Economic theories

History is replete with all kinds of famous economic theories. No one economic theory is the “perfect one.” There are pros and cons to the popular economic theories of mercantilism, economic liberalism, Hamiltonian, and Listian theories. Certain types of economic theories are championed by nations during certain periods of their growth and certain types of economic theories are abandoned as well. The thing to keep in mind is that nations will adopt the economic theory that best suits their situation and circumstance.

Mercantilism had two goals. One of the goals of mercantilism was to pursue power and prestige for the nation. The other goal was to pursue prosperity and wealth. Mercantilism appealed to many monarchies that were trying to unify their nation’s economics. The historical inefficiencies of the decentralized feudal economic structure had to be overcome if the nation was to become a powerful state. The theory of mercantilism has two assumptions. The first assumption is that the economy is a zero-sum game. One can only gain wealth by taking it from someone or somewhere else. The second assumption is that the wealth of a nation is judged by the amount of gold that is in the national treasury.

The Hamiltonian economic theory also wanted to build the power of the nation. It had three core policies to it. The first was to grow the US’s own industry by discouraging imports of foreign manufactured goods. The discouragement was applied through the use of a high tariff. The second core policy was to improve the country’s transportation infrastructure by promoting government investments and incentives. The third policy was to establish a national bank in order to maintain the stability of a single currency.

Both mercantilism and Hamiltonian economic theory were anti-import leaning theories. They wanted to sell more domestically produced goods to the international market instead of spending national money on the purchase of imports. One important difference between the two theories is that mercantilism would naturally lead to domestic and international conflict in the pursuit of the finite supply. Hamiltonian theory differed in that it was seeking to protect the US’s fledgling manufacturing industry against foreign manufacturers. Hamilton wanted the nation to develop internally instead of seeking international economic conflict.

Economic liberalism theory aka laissez-faire has two assumptions. The number one assumption is that economic competition is not zero-sum. The second assumption is that the wealth of a nation is not measured by the amount of gold stored in its national treasury. The wealth of the nation is measured by everyone’s individual income which provides the taxable resource for the nation. That is why present day Germany is more than willing to take in all those refugees fleeing from the chaos in Syria/Iraq. The German government is looking at the future expansion of their taxable resource base with the humongous influx of refugees and the births of future generations of new German citizens. When comparing economic liberalism with mercantilism, there is a key difference. Mercantilism believed that the purpose of economic activity was to enhance state power. Economic liberalism believed that the purpose of economic activity was to serve individuals.

Friedrich List and his economic theory also stated that economic competition was a zero-sum game. Listian theory believed that a nation’s economic trade that benefitted the world was not necessarily beneficial to that nation. In other words, economics should not be based on altruism. A nation’s economy should be grounded on making that nation strong and robust therefore that nation must have a strategic economic plan in order to reach that goal.

The key takeaway from all these economic theories is that a nation will use whatever theory best suits their nation’s need and situation. The goal is to first secure the nation’s economic survival and stability. Often times a new nation will embrace a theory such as mercantilism, Hamiltonian, or Listian. This is smart on the nation’s part because the protectionist type of policy will allow the nation to build up its own industries and exploit its own natural resources without foreign competition. If the methods to do it are considered to be dirty or unfair by the international community, then so be it. Strategic interests are what matters to that nation and economics is an element of national power. Once that domestic fiscal security is firmly established, then the nation will be able to leverage their favorable economic position and change their economic policy to one that is centered on economic liberalism. This change in economic policy may be touted to the world as being altruistic and good for the international community, but the end game is still to build that nation’s economic power at the expense of the other nations in the world. Money trumps everything. A nation will use the appropriate ends, ways, and means to achieve their goal of economic power. Just as Carl von Clausewitz said that “war is a continuation of policy by other means”, I believe that the timely adoption of a certain type of economic theory by a nation can be considered as economic warfare. Economic warfare is just continuation of policy in order to compel other nations to do our will.

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