Chapter CXXIX: Section I: The Mercantile System

The principal peculiarities of the so-called mercantile system depend on a five-fold over-estimation: of the density of population, of the quantity of money, of foreign commerce, of the industries concerned with the transformation of materials (_Verarbeitungsgewerbe_), and of the guardianship of the state over private industry.[A2-1-1] All these tendencies are very intelligible, and almost self-evident, in a sovereign city-economy (_Stadtwirthschaft_) as opposed to the governed and worked-out (_ausgebeuteten_) country districts; as they are found even in the city-republics of later medieval times. But they are also natural in whole national economies, during that period of youthful and rapid growth in which the increasing density of population continues still, for a long time, to be really only a spur and an assistance, and in which, therefore, there can be no expression of anxiety concerning over-population; in which the new and rapidly growing division of labor draws attention particularly to the market-side of all businesses and to the circulation of goods; in which the progress from trade by barter to trade by money necessarily makes the volume of money needed even relatively greater; but especially are they natural in that world-period in which foreign trade suddenly increased enormously in consequence of the discovery of the whole earth; when the citizen classes of the people assumed immense importance as compared with the landed and clerical aristocracy, and when, in the internal affairs of state absolute monarchy, and in foreign politics, the system of equilibrium, through the instrumentality of the great compact-formation of states prevailed.

All these tendencies are most intimately connected with one another. If precious metal-money be really the essence of national wealth,[A2-1-2] a people who possess no gold and silver mines themselves;[A2-1-3] for instance, Italy, France and England, can become richer only through foreign trade,[A2-1-4] by means of a favorable balance produced by a preponderance of their exports over their imports; and only inasmuch as this excess is balanced by a payment in money from foreign parts. And so, too, in foreign trade, one nation can gain only what another nation has lost.[A2-1-5] Gain is promoted not only by direct obstacles placed in the way of the exportation of the precious metals, but still more by the value-enhancement of the exported commodities, and by the value-diminution of the imported commodities.[A2-1-6] And as commodities which have undergone the process of transformation are, on an average, more valuable than raw materials, the state can best carry out this policy by import duties, import prohibitions, and export premiums on manufactured articles, as well as by export duties, export prohibitions and import premiums on raw materials.[A2-1-7] This is extremely necessary against those nations who are superior to others in culture, wealth, the cheapness of labor and capital; and hence the envy of the mercantilists was directed chiefly against Holland, and after Colbert's time also against France.[A2-1-8] Such commodities as are not at all adapted to the nature of a country, because of its climate, for instance, the nation should produce at least in colonies of its own, that it might, in this way, emancipate itself from foreign countries.[A2-1-9] As the clear distinction drawn to-day between money and capital has asserted itself only since Hume's time, the notion that prevailed for centuries, that much money, much trade and a large population mutually conditioned one another, was a very natural one.[A2-1-10]

The younger and more refined conception of the mercantile system is distinguished from the coarse Midas-believing one, by two tendencies especially:

A. By the more thorough consideration of the balance of trade and the consequent limitation of the traditional supposition, that the excess of exports over imports would be always made up in cash money.[A2-1-11]

B. By the extension of the field of view, so that not only the direct but also the indirect and more remote effects of international trade were taken into consideration.[A2-1-12]

A certain over-estimation of the circulation of goods continued to characterize even the latest adherents of the mercantile system.[A2-1-13] Yet the caricature drawn by the tradition of more recent text-books, of the mercantilists, is true only of the inferior ones among them.[A2-1-14] The most distinguished of them, Botero,[A2-1-15] for instance, approximate more closely to the science of the present day than is usually supposed.

[Footnote A2-1-1: Compare _Roscher_, Geschichte der
Nationalökonomik in Deutschland, I, 228 ff.]

