Mercantilism was an attempt to fashion a national economy at the same time that the so-called New Monarchs throughout parts of Western Europe were attempting to construct the institutions of the modern national state.
I. The Historical Background
Designed to effect a favorable balance of trade, Donald Trump’s economic policies constitute the revival of mercantilism.[i] Like earlier thinkers and statesmen who embraced mercantilism, President Trump contemns trade deficits, values money over goods, regards the accumulation of national wealth as fundamental to the establishment and maintenance of national power, and prefers economic self-sufficiency. The mercantilists believed that government regulation of foreign trade was essential to economic welfare. Free trade was anathema to them. Exports strengthened an economy by facilitating the accumulation of wealth and ridding domestic markets of superfluous goods. Imports, by contrast, weakened an economy by dispersing wealth among rivals.
The English political economist Thomas Mun declared that “the ordinary means therefore to encrease our wealth and treasure is by Forraign Trade, wherein wee must ever observe this rule: to sell more to strangers yearly than wee consume of theirs in value.”[ii] The objective was to enhance national revenue. According to mercantilist thought, the economic success of one nation invariably came at the expense of all others. Invoking the Dutch proverb to live and let live, Mun retorted that:
the Dutchmen notwithstanding their own Proverb, doe not onely in these Kingdoms, encroach upon our livings, but also in other forraign parts of our trade (where they have the power) they do hinder and destroy us in our lawful course of living, hereby taking the bread out of our mouth, which we shall never prevent by plucking the pot from their nose, as of late years too many of us do practise to the great hurt and dishonour of this famous Nation. [iii]
There were clear winners and losers in the competitive struggle.
Flourishing between the middle of the sixteenth and the early eighteenth century, mercantilism in important respects was less an economic theory than it was a political weapon. The mercantilists promoted economic nationalism in an effort to buttress the consolidation of state power in response to fracturing medieval institutions. Rulers needed money, all the more so as its value diminished. They, and their economic ministers, initially adopted regulations and policies to encourage the flow of gold and silver into their kingdoms. In time, the effort to accumulate monied wealth gave way to the more general effort to create a self-sufficient economy, transforming the state into a virtual autarky. The means to achieve such economic independence were, first, to increase the export of finished goods, second, to curtail imports except of essential raw materials, and third, to dispel idleness and stimulate industry. The English Poor Law of 1601, for example, not only relieved deprivation but also compelled the poor to work under the threat of legal punishment if they refused.
Mercantilism was thus an attempt to fashion a national economy at the same time that the so-called New Monarchs throughout parts of Western Europe (England, France, Spain, and the Netherlands) were attempting to construct the institutions of the modern national state.[iv] War, rebellion, and banditry afflicted European society by the middle of the fifteen century. Already weak governments, which had permitted the advent of such chaos, were made weaker because of it. What had begun as the quest for security ended as a struggle for dominance in a turbulent world. Alliances were haphazard, fragile, and temporary, often based not on shared interests but on common enemies. The New Monarchs sought to impose law and order in their realms, if only by asserting a monopoly on violence. To keep the peace, they enlisted the support of disgruntled townspeople, merchants and artisans determined to conduct business and commerce. These men had wearied of the private wars in which ambitious feudal aristocrats engaged almost without cease to the detriment of economic activity. The members of this propertied and monied class were willing to tolerate the expansion of monarchial power if rulers promised to contain the unruly nobles, limit their autonomy, and reduce the violence they initiated.
To that end, monarchs with reliable sources of income expanded their armies and eliminated many of the inherited privileges that the aristocracy had long enjoyed. In England, for example, Henry VII withdrew the right of “livery and maintenance,” a traditional practice whereby nobles could “maintain” their grievances and settle private disputes without regard for the law. Armed retainers in their employ, who wore their master’s insignias ( “livery”) to identify their allegiance, staged mass brawls with rivals, harassed judges, and intimidated juries. When it was the pleasure of their lord, these liveried bullies and thugs threatened anyone and everyone. Law and order became a fiction if not a farce.
