THE BALANCE OF TRAM
A STUDY IN MERCANTILISM
HEL8IN0I OB I
As a historical problem the current ol thought, generally known
as the Theory o! the Balance of Trade»offers much of interest to the
economic student. It played a central part in economic reflec
lions from the end of the sixteenth century nil about the middle
of the eighteenth. Then il lost all its former significance and was
derided as a crude economic fallacy But in the last idt\ years orso,
the wheel has turned once more; the mercantile idea lias met with
more appreciation among economic historians
In face of the historical importance and later fortunes of the
balance i heoj \ .n is amazing ho\* little attention actually has been paid
to ii i»\ economic students Outside economic text-books and dic-
tionaries and general histories ot economic thought, where the space
allotted i" (Ins particular question has been necessarily limited and
the treatment, though often containing instructive suggestions,
lather superficial, the balance theory has seldom been submitted to
.1 separate samination. The ablest studj pf the question, is still
to-day H e \ k i n g, Zui Geschichte der Handelsbilanztheorie (1880)
Ii relates carefully the origin. of the theory, but is in other respects
less instructive, since onl} a firsl part was ever published. 'The
book is also already antiquated in some of its conclusions. Another
treatise wholly devoted to the ha la nee threory is Petritsch, Die
Theorie von der sogenannten gflnstigen uud ungunstigen Han
I'd in 1 1 02) The historical pan ol t his book starts, however, from
ing primissrs and is, therefore, of no use whatever for the better
understanding ol the mi rcantile theorj Here may also be meuti<
Schacht, Der theoretische Gehalt des englischen Nferkantilismus
IV BR. SUVIRANTA. B XVI 1 ,2
(1900). It is a book written with good sense and contains useful
hints as regards the balance theory.
In English, there does not seem to exist any special study of the
mercantile theory of the balance of trade.
Thus, a thorough study of the theory of the balance of trade is
still wanted. The present short study makes no pretentions to sup-
ply the place of such a study; it is to be regarded only as a step in
that direction. It deals only with the literature of a particular
country, though, indeed, the most important one. And it gives no
history of the balance theory, but is confined to a narrower ques-
tion: it examines the economic fundaments and the importance of
the theory as appearing in the mercantile literature of the seventeenth
century when mercantilism was at its height. Only as throwing light
upon the particular problems dealt with, is reference made to later
economists, or to the literature of other countries.
During the course of my work I have received kind assistance
from many quarters, which it is my agreeable duty to acknowledge.
I am under great obligation to Prof. Y. Jahnsson, Helsingfors, who
was the first to direct my attention to problems of mercantilism, and
to Prof. J. V. Tallqvist, Helsingfors, whose inspiring suggestions
and helpful criticism have given me effective guidance in my work.
For much valuable advice, I am indebted to Dr. J. Bonar, London,
and to Prof. Edw. Carman, of the London School of Economics.
My best thanks are also due to Mr. S. Sydney Silverman, Lecturer
in English at Helsingfors University, for help rendered me in point
Lastly, I cannot refrain from expressing my deepest gratitude to
Prof. Hugo Suolahti, Helsingfors, who has during the course of many
years given me all possible advice and encouragement.
Helsingfors, May 1923.
I Introduction 1
II. The Mechanism of the Balance of Track? 9
III. Gold and Silver: Stores of Value 45
IV. Gold and Silver: The Standards of Money 61
V. The Importance of the Favourable Balance of Trade 114
VI. Conclusion 165
The fourteenth century, the fifteenth and the first half of the
sixteenth form in England a period of transition from feudal to
Feudal society was an aggregation of manorial and municipal
groups. These local groups, which were predominant in the field
of economic authority, were each of them directly connected with
the central authority, the King. The economic power of the King
was limited to securing good administration, collecting the revenue
satisfactorily and providing a sound currency.
