This document summarizes Rothbard's views on mercantilism and some of its key proponents. It discusses how mercantilism involved the state granting monopoly privileges to certain groups to advance their interests. Rothbard saw mercantilism as justifying big government and high taxes. Key figures discussed include Colbert, who led France's economic program under Louis XIV and held contemptuous views of merchants, as well as Louis XIV himself, who viewed himself and the French state as all-powerful. Rothbard had a very negative view of French absolutism and its effects on economic development.

1. Economic Thought, Lecture 4
Mercantilism: How the State Controls
the Economic System

2. Mises and Rothbard on
Population
• Last time, we were discussing Rothbard’s
criticism of Botero on the law of population.
Botero anticipated Malthus
• Rothbard rejected the theory that population
grows faster than food supply. He said this
assumes that two interdependent variables are
independent.
• Danny Sanchez pointed out that Mises accepted
part of Malthus’ doctrine. The existence on a
optimum population follows from the Law of
Returns.

3. Population Continued
• Are Mises and Rothbard in conflict? It doesn’t
follow from the existence of an optimum
population that population grows faster than food
supply. You could believe that there is an
optimum population without accepting the claim
Rothbard questions.
• One difference between Mises and Rothbard is
that Mises believed that, in fact, many societies
have a greater than optimum population; and
Rothbard didn’t.

4. Mercantilism
• Why is Rothbard talking about
mercantilism? Although he rejects the
“standard” narrative that economics began
with Adam Smith, he agrees that economic
theory needs to oppose mercantilism.
• Economic theory developed in part in
opposition to mercantilism.

5. Mercantilism Continued
• Mercantilism wasn’t itself a theory. It was an
assortments of justifications for the absolute state
and for privileges for particular groups.
• “As the economic aspect of state absolutism,
mercantilism was of necessity a system of state-
building, of Big Government, of heavy royal
expenditure, of high taxes, of (especially after the
late seventeenth century) inflation and deficit
finance, of war, imperialism, and the aggrandizing
of the nation-state.”

6. Significance of Accumulating
Bullion
• Rothbard makes an extremely important
point about the mercantilist policy of
accumulating gold and silver bullion.
• From the point of view of economic theory,
this doesn’t make much sense.
• But it does make sense from the standpoint
of the rulers of the state. An accumulation
of gold and silver helps them stay in power.

7. Monopoly Privileges
• Besides accumulating gold and silver,
mercantilism was characterized by grants of
monopoly privileges.
• It was in essence a way particular groups
could advance their own interests.
• Rothbard’s interpretation of mercantilism
follows the classic work of Eli Heckscher,
Mercantilism.

8. Rothbard on Mercantilism
• “They were, as Schumpeter called them,
'consultant administrators and pamphleteers,
to which should be added lobbyists. Their
'theories' were any propaganda arguments,
however faulty or contradictory, that could
win them a slice of boodle from the state
apparatus.”

9. Mercantilism in Spain
• We are going to be concentrating on
mercantilism in France, but first we’ll give
a general survey of mercantilism in Europe.
• Spain was the most powerful country in the
world in the 16th
century, but mercantilism
helped to destroy the economy.

10. Spain Continued
• Extensive regulations ruined the Spanish
textile and silk industry.
• As if this weren’t enough, more regulations
hurt grain farmers to help the Mesta, a
powerful association of sheep holders.
• Spanish prosperity dried up after the influx
of gold and silver lessened.

11. Mercantilism in France
• Rothbard’s discussion of mercantilism in France
leads him to another vital point.
• One way mercantilist monopolies are defended is
that “quality standards”, e.g, in cloth
manufacturing have to be preserved. This drives
prices up and keeps goods out of the hands of the
poor.
• The aristocracy doesn’t care about this because
they benefit from the luxury goods.

12. France Continued
• Mercantilist regulations aren’t self-
enforcing. They require an extensive state
apparatus. In France, the leading officials
were called intendants.
• They used spies to discover violations of
the regulations. People could be executed
for wearing forbidden clothing.

