Mercantilism - RR144B3
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We have until now been dealing with some of the motive forces in the background. We shall now begin to look at the period of the War of Independence, and some of the problems that helped create the conflict. One of the basic problems that was a recurring factor in the background of the War of Independence was that theory of economics known as mercantilism. Mercantilism. Now we cannot say that this was the cause of the war, but if it had not been for mercantilism the problem would never have arisen. Mercantilism was the theory in terms of which France, Russia, Austria, Spain, Britain, all the great powers of the day operated. Now mercantilism is important to us to understand because, what we have today in our modern welfare economics and our modern socialism, is a kind of neo mercantilism. Now according to mercantilism, the most important thing for a country, was to sell to other countries, but not to buy from them. [00:01:36]
As a result, a mercantilist country would try to ship...
As a result, a mercantilist country would try to ship as much of its goods abroad, and accumulate gold from these sales, because the currency of the day was gold, and at the same time to close its borders as far as possible to foreign goods. There was nothing more horrible than buying, if you were an Englishman something that was French. The standard of the day was “buy French” or “buy Dutch” or “buy British”. Whichever country to which you belonged. Nothing from any of these other countries. Well now, this creates a problem does it not? Because, how can you get the French to buy from you, if you refuse to buy from them? And if they feel that their people should buy from no one, yet you should buy from them. In other words, everybody under mercantilism, as under our contemporary ideas of tariffs, wants the rest of the world to buy their goods, but oh what a sin, if you buy there’s. Such as ?day? has held, the more we can sell abroad, the better; and we have a steady stream of salesmen flying out of Los Angeles and San Francisco to Japan. In fact there is a regular business on the west coast of Japan in dealing with these salesman. One of the businesses is printing cards for them, you may have seen advertisements of this. So that when you get to a flight and you’re going to land in Japan, you have your business card printed for you in Japanese and English, so that you are ready to start calling, they will provide you with an interpreter and so on. But oh what a fearful thing if the Japanese sell to us. [00:03:59]
And anybody starts buying Japanese...
And anybody starts buying Japanese. This is neo-mercantilism in our midst. Now, what does this lead too? Well if the French, the German, the Dutch, and all the other European countries refuse to buy from one another, and they wanted only to sell, the only place that they could sell to was to a colony. The result was colonialism. A tremendous drive to establish colonies. The result was in the 18th century in particular, every power of any consequence was racing to establish Colonies in different parts of the world. The whole point of Colonies was to develop a market. Somebody to sell to. So that they could get rich by having a built in market, and to say to this market, the Colonies, you can buy from no one else. You’ve got to buy only from us. This of course, meant that from the very beginning there were prohibitions on the Colonies by the crown, because they were governed not by parliament but by the English crown. They had no relations to parliament they had gone out to start another country, a colony, under the king of England. They were not under parliament. We’ll come to that at a later date, perhaps tomorrow. Now, the immediate result was that these Colonies were forbidden to buy from France. Or it was regarded as a sin on the part of the Americans, the Yankee merchant men to go around all the way to China, or to India and to buy directly. They should buy only from British merchant men. And only British ships could carry goods here. Because the whole function of the colony, was to act as a market, to enrich the mother country. [00:06:28]
Of course this means that the colony was there to be...
Of course this means that the colony was there to be a pigeon as it were. To sell and not to manufacture. There were all kinds of laws to try and inhibit manufacturing in the Colonies. Their only function was to provide the raw goods. And so if cotton were produced for example in the southern Colonies, it had to go to England, and then come back from England in the form of clothing. The idea of any American trying to manufacture something was regarded as a serious offense. And two there are laws against to with the Indies or anywhere else. And so, many of the founding fathers especially from New England, were smugglers. Because they believed such laws were immoral. They could not see any justice to them. Thus, mercantilism was protectionism of a very extreme sort, whereby the colony was not to develop, but only to be there as a source of raw materials and as a market. Now it is significant, that Canada never joined in on the American war of independence. Canada had not developed to the point where it had any spark of independence. But where there was any desire to grow, where there was also that theological background that the Colonies had, it immediately meant that there was some rebellion and resentment against the situation. Why can’t we develop our industries? Why can’t our ships go where they want to? Why can’t the French come into here, because we think for some things the French do better? As a result neo-mercantilism created a problem, a serious problem. But this is not all. Neo-mercantilism created war. In what sense? Well, your economy after a while stagnates unless you have a new market. And the only way to get new markets is to go out and conquer them. The 18th century was a long series of wars because, one country after another was trying to capture the Colonies of other countries. These wars culminated finally, in the loss of france’s colonial empire. The two great sections in particular, and we cannot understand American history apart from this, first Canada and important source of raw materials and the market was lost by France to Britain. Then second, India a highly populated area, a tremendous market for goods, as well as a source of raw materials, was also lost by France. To Britain. Now, this double loss was a tremendous paralysis to France. France was therefore tremendously anxious to see America, and the war of independence broke out, triumph. As a step to doing in Britain, who had done them in. [00:10:25]
Remember this series of wars culminated in the French...