Money played in feudal society an insignificant role. In the
country the manorial system made natural economy predominant;
The villages, living on what they produced, came seldom into
contact with the outside world. In the Middle Ages the great
majority of the population lived in the country. But even in
the town where the gild system was prevalent, money did not
play any considerable part, though here money had earlier been
substituted for natural economy. Little capital was needed, eco-
nomic expansion and effective competition being largely restricted
and directed by local customs and gild regulations. It was »an
economy whose keynote was production to order, and where every
one did just what his father had done». 1
1 S e 1 i g m a n, Principles of Economics, p. 113.
BR. SUVIRANTA. BXVII,2
These characteristics of the feudal system disappeared little
by little during the period of transition, giving place to a new
economic order characterized by a gradual introduction of money
economy all over the country and by the submission of local groups
to a powerful central authority.
With money economy the scope of economic life expanded,
distribution became more rapid, city life more important. The
power of everyone to steer his course in life according to his own
choice was much strengthened. Enterprising men were awakening
to a perception of the economic power which money represented
and to strive for the big profits which capital stock, if wisely em-
ployed, gave to its owner. »Money had come to be a thing for which
everyone sought, not exactly for its own- sake, but because of its
purchasing power; it was a convenient representative of
all other objects of wealth, and, as such, a thing of which each
man desired to have as much as possible. From this time forward
the desire of wealth, as the means of gratifying the desire
of social distinction and all else, became a much more important
factor in economic affairs than it had been before. » x
This new capitalist spirit appeared all over the field of economic
activity: in the transition from the craft to the domestic system,
in the increasing importance of manufactures and their reorganis-
ation on a basis of wage-labour, in the enclosing of many manorial
estates into large sheep-runs worked by capitalist farmers; in the
extension of commercial activities. With all this, mediaeval group-
ings and distinctions tended to disappear; old barriers of status
were broken dow 7 n, classes merged together and commercial enter-
prise extended far beyond the narrow limits of feudal groups.
Place was given to new classes; a capitalist class and a labouring
This basic tendency of the age, common to the whole of Western
Europe, was the most efficient agency in the transformation of
1 Cunningham, Growth of English Industry. Early and Middle
Ages, p. 465.
B XVII,2 The Balance of Trade.
municipal economics into national economics: the authority of
local groups was being gradually weakened, at the same time as
that of the central government came to be strengthened. In some
countries, e. g. in Italy and Germany, this basic tendency of eco-
nomic development was checked by the division of political power;
in England, on the contrary, the process was facilitated and acceler-
ated by political factors, which were steadily working towards the
same ends. It is impossible to ascertain how far the economic
development was the cause, how far the effect of political central-
The movement towards political centralization had its origins
so early as the reign of William I. who welded the several parts
of England into a united kingdom. The next great step was taken
in the thirteenth century when Edward I., by instituting the
representation of the people and reorganising the fiscal system,
»pro\ided the machinery by which the whole subsequent develop-
ment of English industry and commerce has been directed and
controlled)). l This national policy was successfully pursued by
subsequent monarchs along the same lines. By the reign of Henry
VII. the work was practically finished; all working economic insti-
tutions had assumed a national character.
The concentration of national economic life under the direction
of a powerful central government, awakened a national spirit and
gave rise to an economic policy designed to further national aims
as distinct from the aims of individual citizens, or local groups.
The germs of this new policy, of Mercantilism, may first
be discovered in the legislation of Richard II. 's reign. »It was a
policy of encouraging the native shipping which Edward III. had
neglected; it favoured native merchants, and subsequently artisans.
in opposition to aliens, and at the possible expense of consumers;
there were deliberate attempts to encourage the agricultural interest
and especially the corn grower; part of this new scheme was an
endeavour to attract the importation of bullion for the accumul-
1 C u n n i n g h a m, o. c. Early and Middle Ages, p. 262.
4 Bb. Suviranta. B XVII,2
ation of treasure and not merely with a view to the maintenance
of the purity of our coinage.* 1
The essence of the mercantile policy was to prefer the producer
to the consumer and, the native to the foreigner. On these lines
mercantilism developed steadily during the course of subsequent
centuries. Measures which were at first unsystematic and primarily
adapted to meet certain practical needs, were gradually co-ordin-
ated into a complex and well-articulated system of national policy.
