Mercantilism: Six centuries of vilifying the poor

by David Spencer, originally posted here

As far as routes to national economic prosperity are concerned the idea that the majority in society must suffer real hardship to achieve such prosperity would seem harsh and unjust. But that is the way that some policy debate in Britain and elsewhere has come to be framed. The idea that the poor must be subject to direct hardship to get them to work and to contribute to wealth creation underlies much welfare reform policy. And the idea that lower wages for the majority will help reduce the budget deficit as well as improve national competitiveness is part of some macroeconomic policy discourse.
Here I want to trace the historical origins of the idea that the poor must remain poor for the nation to grow rich by considering the contribution of mercantilism that dominated economic debates between the 16th and mid-18th centuries. Mercantilism was recently covered in an Economist article though without attention to its darker side in terms of its support for poverty as a basis for a wealthy economy. I want to remedy that neglect here. As I will show below, mercantilism set the basis for the vilification of the “lazy and undeserving poor” that still finds favour today (my more detailed thoughts on mercantilist labour doctrine can be found here). I want to show how such vilification is built on a crude mythology and has no basis in reality. Its persistence 600 years on from the beginning of mercantilism remains a barrier to the formulation of better policy and the creation of a better society.
Mercantilism states that a country will grow richer by increasing its net exports. To achieve this goal, the original mercantilist writers recommended that wages be kept at the subsistence level, not just to minimise the direct cost of labour, but also to maximise the pressure on workers to work. They believed that workers were lazy and had to be coerced to work. Daniel Defoe wrote scathingly in 1704 about the “taint of slothfulness” that was possessed by the labouring class in England, a viewpoint shared by other mercantilist writers. It was observed that as wages increased above the subsistence level workers tended to reduce their work hours and to lower their productivity. This was used by the mercantilists to argue for the maintenance of wages at the subsistence level. Subsistence wages not only helped to make the workforce more productive but also helped to maintain peace and order in society. Thomas Mun’s view, written in 1664, that “penury and want do make a people wise and industrious” summed up the prevailing attitude of his day.
Those who echo mercantilists today may not be quite so shameless in their use of language but the essence of their argument remains the same anti-worker prejudice that is nakedly revealed in earlier mercantilist doctrine.
The original mercantilists were advocates of the “utility of poverty” thesis. They believed that there was a positive side to poverty and that the State should create and maintain poverty as a way to increase the volume of exportable output. Workers were to accept enforced poverty as a necessary foundation for national prosperity. The nation needed a diligent and hard-working workforce but the nation had no duty to pay workers well – on the contrary it was the duty of workers to accept subsistence wages for the sake of the nation.
These views on poverty betrayed the prejudices and lack of sympathy of mercantilist writers.  They failed to see how workers’ resistance to work (to the extent that it existed) was linked to the arduousness of work, rather than to any innate character defects in workers themselves.  They also missed how workers were unused to a regular pattern of work; forcing workers to work longer hours on a consistent basis went against the traditional pattern of irregular working. Workers resisted work again not out of natural laziness, but out of concern to cling on to older, established patterns of working (see E.P. Thompson, 1967).  The mercantilists represented the views of a privileged minority in society and their views distracted attention from the real hardships faced by workers in their lives.
Echoes of mercantilist thinking can be observed in two areas of modern debate.  The first is in the area of welfare reform. There is a persistent stigmatising of those on benefits who are seen as “scroungers” living a good life at the expense of tax payers. This mythology fuels a hatred of welfare claimants.  Yet, it fails to get to the heart of the life situation of those on benefits which involves genuine struggle and adversity.  Looking for work on benefits is hard work and time consuming – it is no paradise state.  The myth of the “lazy poor” also distracts from the structural causes of poverty and worklessness and justifies draconian policies that only lead to demoralisation and despair among the poor.
There is also the related argument that higher budget deficits have been caused by excessive welfare spending.  Tougher times for the poor via reduced benefits are then seen as key to paying down deficits and getting the unemployed back to work.  Apparently, a return to growth requires austerity for the masses.  The austerity agenda, however, detracts from the actual causes of the crisis and the associated rise in budget deficits – in particular, the financialisation of the economy that ironically has been associated with the rising income of the very rich. If any group in society should shoulder the burden of responsibility for the crisis and its resolution, it is the reckless rich not the downtrodden poor.
The second area where mercantilist doctrine resonates is in the area of foreign trade.  At present, the archetypal mercantilist state is Germany.  It has relied on a policy of low wages to increase exports at the expense of other trading nations and the trading surplus that Germany has enjoyed has allowed it to sustain economic growth when other economies have suffered periods of negative or zero growth.  Note here that German “success” has been built on the rise of low-paid work.  In a modern-day version of mercantilist labour doctrine, workers have been asked to sacrifice income in order to grow the German economy.  But Germany now has an unbalanced economy with restrained domestic consumption.  Rebalancing towards domestic consumption by the raising of wages has been viewed by critics as vital if Germany is to achieve sustainable growth.  But that goes against the spirit of mercantilism as applied in Germany where the achievement and maintenance of low wages has been used to secure a growing economy.  Changing economy policy in Germany requires the adoption of a new perspective that does not see low wages as a prerequisite for growth.
Six centuries on from mercantilism, depressingly, we still observe in the media and in politics the routine condemning of the alleged laziness of the poor.  We also observe a lack of concern about and acceptance of low wages as a way to restore and increase economic growth.  The harsh and unsympathetic attitude towards the poor is not just inhuman but also constitutive of bad economic policy. It is about time we learned different lessons from history.

