From: Crux Ansata
To: kil <kilgore@eden.com>
Subject: SoB letter
Dear Editor,
A couple of problems with my last essay, the one on monetarism in State of unBeing 49, have been brought to my attention. I would like to take this opportunity to clarify or correct these. I would also like to invite anyone knowing better than I on these topics to write in to State of unBeing; I for one would be interested to learn more about economics.
The first concern is a bit of an historical detail. I referred to Adam Smith's mercantilism. (I thank Anygirl for pointing out this would not go over well among most economists.) As I understand mercantilism, this was an early form of capitalism in which the wealth of the nation was considered to be most important. Tariffs were encouraged, and the world was seen as a competition where each nation could benefit only at the expense of other nations.
In the textbooks, I understand Adam Smith is not considered a mercantilist. Even though he lived and worked at the historical time I would consider mercantilist, his work is generally seen as opposing mercantilism, and opening the way for the classical economics of Ricardo and Say. Personally, I don't see Adam Smith as being in the same economic camp as Ricardo and Say. Adam Smith, for example, in theory supported tariffs under certain circumstances, these being his famous "exceptions" (when an industry is necessary for national defense; to balance out tax burdens on foreign and domestic production; in retaliation to high duties by other nations; and to force open other nations' markets). In practice, he has been associated with even such tariff policy as the Townshend Acts. (Smith was tutor to Townshend's stepson, and is said to have advised Townshend on the acts.)
The emphasis on tariffs is not coincidental; my main concern with the effects monetarism has is the way it lends itself to free trade. There are other tenets to mercantilism I don't know as well, and these may be ones Adam Smith did not share. On the other hand, the neo-classical economists of the present day appear to misuse Adam Smith to support their policies; I rather suspect the classical economists may have done so as well. Adam Smith was such a pivotal figure he really cannot be fit into an easy compartment; his works and his influence are difficult to pin down; at least for me. So, all I can say is Adam Smith worked in a mercantilist milieu, but I do not call his thought mercantilist.
A concern that is a bit more of an oversight -- and I thank I Wish My Name Were Nathan for pointing it out -- is that I neglected to define monetarism. I am no economist, and so am unable to define it definitively. That is no excuse, however, and so I make an attempt.
Strictly, monetarism is a field of economics, the study of money theory. It is also a macroeconomic theory. Milton Friedman is the economist most associated with this theory. In the broader political field, the principles of monetarism played a very profound role in the policies of the western nations, especially in the 'eighties and 'nineties; in that sense, I called non-economists such as Reagan and Thatcher monetarists.
Monetarism holds that most or all economic effects can be manipulated by the change in the supply of money; not only inflation, but incomes, supplies and demands, and so on. It seems to me that monetarism achieves this effect by separating out what it considers economic effects -- being those manipulated by the money supply -- from the rest of the effects. Those would be the externalities. This is, of course, an oversimplification, but hopefully enough to see what I meant by the term -- used sloppily to refer to both the strict and broad senses -- in my article. Milton Friedman's books are still in print; I encourage anyone with more questions to look them up.
Thanks,
Crux Ansata