A nation no less than a household is made poorer by producing itself those goods and services that it can acquire at lower costs through trade. It is the unenviable lot of the protectionist to try to explain why this reality is untrue.
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Editor, Yahoo!finance
Editor:
Michael Gallagher gets much right in his essay “Will Trump’s tariffs really work? What history can teach us” (Dec. 19). Unfortunately, he gets one key fact very wrong. It is simply untrue that “by strongarming traders this way [with mercantilist policies], the wealth of England (and after 1707, the wealth of Britain) surged, with the nation eventually becoming an economic superpower.”
Adam Smith himself explained that mercantilism impoverishes rather than enriches a nation. The reasons are many, not the least being that a nation no more than a household is enriched by producing itself goods and services that it can acquire at lower costs from others. Another reason mercantilism impoverishes is that, by creating monopoly power for domestic producers, mercantilism dims the incentives for these producers to innovate both in the outputs they produce and in their methods of production.
Further, if mercantilism were a source of the wealth of nations, the French in the 17th and 18th centuries would have been at least as wealthy as the British, for the French government was ardently mercantilist. Yet the French were much poorer.
The British people grew rich despite, not because of, their government’s mercantilist policies. Specifically, as Deirdre McCloskey argues, starting about 300 years ago enough British people rejected the ages-old contempt for commerce and innovation. With trading and entrepreneurship deemed admirable – and with private property rights secure – economic innovation exploded, and the results were tested in Britain’s largely free market. Resource allocation was guided overwhelmingly by prices, profits, losses, and other market signals rather than by government bureaucrats. Thus did Britain, and soon thereafter America, prosper. The wealth of these nations was not created or enhanced by mercantilism. Quite the opposite.
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
