I. Legislative Proposals of Mercantilists

He shewed me a very excellent argument to prove, that our importing lesse [gold?] than we export, do not impoverish the kingdom, according to the received opinion: which, though it be a paradox, and that I do not remember the argument, yet methought there was a great deal in what he said.—Samuel Pepys, Memoirs, February 29, 1663/4.

Introductory.—The mercantilist writers were often critics of the prevailing legislation, and they cannot be understood unless this is constantly borne in mind. The actual body of statutes and proclamations in force at any one time was always an uncoordinated accumulation of measures adopted at various periods and for various reasons, and was far from conforming to any self-coherent set of ideas or principles with respect to trade policy. Of these laws and proclamations there were always a number which were non-enforced or were only spasmodically enforced, either because their legal status was questionable or because change of circumstances or of official or public opinion made their strict enforcement inconvenient or impossible. There were others which were flagrantly violated, sometimes in spite of efforts to enforce them, sometimes with the connivance of corrupt or unsympathetic officials.

The laws and proclamations were not all, as some modern admirers of the virtues of mercantilism would have us believe, the outcome of a noble zeal for a strong and glorious nation, directed against the selfishness of the profit-seeking merchant, but were the product of conflicting interests of varying degrees of respectability. Each group, economic, social, or religious, pressed constantly for legislation in conformity with its special interest. The fiscal needs of the crown were always an important and generally a determining influence on the course of trade legislation. Diplomatic considerations also played their part in influencing legislation, as did the desire of the crown to award special privileges, con amore, to its favorites, or to sell them, or to be bribed into giving them, to the highest bidders. After the Revolution the crown's authority in matters of trade regulation was largely shorn away, and factional jealousies and party rivalries replaced the vagaries of monarchical whim as a controlling factor in trade policy.

The mercantilist literature, on the other hand, consisted in the main of writings by or on behalf of “merchants” or businessmen, who had the usual capacity for identifying their own with the national welfare. Disinterested exposition of trade doctrine was by no means totally absent from the mercantilist literature, and in the eighteenth century many of the tracts were written to serve party rather than self. But the great bulk of the mercantilist literature consisted of tracts which were partly or wholly, frankly or disguisedly, special pleas for special economic interests. Freedom for themselves, restrictions for others, such was the essence of the usual program of legislation of the mercantilist tracts of merchant authorship.

There follows a survey of the specific legislative proposals of the mercantilist writers with respect to the regulation of foreign trade proper. A complete survey would require consideration also of their recommendations for dealing with the fisheries, the colonial trade, the interest rate, and poor relief, as well as with the monopolies and the internal regulation of manufacture, for all of these subjects were approached more or less in terms of their bearing on the balance of trade. Space limitations, however, prevent such extension of this essay as would be necessary to deal with these even sketchily, and in any case the mercantilist doctrines with respect to most of these topics have been ably and comprehensively dealt with in their special literatures and in Heckscher's masterly treatise. Sufficient has already been said to make clear the relationship to mercantilist trade doctrine of proposals for restricting hoarding or the conversion of bullion into plate, for prohibiting or subjecting to heavy taxation use of the precious metals for making thread or cloth or for gilding, and for increasing the monetary circulation through the introduction of paper money, to make unnecessary further discussion of such proposals.

Bullionist Proposals.—Following the common usage, the term“bullionist” will be applied to the measures intended to promote the mercantilist objectives through direct regulation of transactions in the exchanges and in the precious metals. Even prior to 1600 opinion in support of the policy of controlling specie movements indirectly through control of trade, instead of directly by regulation of exchange and specie transactions, seems already to have been fairly common. As early as 1381, Aylesbury said that the way to prevent a drain of specie was to prevent more merchandise from coming into England than was exported from it. An anonymous writer in 1549 stated that regulation of trade so as to bring about a surplus of exports over imports was the only means of securing an influx of bullion. An official memorandum of 1559, justifying the restoration of the currency to its former metallic content, denied the efficacy of raising the nominal value of the standard coin as a means of preventing its export. In the sixteenth-century manuscripts discovered by Pauli there are to be found both bullionist and non-bullionist proposals. Revival of the staples and enforcement of the Statutes of Employment are recommended. The acceptance by English sellers of wool of exchange in lieu of specie in payment for their wool should be prohibited. English coin should be overvalued in exchange for foreign coin, so as to attract foreign gold and silver. But imports of unnecessary foreign goods are to be restrained. Hales had made one of the participants in his dialogue urge that some English commodity be made salable to foreigners only in exchange for specie in whole or in part, but in the course of the discussion heavy export duties on wool, the prohibition of the export of unwrought goods, and either prohibition of import of competitive foreign goods or duties high enough to make them more costly than similar domestic goods, are recommended.