Production was subjected to systematic regulation; manufactures
were supported with the object of maintaining and securing foreign
markets; shipping was encouraged by laws of navigation; agri-
culture, by corn laws; high duties on imports and prohibitions
were resorted to for resisting the introduction of anything but
raw materials and gold and silver from abroad.
The measures which were taken to guard against a scarcity
of money and to secure the hoarding of state treasure, formed an
organic part of this mercantile policy. They may be divided into
two classes: those which aimed at preventing the melting down
and export of bullion and those which aimed at securing a regular
influx of bullion. These measures developed gradually during the later
centuries of the Middle Ages into an intricate and detailed policy,
that has been called »The System of the Balance of Bargains 2
This name has been chosen because it characterizes the means
by which legislation was pursuing its aims. The design was that
the state should be present, by its agents, at every bargain made
between the home country and other countries and see that such
bargains were directly productive of bullion. The staple places,
especially that of Calais, established in 1363, came to play a most
important role in the practical execution of this design; the trade
'Cunningham, o. c. Early and Middle Ages, p. 377.
2 This name was first invented by Richard Jones, in the article:
»Primitive Political Economy of England*), published in the »Edinburgh
Reviewo, April, 1847.
B XVI 1,2 The Balance of Trade.
being limited to these few places of relatively narrow area, an
effective supervision of bargains in staple commodities, of which
wool was the most important, was made possible for the govern-
ment. To exercise this supervision, a King's Exchanger was ap-
pointed. He and his agents had to check all money transactions
between the home and foreign countries and to see that rules fixing
the quantity of ready money to be brought home from every
bargain, and other such rules, were strictly observed by merchants. -
Such were the fundamentals of the system of the balance of
bargain. They were suited to the peculiar circumstances of the
latter end of the Middle Ages. Their day was however not long.
With the further development of economic and political life, there
arose several distinct agents at once displacing and suspending
the working of its machinery.
The staple-trade was destroyed by the extension of commercial
activities. Especially »the mystery and company of the Merchant
Adventurers for the discovery of regions, dominions, islands, and
places unknown», were breaking new ground for English com-
merce in distant markets and thereby putting an end to the ex-
clusive privileges of the staple-towns. At the same time the sphere
of English export-industry was expanding, above all through the
growth of the cloth industry. As long as wool had been the chief
object of English export, the foreigner had been compelled to fetch
it from the staple; now the English merchant, in his turn, was
compelled to leave the staple place in order to find buyers.
There was yet another tendency in this development, equally
destructive of the methods of traditional policy, viz. the expansion
of credit. The use of credit facilities, especially the use of bills of
exchange, was by that time far from being a new invention. There
had existed, since the thirteenth century at least, in important
commercial places, above all in Florence and Antwerp, money
exchangers who used to check and register the rates of exchange
of different currencies. The manipulations of these men had,
naturally, early attracted the attention and suspicion of legal
authorities. And it had been prescribed . that the negotiation of
Br. suviranta. B XVII, 2
bills of exchange should be strictly confined to the King's Exchanger
and his agents.
