The Online Library of Liberty

A project of Liberty Fund, Inc.

• Associate Editors
• Editorial
• Bibliographic Essay: Forrest Mcdonald, a Founding Father's Library
• Bibliographic Essay: Murray N. Rothbard, Modern Historians Confront the American Revolution
• I: Paradigms of Freedom
• Conflicting Paradigms
• Paradigms As Procrustes' Bed
• Interest and Ambition
• Thesis and Antithesis
• Freedom and Authority
• Sin and Society
• Autonomy and Authority
• Virtue and Status
• Utility and Progress
• Diversity and Equality
• II: Nonspontaneous Order
• State Vs Society
• The Therapeutic State
• Order and Elites
• Order and Virtue
• Self-perfection
• Socialism and Freedom
• Market Socialism
• Centralism Vs Decentralism
• Voluntary Servitude
• Authority and Obedience
• Social Control
• Power and Ideology
• Hegemony
• III: Spontaneous Order
• Freedom and Knowledge
• The Case For Government
• The Case Against Government
• Community Vs. State
• State and Morality
• Freedom and Creativity
• Order Without State
• IV: Individual and Social Good
• The Right to Privacy
• Autonomy and Psychiatry
• Personal Choice
• Individuals, Groups, and States
• Social Dynamics
• Social Engineering
• Individuals and Groups
• Personal Vs. Social Goods
• Individual Rationality
• Self-interest and Social Good
• Self-interest Vs. Slavery
• Art and Autonomy
• Radical Individualism
• V: Ethics, Rights, and Freedom
• Objective Values
• Natural Law
• Preambles to Freedom
• Social Sciences and Values
• Reason and Change
• Reason and Choice
• Economics and Values
• Legal Naturalism
• Justice As Restitution
• Justice As Punishment
• Rights and Contract
• Virtue In the Market
• Justice Under Capitalism
• Profits and Choice
• Social Framework and Prosperity
• Ecology and Rights
• Business' Social Ethics
• VI: Equality
• Problems With Inequality
• Equality, Power, and Values
• Unequal Income
• Equal Opportunity
• Equal Liberty
• Equality of Condition
• The Egalitarian State
• Sexual Equality
• VII: Power
• Empire, Equality, and Envy
• Imperial Presidency
• Empire and Inflation
• Watergate As a Symptom of Empire
• The Pragmatic Presidency
• “absolute Power” and Corruption
• VIII: Planning Vs. Choice
• Origins of Planning
• Bureaucratic Growth
• Prediction and Control
• Government Planning
• Government Experts
• Useless Usury Laws
• Wartime Regulation
• Government Inflation
• Neomercantilism
• Compulsory Schooling
• Planning In Nonprofit Agencies
• Private Capital and Education
• Choice and Spontaneous Order

Neomercantilism

Johnson, Garry G.

“The Relevance of The Wealth of Nations to Contemporary Economic Policy.” Scottish Journal of Political Economy 23 (1976): 171–182.

A new synthesis of areas of economic policy, (e.g., commercial policy, public finance, and the general role of governmental intervention in economic life), which had been influenced by The Wealth of Nations now varies considerably from Adam Smith's classic. The synthesis comes both from the “theory of second best” (from which one invariably concludes that we need governmental intervention) and from “first best” considerations (once one assumes that “externalities” and “public goods” are all-pervasive). The shapers of the new synthesis adopt a philosophical rationale: the market is guilty until proven innocent; while government is never guilty, however criminally or irresponsibly particular governments may have behaved.

By design, much of the terminology and conceptualization in public finance justifies the extension of the role of government, e.g., “merit goods.” But once the state reaches the commanding dimensions which it does in some countries, the market, as a basis for valuing factors used by the government, ceases to have any real meaning. Thus the question of evaluating the efficiency of taxation and public expenditure, and of controlling their magnitude is beyond the bounds of Adam Smith's concept of public finance.

In the sphere of commercial policy, mercantilism has again emerged. It has two aspects. One—the naive—relates to the establishment of a favorable balance of trade. The other—sophisticated—forms the policy to develop an export surplus in “technologically sophisticated” products. We witness the contemporary tendency to replace the mercantilist fallacy (that wealth consists of gold and silver) with the neomercantilist fallacy (that it consists in the possession of high technology). This suggests one of the main reasons why the leading industrial countries have moved a long way toward freedom of trade in industrial but not in agricultural products. These countries recognize that trade interventions have become crude methods to influence resource allocation compared with more effective fiscal alternatives. Moreover, because of its “public goods” character, technological superiority holds the promise of monopoly gains. To maximize these gains requires the largest negotiable market area of ostensibly free competition.

Economists have remained backward in evaluating the evidence on the actual economic effects of governmental economic regulation. This is because (1) the economist of today, in contrast to Adam Smith, has a vested interest in the extension of power of the state—even if only as a convenient reference point for teaching his subject; (2) economists have come to prefer the methods of governmental decision making to those of the individual operating in a competitive market; (3) economists assume better educated (than in Smith's time) public servants upgrade the quality of governmental decision making.

From these considerations, Adam Smith's views against government intervention are not likely to command much of a hearing nowadays.