To circumvent entrenched feudal customs, aspiring monarchs appealed to Roman law, according to which they embodied the will and welfare of every subject in their person. The legal principle that they applied was salus populi suprema lex, “the welfare of the people is the highest law.” The monarch thereby became a sovereign who could make, enact, and enforce laws on his or her own authority, ignoring customary liberties. Quod principi placuit legis habet vigorem: “what pleases the prince has the force of law.”
Indispensable to the assertion of monarchical power was the adjustment of the economy. A national system of regulations gradually superseded or replaced local arrangements, giving monarchs greater control of manufacturing and commerce in their realms.[v] Both the French and English governments subsidized those who created new businesses and industries. The French government protected silk manufacturing despite objections of those involved in the production and sale of linen and wool. During the late sixteenth century, the English government sponsored the immigration of Flemish weavers and Turkish dyers to advance the production of finished woolen goods. By such means, governments furthered the development of a national market and a skilled and industrious labor force. Without such support, the great manufacturing firms and commercial houses could not have prospered or even survived. A merchant or manufacturer who had the support of the monarchy was in a much more advantageous position than one who had only the support of a city.
In addition, monarchs facilitated exports both by paying bounties to merchants and manufacturers or by erecting trade barriers to shield domestic commerce and industry from foreign competition. They superimposed a national system of tariffs onto the existing network of internal taxes, which they now made every effort to eliminate. To conduct overseas trade, merchants and rulers organized commercial associations, the most famous of which were the various East India Companies.[vi] Transporting goods to such places as the Near East and Russia, to say nothing of India, the Spices Islands, and Cathay (China), was risky and expensive. Merchants needed reliable sources of capital that only the state could provide. To do business, they often had to obtain the permission of native rulers, a benefit for which they had to pay. They also had to safeguard their vessels from attack by pirates or hostile European nations, which required weapons and ammunition. In exchange for underwriting the cost of voyages and the grant of monopoly privileges, rulers expected merchants to open foreign markets to domestic goods and to fill their coffers with gold and silver.
In early modern Europe, monarchs viewed commerce as the principal, if not quite the exclusive, source of national wealth. More than economic competition, the sustained dominance of overseas markets often necessitated the resort to force. Trade wars thereby became the foundation of commercial empires, and merchants depended on those who could fight such wars in their behalf. With the bolstering of monarchical power in Western Europe, a number of sovereigns acquired the resources to undertake these bellicose economic ventures designed to enrich their kingdoms. Private merchants, in effect, became unofficial agents of the state, maneuvering to gain favor with the crown.
II. The Theory
During the Middle Ages fiscal policy guided economic thought and practice. Medieval rulers tried constantly to increase the sum of money they could extract from the economy. Mercantilists, by contrast, proposed that monarchs follow the opposite course. Rather than taking money out of the economy they should do their utmost to put money into it. But rulers did not always have the luxury of making such investments. The inconsistency that beset mercantilist economic policy from the sixteenth century onward arose from the immediate need of states to raise money, usually to fund military operations. Repeated fiscal emergencies prompted such monarchs as Philip II of Spain and Louis XIV of France to abandon long-term mercantilist investment strategies. Notwithstanding the disruptive exigencies of global politics, economic theorists, merchants, and statesmen remained obsessed with the accumulation of gold and silver. The possession of an abundant supply of precious metals, they assumed, was indicative of prosperity. They were loathe to trade gold and silver, the value of which they presumed to be durable, for perishable commodities and consumable goods, the value of which would soon disappear.[vii] Their overwhelming fear was that a decrease in the supply of gold and silver would tighten credit and bring commerce to a halt. Under such circumstances, merchants would be driven to bankruptcy, the economy would collapse, and the power of the state would decline. Monarchs thus instructed their economic advisors to devise ways to obtain as much gold and silver as possible and to keep all of the gold and silver they had.
