Mercantilist Illogic

by Don Boudreaux on March 25, 2007

in Myths and Fallacies, Trade

In this letter appearing in yesterday’s New York Times, the University of Maryland’s Peter Morici accused Beijing of subsidizing Chinese exporters.  Morici calls on Uncle Sam to protect Americans from such treachery.  According to Morici,

Were these mercantilist practices [China’s subsidies] stopped, many more American products
would flow out of West Coast ports to Asia. That would mean many more
high-paying jobs for Americans than additional government largess could
ever create.

Mercantilist policies do indeed include export subsidies.  But they include also protection of domestic firms from (real or imagined) export subsidies dished out to foreign producers.  The poisonous core of mercantilism, you see, features the silly belief that a nation’s wealth lies in what its people produce rather than in what its people consume.

Mercantilism also includes the myth that protecting domestic producers of high-value consumption items makes the domestic economy thrive.  Again I ask: suppose a generous Namibian scientist discovers a very inexpensive way to combine table salt, tap water, and ordinary bread crumbs into a medicine that cures — and inoculates against — cancer, tuberculosis, and erectile disfunction.  This generous scientist gives his knowledge away for free, publishing it on the web so that ordinary men and women throughout the world can, at virtually zero cost, protect themselves from these diseases.

Would Americans be made worse off as a result?  Treating these diseases today is big business.  People pay lots of money for treatment by highly skilled specialists, as well as lots of money for medicines made by other highly skilled specialists.  Does America’s wealth lie in the production of these high-valued outputs?  Or does America’s wealth lie in Americans’ ability to consume these high-valued outputs — in our ability to take steps to cure ourselves of these ailments?

It’s true that, given the current scarcity of resources and knowledge that enable us to cure ourselves of these awful diseases, the prices that we willingly pay for access to high-quality treatments are high.  Hence, the remuneration of the specialists who provide these treatments is generally high.  But it is a mistake to assume that we are made wealthy by the existence of such high-paying jobs — for such an assumption implies that the greater the number of obstacles that we face, the wealthier we become.

If Prof. Morici’s mercantilist logic were correct, then America would become a poorer place if an inexpensive sure-cure for cancer, tuberculosis, and erectile disfunction were discovered and information about it widely distributed.  But clearly we would be wealthier, not poorer, if such a wonderful discovery were made — just as we are wealthier the greater is our access to low-cost goods and services produced whereever, even abroad.


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