Though Louis XIV’s most capable minister died 422 years ago, Jean-Baptiste Colbert’s spirit lives on. Under Colbert’s direction, the economic system known as mercantilism reached its high point.
Other nations admire Colbert’s policies, but history demonstrated that mercantilism was a dead end. Though unjust and economically inefficient, it remains seductive to many. Consider:
In Rio de Janeiro, a legislator recently introduced a bill requiring that shopping mall parking be free for anyone purchasing above a certain amount.
In the Minnesota Legislature, Sen. Wes Skoglund, DFL-Minneapolis, introduced a bill prohibiting expiration dates on gift certificates and requiring that all such certificates be redeemable for cash.
Also in the Legislature, a consultant reported that Minnesota consumers pay about $400 million per year more for beer, wine and liquor than they would if alcohol distributors did not enjoy state-created quasi-monopoly power. Thus, Minnesotans pay about 18 percent more for alcohol than their Wisconsin neighbors.
All these demonstrate that mercantilism is alive and kicking. The system emphasized petty regulation of commerce.
Heavy blue cloth could only be produced in the town of Nimes, for example. Hence the fabric in our blue jeans is still “denim” from “de Nimes.” Only certain families could sell salt. Elaborate requirements had to be met before one could build cabinets.
In a half-century, more than 15,000 French citizens were executed for violating such regulations, and thousands more were flogged or sent to the galleys.
Laws requiring free parking or banning expiration dates on gift certificates make the same erroneous assumption that government must micromanage most economic interactions.
Economies that let individual households and firms accept or not accept the terms of most business transactions are not only wealthier, but also more just.
Not all regulation is bad. Requiring lenders to disclose true interest rates corrects a problem of asymmetric information. Regulating utility rates corrects for imbalances of market power.
But there clearly is no market failure in minor parking fees or gift-certificate expiration dates that would justify government regulation. People can park elsewhere and they can give cash if they don’t like the terms.
Neo-mercantilists fail to see the costs of government as our nanny. Brazil is not poor despite much well-intentioned government regulation — it is poor precisely because of such regulation.
The Minnesota economy will not grind to a halt if government requires that all gift certificates be redeemable in cash. But we will be worse off as a result, just as we are because government-fostered oligopoly in liquor distribution raises prices.
Mercantilist impulses remain beloved of baby boomers, but are increasingly scoffed at by younger generations. If Democrats wonder why they are losing Generation X, this is one place to look.
© 2005 Edward Lotterman
Chanarambie Consulting, Inc.