According to Antonio Serra, there were but three ways in which a kingdom could amass gold and silver: access to mines; the seizure of precious metals from other countries by force of arms; the sale of surplus goods abroad. Since by the early seventeenth, when Serra wrote, almost all of the known mines in the world belonged either to the Austrian or the Spanish Hapsburgs, he was especially concerned with “the causes which can make gold and silver plentiful in kingdoms where there are no mines.”[viii] Geography, which, if fortunate, could occasion “extensive trading in a kingdom, both for its own account and for the account of other parts of the world” could bring an abundance of gold and silver. An industrious population employed in the “many and varied trades, necessary or convenient or pleasant for human use…in quantities in excess of the needs of the country” also generated wealth. “That where there is great commerce there must necessarily be much money,” Serra concluded,
“requires no proof, since commerce cannot be carried on without it, and that is its purpose.” [ix] But as with the other theorists of mercantilism, Serra approved only exports. Importing goods, other than raw materials, did not enrich but rather impoverished a kingdom.
To accrue gold and silver, Serra recommended extensive government intervention into the economy to sustain both domestic manufacturing and foreign commerce. Greater efficiency in the production and distribution of goods, he reasoned, would also ensure that more money flowed into than out of a country. Kingdoms became rich when the volume of manufactured goods rose and the development of commerce proceeded apace. In addition, according to Serra, technological innovation lowered the costs of production, further elevating profit margins. Manufacturing, finally, was also superior to farming because it avoided the caprice of nature that could destroy the work of human hands and nullify the value of agricultural produce.[x]
If merchants paid out less money for imports than they received from the sale of exports, a country had achieved a favorable balance of trade. As Serra formulated it, mercantilist theory inclined rulers not to develop a systematic and integrated trade policy. On the contrary, they negotiated separate commercial treaties with individual nations, suppressing trade with those where there existed an adverse balance of trade and endorsing trade with those where there was a favorable balance. To supervise and direct commercial activity, a sovereign,
observing the situation in his State, and the various factors which are found there, together with conditions in the neighboring and distant kingdoms with which his kingdom had or may have commerce, and considering the causes or occasions which can make his domain abound in money, and those which can impede this, adopts various regulations according to the different effects which he wishes to produce, removing the impediments which might prevent the effect desired.[xi]
Such considerations also implied that governments had some interest in providing for the welfare of their subjects. In devising an economic policy, Serra explained, rulers must be neither stubborn nor arbitrary. They must instead understand the different effects that the same action was likely to have on different persons, “as the sun hardens clay and softens wax, and a light whistle rouses dogs and quiets horses…. After regulations are decided upon, the prince must not yield to personal feelings which might impede sound reasoning, or at any rate might cause little attention to be paid to it, making him consider his own desire, rather than the public good.”[xii] To the extent that it was possible to do so without compromising his authority or damaging the state, the monarch had a responsibility to improve the standard of living in his kingdom to the benefit of all, or at the very least to prevent the wealthy from exploiting the poor, as had taken place at the end of the Middle Ages. It may be enough, Serra conceded, that a ruler’s interest in justice was restricted and selfish, and that he or she imposed social order only so that the economy could operate without interruption.
Serra further advised rulers who wished their kingdoms to prosper to take careful notice of events, developments, and conditions aboard. The objective should be to gain access to foreign markets without incurring reprisals undertaken to counter inequitable commercial arrangements. One policy did not suit all circumstances; there were many ways to accomplish the same goal of keeping the treasury filled. Utility alone was the criterion by which Serra judged an economic policy. All benefits ought to revert to the author of the policy, with as little regard as possible to the effect on other states, however detrimental they may be.
The unsystematic and fragmented approach to international commerce that Serra espoused broke down as more European states began to trade extensively with the East Indies. Until the end of the eighteenth century, Europeans offered few commodities that were attractive to Asian markets. As a consequence, every European kingdom that did business in India and the Spice Islands suffered an unfavorable balance of trade. Despite this impediment, some European countries still managed to turn a profit when merchants re-exported the spices and other luxury goods purchased in the Indies in exchange for gold and silver.