Bullionist proposals, on the other hand, are still to be encountered in the seventeenth century. Malynes advocated the revival of the Royal Exchanger, with a monopoly over exchange transactions, the maintenance of the mint par by royal proclamation as the actual rate of exchange, and prohibition of the export of bullion. Revival of the official regulation of exchange rates was urged also by Milles, Maddison, and Robinson; and Rowe, following Malynes, suggested that exchange rates be fixed by treaty with foreign governments. Mun in his first book (though not in his second), Rowe, and Violet wanted enforcement of the old Statutes of Employment. Many writers until late in the seventeenth century urged the enforcement of the prohibitions of the export of coin and bullion or after 1663, when the export of bullion and of foreign coin was legalized, their revival. But with the exception of a minor lapse by Steuart, there does not appear to have been any support of any of the bullionist devices among the prominent eighteenth-century writers.

Prohibitions vs. Duties.—The principal non-bullionist measures proposed by the mercantilists as means to secure a favorable balance of trade consisted of: restraints on the importation of foreign goods, especially manufactured goods and luxuries; encouragements to the export of English manufactured products; restraints on the export of raw materials; encouragements to the reexport trade; and restrictions on English industries which interfered with other industries or with trades which, on mercantilist or other grounds, were regarded as of greater importance.

Imports could be restricted either by the imposition of duties or by absolute prohibitions. Both methods were used and advocated, and many writers revealed no clear preference as between them. But they were more different in appearance than in fact. When writers asked for duties rather than prohibitions, they often wanted duties high enough to be prohibitive of import, or nearly so. When the government imposed prohibitions rather than duties, it often granted to particular trading companies or individuals special licenses to import. Many of the prohibitions were undoubtedly established primarily to obtain revenue by the sale of licenses to import rather than to promote a favorable balance of trade. Some writers expressed a preference for import duties rather than prohibitions without stating their reasons, but probably because duties seemed less severe. Other writers recommended moderate duties rather than high duties or prohibitions, because the latter were too severe and would lead to fraud, whereas duties could be enforced and would at least produce revenue. But other writers objected to the sacrifice of trade interests to fiscal considerations, while Steuart suggested that prohibitions could be more effectively enforced than duties if the latter would have to be high.

Some writers advised that restrictions on imports should not be carried too far, lest they excite foreign retaliation against English exports. Other writers replied, however, that there was little or no danger of foreign retaliation. England exported necessaries and imported “toys,” and therefore had nothing to fear. Other countries already restricted the imports of things they could produce themselves; other things must be got somewhere, and they would hurt themselves if they refused to buy them where they could best be got. Most-favored-nation clauses in commercial treaties, moreover, prevented them from discriminating against England in their trade regulations. “No wise nation takes from another what they can be without; and what they cannot be without, they must take, prohibit what you please.

One argument made repeatedly by the opponents of the French treaty of 1713 in support of treating Portuguese wines more favorably than French wines was that the balance of trade was more favorable with Portugal than with France, and that lighter duties should be imposed on the imports of the former, either because retaliation would therefore be more injurious to England in the case of Portugal, or because Portugal's capacity to buy English goods would be reduced if England did not take her wine.