With time, however, the greater use of bills of exchange, in-
stead of ready money, rendered the supervision of business in
detail useless and impossible. How far conditions had actually
advanced by the sixteenth century, appears from the fact that
»the great financiers, whose principal establishments were at Ant-
- werp, were quite accustomed to watch the principal money markets
of Europe, and to transfer large sums to" those places where the
rate of interest was attractively high». x Evidently, the movements
of precious metals were already beyond the scope of controlling
The system of the balance of bargain came formally to an end
in 1558, when Calais, for long the only English staple-place, fell
into the hands of the French, though even before that time the
system had, as has been pointed out, been superseded, by the
actual development of economic life. And when attempts were
later made, e. g. by James I. and Charles I., to renew the old
practice of the King's Exchanger, they were wholly out of date,
as appears from the petition presented by the Goldsmiths in 1608
against the appointment of an Exchanger. They asserted that
this office was »only used in the tyme of ignorance, when Gold-
smiths were fewe and pore, not able to buy bullion*. 2
Only one feature of the old system was more tenacious of life,
namely the prohibiting of bullion export. This »bullionist» policy
continued far into the seventeenth century. With advancing time
the fruitlessness of such a policy became, however, more and more
manifest. Even more than the manipulations of money exchangers
the activities of the East India Company, established in 1600,
were bound to direct the general attention to the shortcomings
of bullionist policy. For the East India Company was forced to
carry on its trade by a continuous export of bullion, since English
'Cunningham, 0. c. Modern Times, p. 146.
'■' Hi' wins, English Trade, p. XXV.
B XVI I,a The Balance of Trade.
products were not sufficiently in demand in the East. As an
example of the attention paid for this reason to the Indian trade,
the following passage from the instructions of the Standing Com-
mission on Trade of 1622, may be quoted: »Because the East
India Company have been much taxed by many for exporting
the coin and treasure of this realm, to furnish their trade withal,
or that which would otherwise have come in hither, for the use
of our subjects we authorize yuo to inquire and search whether
that company do truly and justly perform their contract with us
concerning the exportation of money, and by what means that
trade, which is specious in show, may be made profitable to the
At last, in 1663, the bullionist policy was abandoned by Parlia-
ment. An Act was passed permitting the exportation of bullion
without licence. Thus, the principle of free trade in bullion had
become official policy, though in practice this Act proved itself,
for a long time, and with many oscillations, impossible of execution,
and the Government continued to meddle, by legislation and
proclamation, with the export of the precious metals. 2
During the long decay of the balance of bargain system, the
principles of the balance of trade were being advanced. These
principles form the theoretical counterpart of the political move-
ment towards the system of free trade in bullion, but they cannot
be called an economic theory, in the proper sense of the term,
though they are commonly called »The Theory of the Balance of
Trade». The early mercantilists used not to analyse economic
1 Hewins, o. c, p. XXVII. — It may be noted that according to
Laspeyres, in Holland too the East Indian trade deepened the under-
standing of commercial principles: »The East Indian Trade contributed,
in my opinion, most to a right judgment, though, or all the more, b e-
cause it carried much money from the country. That the trade to the
East Indies was advantageous, not only to the Company, but to the whole
country, was not denied by anybody» (Geschichte der volkswirtschaftlichen
Anschauungen, p. 283).
a Shaw, The History of Currency, p. 163.
Br. Suviranta. B XVII, 2
phenomena sine ira et studio; they were less propagating
economic theory, than pursuing certain practical aims, e. g. plead-
ing on behalf of the commercial practices of the East India Company.
The principles of the balance of trade, unsystematically introduced
throughout the writings of mercantile economists, only become in
the hands of the laborious inquirer a »T h e r y of the Balance
When we now proceed to analyse this theory, we may approach
it from two different sides. There is first the outward appearance
of the balance of trade that may properly be called the M e c h a-
nism of the" Balance of Trade. Questions here de-
manding solution, are: How did this mechanism function? What
were the limits of its functions? And what of criterions by which
the state of the balance of trade was to be ascertained? These
are the most outstanding problems of the theory of the balance
of trade; they are also the best known part of the theory. But there
is another aspect, equally essential, which we may call the Im-
portance of the Favourable Balance of Trade.