In the Discourse on England’s Treasure by Forraign Trade, Thomas Mun, the English theorist of mercantilism who wrote more than fifty years after Serra, argued that “forraign wares brought in to be transported again should be favoured, for otherwise that manner of trading…cannot prosper nor subsist.” Mun likened such commerce to a farmer scattering seed. He observed that “if we only behold the actions of the husbandman in the seed-time when he casteth away much good corn into the ground, we will rather account him a mad man than a husbandman; but when we consider his labors in the harvest which is the end of his endeavors, we find the worth and plentiful increase of his actions.” [xiii] Yet, Mun cautioned, the government must tax imports so that the kingdom could still profit even from an unfavorable balance of trade.
Rulers influenced by mercantilism came in time to understand that they had at their command powerful instruments to affect the balance of trade in their favor. They could subsidize and police manufacturing and commercial enterprises. By levying tariffs or implementing embargos, they could ease or impede, allow or prohibit, imports and exports. Although a critic of mercantilism, Adam Smith clarified mercantilists’ presuppositions. To forestall the loss of gold and silver required countries to export “a greater value than it imported.” But when a country “imported to a greater value than it exported, a contrary balance became due to foreign nations,” which, paid in gold and silver, “there by diminished that quality.”[xiv] Smith, of course, rejected such arguments, which had long convinced statesmen that preventing the export of gold and silver was vital to the attainment of national wealth. Merchants, according to Smith, had deliberately concealed from rulers how foreign trade enriched the merchants themselves. As a result, every state in Western Europe, from England and Spain, from Austria and France, from the Low Countries to the petty kingdoms of the Germanies, administered and manipulated international commerce to secure their reserves of gold and silver. The common purpose was to augment their money supply while depleting that of their adversaries. Because they seemingly eroded the foundations on which international commerce rested, Smith and other classical political economists thought such policies self-defeating.
III. The Practice
During the Middle Ages, the English government had outlawed the export of grain, which was a staple of the English diet. To supplement the availability of domestic grain, the government placed no tariffs on its import. Wool was the principal English export. The government taxed the export of wool, enabling the monarch to collect substantial revenues from its shipment abroad, even before it was sold in foreign markets. Mercantilism reversed these policies.
In 1617, James I foreclosed the export of wool. By the end of the seventeenth century, the government had removed export taxes on nearly all English cloth. Between 1663 and 1673, the government subjected imported grain to higher tariffs and paid a bounty for the export of wheat when prices fell below forty-eight shillings a quarter (eight bushels) in order to add to the national supply of gold and silver. Following the Glorious Revolution of 1688-1689, Parliament rescinded export taxes on beer, pork, butter, cheese, flour, and coal, while simultaneously raising tariffs on the import of each of these items.
The purpose and, indeed, the consequence of banning the export of raw wool was to enable English weavers to manufacture it into far more valuable finished goods that could then be sold aboard at immense profit. In addition, Parliament intended to make possible the export of food and fuel, which other countries needed, would not re-export, and for which they willingly paid a premium. Mun disclosed the theory that had shaped this change in policy:
In our exportations we must not only regard our own superfluities, but also we must consider our neighbours necessities, that so upon the wares which they cannot want, nor yet be furnished thereof elsewhere, we may… gain so much of manufacture as we can, and also endeavour to sell them dear, so far forth as the high price cause not a less vent in the quantity. But the superfluity of our commodities which strangers use, and may also have the same from other Nations, or may abate their vent by use of some such like wares from other places, and with little inconvenience; we must in this case strive to sell as cheap as possible we can, rather than to lose the utterance of such wares.[xv]
Medieval fiscal policy, which used tariffs to yield revenue for the crown, gave way to a mercantilist policy that applied tariffs to buttress a favorable balance of trade, since foreign trade was the only way to redouble and to redouble again the supply of gold and silver. Annual exports must surpass annual imports. The wealth and welfare of England depended on it.