Remember this series of wars culminated in the French and Indian war. The French and Indian war was the war that preceded the War of Independence. Now this loss of Canada and of India to Britain, meant that the French government faced disaster. Under mercantilism now their economy was in serious trouble. They were producing and they had no market. Their goods had no way of going beyond their borders. And France was faced with a collapse because it could not do Britain in. And so France, for this reason, was the great ally of the United States when the war of independence broke out. It was the first step to trying to reestablish itself I overthrowing the British power. And of course America was to be a market because America was ready to trade with the French or the British or anyone who had the goods. Now of course, to finish out this story, it was too late. The economic disturbances in France because of the loss of India and Canada was so great, but the remaining great area, the Louisiana Territories was not developing fast enough to provide an adequate market and France collapsed. The revolution was the result. The revolution would never have resulted if it were not for the lost economy. The people would’ve been able to continue in their previous prosperity. But now you had a nation of malcontents, people who because of mercantilism were doomed to economic stagnation. [00:12:43]
Now it was not as long as the French revolution was...
Now it was not as long as the French revolution was confined within France that there was any trouble, and any fear on the part of Britain. But when did the nation’s gain upon France? It was when Napoleon came into power and Napoleon had this dream of establishing some kind of trade. Remember his Egyptian campaign, and his campaign to the Middle East. Why? As a step towards recapturing India. And as a result Great Britain engaged in unceasing warfare, against France, against Napoleon. In order to overthrow Napoleon and prevent any kind of return of the French economy, and the French colonial empire. Now, at a critical point when Napoleon was fearful of the future, he took an important step, we’re looking forward in American history now, what was that important step in regards to Americans? Yes. He sold Louisiana to the United States. He knew that if he held on to it, the French, being blockaded by Britain, the next step by Britain would be to go out and sees the Louisiana Territory. And so he immediately took steps to sell it to the United States. Now the United States throughout the Napoleonic war was very, very, favorable to France. In fact it was a great deal of trouble because of it, and we were involved finally in the war of 1812 against Britain. Not actually as an ally of France, but that was the actual result. But, Napoleon by giving us, and it was really a gift, of the Louisiana Territories, prevented Britain from getting that area, and thereby blocking the western development of the United States. Now there are two great events that gave America the west, can anyone remember the first? It has a lot to do with this tape. One of the greatest men of American history was responsible for it. A very great Christian. A man of tremendous reformed faith. Does anyone know that Virginian was? One of the greatest ?martyrs? of American history. ?That video could’ve been? Not Nathan. Not Madison. Patrick Henry. Patrick Henry, as governor of Virginia, when he saw the war was going to end, knew that there would be nothing more disastrous, than a peace treaty that left the United States as a mere line along the Atlantic Coast. And so he gathered Virginians into an army and sent them out to the west. [00:16:19]
To defeat the British there...
To defeat the British there. To clean them out, over the mountains. Because he knew it would be nothing but disaster, and the United States would be doomed for ever to be a small Atlantic seaport country. And Patrick Henry thereby ensuring the westward expansion of the United States. And the next great step came with Napoleons gift. These two things together insured the westward expansion of the United States. Apart from these two things this country would not be what it is today. Now throughout the war of independence, of course, the French were heavily involved on the American side. It was the French navy at a critical point that came to our aid and fought with us, French troops were important in one battle after another, French money was but basic, all these things because France was not so much pro American as anti British. Try to overthrow the stranglehold that Britain had gained upon them and to save their very existence. It did not work. And they fell. But in the process they help to create the United States. So mercantilism is very important to an understanding of American history. Because without mercantilism there would have been no problem in this country, that would have led to the discontent, they were Englishmen, they loved the mother country, they went over there regularly for their education, the upper-class gentleman, they had relatives there, a regard themselves as Englishmen. But, they were being treated as second class Englishmen. As people who were there simply to be exploited. And this was because of the theory of mercantilism. Mercantilism produces war. It always has, and today when you have neo-mercantilism that closes borders, again it leads the war. Now we’re going a little astray from American history, but we’re trying to understand the motive forces in history, so it’s important to realize that today when you have the kind of economy as they do in the Soviet Union, a parasitic economy, the only way the Soviet economy can thrive is by imperialism. [00:19:16]
It has to have a new area to annex periodically...