This aspect is comprised in the question: Why was the favourable
balance of trade regarded as so highly important? This question
has been greatly neglected in economic studies dealing with the
problems of mercantilism, having usually been briefly dismissed
with some conventional phrases about mercantile fallacies and
II. The Mechanism of the Balance of Trade.
The early decades of the seventeenth century witnessed the
first economic controversy of importance in England. The contro-
versy, carried on in numerous pamphlets, was one between the
partisans of the declining system of the balance of bargain and
their opponents, who adhered to the new principles of the balance
of trade. The question in dispute was, whether the rates of ex-
change were to follow official rates, or whether they exclusively
depended on the market value of gold and silver. The advocates
of the older system were able to support their pleas for bullionist
policy by citing the conception, sanctioned by long tradition, of
the forces which determined the value of money. According to
that conception, money was »artificial riches» upon which the prince,
by his own declaration, had bestowed a conventional value. This
conventional value, »v a 1 o r e x t r i n s e c u s», was not a
wholly arbitrary one — such was the advanced opinion among
economists adhering to this theory of value — but was to be fixed
by common estimation and according to the value of the metal
the coin was made of, i.e. according to the »valor intrin-
secusi). 1 That point of view was, for instance, brought forward
1 To this group of thinkers belonged e. g. S. Thomas Aquinas
who impressed upon princes that the valor extrinsecus was not fictitious
but was to be kept close to the valor intrinsecus (O n c k e n, Geschichte
der Nationalokonomie, I. p. 127). Many other famous economists, such as
Ores me, Buridan, Copernicus, Dumoulin, were of the
same opinion (T a 1 1 q v i s t, Merkantilistiska banksedelteorier, p. 137).
10 BR. Suviranta. B XVII,2
in 1553 in a paper written by John Pryse, who argued that
the prince could not arbitrarily rate his coin »at his pleasure*), but
that he must take account of »the value of the metal that is in
it». x But when this] legal rate was once assigned, it was to be
constant, so it was believed, and was to remain the same
everywhere. Any deviation from the legal rate was regarded as an
abuse and an interference with the prince's prerogative. Strong
prejudice prevailed, therefore, against the meddling of private
financiers and goldsmiths with the fixed rates. And every time
the exchange happened to alter adversely, these irresponsible
persons were charged with having deliberately undervalued the
coin, thereby amassing wealth at the expense of the public and
to the detriment of the country.
M i 1 1 e s, an officer of the outports, was one of the advocates
of the decaying system. He published in 1604 »The Customers
Replie», in which he called loudly for the protection of the ancient
principles and practices, by which the foreign trade of the country,
better looked after and more efficiently controlled, was forced by
the wisdom of the state to contribute to its wealth and strength:
»That merchandising exchange is that laborinth of errors & private
practise, whereby (though kings weare crownes & seem absolutely
to raigne) particuler bankers, private societies of merchants, &
covetuous persons (whose end is private gayne) are able to suspend
their counsailes & controle their pollicies, thus making
kings to be subiects, and vassalles to be kings. » 2
Gerard de Malynes was the ablest and most obstinate
defender of the supposed right of the prince. As merchant and
one of the Assay Masters of the Mint he had much practical experi-
ence in matters of exchange. 3 He denounced, in numerous pamph-
lets, the tricks (of which he enumerated twenty four) of exchangers,
who by setting up their own rate as distinct from that of the prince.
1 Cunningham, o. c. Modern Times, p» 161.
■ M i 1 1 e s, The Customers Replie, p. 33.
3 He w i n s, o. c, p. XXII.
B XVII, 2 The Balance of Trade. 11
were controlling the price of money and commodities: »This course
of exchange being abused, and of late years become as it were a
trade in rising and, falling in price, according to plentie or scarcitii'
of monie, and in regard of discrepance and distance of time and
place, is become predominant or doth over-rule the course of
commodities and money, and is the very efficient cause of this
overbalancing of commodities before spoken of, and consequently
of the decrease of our wealth, and exportation of our monies. » x
Instead of such irresponsible persons, the Government should
take over »the predominant part of trade, namely the mistery of
exchanges and settle the question of exchange on the principle
of par pro pari, value for value. 2 For, he argued, »The rule is
infallible, that when the exchange doth answer the true value of
our moneys according to their i n t r i n s i c k e weight and
finenesse, and their extrinsicke valuation: they are
never exported, because the gayne is answered by exchange,
which is the cause of transportation. This cause being prevented,
maketh the effect to cease». 3
The critics of these bullionist principles started from a contrary
point of view: Value was not bestowed upon money by princes,
but was exclusively dependent upon the intrinsic, the metallic
value of the coins; the value could not, therefore, be of the nature
of a constant, but would follow the market value of gold and silver.