For Mun and other mercantilists, money was the only reliable measure of wealth. They disparaged goods, which, unlike money, were perishable and consumable, their value momentary and ephemeral.[xvi] Yet, Mum also revealed a more nuanced and sophisticated understanding of the relations between money, goods, and trade. Mun considered the purchase raw materials to use in the manufacture of finished products to be the most effective way to expand the net influx of gold. He emphasized greater domestic productivity without an attendant boost in domestic consumption, writing:
if our consumption of forraign wares be no more yearly than is already supposed, and that our exportations be so mightily encreased by this manner of Trading with ready money as is before declared: it is not then possible but that all the over-ballance or difference should return either in mony or in such wares as we must export again, which, as is already plainly shewed will be still a greater means to encrease our Treasure.[xvii]
In addition, Mun recognized that the uninterrupted expansion in the quantity of gold and silver would lead to inflation.[xviii] The constant increase of money was detrimental to society, if for no other reason than it made exports more expensive and less attractive to foreign consumers. Any idle surplus of gold and silver must thus be reinvested abroad. [xix]
As a matter of policy, mercantilists sought to minimize the goods available for domestic consumption so as not to impede exports and thereby inhibit the acquisition gold and silver. Buying, and especially importing, commodities entailed the export of money and the loss of durable wealth. To depress consumption the mercantilists took it as an axiom that wages should be kept low. Although they knew that labor added value to finished commodities, they also believed that workers should not reap the benefits. High wages were doubly perilous. First high wages induced workers to spend more and to work less. Second, apart from overconsumption, high wages tempted workers to idleness once they had satisfied their basic needs. The mercantilist solution was to keep wages so low that men and women would have to work long and hard day in and day out just to survive. Poverty inspired diligence. Sir William Petty, the seventeenth-century English polymath who had served an apprenticeship as the personal secretary to Thomas Hobbes, affirmed that workers should earn enough to live, toil, and reproduce, but nothing more.[xx] Tariffs had the added benefit of raising prices, which made domestic consumption even more difficult for those with meager incomes. Mercantilists, on the contrary, advocated consumerism abroad. Mun appreciated the importance of consumption to prolonged economic growth. He urged English merchants to advertise their wares in foreign markets in an effort to create a demand for them.[xxi]
Mercantilists hoped to cultivate a favorable balance of trade from which to derive numerous commercial advantages. Monarchs saw matters from a somewhat different perspective. For them, the significance of mercantilist policies was not primarily economic or commercial but political and military. Wealth was the foundation of national power. Mun did acknowledge that “Treasure is said to be the sinews of the War, yet this is so because it doth provide, unite & move the power of men, victuals, and munitions where and when the cause doth require.” [xxii] International commerce was itself conducted as a kind of warfare in which the victor collected a lion’s share of the spoils. Rendering states poor, weak, and vulnerable, the consequences of defeat were unthinkable. To prevail in these global conflicts, monarchs deployed many weapons, such as tariffs, intended to strengthen their economy and to ruin the economies of their competitors. Jean Baptiste Colbert, finance minister to Louis XIV, made plain the assumption of every crowned head in Europe when he remarked that a state thrived not only when its own economy prospered but also when it could harm the economies of its rivals.
IV. The Critique
David Hume and Adam Smith criticized mercantilism, determined to expose the inconsistencies and errors they saw as implicit in mercantilist thought. From the outset, a misapprehension about the nature and purpose of manufacturing and commerce had called the efficacy mercantilism into question. Hume suggested that manufacturing and commerce contributed alike to the power of the sovereign and the happiness of the subject. Imported goods not only multiplied the wealth of the state but also made the life of individuals more agreeable, to say nothing of furnishing raw materials for industry. “That policy is violent,” he wrote,
which aggrandizes the public by the poverty of individuals…. Trade and industry are really nothing but a stock of labor, which, in times of peace and tranquility, is employed for the ease and satisfaction of individuals; but in the exigencies of state, may, in part, be turned to public advantage…. In short, a kingdom, that has a large import and export must abound more with industry, and that employed upon delicacies and luxuries, than a kingdom which rests contented with native commodities. It is, therefore, more powerful, as well as richer and happier.”[xxiii]
Foreign trade awakened men from indolence, rousing them not only to turn a profit but also to aspire to a more fulfilling and opulent way of life than previous generations. When, in a primitive state of society, people were content to live on what they gathered, made, or grew, they had few opportunities and little need for trade or money. Throughout history, Hume asserted, commerce, and especially commerce with distant lands, served as the impetus to elevate societies above crude subsistence and mere survival, propelling them toward greater refinement and civility.
