September 29, 2008

We Are All Mercantilists Now

Marx was wrong: feudalism doesn't precede capitalism, it follows it.  And after feudalism comes this:

east india flag2.JPG

Welcome to 1600.

The schizophrenization of America becomes revealed. Was America too laissez faire, which lead to the crisis?  Or not enough, which lead to a bailout plan?  The answer depends, in large part, on whether you think it's your money at stake.

Whether it is a good plan or a bad plan remains to be seen.   Indeed, it will never be known since we will never really know what would have happened had the other course been taken.  If Depression is indeed averted, no one will thank Paulson.  Or, if Depression comes, whether it could have been averted by the plan.  So be it.

But is it socialism?


II. What is mercantilism?

In a sentence, it is the belief that a country's strength is tied to how much money it can accumulate.  In the heyday of British mercantilism, 1600-1776, it meant the accumulation of bullion; favoring exports over imports; keeping money within the nation, not sending it elsewhere.  The money could be used to purchase commodities and fund armies-- which, in turn, helped bring money into the country.

Mercantilism was premised on the belief that there is a fixed quantity of wealth in the world, and everyone has to fight over it.  Economics, it was felt, is a zero sum game; and since not everyone can win, it becomes acceptable that they don't.

State policies reflected this.  "Free trade" meant "free trade for me."  Protectionist tariffs and regulations; international treaties that solidified trade superiority.  Colonies to sell the exports to.  And a tight control over the means of shipping.

Mercantilism also exerted influence not just on commerce but on thought and culture.  In order to maximize exports, it had to convince the populace that the export (or approved import) was necessary.  In the late 1600s, calicoes, previously the cloth of the poor, became a sought after fashion necessity-- entirely because it was what was being imported.  It wasn't sought after and therefore imported; it was imported and therefore sought after. Cleverly, British merchants made high profile gifts of the calicoes to prominent ladies; the nobility accumulated them; and then everyone had to have them.  They went into clothes, furniture, drapes.  Mercantilism had changed the aesthetic of the the entire nation-- the world.

Generally unimportant products took on gigantic importance, because the market convinced people they were important.  Here's an example: Columbus accidentally discovered America because he was looking for spices.

Capitalism identifies a market and then tries to maximize profit within it.  Mercantilism, by contrast, creates markets on purpose based on what it has to offer, and then controls those markets.

III. The Sudden Decline of Feudalism

What preceded British mercantilism?  Feudalism-- local, feudal power rather than a centralized government; vague territorial boundaries; and ever changing racial and cultural characteristics.  It was local, and fluid.  But as the world "shrunk" (or got flat) it could not adequately provide for its people.  Unemployment and poverty rose.  Meanwhile, the opening of trade and improvement in travel offered greater opportunities than farming someone else's land.

States formed, over time, and absorbed the fiefdoms, removed the existing lords, consolidated the power, and served the interests of its domestic merchants and producers.

And so the rise of the nation-state; racially homogeneous, with rigid territorial boundaries; partly feudal but with a new quasi-class system of nobility, merchants, workers, and slaves. 

IV. Wither American Feudalism?

As I have written before here and here, for some time in modern America, feudalism was the growing trend; but rather than lord-vassal, it was company-employee.  Government's role was secondary and shrinking; companies provided income, healthcare and retirement benefits, and, more importantly, a sense of identity and belonging.  The company provided protection in exchange for service.

Even two years ago, this was increasing.    These company-lords become even more powerful as they merged and privatized, going off the public exchanges but still wielding massive influence.

But for this progression was suddenly diverted.  Now, instead of companies going private, they are going government.

Who has the big money now?  Sovereign wealth funds, of which, if/when the Paulson Plan is passed-- for it is inevitable, in some form-- the U.S. will become.  In the past, there was a tug of war between private ownership and state ownership.  Now, instead of outright nationalization of a program (e.g. Social Security) governments own financial stakes in businesses, in sectors-- and in themost important sector of all, the financial sector.  The Chinese have this system firmly in place, but pretend it is "communism."  Saudis as well.  And now, soon, the U.S. 

How does the U.S. government separate its foreign policy with its fiduciary responsibility to its shareholders, which is you?  How does it separate its domestic policy from a revenue motive?  It can't.  They become one and the same. 

If the complaint in the past was that government is too influenced by big business, how does this change when government is Big Business? 

Put all this together with a growing protectionist sentiment, and you have our new economic model: mercantilism.

America can't move closer to socialism, if for no other reason than those in power are too young to remember what it really looks like and how to execute it; and with so much individual narcissism, no one could demote themselves so much to the state.

Such policies like the Paulson Plan appear socialist because the government seems highly involved in the control, in the regulation of an industry.  But this is exclusively in the service of the business franchises that it controls.  The analogy for todays events isn't The USSR or even France; it's the East India Trading Company; an independent, for profit, business arm of the state.  It was nearly a monopoly. It could even command the military, as needed.(1)

east india trading company.JPG

Within the East India Trading Company's flag was the union Jack-- Britain's flag-- contained in the canton.  Get it?  Britain at the service of the Company; the Company for the benefit of Britain.

V. Predictions

Reducing current events to historical -isms is a fool's game, for drunks in a bar or political scientists with tenure-- played when there is no accountability for the opinion.  It serves no purpose unless it can be used to make predictions.  So here they are, linked to the key characteristics of the mercantilism of old.  In general, the future holds increased protectionism, increased state control, increased classism, and the necessity of piracy.

