David SpencerThe original mercantilists were advocates of the “utility of poverty” thesis, believing 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. David Spencer argues that echoes of mercantilist thinking can be seen today. There is a persistent stigmatising of those on benefits who are seen as “scroungers” living a good life at the expense of tax payers, and an acceptance of low wages as a way to restore and increase economic growth.

The rise and persistence of low paid work in Britain, as reported on this blog, suggests that growth need not necessarily bring higher living standards. More controversially is the suggestion that growth may depend on lower living standards. That is, poverty may be necessary to grow the economy.

The idea that hardship has a role to play in getting the poor to work and to contribute to wealth creation underlies some 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 debates.

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 six centuries 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 seen 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.

A version of this article was originally published on Pieria.

Note:  This article gives the views of the author, and not the position of the British Politics and Policy blog, nor of the London School of Economics. Please read our comments policy before posting. 

About the Author

David Spencer is Professor of Economics and Political Economy at the Leeds University Business School.

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