For those of us trapped within the pitiless hell of a political science graduate program, it is important to learn to deal with the daily diatribes of faculty and fellow students about the evils of capitalism and the corruption of all who use the market to unjustly squeeze profits from its hapless victims.
The sermon generally goes something like this: corporation X is using its sacks of money to buy a few politicians in Washington where lawmakers will rewrite the budget to grant subsidies to X right before they rewrite the tax laws to give X a few more tax loopholes to further line the pockets of their presidents and CEO’s. Corporation X then uses its influence to convince the lawmakers to send some troops into some third-world country and do some nation-building so that X might be able to hock a few more widgets to the natives.
While the whining tone that accompanies such a lecture renders the whole thing more or less unbearable, the unfortunate thing is that, on the whole, the above scenario is often an accurate description what goes on in Washington. The challenge for any student of political theory, however, is finding what the above scenario has to do with markets, capitalism, or economic exchange. Corporation X’s use of the law to forward its own narrow agenda should be readily identifiable as a political transaction, but the presence of free-markets or capitalism in such a transaction is quite illusory. The motivating force behind such political manipulation is not capitalism, but a competing philosophy known to any moderately intelligent liberal-arts student as mercantilism. The problem, it seems, is that people somehow fail to grasp the difference between the two schools of thought, and just conclude that since corporations (or joint-stock companies) and some form of private property happen to exist in both systems, then there isn’t really any difference worth noticing.
I suspect this all goes back to our dreadfully inadequate economics classes in high school where the teachers explained that mercantilism existed sometime in the foggy days of yore before Adam Smith wrote The Wealth of Nations, at which time, mercantilism packed its bags and has never been heard from again. The logical conclusion from all of this is that these days, anything other than full-bore socialism must be some kind of capitalism. Consigned to the dustbin of history, mercantilism is the work of old men in powdered wigs who had not yet read Smith and still believed in all that silly mercantilism stuff. But we all feel much better now.
The reports of mercantilism’s death have always been grossly exaggerated, and as Charles Beard has noted, mercantilism is "a theory which, with modifications here and there, still thrives under the guise of milder phrases and loftier sentiments." While schoolmarms continue to claim that mercantilism died in 1776 with the publication of Smith’s Wealth of Nations, Beard saw 1776 as the birth of the first sizable (yet unsuccessful) effort to end mercantilism: the American Revolution.
It was Beard, of course, who first gave us An Economic Interpretation of the Constitution of the United States which explained the Constitution of 1787 as a blueprint for mercantilism. In the Economic Interpretation, Beard discusses the lives and philosophies of a select group of early Americans who were winners in the relatively free-market world that had been allowed to develop before the British swept in with the Intolerable Acts, and found themselves kicked out of the American colonies. As Ludwig von Mises noted many times, however, the winners tend to gravitate toward government to ensure that a new class of winners don’t rise up and replace them.
The real story of the populist revolution, though; the revolution of those committed to ending the elitist mercantilism and corporate favoritism of the British empire comes to us in Beard’s later and more comprehensive work The Rise of American Civilization.
For Beard, the British mercantilism of the 17th and 18th centuries was a matter of what he called "the clash of metropolis and colony." It was the story of a well developed metropolis at the center of the empire, wielding its power for the betterment of the empire. Unfortunately for some, the "good of the empire" inevitably meant the good of a select group of merchants and landlords. Beard explains:
Out of the interests of English landlords and merchants, illuminated no doubt by high visions of empire not foreign to their advantage, flowed acts of Parliament controlling the economic undertakings of American colonists and measures of administration directed to the same end. These laws and decision were not suddenly sprung upon the world at the accession of George III in 1760. On the Contrary, they were spread over more than a century, beginning with the rise of the mercantile party under Cromwell; they crowded the pages of the statute books and the records of the British colonial offices from the coronation of Charles II in 1660 to the outbreak of the American Revolution.
What we find is a British empire of economic regulation and bureaucracy and a metropolis at its center to centralize and concentrate wealth and power and bring it in from the provinces. The problem arose for the British, however, when the American colonists began to care less about the good of the empire than about the good of their own communities and pocketbooks.