By broadening the wealth of a kingdom, extensive foreign trade also made possible a more equitable distribution of income, which, as Hume contended, was indispensable to the preservation of affluence, stability, order, and justice. Contrary to the mercantilists, he insisted that “every person”
ought to enjoy the fruits of his labour, in a full possession of all the necessities, and many of the conveniences of life. No one can doubt, but such an equality is most suitable to human nature, and diminishes much less from the happiness of the rich than it adds to that of the poor…. Where the riches are in few hands, these must enjoy all the power, and will readily conspire to lay the whole burthen of the poor, and oppress them still farther, to the discouragement of all industry.[xxiv]
Poverty for the masses was the bitter fruit of the consolidation of wealth and the concentration of power. Economic health and welfare were born of freedom.
The accrual of vast national fortunes could present other unanticipated disadvantages. “In general,” Hume pointed out, “we may observe, that the dearness of every thing, from plenty of money, is a disadvantage, which attends an established commerce, and sets bounds to it in every country, by enabling the poorer states to undersel [sic] the richer in all foreign markets.” Unlike, or at least more fully than, the mercantilists, Hume accepted the importance of what later political economists called the international division of labor. Although too sanguine about the consequences for the workers themselves, Hume realized that the low cost of labor in underdeveloped and impoverished nations somewhat compensated for the “advantages of wealth” that others possessed. “There seems to be a happy concurrence of causes in human affairs,” he proclaimed, “which checks the growth of trade and riches, and hinders them from being confined entirely to one people….”[xxv] Manufacturers, Hume noted, gradually left advanced nations where wages were high in favor of poorer nations where labor costs were lower. There they could boost their profit margins by producing inexpensive goods, which, in turn, benefitted consumers in wealthy nations who now paid lower prices for these imports. Although Hume understood that the interests of different nations were often in conflict, he also suspected that the international division of labor bred a measure of economic cooperation that was, or could be, mutually advantageous.
Diverging again from mercantilist conclusions, Hume made it clear that the unreserved accumulation of gold and silver both engendered inflation and, as was the case for the Spanish, hindered or interrupted economic progress. “Some time is required before the money circulates thought the whole state, and makes its effect be felt on all ranks of people.
At first,” Hume continued
no alteration is perceived; by degrees the price rises, first of one commodity, then of another; till the whole at last reaches a just proportion with the new quality of specie which is in the kingdom. In my opinion, it is only in this interval or intermediate situation, between the acquisition of money and the rise of prices, that the encreasing quantity of gold and silver is favourable to industry.[xxvi]
With the accumulation of gold and silver, merchants and manufacturers hired additional workers. The surplus of labor made it possible to keep wages comparatively low. Yet, when these workmen entered the marketplace as consumers, they initially found that their money went further and bought more, since prices had not yet begun to rise, and they could better provide for their families. Writing in the early nineteenth century, David Ricardo explored “the injurious effects of the mercantilist system,” alleging that its “whole aim” was “to raise the price of commodities in the home market by prohibiting foreign competition.”[xxvii] Inflation changed everything. As prices rose, wages stagnated; production slowed and then stopped; unemployment worsened; poverty ensued.
For the classical political economists, the most serious mercantilist fallacy was to assume that gold and silver were the exclusive and universal measures of wealth, both individual and national. Smith decried the “popular notion” that “a rich country, in the same manner as a rich man, is supposed to be a country abounding in money; and to heap up gold and silver in any country is supposed to be the readiest way to enrich it…. It would be too ridiculous to go about seriously to prove, that wealth does not consist in money, or in gold and silver; but in what money purchases, and is valuable only for purchasing.” He compared money to a utensil, an instrument useful only for the operations it permitted men to carry out with greater facility, adding that the accumulation of too much gold and silver actually lessened their utility and their value. Such inflationary pressures encouraged, and in fact required, the export of gold and silver, and no laws or regulations could prevent it from taking place. To be fair and accurate, Mun had entertained similar insights more than a century earlier.
