Daniel Defoe’s fictional hero, Robinson Crusoe, is often used by economics teachers as the pure example of ‘rational economic man’, the hero of neo-liberal free-market economics.The kind of economics that underpins Defoe’s Plan is exactly the opposite of Robinson Crusoe economics. In A Plan, Defoe clearly shows that it was not the free market but government protection and subsidies that developed British woollen manufacturing. Defying signals from the market that his country was an efficient raw wool producer and should remain so,
Henry VII introduced policies that deliberately distorted such unwelcome notions. By doing so, he started the process that eventually transformed Britain into a leading manufacturing nation. Economic development requires people like Henry VII, who build a new future, rather than people like Robinson Crusoe, who live for today. Thus, in addition to his double life as a spy, Defoe also led a double life as an economist—without realizing it, he created the central character in free market economics in his fictional work, yet his own economic analysis clearly illustrated the limits of free market and free trade.
Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism
ReplyDeleteby Ha-Joon Chang
CHAPTER 2
The double life of Daniel Defoe
How did the rich countries become rich?
Daniel Defoe, the author of Robinson Crusoe, had a colourful life. Before writing novels, he was a businessman, importing woollen goods, hosiery, wine and tobacco. He also worked in the government in the royal lotteries and in the Glass Duty Office that collected the notorious ‘window tax’, a property tax levied according to the number of a house’s windows. He was also an influential author of political pamphlets and led a double life as a government spy. First he spied for Robert Harley, the Tory speaker of the House of Commons. Later, he complicated his life even further by spying for the Whig government of Robert Walpole, Harley’s political arch-enemy.
ReplyDeleteAs if being a businessman, novelist, tax collector, political commentator and spy wasn’t providing sufficient stimulus, Defoe was also an economist. This aspect of his life is even less well known than his spying. Unlike his novels, which include Robinson Crusoe andMoll Flanders, Defoe’s main economic work, A Plan of the English Commerce (1728), is almost forgotten now. The popular biography of Defoe by RichardWest does not mention the book at all, while the award-winning biography by Paula Backscheider mentions it largely in relation to marginal subjects, such as Defoe’s view on native Americans. However, the book was a thorough and insightful account of Tudor industrial policy (under England’s Tudor monarchs) that has much to teach us today.
In the book (henceforth A Plan), Defoe describes how the Tudor monarchs, especially Henry V I I and Elizabeth I, used protectionism, subsidies, distribution of monopoly rights, government-sponsored industrial espionage and other means of government intervention to develop England’s woollenmanufacturing industry—Europe’s high-tech industry at the time. Until Tudor times, Britain had been a relatively backward economy, relying on exports of raw wool to finance imports. The woollen manufacturing industry was centred in the Low Countries (today Belgium and the Netherlands), especially the cities of Bruges, Ghent and Ypres in Flanders. Britain exported its raw wool and made a reasonable profit. But those foreigners who knew how to convert the wool into clothes were generating much greater profits. It is a law of competition that people who can do difficult things which others cannot will earn more profit. This is the situation that Henry V I I wanted to change in the late 15th century. According to Defoe, Henry V I I sent royal missions to identify locations suited to woollen manufacturing. Like Edward III before him, he poached skilled workers from the Low Countries. He also increased the tax on the export of raw wool, and even temporarily banned its export, in order to encourage further processing of the raw material at home. In 1489, he also banned the export of unfinished cloth, save for coarse pieces below a certain market value, in order to promote further processing at home. His son, Henry V I I I , continued the policy and banned the export of unfinished cloth in 1512, 1513 and 1536.
As Defoe emphasizes, Henry V I I did not have any illusions as to how quickly the English producers could catch up with their sophisticated competitors in the Low Countries. The King raised export duties on raw wool only when the English industry was established enough to handle the volume of wool to be processed. Henry then quickly withdrew his ban on raw wool exports when it became clear that Britain simply did not have the capacity to process all the raw wool it produced. Indeed, according to A Plan, it was not until 1578, in the middle of Elizabeth I’s reign (1558–1603)—nearly 100 years after Henry V I I had started his ‘import substitution industrialization’ policy in 1489—that Britain had sufficient processing capacity to ban raw wool exports totally. Once in place, however, the export ban drove the competing manufacturers in the Low Countries, who were now deprived of their raw materials, to ruin.
Without the policies put in place by Henry V I I and further pursued by his successors, it would have been very difficult, if not impossible, for Britain to have transformed itself from a raw-material exporter into the European centre of the then high-tech industry. Wool manufacture became Britain’s most important export industry. It provided most of the export earnings to finance the massive import of raw materials and food that fed the Industrial Revolution. A Plan shatters the foundation myth of capitalism that Britain succeeded because it figured out the true path to prosperity before other countries—free market and free trade.
ReplyDeleteDaniel Defoe’s fictional hero, Robinson Crusoe, is often used by economics teachers as the pure example of ‘rational economic man’, the hero of neo-liberal free-market economics. They claim that, even though he lives alone, Crusoe has to make ‘economic’ decisions all the time. He has to decide how much to work in order to satisfy his desire for material consumption and leisure. Being a rational man, he puts in precisely the minimum amount of work to achieve the goal. Suppose Crusoe then discovers another man living alone on a nearby island. How should they trade with each other? The free-market theory says that introducing a market (exchange) does not fundamentally alter the nature of Crusoe’s situation. Life goes on much as before, with the additional consideration that he now needs to establish the rate of exchange between his product and his neighbour’s. Being a rational man, he will continue to make the right decisions. According to free-market economics, it is precisely because we are like Crusoe that free markets work. We know exactly what we want and how best to achieve it. Consequently, leaving people to do what they desire and know to be good for themselves is the best way to run the economy. Government just gets in the way.
The kind of economics that underpins Defoe’s Plan is exactly the opposite of Robinson Crusoe economics. In A Plan, Defoe clearly shows that it was not the free market but government protection and subsidies that developed British woollen manufacturing. Defying signals fromthe market that his country was an efficient rawwool producer and should remain so, Henry V I I introduced policies that deliberately distorted such unwelcome notions. By doing so, he started the process that eventually transformed Britain into a leading manufacturing nation. Economic development requires people like Henry V I I, who build a new future, rather than people like Robinson Crusoe, who live for today. Thus, in addition to his double life as a spy, Defoe also led a double life as an economist—without realizing it, he created the central character in free market economics in his fictional work, yet his own economic analysis clearly illustrated the limits of free market and free trade.
Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism
ReplyDeleteby Ha-Joon Chang
http://analepsis.files.wordpress.com/2011/08/ha-joon-chang-bad-samaritans.pdf