David Spencer is Professor of Economics and Political Economy, Leeds University Business School, University of Leeds. His research interests lie in the area of political economy with a particular focus on the economics and political economy of work.


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Sep 14, 2017 12:47 AM

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Mar 14, 2016 12:53 PM

“Six centuries on from mercantilism, depressingly, we still observe in the media and in politics the routine condemning of the alleged laziness of the poor. We also observe a lack of concern about and acceptance of low wages as a way to restore and increase economic growth. ” Are you labeling the way that the current capitalist system works in Britain, Mercantilism? It would be interesting to see your rationale for doing so. There is no doubt that the doctrine that the poor only work for fear of starvation is one repeated by “mercantlilist’ economists. But it is hardly original: versions of the same dismal doctrine are to be found in classical times and are current in what I should say is the modern post mercantilist economy. The doctrine is central to systems of expropriation and exploitation: the work referred to is not work per se but work for those… Read more »

Mar 14, 2016 12:56 PM
Reply to  bevin

” And not, as is often argued, because those engaged in them could not be exploited easily enough, but because commodity production, monocultures and proletarianisation are all essential to the programme of reducing a population to the level of impotence required to facilitate their systematic exploitation.”
I should add after ‘systematic exploitation’ ‘without the necessity of constantly employing force.’

Mar 14, 2016 1:33 PM
Reply to  bevin

What’s your definition of a Slave ?
Is it a person who works & the reward is funds to cover shelter, food, basic level of health & movement sufficient to be able to work?
A large proportion of the 99% live in such a way!
Today close to 70% of all Americans have less than a weeks wages as their total cash assets! In 2013 the Fed published figures of 60% with less than $400 available beyond which they would have to sell or steal something to raise more!
See http://www.federalreserve.gov/econresdata/2013-report-economic-well-being-us-households-201407.pdf

Mar 14, 2016 11:17 AM

Reblogged this on wgrovedotnet.

Mar 14, 2016 5:45 AM

“Mercantilism states that a country will grow richer by increasing its net exports.”
Standard neoliberal cant.
These people see an economy like a business or a household because they don’t understand macroeconomic sectoral balance accounting and they don’t understand endogenous money creation. They live in a world that doesn’t exist.
What exports do is send useful real goods and services out of the country for foreign electronic ones and zeroes in bank accounts that can only be spent in the foreign currency zone.
Chasing fiscal balances or surpluses in a country with a trade deficit is a fool’s errand and will cause either or both of excessive private sector debt and recession.
Deficits are the normal course of events in a modern economy, unless you’re Norway or Germany who have massive current account surpluses.

Mar 14, 2016 5:44 AM

In one area, UK mercantilism has been failing for decades – and that is in terms of the UK Balance of Payments. Britain has failed to achieve balance between the values of imports and exports for at least 30 years. I don’t know if the “new” economic mindset in Britain is now being wedded to antiquated mercantilist nostrums. If it is, then these “new” economists have clearly taken leave of their senses. The historic role of working people now includes them acting as demanders and consumers of goods and services. If they lack the effective ability to monetize their demands due to too low incomes, how can the economy work? Sir Francis Bacon, an early economist in the Tudor era, once said “Money is like muck, not good except it be spread.” Bacon was absolutely right, which is why concentrating all money in the hands of the 0.1 per cent… Read more »

Mar 14, 2016 5:37 AM

Reblogged this on Siem Reap Mirror.

Paul Wyatt
Paul Wyatt
Mar 13, 2016 11:32 PM

An excellent article. May we soon see your discussion on the effects of raising wages?