Why have Mercantilist fallacies survived for so long?

Question

Despite the best efforts of Adam Smith and the rest of Classical economics, Mercantilism, governmental interference in the economy for the benefit of specific parties at the expense of others, was not relegated to the history books during the 19th century. Instead, Neo-Mercantilists emerged in the late 19th and early 20th centuries, such as "Neo-Classical" and Keynesian economics. After the Federal Reserve, itself a Mercantilist program, caused the Great Depression by inflating the money supply, the Neo-Mercantilists successfully blamed laissez-faire for the Depression even though their economic fallacies were responsible. So, we have seen an unrestricted expansion of Mercantilism for the last 7 or 8 decades with no end in sight.

Why have the discredited fallacies called Mercantilism that were debunked by Classical and Austrian economists survived to this day? Why haven't they disappeared into the history books yet?

Answer 1

I don't think you can say Mercantilism dominates today's government policies and practices - in the U.S. anyway. But as with nearly all economic theories, some parts survive in some form.

Some of the main government goals of Mercantilism are
- positive trade balance
- positive foreign reserves.

Compare that to the U.S. today:
- Huge Trade deficit
- Huge government deficit with most debt being held by the chinese and japan.

The Bush adminstration has said that "Deficits don't matter", a clear repudiation of Mercantilist fundamentals.

Where are you seeing unrestricted expansion of Mercantilism?

Answer 2

Because the world is very complicated and the standard free market theories don't describe reality well enough to be convincing on their own. Using an analogy with physics, classical economics is like Newtonian mechanics. People would not be convinced that Newton was correct if there were not also a theory of air resistance and friction to compliment it. Anyone can observe that things in motion slow down. Economics has not yet developed a consensus of what additions are needed to the Classical theory to explain why our observations often deviate from the theory so they often find themselves trying to convince people that feathers fall at he same rate as steel balls. To wipe out the fallacies of the past more work is needed to find the causes for the deviation of the classical theory from reality. That is what Macro theories are trying to do.