Mercantilism arose and became popular from the 15th century to the mid-18th century, and although it was called "mercantilism", it did not really "value commerce" alone. At the micro level, mercantilists believed that gold and silver were wealth in itself, and at the macro level, they believed that the wealth and power of a state were determined by the amount of gold and silver. So they concluded that the state should increase its gold and silver reserves by intervening in the economy, and that economic policy should serve the state.
In terms of specific policies, they attach great importance to the trade surplus, so they advocate that the state should implement trade protectionism, restrict imports and encourage exports through tariffs, subsidies, and monopolies, so as to protect their own industries and markets. Externally, a policy of colonialism was pursued in order to obtain raw materials and new markets.
These realizations are, in essence, a form of economic statism. But this is not the same as what is said today to be "the country is strong and the people are rich", in fact, mercantilism believes that the wealth of the lower classes of people is not "national wealth". Moreover, in order to provide more resources for exports, they deliberately impoverished the working masses in order to reduce the level of domestic consumption, reduce wages and costs, and increase export competitiveness.
The historical background to the emergence of mercantilism was that Europe was going through the transition from the Middle Ages and feudalism to absolute monarchy. Urbanization and the development of handicrafts contributed to the prosperity of the market, and the primitive accumulation of capital began to appear. At the same time, the great geographical discoveries brought new trade routes and markets, and international trade competition became increasingly fierce, with competition between countries not only for economic interests, but also for political and military superiority.
The heyday of mercantilism, which lasted from the end of the 16th century to the middle of the 18th century. During this period, European countries such as Britain, France, the Netherlands, Spain, and Portugal, through the implementation of mercantilist policies, promoted overseas trade and colonial expansion, thus amassing a large amount of wealth and resources, and establishing extensive trade networks and colonial empires around the world.
At that time, economics was not yet an independent discipline, and the theoretical flaws behind mercantilism were not yet recognized. So while mercantilism has promoted industrialization and economic development to a certain extent, it has also brought many problems. For example, international trade is regarded as a zero-sum game, excessive emphasis on trade surpluses and protectionism, and excessive recognition of state intervention in the economy. And these problems still exist today, more than 300 years later.
Classical liberalism and the Industrial Revolution
As we all know, the Industrial Revolution was a watershed moment in human history. However, our impression of the Industrial Revolution is mainly on the technical level. Watt's improvement of the steam engine, mechanization instead of manual labor, brought about a change in the mode of production, and greatly improved production efficiency. Moreover, we tend to assume that technological progress is the core driver of the Industrial Revolution.
All this is fine, but we may also lose sight of the role of social perceptions, legal systems, and capital accumulation in the whole process. Technology is important, but it's not absolute or unique. Therefore, in order to fully understand the industrial revolution, it is also necessary to recognize the ideological resources and institutional advantages in the historical background at that time. From the Age of Enlightenment in the 18th century to the mid-19th century, the history of Western thought was in the period of classical liberalism, and the representatives of this period can be described as shining stars.
In Germany, Kant single-handedly completed the philosophical "Copernican Revolution", pointing out that "man is always an end, not a means". In England, John Locke proposed in his Treatise on Government that natural rights include life, liberty, and property, and asserted that the government's duty is to protect these rights, and Adam Smith expounded the importance of the division of labor and the market through The Wealth of Nations, pointing out that the market is like an "invisible hand."
In France, Montesquieu put forward the theory of separation of powers in "On the Spirit of Law", which directly influenced the later founding strategy of the United States; Voltaire advocated religious tolerance, freedom of speech, and opposition to feudal autocracy. In the United States, Founding Father Thomas Jefferson drafted the Declaration of Independence, which incorporated the idea of freedom into American political life.
On the whole, in terms of concept, they all emphasize the rule of law, pay attention to individual freedom and property rights, regard property rights as the basis of individual freedom, and emphasize the importance of private property acquired by individuals through labor. The role of the government, with a focus on protecting private property rights, acts as a "night watchman" to maintain order. At the same time, government power should be limited through measures such as elections, representative systems, and separation of powers.
At the same time, economically, they all oppose mercantilism, oppose excessive government intervention in the economy, support free market competition, and believe that market mechanisms can regulate economic activities on their own and are more efficient. Smith pointed out that even if people are motivated by "self-interest," market exchange can achieve "mutually beneficial" results. The Wealth of Nations also made economics a discipline, and then gradually developed into a systematic scientific theory through the enrichment and development of David Ricardo and others.