It has to have a new area to annex periodically. And unfortunately, all the economies of the world, because of their mercantilism, have the same tendency, they have become parasitic. They want to sell, but not to buy. And so they have to treat areas as virtually Colonies. And so while in the name of anti-colonialism we have denied colonialism, and we have fought the European powers, to surrender their Colonies, what are we doing? You are creating a neo-mercantilist empire. So that the states of Africa, the countries of Africa, which are ?barely? countries, exist, in terms of subsidies, from various governments. And these subsidies have one purpose, to ensure that it will buy from that country. When we give money to Ghana as we have, what are we saying to Ghana? “Alright Ghana, here are so many hundreds of millions of dollars, but you get this only as you buy American. So you’re going to ask that an American firm, Kaiser, in come in and build a huge dam for you, and you’re going to buy American cars, and American tractors. You’re going to be our market. But at the same time of course, the American taxpayer pays for it. But what if other countries are trying to get Ghana to be their colony as it were? You see the trouble it leads to. And you have the CIA all over the world, and you have the Russian secret police all over the world, and you have the British and you have the French, because of neo-mercantilism they’re all playing the colonial game when they are all denying the game in the name of anti-colonialism. Mercantilism which is a form of socialism, leads to war. [00:21:17]
Now consider one famous mercantilist event in American...
Now consider one famous mercantilist event in American history. The Boston tea party. The Americans were smuggling in tea. They did not like the controlled British prices. So, what did Britain do, the East India company was near bankruptcy, they couldn’t compete with the colonialists, after all a subsidized industry cannot compete with a free enterprise industry. If you want a good example of that, look at the Fairfax public schools, and look at the Christian schools such as Fairfax Christian school. They are subsidized industries competing with the free enterprise school. And they don’t do well in the competition. They cannot produce, for the same price, the same product. So what happened at the Boston tea party? They decided, the British parliament did, “let us subsidize the tea price, let us make it so low, that will be impossible, for these Americans to compete with us.” In other words, we will lower the price of tea so that if any American tries to bring it in it will be at a loss. And we’ll wipe out these American businessman who will compete with us. And what was the reaction of the Americans? Well at one harbor after another, they raided the ship and dumped the tea into the harbor. It was a protest against mercantilism. And it is very interesting that while some of the new states did have mercantilist ideas, those ideas were not immediately eliminated, the new ideas of Adam Smith with respect to free trade and a free enterprise economy became increasingly popular in the various Colonies. [00:23:25]
Now, at the same time as mercantilism was operative...
Now, at the same time as mercantilism was operative, there was another factor. Money in those days was so… Each of the Colonies was an independent country of its own legislature, its own government, aims and officials, and its connections with England were nonexistent. England had a king, he was the king of England, Scotland, and Ireland, was also the king of New York, and a Virginia, and of Massachusetts, and so on. They all had the same king. They ruled the each of these areas through their local self-government, and through a royal governor, and the king got a veto power. Now Virginia had the right to issue coins. Each of the Colonies had that right. But most of the time when they tried to issue coinage, the king vetoed it. Why? He wanted their economy to be dependent on the British economy. And if they got to independent, issuing their own coinage, building up their own businesses, then they would be independent of the English economy. So while parliament had no authority over the Colonies, we’ll come to the attempt of parliament to usurp authorities, with the cooperation of the king, somewhat later. The king was trying to prevent these Colonies from taking their logical development. And so it was, that the idea was “well, if they have any silver or gold, they are to pay it to the English, for the goods that are delivered.” And in the early days, what was happening for example was, but a boatload of salaries would arrive in America, and they would have some gold and silver as they came from the old country, and everybody would say “you’re new here, now I’ll work for you and I’ll build your house, and clear all your land for you, if you’ll pay me with gold.” And so, when the next ship landed, that gold which they earned, working for the new people would go to buy British goods. And it would go right back to England. There would be no gold or silver here until another boat load of people arrived. And so the New England colony ?charged? it first, [00:25:37]
They said “We will give a tax moratorium of so many...