The British mercantilist system consisted of several categories of law. All were passed for the explicit purpose of benefiting English merchants and landowners at the expense of the colonists. There were the navigation acts that required that goods traded between England and the colonies be carried on English ships manned by English sailors. There were the trade laws that required that select goods be traded exclusively with England. There were also laws that limited the production of colonial manufactured goods. To their credit, the English also prohibited the use of paper money, but even this was enacted only for the purpose of maintaining the value of debts granted to colonials by English creditors.
For Beard, the story of American Independence began with the growing disregard for English regulation in the colonies. The wily Americans knew when they were being shortchanged, and as they saw their profits flow out of the colonies toward England, they became less than pleased with their situation. A typical American complaint can be found in an issue of the Boston Gazette in 1765: "A colonist cannot make a button, a horseshoe, nor a hobnail, but some sooty ironmonger or respectable buttonmaker of Britain shall ball and squall that his honor’s worship is most egregiously maltreated, injured, cheated, and robbed by the rascally American republicans."
In addition to complaining, the Americans regularly disregarded the law. John Adams admitted in 1774 that various restrictions on manufacturing were almost unanimously ignored in Massachusetts, and that restrictions on the production and sale of molasses were universally flouted. As the rivers of America became choked with barges and ships transporting illegal goods that had been smuggled past British customs officers, English merchants demanded that action be taken to rein in the free-marketeers of the new world.
The resulting Intolerable Acts that produced the revolution were not a new set of oppressive laws, but only new moves to enforce the kinds of regulatory laws that were already on the books.
As the mercantilist merchants of Britain caterwauled more and more loudly about the hayseeds in America that were cheating them out of their government monopolies and allegedly damaging the empire, Parliament moved to reassure their cronies that the Empire was still on their side. One such move was the loophole created for the East India Company in 1773 that allowed the company to bypass paying duties on its tea stocks and to unload them in the colonies at a price lower than any colonial merchant could obtain tea. The resulting Boston Tea Party was not a reaction to tea made more expensive by burdensome taxes, but was a reaction against a massive corporate welfare program that ignored the rule of law in order to benefit one well-connected company while keeping American merchants under the yoke of the English regulatory state.
The Revolution that ensued two years later was about expelling the mercantilist monster from the shores of America. For the vast majority of Americans, the American Revolution was about an end to metropolis. It was about destroying centralized governments that laid duties and excises from far off offices and told merchants and farmers what they could and could not sell, and what they could and could not build. The Revolution had its roots in the flaunting of regulatory laws created to stifle the many for the benefit of a few. It was born among the smuggled goods and the contraband floating up the Ohio River, and among the textiles and iron fixtures sold on the black market.
The freedoms of the Revolution, however, did not last long. The mercantilism of Britain was re-imposed by a new government committed to re-creating a British style regulatory system under new management. Although the new system was kept under control for a century or so, mercantilism never went away, and today, every small businessman driven under by some government lawsuit or expensive regulation feels the pain of the early American merchants. Every American taxpayer asked to foot the bill for a bailout of some poorly managed, yet government-favored corporation feels the sting of modern mercantilism.
As Beard had said, mercantilism survives under milder phrases and loftier sentiments. We’ve heard them all. We’ve all been told that what’s good for General Motors is good for America or that the airline industry in its present form is absolutely essential to national security. We must consent to paying taxes to support this or that constituent group in the name of compassion and equality. As the corrupt mercantilist system continues to run amok, capitalism somehow gets blamed. The solution always seems to be a few more government programs to pacify the same people that mercantilism continually takes to the woodshed.
The revolutionaries didn’t use words like mercantilism and capitalism and socialism to spin deceitful tales about the economic system. The colonists had been allowed to enjoy the fruits of one of the most unregulated markets in history, and when the British came in to take it away, they revolted. As a result of that brief moment of liberty, the revolutionaries could identify a corrupt system when they saw one. Can you?