Mercantilism

– the Menace that no one Mentions

Do not waste your time reading this if you are firmly convinced that:

• The October revolution in Russia was a result of the selfish greed of the Czars
• The Wall Street Crash was initiated by reckless banks and small investors trading stock on margin
• The 2nd World War was caused by the evil of Adolf Hitler and his Nazi party
• Poverty in Africa is caused by corrupt dictators and the genetic make-up of black people
• Unrest and terror in the Middle East can be blamed on Islamic extremism
• The Euro crisis was triggered by an extravagant Greek government and a tax-evading Greek population

If you do not subscribe to off-the-shelf explanations of this kind aired by prominent experts hired by the “powers-that-be”, however, then you may be open to a simpler, logical explanation that is based on a single, under-used word, namely “mercantilism”.

Just as none of the world’s wealthiest persons in, say, the Forbes 500 list gives his occupation as “capitalist”, nor will you find any government, past nor present, acknowledging the “mercantile system” as the basis for its foreign policy. If you come across this term in print, then it was probably in a passage from the hand by some long-dead writer, most notably the eloquent Scottish advocate of free trade Adam Smith (1723 to 1790), who wrote the textbook of global capitalism, “The Wealth of Nations”. He used the term to denigrate what he saw as restrictive practices implemented by even longer-dead kings and absolute monarchs whom his reader was expected to despise.

A mercantilist ruler used his authority and legislative powers to promote exports, especially those dependant on a wide variety of industrial skills that are also labour-intensive, while at the same time seeking to discourage and minimize imports of any merchandise that could be produced or mined domestically. The purpose of the mercantilist was to strengthen his own nation at the expense of other nations by achieving the most favourable possible balance of trade. His tools included subsidies, the granting of monopolies, outright nationalisation, taxes on imports and transit goods, the acquisition by force of overseas territories, and the purchase of influence on other, weaker sovereign nations. His subjects would also be urged to buy domestically produced consumer goods instead of foreign wares, and to restrain themselves from indulging in exotic foreign fripperies.

You will have no difficulty in recognising these policies as they are familiar and topical. However, there is no modern word that means the same as “mercantilism”. The nearest one can get, perhaps, is “unfair trade”. It has no place in the modern political vocabulary, despite being a fact of life and standard practice among governments and chambers of commerce. It is the “elephant in the room” that no one mentions. It is a taboo topic.

The only Danish king whose policies are described as “mercantilist” by modern mainstream writers was Christian IV (1596 to 1648). This is because his reign was allegedly an economic disaster. He was forced to relinquish three productive and strategic Danish provinces to arch-enemy Sweden, to which they still belong today. The enterprises that he tried to establish were dependant on foreign expertise and soon went bankrupt. However, he made himself popular in the Danish consciousness by squandering money that his exchequer did not have on elegant public buildings that no modern tourist to Copenhagen should miss seeing. He also set up the Royal Greenland Trading Company, consolidating Danish control over a vast territory adjacent to North America whose enormous strategic importance is deliberately kept out of the political debate.

Erik of Pomerania, king of Denmark.
Statue in Elsinore

The king with the most successful mercantile policy in Danish history is far less well known, nor would any professional historian so characterise him. His name was Erik of Pomerania (1382 to 1459). He became king of Denmark, as well as son-in-law to king Henry IV of England in 1406. Erik’s great achievement was the tax he introduced on foreign merchant shipping passing through the narrowest part of the Sound. This was a busy seaway, and Denmark defended the tax as a means of financing light-houses and anti-piracy patrols. Nevertheless the exorbitant scale of the Sound toll infuriated other maritime nations for 500 years and made the biggest single contribution to Denmark’s tax revenues. It also explains why Shakespeare would write “Hamlet” and set his play in Elsinore. When he eventually fell out of favour, Erik renounced his Danish monarchy and, perhaps unsurprisingly, became a pirate instead.

It is easy to see that mercantilism is a zero-sum game that every nation endeavours to play and win by becoming more powerful and wealthier at the expense of other nations. The mercantilist aim is remorselessly to deny trade to foreign merchants and jobs to overseas workers. The more powerful and wealthier a nation becomes, the more numerous are the devices available to its government for denying trade and jobs to other, competing nations. It need hardly be said that this reflects the real world, in which a minority of prosperous nations are progressively getting wealthier while the remainder are steadily getting more impoverished and politically unstable.

Jesus taught those who would listen that everyone who benefits from international commerce has a moral responsibility for the wellbeing, not just of their nearest and dearest, but also of strangers over the whole world. The mercantile system, on the other hand, is based on a different set of values, namely, that you are morally responsible only for the people of your own nation, and the devil may take everyone else – provided they go on buying your country’s exports. It is mercantilism that is therefore the doctrine most opposite to Christianity.

