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A NEW WORLD ORDER: ECONOMIC LIBERALISM OR THE NEW

MERCANTILISM?

By RICHARD M. EBELING

In the days immediately following the Iraqi invasion of Kuwait
in August 1990, the Bush Administration declared that a vital
interest of the United States was at stake--American economic
well-being was threatened by Iraqi control of the Kuwaiti oil
fields. However, when a growing number of economists pointed
out that the U.S. economy had the capacity to adjust in a
reasonable amount of time to any rise in the price of oil--or
to a disruption in its supply from the Persian Gulf--the Bush
Administration began shifting its rationale for American
intervention.

The argument was next made that what was actually at stake was
the freedom of the Kuwaiti people. A number of political
analysts, however, pointed out that while Saddam Hussein's
regime in Iraq was undoubtedly a brutal dictatorship, Kuwait
had not exactly been an example of a free, democratic society.
In fact, the royal family of Kuwait had closed the Parliament
a few years earlier and had also imposed various restrictions
on freedom of speech and the press.

The Bush Administration again changed the rationale for
American military intervention. It was now claimed that what
was at stake was the inviolability of international borders
and the continued existence of nation-states. A number of
Middle East experts pointed out, however, that these
supposedly "inviolable" borders and nation-states were
themselves the creations of Britain and France when they
carved up the Turkish Empire at the end of World War I.  The
existing boundaries and the legitimacy of the Persian Gulf
states are no less "artificial" than making Kuwait "Province
19" of Iraq.

The Bush Administration finally argued that what was at stake
was the establishment of a "new world order." World peace and
stability could never be secure as long as dictators had the
license to conquer and plunder their neighbors by force of
arms. With the end of the Cold War, it was now necessary to
bring to fruition the noble dreams of Woodrow Wilson and
Franklin D. Roosevelt which called for a consort of nations to
police and guarantee world order for the mutual benefit of
all.

Few people have asked, however, what the ultimate foundations
for any durable world order are. And to ask this question is,
at the same time, to ask: What are the causes of conflict and
war--the causes of world disorder?

In the 18th century, the reigning economic philosophy among
nations was mercantilism. The fundamental premise underlying
mercantilism was expressed by Voltaire in 1764: "It is clear
that a country cannot gain unless another loses and it cannot
prevail without making others miserable." The policy
implications of this societal philosophy were trade wars and
territorial conquests. If your own nation was to be wealthy,
it could only be so by making others poorer. Tariff walls were
needed to protect the prosperity of domestic producers from
the "attacks" of foreign competitors. Subsidies were required
for export producers so that they could "seize" the wealth of
others in foreign markets. Resources in foreign lands had to
be militarily "captured" to keep them out of the hands of
commercial rivals in opposing nation-states who would use them
to defeat "our" nation-state.

Economic activity in every nation was entirely politicized.
Private interests had to be subordinated to the ends of the
state in this global war of all against all.

But in the 19th century, the liberal ideal replaced
mercantilism. The liberal philosophers and economists
explained that trade among nations, like trade among
individuals, was mutually beneficial. All men would gain
through participation in a global division of labor--a way of
life in which they offered to each other the various products
in the production of which they specialized. Market
competition was not conflict, they argued, but rather peaceful
cooperation: each producer helped to improve the quality of
life for all through the production and sale of superior and
less expensive products than the ones offered by his market
rivals.

The liberal ideal required minimizing the role of the state in
economic affairs. The German economist Wilhelm Ropke once
concisely explained that the "genuinely liberal principle"
required "the widest possible separation of the two spheres of
government and economy. . . . This means the largest possible
`depolitisation' of the economic sphere with everything that
goes with it. . . . By aid of this principle of separation, it
was possible to reduce to a minimum the economic coexistence
of sovereign states with their different legal orders, their
frontiers, their systems of administration and separate
citizenships. . . . The result was that it was now possible to
remove the greatest part of the economic issues of conflict
and problems to which the coexistence of sovereign States is
liable to give rise."