13. Effect of Mercantilism in France
• “As a result of all these factors, even though
the population of France was six times that
of England during the sixteenth century,
and its early industrial development had
seemed promising, French absolutism and
strictly enforced mercantilism managed to
put that country out of the running as a
leading nation in industrial or economic
growth.”

14. Mercantilism in England
• England under the Tudors and Stuarts also had a
lot of mercantilist regulations. E.g., the Statute of
Artificers (1563) greatly strengthened the power
of the guilds.
• Rothbard stresses that mercantilism was based on
forced labor. Idleness by the lower classes wasn’t
tolerated.
• The regulations weren’t as effective as in France.
This helped English economic development later.

15. Mercantilism In Eastern Europe
• The forced labor feature of mercantilism
was even more evident in Prussia,
Lithuania, and Poland.
• In these countries, the peasants were made
serfs again. They were no longer free to
leave the land and had to engage in forced
labor.

16. Mercantilism and Inflation
• Kings needed money in order to finance their
wars. E.g., “The key to English history in the
seventeenth and eighteenth centuries is the
perpetual wars in which the English state was
continually engaged”
• In 1694, William Paterson introduced a new
method of enabling the government to obtain
money. In return for the government’s granting the
Bank of England the power to issue bank notes,
the bank bought vast amounts of government debt.

17. The Bank of England
• The government in 1696 gave the Bank of
England the power to suspend
convertibility. In other words, the bank
didn’t have to meet its contractual
obligations. In the wars with France after
the French Revolution, it did so for two
decades.

18. The Bank Concluded
• “Thus, by the end of the seventeenth
century, the states of western
Europe,particularly England and France,
had discovered a grand new route towards
the aggrandizement of state power: revenue
through inflationary creation of paper
money, either by government or, more
subtly, by a privileged, monopolistic,
central bank.”

19. Laffemas
• The French mercantilist writers were of very poor
quality. E.g., Barthélemy de Laffemas (1545-
1612) favored a policy of self-sufficiency.
• France should try to produce as much as possible
internally. This violates a basic principle of
economics, benefits from trade and the division of
labor. Laffemas’ argument depended on the
Montaigne fallacy. His ideas led to a harebrained
scheme to grow mulberry trees and silk worms.

20. Laffemas Continued
• Laffemas realized that the best way for the
state to accumulate bullion was not to
prohibit the export of gold and silver.
• Instead, the state should allow free trade in
bullion, and the regulate trade so that
bullion in the country would keep
increasing.

21. French Absolutism
• Rothbard has a very negative view of the
French state in the 17th
century.
• He says, e.g., that Cardinal Richelieu, the
Chief Minister of Louis XIII, regarded the
French people as animals. Taxes shouldn’t
be so high that people are discouraged from
working.
• But they shouldn’t be too low, either.

22. Richelieu on Taxes
• “For if the people were too comfortable and
complacent, it would be impossible to
'contain them in the rules of their duty'.
Richelieu added the revealing comment that
'It is necessary to compare them [the
people] to mules, who, being accustomed to
burdens, are spoiled by a long rest more
than by work' .”

23. Colbert
• Colbert, who was in in charge of the
economic program of Louis XIV, had a
contemptuous attitude toward the people.
• He thought that merchants were small
people who didn’t understand the national
interest.
• Trade was based on war and conquest.
Once again, the Montaigne fallacy
dominated

24. Colbert Continued
• Colbert tried to coordinate the artists and
intellectuals to glorify the king.
• Colbert strengthened the French Academy
and established other academies for
painting and sculpture and architecture.
(The Academy was established by
Richelieu.)
• Enormous sums were spent on palaces for
the king.

25. Louis XIV
• Louis XIV (1638-1714) is one of Rothbard’s main
aversions.
• Louis thought that he owned all the land in the
country. Everyone else was merely a tenant.
• He viewed himself as a god-like figure.
• Bishop Bossuet was the chief ideologist of French
absolutism. He compared the king to god.
• Rothbard concludes, “Catholic political thought
had come a long way from the Spanish
scholastics.”