On the eve of the Industrial Revolution, with the collapse of the feudal system, a large number of landless peasants entered the cities in search of job opportunities, becoming an indispensable labor force in the process of industrial transformation. Only those who have constant production can have perseverance, and it is difficult to imagine how difficult it is to maintain the stability of this part of the landless peasants. The establishment of the principle of private property rights has made these people lose their "constant property", but they have not lost their "perseverance". People who have lost their land are able to rediscover the opportunity to create wealth in the city, and are confident that the wealth they have created will be kept and passed on.
While many countries have come to realize the importance of the principle of private property rights in the process of industrialization, Britain was able to establish and solve the status of private property before the Industrial Revolution. In today's parlance, the Industrial Revolution deserved to happen in Britain.
Keynesianism and Roosevelt's New Deal
Before the 20th century, classical liberalism was the dominant trend of thought. Although there are still some protectionist policies, whether it is Europe or the United States, or Argentina in South America, or even Asia on the other side of the ocean, trade is very frequent. And if a person wants to change the country to live a gold nugget, he only needs to get a ferry ticket.
However, in the first half of the 20th century, mankind experienced two world wars and the economic crisis brought about by the Great Depression in the United States, which completely changed the world pattern and the direction of political and economic thought. Mainstream economic thought has shifted from "laissez-faire" to state intervention and regulation, and has been re-"packaged" to enter the historical stage in a new form.
In 1929, the U.S. stock market plummeted, culminating in the Great Depression, plunging the Western world into the worst economic crisis in history. The classical liberal economists of the time did not give a good explanation or make effective policy recommendations. As a result, people blame the Great Depression on the inherent problems of capitalism, arguing that economic cycles are inevitable and that mere "laissez-faire" is not the way to govern the country.
In 1932, the British government, led by MacDonald, announced that it would abandon its long-standing free trade policy in favor of trade protectionism, introduce import taxes and establish the Imperial System of Preferences. Other Western countries have also abandoned their traditional free-market economic policies and begun to implement various kinds of regulations.
In 1936, the British economist John Maynard Keynes published The General Theory of Employment, Interest and Money, in which he attacked the economic ideas of classical liberalism. He argues that markets are not always able to self-regulate and achieve full employment and economic stability, so government intervention is necessary to regulate aggregate demand through monetary, tax, and public spending to promote economic growth and stability. This is the exact opposite of classical liberalism, which advocated "laissez-faire", and was called the "Keynesian Revolution".
At that time, Keynesianism directly affected Britain and the United States. In Britain, he was directly involved in the formulation of economic policy, and he also influenced the direction of American policy by writing letters and sending books to Roosevelt. When Keynes and Roosevelt first met, he explained to Roosevelt's cabinet members a series of statistical charts that the government would generate four dollars of national income for just one dollar, and suggested that they stimulate aggregate demand by borrowing or issuing additional money. And this is his "multiplier theory".
In fact, Roosevelt's fiscal policy was relatively conservative in the early days of his presidency. When the U.S. economy recovered the previous year, Roosevelt even began to cut spending on public works and relief. But then Roosevelt's think tanks, mostly Keynesian, began to suggest that the president increase fiscal spending to stimulate the economy. Keynes also wrote to Roosevelt again, urging him to implement a large deficit spending.
It is clear that the ideological roots of Roosevelt's New Deal are Keynesianism. In order to revive the economy, Roosevelt introduced the National Industrial Recovery Act, which not only gave the president the authority to establish the Public Works Administration, but also regulated the scale of production, price levels, wage standards, and working hours of enterprises. In addition, Roosevelt introduced a series of important bills, including the Emergency Banking Act, the Federal Emergency Relief Act, the Agricultural Adjustment Act, and many more.
With huge government spending, Roosevelt did rebuild confidence in the government and boost the short-term growth of the American economy. But at the same time, the federal government's deficit spending has remained high. Roosevelt himself was highly recognized, becoming the only president in U.S. history to serve four consecutive terms, and the longest-serving U.S. president to date.
The "Roosevelt's New Deal" is generally positively evaluated in mainstream textbooks today. Keynes is also widely regarded as the "father of macroeconomics". More than fifty years after his death, at the 1998 annual meeting of the American Economic Association, Keynes was named the most influential economist of the 20th century, ranking first.
