Chapter CXXX: Section II: Reaction Against the Mercantile System

The reaction against the mercantile theory of the balance of trade, which reached its height in Adam Smith, was based principally upon the following considerations:

A. Precious-metal-money is a commodity like all other commodities, and therefore useful only for certain purposes. It is as little to the wealth-interest of a people, by means of a continually favorable balance, to import infinite quantities of the precious metals, as it is to its power-interest, by means of its commercial policy, to accumulate infinite stores of powder. The person who possesses other exchangeable goods will be as well able, in case of need, to obtain gold and silver therewith as to obtain powder.[A2-2-1] We part with no capital when we export the precious metals and import other commodities instead; we simply exchange thereby one form of capital for another.[A2-2-2] The notion that the gain in trade is coincident with the balance of account paid in cash, is just as palpably false in the trade among nations as in trade among private persons.[A2-2-3] It would be a decided hardship to most men, if they were to receive payment at once in money for all that they possessed: and the nation is made up of individuals.[A2-2-4] And even the reasons which make payments in cash more uniformly desirable, in the case of private persons not engaged in mercantile pursuits, cease in the case of whole nations.[A2-2-5]

B. But a continual over-balance (_Ueberbilanz_) is not at all possible. Every relative increase of the amount of money must enhance the price of commodities, lower the value of money, and thus produce an exportation of money until a restoration of the level with other countries.[A2-2-6] The prohibitions of the exportation of money, so often resorted to, can avail nothing, because the precious metals are among the specifically most valuable goods; and because it is easier yet to smuggle them out of a country than to smuggle them into it.[A2-2-7]

C. The signs by which the mercantile system supposed it could estimate the favorableness of the balance of trade are essentially deceptive.[A2-2-8] We cannot, for instance, from the course of exchange, determine whether the payments made by us to foreign countries have been made for purchases, to absentees, etc., or as loans; and yet, according to the mercantilists, the latter are as useful to us as the former are injurious.[A2-2-9] And even the most accurate tariff-record (_Zollregister_) of the exportation and importation of commodities affords no guaranty[A2-2-10] that, in many instances, the rendering of the counter-value may not remain absent, by reason of bankruptcy, shipwreck, or the emigration of property.[A2-2-11]

D. Every act of exchange is advantageous only because through it a greater value is received than the one parted with was. (?) Fortunately, in normal trade, where both parties satisfy a real want, and neither party is deceived, this is actually the case on both sides.[A2-2-12] In accordance with all this,[A2-2-13] Baudrillart is of opinion that the whole theory of the balance of trade no longer exists.

[Footnote A2-2-1: Even _Petty_ and _North_, with their deep
insight into the nature and functions of money, could not
possibly entertain the mercantile theory of the balance of
trade. _Petty_ considers the exportation of money useful,
even when commodities are brought back in exchange for it,
and which are of greater value in the interior than the
exported money. (Quantulumcunque concerning Money, 1682.)
According to _North_, no one is richer simply because he has
his property in the form of gold and silver plate, etc.; he
is even poorer, because he allows his goods to lie in that
shape unproductive. Hence the importation of money is, in
itself, not more advantageous than the importation of logs
of wood; at most, the difference that, in case of excess, it
would be easier to get rid of the money than of the wood, is
of importance. Therefore, a state need never care very
anxiously for its supplies of money. A rich nation will
never suffer from a want of money. (Discourses upon Trade,
1691, pp. 11, 17.) According to _Berkeley_ (Querist, 1735,
pp. 566 ff.), there is no greater error than to measure the
wealth of a nation by its gold and silver. It is to the
interest of a people to keep their money or to send it off
according as its industry is thereby promoted. _Quesnay_
declares it to be impossible that the exports of a country
should be permanently greater than its imports: _tout achat
est vente et toute vente est achat_.

_Adam Smith_ (W. of N., IV, 1) compares the Spanish
discoverers who inquired on every island, first of all, for
gold, to the Mongolians, whom _Rubruquis_ (c. 32) was
obliged to give information to concerning the cattle of
France: "of the two, perhaps the Tartar nation was the
nearest to the truth." Precious-metal-money may be even more
easily dispensed with than most other commodities, since, in
case of necessity, it can, by reason of its greater
transportability be readily obtained from without, and can
also be supplied by exchange and by credit. "Money makes but
a small part of the national capital and always the most
unprofitable part of it.... Money necessarily runs after
goods, but goods do not always or necessarily run after
money." _J. B. Say_ calls the exportation of money more
advantageous than that of other commodities, because the
former is of use, not through its physical qualities, but
only through its value, and the value of the money which
remains behind correspondingly rises by reason of the
exportation. (Traité, I, ch. 17.) Compare especially
_Bastiat_, Maudit Argent, 1849.]