1. Protectionism: Obvious.  Look for more, not less.  More tariffs; more treaties ensuring trade advantage. Not only will the movement be away from capitalism, but it will be considered obvious that capitalism is unworkable.  More emphasis on "Free Trade," as it is subtly redefined to mean "ensuring domestic products are not undercut by unfair foreign advantage such as low labor costs, etc."

2. National self-sufficiency: despite the importance of trade, the nation state sought to free itself from outside imports.   Domestic agriculture and manufacturing subsidies; "energy independence."  That means solar power, whether or not oil is expensive; increasing ethanol and agricultural subsidies.

3. Shipping: Most important to mercantilism was control of shipping.  While it was impossible to control what other countries tried to produce or export, Britain could control how and if it made it to Britain.  The Navigation Acts required that all imports to Britain or its colonies had to be done on British ships, or through British ports.(2)  Thus, cheaper goods from other countries could not be obtained, or were taxed so heavily as to make them impossible to afford.  So British West Indian sugar was cheaper to Americans than French West Indian sugar, but only because the actually cheaper French West Indian sugar was taxed so heavily. 

That "shipping" is nowadays done on the internet.  Look for the government or its business arms to try and regulate or even outright control it, and strongly discourage (read: tax)  the use of non-domestic providers accordingly.

4. The rise of the nation-state:
  In the past this meant racial homogeneity, but this will be replaced by regional and cultural homogeneity.  So Russia tries to reabsorb its former satellites; and America asserts its cultural identity by seemingly arbitrary emphasis on the use of English, stronger national boundaries; clearer divisions between American and "illegal immigrant" with accompanying restrictions (e.g. no driver's license, etc).

5. Stronger central government.  That this is happening is indisputable..  More monitoring, but as this is mercantilism and not fascism, the monitoring is in the service of commerce, e.g. Google, credit cards over cash, etc.  Surveillance is for the protection of the state which is at the service of commerce.

6. The primacy of the military:  economic disputes become political; and political disputes are settled, ultimately, by guns.  Look for corporations to have their own mercenary armies, or have ready access to America's.  And look for more wars, with the cover story of protecting Americans, stopping genocide, etc.

7. Colonialism:  rather than foreign nations being politically controlled, the control will be  economic or cultural.  The purpose of the British colonies was access to raw materials, and the creation of new markets for the mother country's products.  So too will come the need to convince foreign peoples that they need what we have, and need us to extract what they have.

8. Slavery: slavery will not return, but the use of groups of people who will work for much less than the citizens will be necessary to maintain competitiveness. Different from capitalism, however, will be that these people are purposely blocked from rising in class or wealth.  Moral justifications will be necessary, and of the form, "they're better off than they were."

9. Classism: unlike the boundariless possibilities of capitalism-- up or down-- mercantilism requires specific classes, especially a working class.  In America, classism will supersede all other internal disparities, including racial.  This suggests an Obama presidency and the replacing of interracial conflict with intraracial conflicts, along class lines.

10. Ban on luxury goods:  Sumptuary laws, though generally ignored, rigidly defined types of products that could be owned, and by whom.  The rationalization was that they prevented excess and waste and kept the money in the country, reinforced national pride and morals, and provided markers social class.    The modern twist: no goods are luxury goods.  Cars, GPS, brand name clothes-- they are all "necessities."  Waiting at the welfare office, applicants pass the time texting on Blackberrys.

It's not their fault.  The economy specifies that these are not luxuries.  They are lulled into low introductory rates, a free handset; no money down.  Those $400 shoes only cost $15 a month.  Forever.

In a truly capitalist system, one would have to aspire to aspirational goods.  The system is short circuited-- one can afford those goods without actually possessing the status or wealth that ownership implies.

Mercantilism maintains dominance not by best serving a market, but by best serving a market it creates.

11. Exports and Domestic Production: An emphasis on making specialized products of high quality to maintain export superiority (e.g. specialty goods over spatulas; services over durable goods.)

12. Inflation: If wealth is hoarded in the U.S., at the expense of another nation, than the value of the wealth falls in the U.S. and rises in the other nation.  Eventually, it will not be economically profitable to hoard wealth-- it will have more value abroad.

13. The end of mercantilism: when the end finally comes, as it must to all illogical economic systems, it will be replaced by what replaced it in 1776 with The Wealth Of Nations:  capitalism, and the beginning of the next Industrial Revolution.

That's some of what can be expected, albeit it gradually, so that no one notices.


There's one more important development, too large to be discussed adequately here.  The control over commerce, goods, and pricing meant that not everyone was able to get, or afford, what they wanted (or needed.)  Simultaneously, the state itself had to compete against other states for markets and materials.  This necessitated an underground economy and related class; a class so necessary to and intertwined with these untenable economic policies that they are celebrated even today: pirates.  They were the logical and inevitable extension of controlled commerce; were extremely skilled, and often navigated the shipping lanes with more knowledge and flexibility than even the military.  They worked for themselves, or they worked for the state, as the situation arose.

In the new world order, shipping is the internet; the goods are data.

Drink up, me hearties, yo ho.


1.  though in this case rather than the Company lending money to the Treasury for exclusive trading rights, the Treasury lends it to the Company for a cut of the profits and taxes-- which is in turn in exchange for protection.

2. The Boston Tea Party was not about the tea being too expensive because of tariffs; it was because British Tea Act allowed the EITC to sell the tea without a tariff, and therefore cheaper than even American smugglers-- Samuel Adams, John Hancock, and others-- could sell it.