They said “We will give a tax moratorium of so many years to any new Englander who will build a ship, and use it to trade, so that we can be free of this terrible situation.” So there was a desire to gain independence by having their own currency, and by developing their own economy. And the king vetoed virtually every measure. So what did the colonies do? Now this was an act of reprisal, it had very dangerous tendencies, but nonetheless it was done as a form of economic warfare with England. Since the King was acting as the King of England rather than as the king of Virginia or Massachusetts or New York, and favoring England rather than the colonies, by saying “I’m going to protect English business and give it rights that you don’t have, rights in your own colonies.” They decided “Alright. Now it takes time to mint money. You can print paper money in a day. So if we pass a measure saying that this issue of money is legal tender, and must be accepted by everyone for all debts, then by the time that act goes back to England and the King vetoes it, which he will and always did, and it comes back some time has passed. And until that veto comes back it is legal according to our charter. By the kings admission everything is legal until he vetoes it. In that time we can make these merchants from England take it. They have to take it.” So as a form of economic warfare, They started issuing paper currency to the colonies. An English ship would land, a subsidized ship with all its wares and the Americans would go down there and pay for it in paper. And the merchants would say “We don’t want this!” These English merchants. And they would say “Oh but you have to to take it, its legal tender, the King has not vetoed it. Well they had to. And they would go back and complain to the crown. And the crown would say “Well, we vetoed it.” And by the time they came back with the next load there was another paper money issued that had not yet been vetoed by the crown. Now this was economic warfare as a product of mercantilism. And this warfare built up and built up until a few years before the war of Independence the British Crown across the boards were mad because so many English Merchants were complaining. All further issues of paper money. Now this again was a very important fact leading to the War of Independence because they had been penalized. Now of course it did create some bad side effects. [00:29:06]
Because since it was payable for all debts public and...
Because since it was payable for all debts public and private, some of the ne’er do wells in the Colonies would of course take the money and pay off anyone in the colonies that owed them money. If they had borrowed money from their neighbor they would take the paper money and pay them off and say “Well, the house of burgesses has voted it through, you have to accept it.” So there were some side effects in the United States, or rather in the Colonies, that were not altogether good. But it did create an appetite for paper money. Which subsequently arose to plague the young United States. Under the articles of Confederation. And this is why in the Constitution, only god and Silver are specified as legal tender. Because the debtors wanted cheap money, so they could go into debt and pay off with worthless paper. Now the man that was responsible for that hard money clause in the Constitution, which is still there although we pay no attention to it, was… does anyone know his name? John Witherspoon, yes. John Witherspoon, one of the great lights of the Presbyterian Church, President of Princeton and known as the college of New Jersey and of Calvin. A very Godly man. And John Witherspoon wrote an essay on money, and propagated the hard money doctrine, and at the Continental Congress spoke eloquently time and again against a paper currency. Now, I’m going to stop at this point to see if there are any questions before we proceed any further. [00:30:59]
We’ve been dealing with some very important economic...
