Mercantilist Economics.

Ekelund, Robert B., Jr.

There are fundamental differences between most economists, general historians, and economic historians. Many general economic historians and "traditional" economic historians - there really is not much difference - get apoplectic about bringing order to history. They take refuge in "historical-sociological" approach wherein all motives are given more or less weight in interpreting doctrinal and institutional change. Some "historians of economic thought" profess the same gestalt. This volume contains merely one of the latest attempts to defend chaos and pointlessness in the interpretation of an historical epoch. At a purchase price of about 30 cents a page, it is decidedly no bargain. Although several essays in this collection offer important insights - in particular those of Donald Walker and William Grampp - the major thrust of the volume struck by editor Magnussun recounts the same old hedging and historiographic voodoo about mercantilism and neomercantilism. The underlying message of this uneven collection is clear: If "idea collecting" is not the best way to characterize some particular epoch, employment prospects for some of these "historians of economic thought" might be considerably less secure.

This collection has no stated purpose other than (ostensibly) to get a grip on the definitions of mercantilism and neomercantilism in the post-Hecksher, post-British socialist era of "economic thought." Not only does it fail to advance, it takes two steps backwards. No wind is the right wind when the port of call has not been chosen. With two or three exceptions, these essays betray total innocence and ignorance of how modern economic theory might be applied to institutions and institutional change over the period 1550-1776. All they offer is "stories" surrounding mercantile ideas and policies - an approach that led one able historian (aptly) to call mercantilism "a red herring of historiography" [3].

The mercantile era was a period punctuated by rapidly evolving institutions which happened to result in the transition to liberalism and greater reliance on free markets. Ideas - especially those relating to markets, labor, and the balance of payments - undoubtedly had consequences over this period. But ideas, like technological advance, changes in transactions cost, and innovations, are but "shocks" to a given system composed of institutions. These shocks must work through institutions that are established and evolve through markets guided by self interested activity. (Rent seeking, unlike self interest, does not create value). At any point in time institutions act as a constraint to activity and constitute a "static" period for analysis where some factors must be considered exogenous. Over time, economic activity interacting with system shocks and institutions produce new institutions. Some interesting questions relating to this process of change between 1550 and 1776 are: What institutional constraints determined economic activity and economic growth over the mercantile period in particular locales at particular times? How did these institutions change and what was the mechanism of the change? How were ideas and ideology involved in this process and how, in turn, did this process affect ideas? What were some of the possible efficiency and welfare effects of change? These questions, and their more elusive answers, go begging in most of the essays collected here.

Several points and several papers from the collection deserve special mention. The scholarly essay on Spanish mercantilism by Perrotta would have been much improved had the attempt been made to compare rent seeking, taxing institutions and internal regulations in France to those of Spain. Perrotta never comes to grips with critical differences between actual economic development and with what economists of the time thought about economic institutions. The best explanation is that Spanish economic development was effectively blocked by monarchical regulations (such as those imposed by the Mesta guild of aristocrats and sheepherders) and taxation underpinned by rent seeking to support self-interested Crown adventures.

While Perrotta's paper provides some interesting interpretations of mercantilism Gerald Koot, Keith Tribe, William J. Barber, and Bjorn Hettne deal with that elusive bird called neomercantilism. Here we are invited to relive such old and irrelevant issues as the socialist revisionist view of mercantilism (a brief for socialist economic controls), with why Keynes's mercantile socialism was not wholeheartedly enshrined in the United States, and with concepts of "neomercantilism." On this last point, as with the definition of mercantilism itself, there is little common ground. A far more secure handle on the actual meaning of neomercantilism may be found in a recent book by Hernando de Soto [4] who correctly assesses the context of the term. The neomercantilist concept is simply neosocialist apologetics for neobureaucracy, neoregulation and (ultimately) neototalitarianism.

Three papers in this set are worthy of special note. The purely historiographic essay of Lars Herlitz provides useful summaries of famous mercantile thinkers. Herlitz also perceives (sometimes implicitly) the essential role of self interest as an important ingredient in the ideas of mercantile writers.(1) Grampp's paper on the futility of exact or particular definitional characterizations of mercantile ideas is a reprise of his classic paper [6], although he does not mention the important, equally classic and earlier paper on the same subject by Alfred F. Chalk [1]. Indeed, no one does. The one healthy thumb in the collection is Walker's interesting study of the attempted and ultimately unsuccessful monopoly creation by the Stuart kings, Charles I and James I, in Virginia's tobacco plantations. No clearer brief for the usefulness of the self-interest axiom in attempts to establish and redistribute rents could be imagined.

But for these prominent exceptions, these essays are, as a lot, caught in a time warp using "historicist" (deconstructionist?) methods to evaluate ideas and institutions of the mercantile period. In a modern theoretical world of comparative institutions and information costs, it is strange to see the self-interest axiom attacked so strongly by individuals claiming to be economists. The truth is, most of these historiographers are using an obsolete historical approach (at least among economists) where all categories - ideas, customs, tradition, religion, law, etc. - have equal and autonomous weight along with self interest. The economist, on the other hand, looks for explanations of institutional change in which "ideas" and other factors are only interrelated elements in an ongoing process driven by the self-interested behavior of economic actors and coalitions.