Those who urged restraints on the exportation of raw materials—especially wool—almost invariably advocated prohibitions, probably because on mercantilist grounds a stronger case could be made for shutting-off access of foreigners to English raw materials than for completely shutting-out foreign imports, with the resultant danger of foreign retaliation, loss of shipping traffic, and so forth. It was always assumed by advocates of export prohibitions on raw materials that if foreigners could not take them unmanufactured they would be forced to buy them in manufactured form, so that trade would gain instead of lose thereby. Tucker, consistently with his balance-of-labor doctrine, recommended that taxes on exports should vary inversely with their completeness of manufacture, even to the extent of absolute prohibitions of export for raw materials, while the taxes on imports should vary directly with their completeness of manufacture.

There were few criticisms of the absolute prohibition of export of raw materials, and especially wool, and these came chiefly from spokesmen for the agricultural interest. But the objection was sometimes made that the Continental weavers were not as dependent on English wool as the advocates of the prohibition claimed, and that the prohibition would not be effective, therefore, in preventing the development of a continental wool industry. Sheridan also recommended “vast” duties on the export of raw material, especially wool, with additional duties when attempt was made to export without paying the tax, in preference to the absolute prohibition then in force, infraction of which was a felony punishable by death. If the penalty for violation were a fine, instead of death, many would turn informers “who now out of tenderness of men's lives forbear the discovering this injurious practice.” Petty asked whether when English clothiers could not sell all the woolens that were already produced, it would not be better to lessen sheep-raising and transfer the labor to tillage. If additional corn was not needed, and there were no idle hands and more wool than could be worked up, it would be proper to permit the export of wool. But if the advantages of the Dutch in making woolens exceeded those of the English by only a little, so that it would be easy to turn the scale in favor of English woolens, he favored the prohibition of export of wool. Brewster opposed the prohibition of the export of wool on the ground that England had an oversupply of it. Henry Home urged that the export of wool should be made subject to a moderate duty instead of to an outright prohibition. The French had alternative sources of supply, and absolute prohibitions stimulated smuggling. Freedom to export would result in an increased output of wool, and therefore in lower prices to English woolen manufacturers. The export could be prohibited at times of high prices, and thus difficulties created for the foreign rivals of English woolen manufacturers at critical times when the raw material was scarce. The revenue from export taxes on wool could be used to pay an export bounty on wool cloth. In general, Home favored the restriction of the export of raw materials only when free export would not lead to increased output and therefore to a lower price for English manufacturers.

Discriminatory Treatment of Domestic Industries.—The argument for international specialization in industries is, of course, the central point in free-trade doctrine. There were some instances, however, of writers who were so anxious that England specialize in some particular industry or industries that they proceeded to the length of a sort of inverted protectionism, and proposed that other domestic industries which competed with the ones they regarded as of special importance to England should be suppressed or limited. As early as 1564 Cecil suggested that it would be good for England to make and export less cloth, so that corn should not have to be imported, because clothmakers were harder to govern than farmers, and because so many were employed in making cloth that labor had become scarce for other occupations. One writer would have suppressed stagecoaches, because they led to less drinking in inns, fewer privately-owned horses, and other similarly objectionable consequences. An anonymous writer in 1691 opposed any attempt to set up a linen industry in England, because it would interfere with the woolen industry by causing an increase in spinning wages. Another writer argued that:

... the woolen and silk manufacturers of this kingdom being the staple of our trade, and the most considerable and essential part of our wealth, ... it is therefore the common interest of the whole kingdom to discourage every other manufacture, whether foreign or assumed [i.e., domestic?] so far as those manufactures are ruinous to and inconsistent with the prosperity of the said British manufactures of wool and silk.

Defoe approved of encouraging all manufactures that could be set up in England, but “with this one exception only, namely, that they do not interfere with, and tend to the prejudice of the woolen manufacture, which is the main and essential manufacture of England.” Arthur Young argued that because agriculture was more valuable to England than manufactures, no encouragement should be given to the increase of manufactures until England was completely cultivated, “it being proved that, until such cultivation is complete, the generality of them [i.e., manufactures] are a prejudice to the state, in that circumstance of not being employed about the most important concern of it.”

