Financial Mercantilism and Developing Countries
University of Pavia
Please cite the paper as:
Gianni Vaggi, (2018), Financial Mercantilism and Developing Countries, World Economics Association (WEA) Conferences, No. 2 2018, The 2008 Economic Crisis Ten Years On, 15th October to 30th November, 2018
This paper has been included in the publication
“The 2008 Crisis Ten Years On: in Retrospect, Context and Prospect Paperback”
International financial markets are characterized by Financial Mercantilism, FM. There are many similarities between the operation of the seventeen century merchants and today financial intermediaries. Resorting to notions derived from history of economic ideas and in particular from Smith and Marx the paper identifies the features which characterize FM and which portray the role of finance in the present phase of the capitalist system. The paper describes the features of the mercantilist and of the financial reproduction cycle, where money, M, becomes more money, M’. The appropriation of this surplus is also discussed.
Some paradoxes of the present ‘savings glut’ and to the debate on ‘secular stagnation’ are also highlighted, these facts bring about serious doubts about the role of finance in stimulating economic growth. In particular FM is not the ideal setting to channel funds towards developing countries, which risk to repeat crises from the past..
The last to sections of the paper discusses the challenges facing developing countries when they need to resort to external funds to finance their development strategies and goals. Some indications on how to mitigate the possible negative impacts of Financial Mercantilism on financing for development are also discussed. In particular the paper contends that given the nature of today’s financial markets development finance should take place with separate tools and dedicated markets.