal or stronger "protective" force to stop, and if need be, eliminate, those individuals committing the criminal act.

The same would apply to a global capitalist economy in which dictatorial-tyrannical countries might exist -- such as North Korea and Iran exist today -- where it would be free and possible for them to trade with each other.

However, again, it must be made very clear to such rogue nations that if they "ever" engage in the initiation of physical force and other politically-aggressive criminal actions against other innocent nations and regions of the world, they will be meet with equal or stronger "protective" force -- if at all possible by the other free countries -- to stop or completely annihilate (eliminate) them.

Like individual citizens, all nations have the right to defend themselve against criminal aggression, the initiation of physical force, and invasion by any dangerous, rogue nation.

In other words, they must behave themselves and not attack other nations, or they pay the price.

In a free-market society or global economy -- that is, under capitalism -- criminals and rogue nations are never above the objective rule of law, or the proper protection by a legitimate, constitutionally-limited, protective government.

C. August said...

But we are mostly capitalist because you can’t have total free trade anyway or you would have to let North Korea trade nuclear weapons with Iran. You think its ok for government to interfere there, so you really aren't for completely free trade either!

I think the crux of the confusion in your son's argument can be summed up briefly (as a father of two, I understand how important brevity is!):

In a capitalist country, the role of the government is to protect the rights of its own citizens -- such as the freedom to trade internally and with other countries -- and not to ensure that other nations can freely trade with each other.

In the case your son cites, govt. intervention to block our enemies from doing something harmful to us is not anti-free trade, it's (ultimately) a protection of our rights.

When you talk about "free trade," keep in mind the following question: "for whom?" Whose rights are being protected by which government?

Beth said...

Thanks for the comments!

To John,
I agree with what you are saying, however, we also need to address the matter of pre-emption. Clearly, when aggressive action is taken, we can act to defend ourselves. But, without the actual use of a weapon, when is it legitimate to disrupt a peaceful activity such as trade? It seems to me that it is perfectly legitimate to act in advance to prevent trade between nations whose whole existence is premised on the use of force against individual rights (i.e. Iran and North Korea) even when the particular act they are engaging in would otherwise be protected (i.e. trade.)

To c.august,
An interesting point. I do think the answer to defining and understanding free trade (thus finding the proper boundaries of the concept) is in remembering its deeper premise: individual rights. Trade that violates individual rights is by definition not free.