An emerging paradigm relating to tax rules and to political rent-seeking institutions is beginning to inform some of these issues. Salim Rashid and A. W. Coats want to nip this bud despite the steady deflowering of the approach they continue to defend. Their essays attack this paradigm in an ascientific and uninformed view of what they call "the rent seeking hypothesis." In a "no-brainer" assessment of the self-interest axiom, surely the essential element in all of economic theory if not in historiography, Rashid-Coats argue that "self-interest" explains too much and therefore nothing.(2) The tautological form of the self-interest axiom is of course broken by framing hypotheses that provide testable alternatives, either formally or anecdotally. This is bad enough, but Rashid and Coats even fail to note that modern research shows (in various "tests") that self-interest very plausibly explains key elements of institutional change and economic development over the mercantile period and, indeed, in our own [9]. Taxing institutions along with those relating to Parliament and the distribution of legislative and administrative powers are of particular importance in the mercantile period.

Only an idiot would claim that ideas and other factors had no impact on mercantile institutions and their demise.(3) But the question of the relative importance of factors affecting institutional change can only be answered in a fair test of which theory - state power/ideas/ideology (or whatever) versus self-interested rent-seeking activity - performs best in explaining institutional change. Along these lines, the essay of Rashid and the perfunctory summary of Coats in this collection and in an earlier essay on mercantilism [2] are like a grin without a cat. They provide no explanation of economic change or growth whatsoever. In fairness, their haphazard and ragtag approach could not ever provide an explanation. These essays are not only misdirected, they attempt to throw sand in the face of science.

As in traditional sociology and political science departments, the old historical and ideational view of the world is in retreat from the onslaught of contemporary and emerging economic theories with wide and ever-widening ranges of applicability. "Historiographers," telling endless and largely pointless tome-length tales about method and the milieu of economists and ideas are becoming passe. Many would be far more comfortable in traditional departments of history, sociology, or philosophy. They remain in departments of economics in large part by rehashing self-manufactured ideational battles of the past and by telling stories about the sociology of economists (not to be confused with the economic sociology of Gary Becker). Can it be that they have remained so long in departments of economics because they have succumbed to self interest (higher differential salaries as economists)?

There are many good reasons to study the history of economic theory and institutions. But historiographers masquerading as economists cannot go on blissfully ignorant or (what is worse) hostile to developments in general economic theory. The crucial interplay between ideas and institutions is yet to be worked out. But that is where the action is. Why do we need another Heckscher as Coats suggests in his "conclusion" to this collection? So we may turn a red herring into a dead herring of historiography? Given what we already know about the connections between ideas, self interest, and institutions, such an attempt would be (as, in the main the present volume is) a step backwards into the darkness.

1. Many "historians of economic ideas" appear to believe, erroneously, that a rent-seeking interpretation of mercantile institutions means that ideas must have self-interested origins. But such need not be the case. Ideas (promulgated sometimes at the cost of self interest) are important technological shocks to institutional processes.

2. Coats apparently rests this familiar chestnut on an obscure paper published in a philosophy journal [2, 59].

3. Ekelund and Tollison, in contrast to the impression left by Rashid and Coats, made no such claim [5, 7-9 et passim] certainly not for the English case. Their focus was on internal regulation of particular kinds represented in particular pieces of legislation not on foreign trade or the issue of colonization (where Rashid claims to find the smoking guns against a rent seeking explanation). Most certainly, self-interested actions do not (ever) take place in an environment of zero information costs and perfect certainty. That the results of the Corn Bounty and colonization did not maximize returns to monopoly interests (after a century or two) does not "show how rent-seeking theories can fail to illuminate history" [p. 135]. Further, if internal rent-seeking in France (totally ignored in this volume) does not explain welfare-reducing income redistributions over the same period, what does?

References

1. Chalk, A. F., "Natural Law and the Rise of Economic Individualism in England." Journal of Political Economy, August 1951, 330-47.

2. Coats, A. W. On the History of Economic Thought: British and American Economic Essays, Vol. I. London: Routledge, 1992.

3. Coleman, D. C., "Eli Heckscher and the Idea of Mercantilism." Scandinavian Economic History Review, 5, 1957, 3-25.

4. De Soto, Hernando. The Other Path. New York: Harper & Row, 1989.

5. Ekelund, R. B., Jr. and R. D. Tollison. Mercantilism as a Rent-Seeking Society: Economic Regulation in Historical Perspective. College Station, Texas: Texas A&M University Press, 1981.

6. Grampp, W. D., "The Liberal Elements in English Mercantilism," Quarterly Journal of Economics, November 1952, 465-501.

7. North D.C., "Institutions and Economic Growth: An Historical Introduction," World Development, 17, 1989, 1319-32.

8. North, D. C. and B. R. Weingast, "Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth Century England," Journal of Economic History, December 1989, 803-32.

9. Rauch, Jonathan. Demosclerosis. New York: Times Books, 1994.

Robert B. Ekelund, Jr. Auburn University