The popularity and success of Keynesianism marked the beginning of the "east wind overpowering the west wind", the "invisible hand" began to retreat, and the "visible hand" began to reach out to all areas of the market. The state's intervention and control of the economy have theoretically regained their "legitimacy" and become the "standard" of modern economics.
The economic policies of many countries today are based on Keynesianism. Whenever the economy is in trouble, governments move out of Keynesianism and launch their own "New Deals". And these are just copies of Roosevelt's New Deal.
The spring breeze of neoclassical liberalism and economic globalization
Although Keynesianism swept the world in the 20th century, the opposition never stopped, and the spark of classical liberalism was not extinguished. Even in the 1930s, when Keynes was in the limelight, Hayek engaged in a "great controversy of the century" with him.
Hayek, a student of Mises, was a staunch Austrian economist. Keynes advocated that governments should intervene to regulate the economic cycle, and advocated fiscal spending and monetary policy to stimulate the economy and employment. Hayek, on the other hand, insisted that markets are self-regulating, emphasizing market competition and individual freedom, and that government intervention can distort market signals, leading to inefficient resource allocation and ultimately harming economic development.
At that time, Hayek fell behind in this high-profile controversy, and many of Hayek's students and friends later turned to Keynesianism. But history has not always been on Keynes's side, and Keynesianism has run into trouble more than forty years later.
In the early 1970s, stagflation, a dilemma of economic stagnation and inflation, occurred in many developed countries. This is contrary to Keynesian theoretical expectations, and government stimulus has not led to smooth economic growth, and people are beginning to re-examine its effectiveness and applicability. Thus, Hayek returned to the limelight.
Hayek's award of the Nobel Prize in Economics in 1974 is a recognition of him by the mainstream economic community and a re-recognition of the concept of "small government, big market". By this time, Keynes had been dead for many years, and it can be said that Hayek pulled back a game. Although the Nobel Prize in Economics was not established by Nobel himself, the influence of this prize can be regarded as a bellwether for mainstream economics.
Hayek's award made him famous and ushered in a long-lost revival of the Austrian School. And Hayek also has a heavyweight fan - Margaret Thatcher. Margaret Thatcher would carry Hayek's Road to Serfdom with her and would often recommend it to her colleagues.
And on the other side of the United States, Reagan became the president of the United States, and one of the members of his think tank was the 1976 Nobel laureate Milton Friedman. Friedman was one of the leading figures of the Chicago School and a staunch supporter of the free market. Friedman has traveled to China several times and had in-depth exchanges with scholars and officials, the first of which was in 1980 as a member of Reagan's Economic Advisory Group.
Reagan had a good personal relationship with Thatcher, who vigorously promoted privatization and liberalization in Britain, curtailed state intervention, cracked down on trade unions, and cut public spending on education, science and technology, and welfare. At the same time, tax cuts for businesses and the wealthy will stimulate investment and enthusiasm, and free trade will be reintroduced. Thatcher's reforms solved the "British disease" at that time, created the "Thatcher miracle", and achieved three successful re-elections.
In the United States, Reagan also carried out reforms known as "Reaganomics," which mainly included: introducing large-scale tax breaks, including lowering personal income taxes and capital gains taxes, reducing government spending, especially on social welfare and public programs, deregulating enterprises, removing regulations and restrictions on some industries to promote market competition and free operation of enterprises, and adopting a tight monetary policy and raising interest rates to control inflation.
Both Thatcher's and Reagan's reforms were successful. On the other side of the world, in Latin America, even Chile under the military junta, under the influence of Friedman, implemented market-oriented reforms, ushered in strong economic development, and later led Latin America all the way. Argentina also entered a period of reform in the 1990s, under the influence of neoclassical liberalism, and achieved a successful economic recovery.
In short, during this period, the spring breeze of economic globalization is blowing, and the world is thriving.
Argentina "to the right", the general trend of the world "to the left"
In 1990, the U.S. Institute for International Economics convened a symposium in Washington, D.C., to discuss economic adjustments and reforms in Latin America since the late 1980s. The meeting culminated in the so-called "Washington Consensus," which focused on protecting private property rights, deregulation, opening markets, lowering tax rates, and constraining public spending. Today, this consensus is a microcosm of the economic thinking of the 1980s, but unfortunately it was quickly discarded or replaced.