Those who presented such arguments were usually, of course, special advocates of some particular industry rather than disinterested students of the general welfare, but it is of interest that they should have thought it possible to appeal to the public by such reasoning. There was, in fact, some actual legislation based on the principle of discouraging industries which interfered with other industries regarded as of superior importance. Defoe cited the prohibition of the cultivation of tobacco on the ground that it would use land useful for raising wool, and alleged (apparently without basis in fact) that the mining of inland coal was not permitted in certain localities because it would injure the shipping trade, as examples of actual measures based on this principle. From 1699 to 1720 a series of acts was passed prohibiting covering buttons with wool, or with silk or mohair imported from other countries than Turkey, in order to promote the English silk industry and the trade with Turkey, with which country the balance of trade was favorable. Further examination of the trade legislation would no doubt reveal additional measures involving the deliberate discouragement of one English industry in order to benefit another.

The Reexport Trade.—To foster the reexport or entrepôt trade, and to win the carrying trade away from the Dutch without opening the domestic market to foreign goods, free ports, drawbacks, and bonded warehouses were generally approved by even the extreme mercantilists, but some writers approved of the prevailing restriction of drawbacks of import duties to commodities which could not be conveniently manufactured at home.

A more important and radical proposal, however, was that all import and export duties be abolished, and that there be substituted, both for fiscal and for trade regulatory purposes, internal excises on the consumption of foreign manufactured products. This would free the merchants engaged in reexport trade from the inconveniences and expense of the drawback system, and thus enable them to compete more effectively with their foreign rivals. It would at the same time get rid of the customs duties imposed on English goods for fiscal reasons and inconsistently with mercantilist doctrine. Walpole was sympathetic to such a policy, and under his administration the customs system was overhauled in the direction of freeing imports of raw materials from duty and abolishing export taxes except on commodities such as lead, tin, and leather, with respect to which it was supposed that the dependence on English supplies would force the foreigner to bear the tax. On several foreign commodities, also, import duties were replaced by excises on domestic consumption. In 1733, Walpole proposed to move farther in the same direction by substituting internal excises for the import duties on tobacco and wine. In support of his proposal, he pointed out that it would leave the reexport trade in those commodities wholly free from taxation and from the inconveniences and expense of the drawback system. The proposal has not appeared objectionable to later commentators, but Walpole's political opponents, appealing to the traditional connection of excises with the exercise of arbitrary power by the government against the people, and stressing the inconveniences which would result if, as alleged, acceptance of this limited excise would quickly lead to its wide extension, succeeded in arousing violent opposition to the measure, and in forcing its abandonment.

Export Bounties.—In 1673, an export bounty was granted on corn. It remained in effect, however, only for some five years, but a new bounty was established by the famous corn law of 1689, and continued in effect, except for temporary suspensions, until 1814. Later, other export bounties were granted on linen and silk manufactures, sailcloth, beef, salt pork, and other commodities, and these were not repealed until the nineteenth century.

Until the second half of the eighteenth century the export bounties do not appear to have aroused much comment, favorable or unfavorable, in the contemporary literature, perhaps because the circumstances were then such that they had little practical importance. After 1750, however, there was considerable opposition to the corn bounties, especially in periods of short harvests, and the poorer classes repeatedly engaged in violent rioting in protest.

In so far as the export bounties stimulated the production and export of the bounty-fed commodities, the mercantilist would of course be predisposed to favor them, and on these simple grounds John Houghton defended the first corn bounty, and later writers, not all of whom were frank partisans of the agricultural interest, defended the later bounties. Henry Home supported the export bounty on corn both on these grounds and on the grounds that it had hurt French agriculture and therefore weakened France in case of war. In the same spirit he recommended a bounty on exports of manufactures to the colonies, “which by underselling them in their own markets, would quash every attempt to rivalship.”

The corn bounties were attacked on the grounds that by making corn dearer in England they resulted in a raising of wages and in the general cost of living, and thus impaired the capacity of the English to compete with other countries in non-subsidized commodities, and especially manufactures. But some of the supporters of the corn bounties denied that they had in fact made the price of corn higher in England or lower abroad than it would otherwise have been.

