Rampant Mercantilism - continued

The current preoccupation with exports is a manifestation of the seventeenth century theory of economics called Mercantilism, which had been discredited several times over by all the Classical economists before 1800, including of course, Adam Smith in “Wealth of Nations”. People ought to read it.

A balance of payments surplus means that real wealth flows out of a country and paper claims on wealth flow in ie there is a net loss of real wealth. A balance of payments deficit is a healthy sign because goods are always worth more to the purchaser than to the seller – otherwise the trade would not take place. Imports transfer goods to where they are more wanted ie they represent an increase in wealth due to the mere act of transporting them.

It follows that any impediment to importation eg tariffs, is an obstacle to wealth creation, and from that, it further follows that unilateral free trade is more advantageous than reciprocal free trade. In reciprocal free trade, both sides gain, but in unilateral free trade it is consumers and manufacturers in the country which persists with the tariffs who are the losers. From this, it further follows that free trade agreements (an oxymoron) are unnecessary; a prudent government would take down the tariffs for the sake of its own.

Balance of payments deficits arising from large scale consumer purchasing funded by credit are unhealthy but the solution is not tariffs but regulation of credit.