Modern Analysis Of Mercantilism

Modern Analysis of Mercantilism

Evaluating past writers raises a number of difficult but interesting issues. There are always differences of opinion about what particular writers really meant by what they said. Imprecise language can make interpretation difficult. When J. M. Keynes discussed the mercantilists in a section of his General Theory titled "Notes on Mercantilism," he credited them with having had insight into an acceptable policy by which to stimulate economic development. But Adam Smith, other classical economists, and the orthodox line of economic thinkers from 1776 until the time of Keynes found little of merit in much of the mercantilist literature. This divergence of opinion is understandable, though, when we compare some aspects of classical and Keynesian thought. Because Smith and other classical economists stressed the real forces that determine the level of output, their theories focused almost exclusively on supply. However, because Keynes empha­sized the role of aggregate demand, he found some common bonds between his theory and that of the mercantilists. He was sympathetic to their underconsump-tionist views and declared sound their belief that increases in the quantity of money would increase output. The mercantilists, Keynes said, held that a favorable balance of trade would increase domestic spending and thereby raise the level of income and employment.

Another problematical aspect of evaluating the contributions of past writers lies in the need to assess their intellectual achievement. Should this judgment be based wholly on modern standards, or should it be kept strictly in the context of the analytical apparatus of their times? Even though most historians of ideas take a position between these polar views, a good deal of controversy as to the relative merits of past economists still results.

Another attitude toward mercantilism deserves mention. Some assessments of mercantilism have scrutinized not the ideas of its proponents but their motiva­tions. The mercantilists, in the jargon of modern economics, were "rent-seekers." They were driven by profit motives to use government to gain economic privilege for themselves. They were generally merchants who favored government grant­ing of monopolies that would enable the merchant-monopolists to charge higher prices than would have been possible without monopoly privileges.