We’ve been dealing with some very important economic issues. Yes, John. (muffled question) Yes. Alright. Yes, now of course, the question if you heard it was a an economics question, if the United States had free trade, but the Japanese did not, what should we do as the United States? Well of course we shouldn’t do anything. The advantage of free trade is that it wipes out businesses that are not profitable, that are protected. But what it does do is to bring in cheap goods. Free trade favors the consumer, always. Because it makes available to you, food and goods that are cheaply produced. Now you see the United States is by the Constitution a free trade area. There can be no tariffs between the States. Now what has this done? Well it has given us more and cheaper food. One of the things that has happened in the past generation is that a lot of the land in the east and in the west that was farm land is gone back to wood lands. Why? Well California is the reason. California today is producing so much food so cheaply, that it is far cheaper to ship it from California to the east than to produce it in the east. This is why some animals in states like New York who were believed to be extinct are being found again, they have reappeared as areas have gone back to being woodland. Now has this hurt New York? No it has not. It has meant simply that that which can be produced most cheaply in the United States in the way of food is done where it can be done most effectively. Well today, to continue this analysis, today we do have to an extent a tariff in the United States. A dishonest tariff. Earlier we had it in the form of dishonest railroad routes, which discriminated against the south. But today there is a very important law on the books which is designed to prevent free trade within the United States, and protect a certain area. Can you guess what that law is? Yes. The minimum wage law! Yes, the minimum wage law. Now why is the minimum wage law a discriminatory law? Well it discriminates against the south and the west. You see if you did not have a minimum wage law what would happen? The south could produce a lot of things far more cheaply than the North Atlantic States, and it was the North Atlantic States, the eastern states that were responsible for the minimum wage law. (30:41)
Two knock out the competition of the west and especially of the southern states. So what has the result been? Higher prices. Because what the south had once produced very cheaply, it could no longer produce as cheaply because it had to pay a higher minimum wage. Now consider another implication of the minimum wage law. Because it has priced labour so highly, it has knocked out millions of people who otherwise would have gainful jobs in the labor market. For example, one of the tragic forms of unemployment it has created is negro unemployment. It’s usually possible for young unskilled negro to get a job at very low wages and to learn a kind of work, a trade. Neither he nor an unskilled white boy can do that nowadays. Because with a minimum wage law, plus various state and Federal benefits that have to be paid in, it amounts to about $10.50 an hour. Well, who can afford to hire an untrained kid and spend a year or two training him for job? At wages like that? When you hire somebody who is unskilled at any type of job it takes a year or two for him to be worth anything to you, because it takes you that long to educate him. Do you know, if you go to work for the telephone company as an operator they spend about six weeks training you, but that they have to wait about two years before they make anything off that training that they’ve given to you. So if you quit in less than two years time they have lost their investment. Well with somebody who is totally unskilled, even if they pay them only 50¢ an hour for the first year or so, they are not making money because they’re investing time and money in training them. The minimum wage law has made it impossible for that to be done. [00:36:45]
The textual mills that were booming all over this town...
The textual mills that were booming all over this town one after another shutdown. What the north Atlantic states have done is to eliminate the competition, manufacturing in the south and in the west. Now labour was cheaper in the south and in the west, for one thing because, you didn’t have the higher cost of living that you have in metropolitan centers, like Philadelphia, and Boston, Chicago, and New York especially. Therefore you could live more cheaply. Moreover, the weather being warmer in the west, you don’t have the same cost of living. Now consider the difference in the cost of living, if you live with mild weather. Your fuel bill alone, your clothing. You can take less money and live better. I know one man who moved from California to New York at a $10,000 increase in salary, and was the sickest man in the world after he got there because he found that he was taking a big cut in salary as far as purchasing power was concerned. So you see, what free trade has done in the United States in the area food, has been to provide you with more food more cheaply. But by destroying free trade in the United States in the areas of manufacturing and minimum wage law, what has happened is that we have upped the price of goods, we have discriminated against the south and west in favor of the north Atlantic states. Now consider what will happen if one of these days we suddenly abandon the minimum wage law. Incidentally, anyone who is unemployed to the age of 25, is thereafter unemployable. It’s a sad fact but they are. They are no longer fit to work because they’ve been on welfare to that point. [00:38:57]
They lack the discipline of work...
They lack the discipline of work. In those early years. And are unemployable. Attempts through the job corps to take these people and try to train them have been virtually useless, maybe one out of a hundred will turn out to be fit to work. Well, on an international scale free trade does wipe out some people. But it actually booms an area. We have never had truly free trade, or whenever to any extent we have cut the tariffs we have actually raised the standard of living in this country. Raised the productivity. Tremendously. Does that help answer your question?
(muffled audience remark)
Yes, well, to give you an example a few years ago the price of wheat collapsed. Why? Because we passed restrictions against Japanese textiles. Yardage. What did that mean? Well, because the Japanese could no longer sell to us, they could no longer buy from us. And that hurt the wheat growers and it hurt the orange growers. Because every time the Japanese sold to us they had money to buy from us. And our best customer in the world today by huge margin, is the Japanese. So if you took away the Japanese trade, business would fold. They are our best customers by a tremendous margin. Any other questions? Well, I think tonight we will adjourn a little early, it has been a long day. But tomorrow night we will continue with our study of the basic motives and ideas as they have operated in American history. [00:41:09]