Smith persisted. The value, and thus also the quantity, of gold and silver were limited by their usefulness. Real wealth lay always in the “annual produce of the land and labour of a country.” Just so, the chief benefit of foreign trade was the removal of surplus commodities for which there was no domestic market in exchange for goods that were much in demand. The European discovery of the Americans, for example, was advantageous not because it expanded the supply and lowered the price of gold and silver but because it opened vast new markets to European goods. Trade with the East Indies and China would have been even more lucrative had it not been for the Portuguese monopoly and the subsequent privileges that some nations attained to the detriment of others.
Hume had similarly rejected mercantilist arguments, countering that “men and commodities are the real strength of any community.” Unlike the mercantilists, Hume and Smith did not always admit the power of money in and of itself, or rather they both did and did not see that money was more than a convenient medium of exchange. Money also bought power. Their vision, although clear, was inconsistent. For they also granted readily enough that the concentration of wealth, “preventing its universal diffusion and circulation” and leaving some hands idle, empty, and wanting, was the main source of poverty and weakness. In societies afflicted by the dichotomy between immense wealth and unremitting poverty, Hume and Smith agreed that there may have been much splendor but there was little strength. [xxviii]
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Notes:
[i] The standard work on mercantilism remains Eli F. Heckscher, Mercantilism, 2 vols., trans. by Mendel Shapiro (London, 1994; first published in Swedish in 1931; first English edition, 1935). For helpful discussions both of Heckscher’s work and mercantilism, see B.F. Haley, “Heckscher, Mercantilism,” The Quarterly Journal of Economics 50/2 (February 1936), 347-54; Carl G. Uhr, “Eli F. Heckscher, 1879-1952, and his treatise on mercantilism revisited,” Economy and History 23/1 (1980), 3-39; Helge Peukert, “Mercantilism,” in Jürgen George Backhaus, ed., Handbook of the History of Economic Thought: Insights on the Founders of Modern Economics (New York, 2012), 93-121.
[ii] Thomas Mun, England’s Treasure By Forraign Trade (New York, 1895; originally published in 1664), 7.
[iii] Ibid., 16.
[iv] As with many historical labels, the “New Monarchs” is something of a misnomer. In reality, the so-called New Monarchs resumed the efforts at state building that had been interrupted during the High Middle Ages. Although they wrought significant changes in the political structure of early modern Europe, innovation was repugnant to them. They wanted to restore stability. On the connection between mercantilism and absolutism see Peukert, “Mercantilism,” 93-94 and Eugene F. Rich Jr. and Anthony Grafton, The Foundations of Early Modern Europe, 1460-1559, Second Edition (New York, 1994), 45-76, 110-45.
[v] As an advocate of government intervention into the economy, John Maynard Keynes expressed a sympathy for mercantilism that free-market economists did not share. The rejection of laissez-faire enabled Keynes to identify an element of economic realism in mercantilist thought that, in his estimation, was missing from classical political economy. The mercantilists, he argued, never assumed that the economy was self-adjusting and self-regulating. Aware that efforts to establish and maintain a favorable balance of trade could lead to reckless and destructive international competition, and equally cognizant of the benefits of the international division of labor, Keynes nonetheless pointed out that “At a time when the authorities had no direct control over the domestic rate of interest or the other inducements to home investment, measures to increase the favourable balance of trade were the only direct means at their disposal for increasing foreign investment; and at the same time, the effect of a favourable balance of trade on the influx of the precious metals was their only indirect means of reducing the domestic rate of interest and so increasing the inducement to home investment.” John Maynard Keynes, The General Theory of Employment, Interest, and Money (New York, 1964), 336; see also 340-49.
[vi] The British East India Company was founded in 1600, the Dutch East India Company in 1602, and the French East India Company not until 1664. See Peukert, “Mercantilism,” 100.
