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Notes on Economic History (3)

The Rise of the Merchants

The earlier feudal economy had to be curbed by the encouragement of manufacture through privileges and monopolies (thus breaking the power of the Guilds), through exemption from taxation, and through other forms of support. Skilled craftsmen were imported, industrial secrets were purchased or stolen. On the other hand, by official supervision of the whole process of production, industry was to be kept up to the mark, and at the same time the consumer was to be protected by subjecting the process of sale to inspection. Here the traditions and customs of the older urban economy showed their influence.

Another method adopted was the establishment of colonies and trading companies. The East India Company, founded in 1660, was given the right in 1661 to carry on war and make peace in non-Christian countries. Similar companies were set up by other Powers.

Attempts were made to provide cheap labour so as to promote and strengthen industry. One method was to encourage the increase of population (a special need in Germany in those days after the Thirty Years War); prohibitions on marriage was removed and payments made to fathers of large families. Another was to cheapen the necessaries of life, so that wages could be kept down. Foodstuffs were freed from import duty, while high levies were placed on exported grain, or its export totally forbidden. These measures were opposed to the interests of the agriculturalists but, though not openly advocated, were often put into practice, for example, in France by Colbert.

Finally the output of gold and silver was to be increased where possible by mining in the home-land, assisted by state subsidies if needed. The attraction of wealthy foreigners into the country, the prohibition of the export of precious metals, and similar measures, were to supplement and round off the expedients for increasing the national wealth.

A survey of mercantilist policy shows that its advocates placed great importance on money, but did not hold that money was an end in itself; they valued it for its productive effects. Thomas Mun, the mercantilist, wrote "money begets trade" and "trade increases money". Charles Davenant, of the same school, says "Foreign trade brings in the stock. This stock, well and industriously managed, betters land, and brings more products of all kinds for exportation; the returns of which growth and product are to make a country gainers in the balance". Colbert says the same thing from the outlook of the State financier: "If there be money in the country, the desire to turn it to advantage makes people set it in motion, and public funds benefit thereby".

It is necessary to remember that mercantilism differed greatly at different times and in different countries. In England, Holland and Italy, it was predominantly commercial; in France and Germany it was rather industrial. These variations notwithstanding, and allowing for differences in the details of application, all the European rulers and statesmen from the sixteenth to the eighteenth century were guided by the principles set out above.

In England, though agriculture and manufacture were not neglected, mercantilism had a strong commercial trend. Cromwell's Navigation Law of 1651 decreed that no merchandise from Asia, Africa or America should be imported, except in ships built in England, owned by English subjects, navigated by English captains, with at least three-fourths of the crew English. Sea-borne commerce from England to other European countries was to be carried either in English boats, or else in ships belonging to the country with which trade was being carried on.

These conditions meant a practical monopoly of the seas for the English, to the detriment of the Dutch carrying-trade. By a treaty of 1703, Portuguese ports were opened to British woollens in return for concessions to Portugal allowing the importation of wine into Great Britain.

In Germany and Austria, owing to the devastation of the Thirty Years War, the need to increase the population was of paramount importance. There could not be much endeavour to promote foreign trade. The main concern was to hinder imports from countries whose manufactured goods were so cheap that the compensation could not be met. A demand for laws to limit expenditure on clothes, food, furniture, etc. was a feature of mercantilism here.

In Italy, in conformity with the nature of the financial and commercial aristocracies of the republics of that period, the mercantilist school was especially interested in the balance of trade and monetary problems.

In France, Jean Baptiste Colbert was the most successful exponent of the mercantile system, especially after 1666 when he became controller general of the national finances. At the time he took office, French industry was a long way behind England, and even Germany, and the finances and administration were in a bad state. It was not long before internal customs dues had been largely abolished, canals had been made, and skilled workmen and contractors attracted from other countries. By such stimulants as State subsidies, protective duties, and the establishment of technical schools, French industry began to flourish.

Adam Smith considered the mercantilists as a school of united thinkers. This is not so. Mercantilism was essentially a vague principle of applied economics, stemming from the historical, economic, and political foundations of the period. The economists of those days, in order to further the advance from the feudal and localised urban economy to a unified national economy, had to put forward the ideas of the balance of trade, attach great importance to money, study the effects of customs tariffs, examine the source of national wealth, and thus come to form a durable though somewhat loosely organised unity.

It was the economics of early capitalism—the period of history in which Capitalists and Workers make their appearance, showing a difference in the form of the class struggle from the feudal period before it.

Bob Ambridge