[Footnote A2-1-2: Even the remarkable Florentine pamphlet of
1454 (_Jablonowski's_ prize essay of 1878, app. Beilage, 4)
complains of the decrease of industry principally on account
of the diminution of money caused thereby. "Wealth is
money," says _Ernestine_, essay of 1530, on the coin, and
explains the smaller wealth of the silver-country, Saxony,
as compared with England, France, Burgundy and Lombardy, by
the greater exportation of commodities of these countries,
by means of which they draw the silver of Saxony to
themselves. (_Roscher_, Geschichte, I, 103.) _Bornitz_,
Theorie wie sich der Staat diesen _nervus rerum_ in grösster
Menge verschafft: De Nummis (1608), II, 4, 6, 8. _A. Serra_,
Sulle Cause, che possono far abbondare un Regno di Monete
(1613), places excess of gold and silver and poverty as
diametrical opposites, at the head of his work. _Hörnigk_,
Oesterreich über Alles, wann es nur will (1684), says that
it is "better to give two dollars which remain in the
country for a commodity, than only one dollar which goes out
of the country" (ch. 9). According to _Schröder_, Fürstliche
Schatz- und Rentkammer (1686), the export of commodities is
a blessing only "when we can turn them into silver through
our neighbors." (LXX, 12.) Even _Locke_ held similar views
(Considerations of the Consequences of the Lowering of
Interest, 1691. Further Considerations concerning Raising
the Value of Money, 1698). On _Davenant's_ inconsistency in
this respect, compare _Roscher_, Geschichte der Englischen
Volkswirthschaftslehre, 110 ff. The quantity of money
remaining the same, a country grows neither richer nor
poorer (Christ. Wolff, Vernünftige Gedanken vom
gesellschaftlichen Leben, 1721, § 476). _J. Gee_, Trade and
Navigation of Great Britain considered (1730), bewails the
folly of those to whom "money is a commodity like other
things, and also think themselves never the poorer for what
the nation daily exports," (p. 11). _Justi_, von Manufacturen
und Fabriken (1759 seq.), considers it the principal object
of industry simply to prevent the outflow of money.
Similarly, _Pfeifer_, Polizeiwissenschaft (1779), II, 286.
Even Frederick the Great considered it "true and obvious"
that "a purse out of which money is taken every day, and
into which nothing is put in turn, must soon become empty."
(Oeuvres, VI, 77).]

[Footnote A2-1-3: The thirst for gold which, in the
sixteenth and seventeenth centuries, drove so many emigrants
to the western Eldorado, reminds one, by reason of its
enthusiasm, of the crusades to the Holy Land. The striving
after the making of gold which the emperors Rudolph II.,
Ferdinand III., Leopold I., Frederick I. of Prussia,
Christian IV. of Denmark, Christian II. and Augustus the
Strong of Saxony, Heinrich Julius of Braunschweig, Frederick
of Würtemberg, harbored, and also the Silesian and
Brandenburg princes even during the Hussite war (_Riedel_,
Cod. Dipl. Brandenb., II, 4, 151), was, to a great extent,
misplaced philosophy; men went in search of the _materia
universalissima_, the _spiritus universalis_, from which all
that is receives its _esse et fieri_, the universal elixir,
at once the life-power of man, the universal medicine and
maturing principle of natural bodies. (_Roscher's_ Gesch.,
I, 230.)]

[Footnote A2-1-4: _Schröder_ justifies the little estimation
in which he holds internal commerce by saying that "a
country may indeed grow and become powerful by its means,
but cannot gain in wealth;" just as a dress embroidered with
pearls is not made more costly by taking the pearls from the
cuffs and putting them upon the cape. (F. Schatz- und
Rentkammer, XXIX, 3.) According to the Fredrickian
theorizer, _Philippi_, "internal trade scarcely deserves the
name of commerce." (Vergröss. Staat, 1759, ch. 6.) _Sir J.
Steuart_ still teaches that an isolated state may, indeed,
be happy, but that it can grow rich only through foreign
trade and mining. (Principles, II, ch, 13.) The same
fundamental thought finds expression in the title of _Th.
Mun's_ celebrated book: England's Treasure by Forraign
Trade, or the Balance of our Forraign Trade is the Rule of
our Treasure (1664).]

[Footnote A2-1-5: _Il est claire qu'un pays ne peut gagner,
sans qu'un autre perde, et qu'il ne peut vaincre sans faire
des malheureux_ (_Voltaire_, Dict. phil., art. Patrie). Even
_Verri_ was, in his earlier period, of the opinion: _ogni
vantaggio di una nazione net commercio porta un danno ad un
altra nazione; lo studio del commercio è una vera guerra_
(Opuscoli, 335).]

[Footnote A2-1-6: Even in 1761, the learned _Mably_ could
say: _la défense de transporter les espèces d'or et d'argent
est générale dans tous les états de l'Europe ... il n'y a
point de voie moins sensée_ (Droit public, II, 365).]

[Footnote A2-1-7: The obstacles placed in the way of
importation by governments originated, in great part, from
views entertained on sumptuary legislation; in that of
exportation, from a desire to prevent a scarcity of certain
articles, as may be clearly seen in _Patricius_ (De Inst.
Reipublic., V, 10, I, 8), and even in _Sully_ (Mémoires, XI,
XII, XIII, but especially XII), _Bornitz_, _Besold_, _Klock_
and _v. Seckendorf_. (Compare _Roscher_, Gesch., I, 191,
202, 215, 247.) But the mercantilistic germs show themselves
even in _Hutten_ and _Luther_. (_Roscher_, I, 44, 63.) The
advance made between the police ordinance of the empire of
1530 and that of 1548, is very remarkable in this respect.
The mercantile theory of duties appears very systematically
elaborated even in _J. Bodinus_, De Republica, 1577, VI, 2;
in Germany in _Hörnigk_, Oesterreich über Alles, ch. 9.]