Competition and rivalry, the "capturing" of consumer business
and the "conquest" of market share were now private matters of
peaceful exchange and contract. They were no longer affairs of
state--no longer political issues concerning obedience,
command and control.

The privatization of economic life, with government limited to
the protection of life and property and the adjudication of
contractual disputes, was the foundation of this "new world
order" in the predominantly liberal era between the end of the
Napoleonic wars in 1815 and the beginning of the First World
War in 1914. And what did it produce? A century of the
greatest freedom, prosperity and peace that man has ever
known.

In the 20th century, however, we have unfortunately returned
to the mercantilist ideal. Trade and commercial rivalry are
once again seen as the battleground of political combat.
Iraq's motive in invading Kuwait merely took the principle to
its logical conclusion: a nation destroys its economic rival
by seizing its resources (Kuwait's oil fields) and attempts to
enrich itself by plundering its accumulated wealth (Kuwait's
gold and physical assets).

But the United States and its Desert Storm allies in principle
conduct their international economic affairs no differently
than has Saddam Hussein. If some of America's Asian trading
partners "capture" a large share of the American consumer
market, the government responds with a tariff-wall "defense."
If American agriculture cannot earn the profits it considers
"fair," the U.S. government takes the "offensive" by
"attacking" other lands through export price-subsidies. If
other nations will not comply with the wishes of the
Washington social engineers in some international dispute, the
American government influences and persuades them with
government-to-government financial loans, grants and
subsidized credits--all at American taxpayers' expense, of
course.

Nor has the United States government any qualms about military
adventures to secure its economic goals when circumstances
seem to warrant it. When it becomes politically profitable for
the politicians in Washington to oppose the importation of
narcotics into the United States, then American military
forces invade one of the countries--Panama--that is accused of
dealing in the forbidden trade. Or if the occupation of Kuwait
by Iraq might negatively influence the availability and price
of a valued import such as oil, then a military crusade is
launched to guarantee "our" supply of oil. And in the process,
we purchase some allies--Egypt--by "forgiving" tens of
billions of dollars in government loans; and we also punish
others who won't go along with us--Jordan--by withholding
government aid and loans.

In a world of politicized trade and commerce, conflicts among
nations are inevitable, because the economic profits and
losses of private individuals and industries are raised to the
level of affairs of state. And, as a consequence, the problems
and interests of private suppliers and demanders are turned
into issues of national concern and supposed survival. This is
the source of much of our global disorder as well as one of
the fundamental barriers to a truly peaceful "new world
order."

In 1936, the Swiss economist and political scientist William
Rappard delivered a lecture entitled, "The Common Menace of
Economic and Military Armaments." World order, he said, was
threatened not only by military aggression but by economic
warfare as well. The weapons for economic warfare were
"economic armaments"--meaning all of the legislative and
administrative devices governments use to politically
influence imports and exports as well as the allocation of
commodities and their prices within one's own country and in
other parts of the world.

"The primary source of economic and military armaments,"
Rappard said, "we perceive in the doctrine of political
nationalism. Political nationalism is the creed which places
the national State at the top of the scale of human values,
not only above the individual, but above mankind itself."

Rappard argued that a new world order of peace and prosperity
would only be possible when nations undertook a policy of
economic disarmament. But this would only come about when the
creed of political nationalism and mercantilism was again
superseded by the ideals of economic liberalism. And, alas, we
still seem as far away from that transformation as when
William Rappard delivered his lecture more than half a century
ago.

Professor Ebeling is the Ludwig von Mises Professor of
Economics at Hillsdale College, Hillsdale, Michigan, and also
serves as vice-president of academic affairs for The Future of
Freedom Foundation.


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From the July 1991 issue of FREEDOM DAILY,
Copyright (c) 1991, The Future of Freedom Foundation,
PO Box 9752, Denver, Colorado 80209, 303-777-3588.
Permission granted to reprint; please give appropriate credit
and send one copy of reprinted material to the Foundation.