Infant Industry Protection.—Modern writers usually credit Alexander Hamilton or Friedrich List, or even John Stuart Mill, with the first presentation of the “infant industry” argument for protection to young industries. It is of much earlier origin, however, and is closely related both in principle and in its history to the monopoly privileges granted to trading companies opening up new and hazardous trades and to inventions (the “patents of monopoly”). A complaint of 1645, that the circumstances which originally justified the grant of trading monopolies were no longer present, reveals the probable origin of the infant industry argument for bounties or import duties:

Those immunities which were granted in the infancy of trade, to incite people to the increase and improvement of it, are not so proper for these times, when the trade is come to that height of perfection, and that the mystery of it is so well known. ...

Some early presentations of the argument for temporary protection or bounties to “infant industries” follow:

And that the linen and iron manufactures may be so encouraged here by a public law, as that we may draw these trades solely to us, which now foreign nations receive the benefit of, there ought in the first place to be a tax or custom at least of four shillings in the pound put on all linen yarn, threads, tapes, and twines for cordage that shall be imported into England, and three shillings in the pound upon all linen cloths under four shillings the ell; and this law to continue and be for seven years. And by virtue of this tax or imposition, there will be such advantage given to the linen manufacture in its infancy, that thereby it will take deep rooting and get a good foundation on a sudden. ...

[I am] fully convinced ... that all wise nations are so fond of encouraging manufactures in their infancy, that they not only burden foreign manufactures of the like kind with high impositions, but often totally condemn and prohibit the consumption of them. ...

Upon the whole, premiums are only to be given to encourage manufactures or other improvements in their infancy, to usher them into the world, and to give an encouragement to begin a commerce abroad; and if after their improvement they can't push their own way, by being wrought so cheap as to sell at par with others of the same kind, it is in vain to force it.

I have now, I think, shewn, Sir, that the linen manufacture ... is but in its infancy in Britain and Ireland; that therefore it is impossible for our people to sell so cheap, or to meet with such a ready sale even here at home, as those who have had this manufacture long established among them, and that for this reason, we cannot propose to make any great or quick progress in this manufacture, without some public encouragement.

... it must be ridiculous to say to an infant manufacture, or while it is in its progress toward maturity, you have no occasion for any public encouragement, because as soon as you can make the quantities and qualities wanted, and sell them as cheap as those who have been long in possession of the manufacture, you will certainly find a vent for all you can make.

All manufactures in their infancy require not only care, but considerable expense, to nurse them up to a state of strength and vigor. The original undertakers and proprietors are seldom able to lay down at once the necessary sums; but are obliged to take time, struggle with difficulties, and enlarge their bottoms by degrees.

Mercantilism and Protectionism.—It is not easy to make a sharp distinction between mercantilism as commercial policy and the modern doctrine of protection, for they differ more in their distribution of emphasis than in their actual content. The modern protectionist urges the importance of restricting the imports of foreign goods of a kind which can be produced at home in order that domestic production and employment may be fostered. He does not stress as much as did the mercantilist, and he may refrain from discussing, and may even reject, the balance-of-trade doctrine. Except in its more popular manifestations, modern protectionism does not lay special stress on the desirability of increasing or maintaining the national stock of bullion. But most of the arguments commonly used by modern protectionists were already current in the mercantilist period. Even during the seventeenth century, and frequently during the eighteenth century, tracts were written which made no reference to the balance of trade or to monetary considerations, and dealt only with the desirability of protecting domestic industries in order to increase employment and production. Usually, however, the balance-of-trade argument was invoked to reinforce the employment-production argument for import restrictions. Few writers, apparently, saw any possibility of conflict between these arguments. But the “balance-of-employment” argument, when it asserts that the “balance of work” is a better test than the balance of trade of whether trade is beneficial or not, can be interpreted as a plea for the greater importance of the protectionist than the monetary phases of mercantilist doctrine, and one author condemned the East India Company because it brought in silks to be consumed in England in place of English silks and woolens even if its activities did result in more gold coming into England than it took out. There are no important differences, also, between the legislative devices of the mercantilist and those of modern protectionism. The chief differences appear to be that: absolute prohibitions of import are less common, and commercial treaties and tariff bargaining relatively more important, now than then; export prohibitions have almost completely disappeared; rates of duty are generally much higher now than then (although a contrary impression is prevalent); and there has been a substitution for some of the old arguments of new or partially new ones of comparable intellectual quality.