The major parts played by mercantilism in the cataclysmic events listed above can be explained as follows:

• Russia, the Ukraine and its other neighbouring territories are endowed with immense mineral wealth and enormous tracts of fertile agricultural land. The mercantile nations, however, wanted only to export industrial products to Russia, in return for minerals and agricultural produce. This made the czars and other landowners very rich, while millions of Russians were starving because there were few industrial jobs available to them. The communist revolution infuriated the great powers and their business communities, but it also provided protection against their mercantilism, and made it possible for the Soviet Union to develop its own diverse industry very successfully indeed.
• World War 1 transformed the USA rapidly from a mainly agricultural nation into an industrial one. To keep the machines in its factories turning after Germany’s defeat, America exported goods to Europe to comply with the vast pent-up demand created by the war. As Europe’s economies, especially Germany’s, faltered, American manufacturers cut their costs and pushed up their productivity, and bankers (some of them Jewish) arranged enormous dollar loans to European countries, especially Germany, to keep the one-way trade across the Atlantic moving, urged on by the British economist John Maynard Keynes. No one gave a thought to the inevitable consequences of their mercantilism. The financial bubble burst catastrophically at the end of October 1929.
• The Treaty of Versailles forced Germany to pay large war reparations to the victorious nations, while at the same time depriving the country of its more or less captive export markets in Africa and Europe, as well of parts of its productive industrial terrirory. The American loans to Germany did nothing to stem the disappearance of jobs for German workers nor of profits for German businesses. Large numbers of families were forced into destitution. Unable to service its debts, the government of Germany allowed the currency to collapse, wiping out the savings of yet more ordinary families. The government and the bankers were among the obvious targets for the dissatisfaction of the voters who brought the Nazis into power. Their leader Adolf Hitler pursued a policy of annexing neighbouring territories by military force in an effort to obtain the same kinds of mercantile benefits as Britain and France already enjoyed from their respective colonial empires. This led inexorably to war.
• European nations had used military force to parcel up most of Africa into subject territories by the time World War 1 broke out. They made no secret of their primary motive, namely the secure control of the continent’s prolific sources of a great variety of unexploited minerals that their domestic industries needed as raw materials. Another major motive that geography teachers do not mention was the acquisition of captive overseas markets for these industries. This is mercantilism in its most raw form. The last thing European manufacturers wanted to allow was the industrialisation of Africa. With access denied to both their domestic markets and potential export markets, indigenous African businesses had no scope for developing industries and developing the necessary social culture. The political independence that African nations acquired after World War 2 had no influence on the mercantilism of the industrialised nations, so most industrial and higher-value consumer products found in Africa have been imported to the continent. The absence of a diversity of labour-intensive export-based industries fully explains the African predicament that the aid organisations never tire of publicising but carefully omit to explain.
• The territories bordering the eastern Mediterranean were subject to the mercantilism of the Ottoman Empire until the end of World War 1, when the Treaty of Versailles awarded control of them to Britain and France, both of whom were anxious to protect their oil interests and the export markets of their own industries. Middle eastern businessmen were thus prevented from industrialising their own countries. At the same time, growing numbers of Jewish emigrant farmers from Europe and the USA settled on fertile agricultural land they had bought from its indigenous owners, and used their connections to export their produce to their countries of origin. The financial successes of these new colonisers coupled with the persecution of Jews in Germany and the Soviet Union resulted inexorably in the eventual realisation of the politically self-governing Jewish state of Israel. Economically independent it never was, however, since its businessmen used their dual nationalities to develop a wide diversity of industrial, military, intellectual and cultural exports to the countries from which they had emigrated. Dismayed that no one in Europe nor the USA seemed to hear their protests about the unfairness of all this, the mainly Moslem peoples of the region increasingly turned to terrorism in a vain attempt to force western public opinion to behave with less favouritism towards Israel. The naive expectations raised by the “Arab spring” are a testimony to Israel’s brainwashing of the general public into insidiously attributing the moribund characteristics of Moslem countries to the imagined shortcomings of their own peoples rather than to the mercantilist restrictions imposed on the access to export markets for their business communities.
• The legislative basis for the EU earnestly gives the traders of each member state unprecented access to the markets of each of the other member states. It also imposes serious limits on the legislative scope for any member state to obtruct access by the traders of other member states to its domestic markets. This is of no help, however, if the people of each member state jingoistically urge each other that it is their patriotic duty to beggar their neighbouring member states by redoubling those mercantilistic efforts that the law does allow them. The EU cannot prevent national organisations for industrialists and national trades unions from incestuously sitting down together to collaborate on national strategies to help each other at the expense of the rest of Europe. Yet this is exactly what the members of the euro zone have been doing, especially the Germans, who have been urging each other to step up their export of those industrial and military products that their overseas clients can least avoid importing, without at the same time urging each other to import cigarettes, incandescent lamps, ships and other products on whose export the weaker members of the zone are dependant. Lending vast sums of euros to these countries to enable them to go on importing tanks and sewage treatment plants is no substitute for exercising ethical self-restraint. Nor is it honest to brainwash the general public into believing that it is the Greeks themselves who have caused their own misfortune by their legitimate programmes of public works to create jobs and by allowing the Greek people to spend more of their own money so as to prevent even more small Greek businesses from going bankrupt.