[Footnote A2-1-8: The English jealousy of Holland is
represented especially by _Sir W. Raleigh_ (?), Observations
touching Trade and Commerce with the Hollander and other
nations, 1603, Works, III, 31 ff.; _Sir J. Child_, A new
Discourse of Trade (1690), and _Sir W. Temple_, Observations
upon the U. Provinces (1672). Compare _Roscher_, Z. Gesch.
der englischen V. W. Lehre, p. 31 ff., 125 ff. The English
jealousy of France: _Sam. Fortrey_, England's Interest and
Improvement (1663). _R. Coke_, A Treatise, wherein is
demonstrated that the Church and State of England are in
equal Danger with its Trade (1671), and the anonymous,
Britannia languens (1680). _Per contra_, especially the
work: England's Greatest Happiness, wherein it is
demonstrated that a great Part of our Complaints is
causeless (1677). Here we find chapters with the title: To
export Money our great Advantage; the French Trade a
profitable Trade; Multitudes of Traders a great Advantage.
_Petty_ gave the best solution to the question in dispute,
in his posthumous Political Arithmetic concerning the Value
of Lands, etc. _Hörnigk_ would enlist his service in the
cause of the jealousy against France, immediately after the
disgraceful defeats which Germany in 1680 ff. suffered in
the midst of peace, by Louis XIV. Concerning smaller works
of the same period and in the same direction, see
_Roscher's_ Gesch., I, 299 seq.]

[Footnote A2-1-9: Even _Peter Martyr_ considered the
colonization of countries which yielded the same products as
the mother country of no advantage (Ocean, Dec., VIII, 10).
On Spanish maps the most flourishing portions of America at
present are designated as _tierras de ningun provecho_. And
the English for a long time, ascribed value to their New
England possessions, so far as the mother country was
concerned, only to the extent it was possible to provide the
West Indies from that quarter with corn, meat and wood.
(_Roscher_, Kolonien, p. 262.)]

[Footnote A2-1-10: Compare _Botero_, Ragion di Stato (1591);
_Law_, Money and Trade (1705), p. 19 ff.; and _Verri_,
Opuscoli, pp. 325, 333. Meditazioni (1771), cap. 19.]

[Footnote A2-1-11: Thus _Child_, spite of all his esteem for
the discoverers of the balance-problem, calls attention to
cases in which exports suffer so much waste (_Abgang_), or
imports are sold so advantageously, that an apparently
favorable balance made a people poorer, and an apparently
unfavorable one, richer. From the value of the imported
commodities the self-earned freight has to be deducted.
Countries like Ireland, many colonies, etc., have a
preponderance of exportations, because they, by means of the
same, pay a rent to absent capitalists or to landowners. (p.
312 ff.)]

[Footnote A2-1-12: _Mun_ admits that, for instance, the East
Indian trade makes England richer, although it causes the
exportation of much English money. But the exporter of money
who, in exchange for it, brings back reëxportable
commodities, should be compared to the sower. (Ch. 4.)
Similarly, _C. Roberts_, The Treasure of Trafficke (1641),
and even _A. Serra_, III, 2. According to _Child_, the loss
in the East Indian trade is compensated for chiefly by this,
that England obtains there the saltpeter it needs to satisfy
its demand, and that the ships engaged in that trade are
peculiarly well fitted for war. (l. c.) _Saavedra Faxardo_,
for similar reasons, declared the discovery of America to be
a misfortune. (Idea Principis Christiani politici, 1649,
Symb., 68 seq.)]

[Footnote A2-1-13: Thus _Law_, _Dutot_, _Darjes_ and
_Büsch_. Even the violent opponent of the mercantile system,
_Boisguillebert_, could not entirely escape this view.
Compare vol. I, § 96.]

[Footnote A2-1-14: This is true, especially of the
protectionist weekly paper: British Merchant or Commerce
preserved (1713 ff.), in the contest with the weekly Tory
paper edited by _Defoe_: Mercator or Commerce retrieved,
which Charles King systematized and published anew in 1721.
Later _Ulloa_: Noticias Americanas (1772), cap. 12. _Adam
Smith_ also concedes that many of the best writers on
commerce, at the beginning of their books, allow that the
wealth of a country consists not only in gold and silver,
but also in goods of every description; but that further on
they tend more and more to forget this qualification of the
meaning of wealth. (W. of N., IV, ch. 1.) Hence it is that,
in recent text-books, so many are now called adherents and
now opponents of the mercantile system.]

[Footnote A2-1-15: Even _Colbert_ says: nothing is more
precious in a state than the labor of men (Lettres,
Instructions et Mémoires de C. publiés par P. Clement, 1861
ff., II, 105). The great trade with foreign countries and
the small trade in the interior contribute equally to the
welfare of nations. (II, 548.) I would not hesitate to do
away with all privileges, the moment I found that greater or
as great advantages attended their abolition. (II, 694.) His
duty-system of 1664 was a simplification, but also an
important diminution of his earlier chaotic tariff. (II, 787
ff.)]