The Summit of the Americas, held in Santiago, Chile, in April 1998 clearly proposed to replace the "Washington Consensus" with the "Santiago Consensus". The main contents include: (1) the "social cost" of economic reform must be reduced so that everyone can benefit from the reform; (2) vigorously develop education and public health; (3) the role of the state in the process of social development should not be reduced; (4) the legal system should be improved to achieve social stability; (5) the social and economic status of women and ethnic minority groups must be improved; and (6) the democratic system should be improved and consolidated.
Joseph Stiglitz, who won the Nobel Prize in Economic Sciences in 2001, believes that there is information asymmetry in the market, so market participants cannot make optimal decisions, which can lead to market failure, so he emphasized that government intervention in the market can correct market failure and promote social welfare. In August 2002, Stiglitz gave a speech at ECLAC in which he explicitly proposed to abandon the "Washington Consensus".
It can be seen that both the "Santiago Consensus" and Stiglitz are re-embracing "big government" and letting the government control the market. And they shifted the focus from the market itself to social welfare and democracy. Looking at it today, the proposal of this consensus is not only a microcosm of an era, but also a turn of the times. Latin American countries are "proud before they get rich", and before the "pie" has become bigger, they have begun to think about how to "divide the pie".
Fortunately, Chile has been open to the market for more than two decades, and people have formed a consensus on the market. Although Chile has achieved a democratic transition, its economic policy has not quickly "turned to the left", but still maintained an open market, making Chile's economy "stand out" in Latin America.
In stark contrast to Chile is Argentina, which is separated by a mountain. In the 1990s, Argentina implemented neoclassical liberal reforms, economic development had just picked up, and people had not yet enjoyed the dividends brought by the reforms, and in 2003, when the Kirchner government came to power, it hurriedly "turned left", abandoning the original concept of the free market, and instead implemented a large number of interventions and regulatory measures in the name of social welfare, industrial development, and social equality.
As a result, Argentina has stumbled all the way, with high inflation and a withering economy and people's livelihood. Twenty years later, the Argentine people were so disillusioned with the "left" government that they elected the first economist to openly support the Austrian School, Milley, as their president.
Although Milley is a "marketist" through and through, Argentina today is still shackled by institutional inertia, with the original regulatory laws being difficult to eradicate, and at the same time obstructing reform from trade unions and other interest groups, and people's market perceptions are far from reaching a consensus. Milley's term is only four years, and the success of the reforms is uncertain.
Argentina is almost a microcosm of Latin America, and unfortunately today the world is becoming more Latin American. Even in the United States, which was once a "lighthouse", the binding effect of the separation of powers on the federal government has declined, and LGBT, Black Lives Matter, environmental protection, animal protection, and women's rights have become political correctness in the United States, while the government's control over the economy has not been reduced at all, and the control has become more and more detailed and strict.
If Chile used to be a special case in Latin America, then Argentina is a special case in Latin America now, Argentina is "to the right", while the general trend of the world is "to the left".
From the embryonic capitalism to the Industrial Revolution to today's information age, from mercantilism to classical liberalism, and later to Keynesianism and neoclassical liberalism. Times are changing, technology is changing, and people's perceptions are changing. These changes seem to be swinging from side to side in a large historical cycle. However, this law is not inevitable, and historical experience cannot simply summarize economic laws.
In the longitudinal view of human history and civilization, many countries and regions have experienced glory at different stages, and then turned from glory to decline. Horizontally, different countries, regions or industries in the same period will also find that some are experiencing glory, and some are declining. Even in the United States, the automotive industry is declining, and the IT industry continues to prosper. The reason for this is the topic of this article.
John Maynard Keynes once said, "The ideas of economists and political philosophers, whether right or wrong, have more power than is commonly understood." In fact, the world is ruled by a very small number of minds. "I don't agree with Keynes's economic theory, but I couldn't agree with his judgment more than ever.
It was said in the past that the general trend of the world must be divided for a long time. And now, the general trend of the world is to the left for a while and to the right for a while. The wheels of history are rolling forward, but the world is swaying from side to side. Whether to the left or to the right depends on both the elite and the majority's perception of the world.
The logic of economics has its inevitability, but the practice of politics has a great deal of chance. The task of studying economics is to disseminate as many correct economic ideas as possible, so as to prevent the world from being ruled by those wrong ideas.
• (This article is the author's personal opinion and does not represent the position of this newspaper)
Zhang is it
Editor-in-charge: Chen Bin
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