[vii] Adam Smith ridiculed such assumptions, noting that he considered absurd the logic of mercantilism that would require the English to halt the exchange of durable pots and pans for perishable French wine “to the incredible augmentation of the pots and pans of the country. But it readily occurs that the number of such utensils is in every country necessarily limited by the use which there is for them; that it would be absurd to have more pots and pans than were necessary for cooking the victuals usually consumed there….” Smith’s analogy with gold and silver was unmistakable. He made it explicit, writing: “To import the gold and silver which may be wanted, into the countries which have no mines, is, no doubt, a part of the business of foreign commerce. It is, however, a most insignificant part of it. A country which carried on foreign trade merely upon this account, could scare have occasion to freight a ship in a century.” Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, ed. by Edwin Cannan (Chicago, 1976; originally published in 1776), Vol. I, 461, 469.
[viii] Antonio Serra, A Brief Treatise On The Causes Which Can Make Gold And Silver Plentiful in Kingdoms Where There Are No Mines, in Arthur Eli Monroe, ed., Early Economic Thought (Cambridge, MA, 1930), 145. Writing from prison to which he may have been sentenced for conspiring against Spanish authority in the Kingdom of Naples, Serra published his Treatise in 1613. See also Smith, The Wealth of Nations, Vol. I, 456-57.
[ix] Serra, A Brief Treatise,146, 147, 150. See also Theodore A. Sumberg, “Antonio Serra: A Neglected Herald of the Acquisitive System,” The Journal of Economics and Sociology 50/3 (July 1991), 365-73, especially 367-68.
[x] Serra, A Brief Treatise, 147.
[xi] Ibid., 152.
[xii] Ibid, 152, 153.
[xiii] Mun, England’s Treasure By Forraign Trade, 16, 27. See also Smith, The Wealth of Nations, Vol. I, 452-53. On Mun’s economic thought, see Peukert, 98-101.
[xiv] Smith, The Wealth of Nations, Vol. I, 453.
[xv] Ibid.,10.
[xvi] Keynes discussed the mercantilist “fear of goods” in The General Theory, 346-48.
[xvii] Mun, England’s Treasure By Forraign Trade, 22.
[xviii] The sixteenth-century French political and economic theorist Jean Bodin was perhaps the earliest thinker to posit a connection between the money supply and the price of goods. He wrote, for example, that the “principal & almost the only” cause of high prices “is the abundance of gold & silver.” See Jean Bodin, “Reply to the Paradoxes of Malestroit Concerning the Dearness of All things and the Remedy Therefor,” in Monroe, ed., Early Economic Thought, 127.
[xx] On William Petty, see Henry Landreth and David C. Colander, History of Economic Thought, 4th Ed. (Boston, n.d.), 50 and Alessandro Roncaglia, The Wealth of Ideas: A History of Economic Thought (Cambridge, UK, 2005), 53-75.
[xxi] The economic history of England challenges mercantilist assumptions. Gradually, during the one hundred years between 1650 and 1750, England became a consumer society. More persons had disposable income to spend on luxury items, that is commodities not essential to their survival. The stimulus to buy prompted them to work the harder and longer, contributing to the increase of production and the growth of the economy. In his trenchant critique of mercantilism, Adam Smith clarified what to him was the obvious truth that “consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer. The maxim is so perfectly self-evident, that it would be absurd to attempt to prove it. But in the mercantile system, the interest of the consumer is almost constantly sacrificed to that of the producer; and it seems to consider production, and not consumption, as the ultimate end and object of all industry and commerce.” Smith, The Wealth of Nations, Vol. II, 179.
[xxii] Mun, England’s Treasure By Forraign Trade, 95. Italics in the original.
[xxiii] David Hume, Writings on Economics, ed. by Eugene Rotwein (Madison, WI, 1970), 10, 12, 13.
[xxiv] Ibid., 15.
[xxv] Ibid., 34, 35.
[xxvi] Ibid., 38.
[xxvii] David Ricardo, The Principles of Political Economy and Taxation (London, 1978; originally published in 1817), 212.
[xxviii] Smith, The Wealth of Nations, Vol. I, 450, 459, 466; see also 462, 469-73; Hume Writings on Economics, 45.
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