[Footnote A2-2-2: Against _Ganilh_, Théorie de l'Economie
politique, II, 200.]

[Footnote A2-2-3: Even _Mun_ had, in every balance of trade,
distinguished three persons who participated in it; the
merchant might lose when the nation in general gained, and
_vice versa_; the king, with his duties, always gained. (Ch.
7.) The British Merchant (p. 23) maintained even, that when
the merchant himself gains nothing and takes his
back-freight (_Rückfracht_) in money, his country gains the
whole amount thereof.]

[Footnote A2-2-4: "Every individual is continually exerting
himself to find out the most advantageous employment for
whatever capital he can command. It is his own advantage,
indeed, and not that of the society, which he has in view.
But the study of his own advantage, naturally, or rather
necessarily, leads him to prefer that employment which is
most advantageous to the society." (_Ad. Smith_, W. of N.,
IV, ch. 2.)]

[Footnote A2-2-5: For the reason that money, in
international trade, for the most part, loses its character
as money, and appears more as a commodity. Exhaustively in
_Adam Smith_ and _J. B. Say_, l. c. The English state paid,
during the French war of the Revolution, in subsidies to
foreign countries, £44,800,000; and yet, up to the end of
1797, imperial loans and the payments of private individuals
included, not as much as one million in cash went out of the
country. (_Rose_, Brief Examination into the Increase of the
Revenue of Great Britain, 1799.) When France paid the five
milliards to Germany, the plus value of English exportation
to Germany above the English importation thence rose from
274,000,000 (1869) to 478,000,000 (1872), and the increase
in the amount of French from 39,400,000 (1869) to
131,700,000 (1873). The entire German under-balance
(_Unterbilanz_), _Soetbeer_ (loc. cit.) estimates at
878,000,000 of marks.]

[Footnote A2-2-6: Emphasized especially by _David Hume_ who
calls attention to the seeking of its level by water.
(Discourses: On the Balance of Trade.) _J. B. Say_ speaks of
carriages, the increase of which over and above the need of
them must infallibly produce a reëxportation of them.
(Traité, I, ch. 17.)]

[Footnote A2-2-7: With all the severity of its export
prohibitions, Spain, for centuries, served as a medium to
conduct the streams of American silver to the other parts of
Europe. As to how Spain, during the last third of the 18th
century, was overflowed by copper money, see _Campomanes_,
Educación popular, IV, 272.]

[Footnote A2-2-8: _von. Schröder_, F. Schatz- und
Rentkammer, XXVII, has a very ingenuous faith in the rate of
exchange and a tariff-record (_Zollregister_); while _Child_
had a much better insight into the defects of these two
criteria. (Disc. of Trade, p. 312 ff.) Compare _Steuart_,
Principles, III, 2, ch. 2.]

[Footnote A2-2-9: Compare § 199. It was a discovery of
_Locke's_, that borrowing from foreign countries was
advantageous in all those instances in which the inland
borrower earned more than the amount of his interest by
means of the loan. (Considerations, p. 9.)]

[Footnote A2-2-10: _Ségur_, Mémoires, II, 298, tells how the
Russian officers of custom were bribed by English merchants
to represent the Russian imports from England _under_, and
the exports to England _above_ the true value. In addition
to this, smuggling was carried on!]

[Footnote A2-2-11: _J. B. Say_ calculates from the English
tariff-record (_Zollregister_), from the beginning of the
18th century to 1798, an excess of exports over imports of
£347,000,000; and yet the highest estimates of the amount of
money actually in England, according to _Pitt_ and _Price_,
gave only £47,000,000. (Traité, I, IV, 17.) The Russian
lists of exports and imports from 1742 to 1797, show a
favorable balance of 250,000,000 rubles; to which must be
added 88,000,000 rubles taken from the mines during the same
time. But it is notorious that the stores of money
diminished. _Storch_, Gemälde des russischen Reiches, XI,
12.]

[Footnote A2-2-12: Manuel, 310. _F. B. W. Herrmann_ (Münch.
gelehrte Anz. XXV, 540) also declares the whole theory of
the balance of trade wrong. According to _Brauner_, Was sind
Maut und Zollanstalten (1816), 51, it is "a mere fancy."]

[Footnote A2-2-13: Recognized even by _Ch. Davenant_, On the
probable methods of making a People Gainers in the Balance
of Trade (Works, II, p. 11).]