John Hales seems to have been the first in England clearly
to expound this theory in his »Discourse of the Common Weal».
He asserted with great emphasis that the value of money was in
a natural way fixed by the course of trade and would not follow
the assigned denomination. »Have ye not made proclamations,
that oure ould coine, specially of gold, that it should not be cur-
rant heare above such a price? is not that the rediest waie. to
drive awaie oure gold from us, as everie thinge will goe wheare
1 M a 1 y n e s, A Treatise of the Canker, pp. 15—16.
2 Malynes, The Center, p. 137.
3 Malynes, Maintenance of Free Trade, p. 14.
12 Br. Suviranta. B XVII,2
it is most estemed? and therfore oure treasure goeth over in
The decisive attack against the old theory, however, did not
take place until the first decades of the seventeenth century, the
victorious assault being delivered by two merchants of importance,
Edward Misselden and Thomas M u n. The exchange
theories of Milles and Malynes were overthrown by them. The
former summed up his point of view as follows: »It is not the rate
of exchange, whether it be higher or lower, that maketh the price
of commodities deare or cheape, as Malynes would here inferre;
but it is the plenty or scarcitie of commodities, their use or non-use.
that maketh them rise and fall in price. Otherwise, if Malynes
rule were true that the prices of commodities should perpetually
follow the rates of exchange; then commodities should all rise
and fall together, as the exchange riseth or falleth. But — —
commonly one commodity riseth when another falleth: and they
fall and rise, as they are mor or lesse in request and use.» 2
Thomas Mun was at pains to repudiate one by one the
twenty-four tricks by which money exchangers were, according to
Malynes, controlling prices and commodities, as existing only in
Malynes' own imagination. 3 The opinion he gave of Malynes'
1 Hales, Discourse of the Common Weal, p. 79. It may be of interest
to notice that Sir Thomas Gresham had already earlier followed
in his policy antibullionist principles, if not as a consequence of theoretical
considerations, then of practical necessity: »He told Henry VIII. that fo-
reign commerce could no more exist without exchange, than a ship float
without .water; and declared, that if the course of the mercantile exchange
was interrupted, the transactions of the approaching Bartholomew fair
would be paralysed* (Jones, o. c. Edinburgh Review, 1847, p. 443).
When Gresham later, in 1558, enunciated the economic law known as
^ireshaufs law», he had clearly rejected bullionist principles. — ■ Outside Eng-
land, Jean Bodin and Scaruf f i were early formulators of the
theory that the value of money was wholly determined by its intrinsic value.
(Tallqvist, o. c, pp. 138— 9).
2 .Misselden, Circle of Commerce, p. 21.
3 M u n, England's Treasure, pp. 62—64.
B XVII.s The Balance of Trade. 13
plans, ran as follows: »In vain therefore hath Gerard M a 1 i n e s
laboured so long, and in so many printed books to make the world
beleeve that the undervaluing of our money in exchange doth
exhaust our treasure, which is a mere fallacy of the cause, attribut-
ing that to a secondary means, whose effects are wrought by another
principal efficient, and would also come to pass although the said
secondary means were not at all. As vainly also hath he pro-
pounded a remedy by keeping the price of exchange by bills at the
par pro pari by publick authority, which were a new-found
office without example in any part of the world, being not only
fruitless but also hurtful. » L
The controversy between Milles and Malynes on the one hand,
-Misselden and Mun on the other, seems to have given the death-
blow to the old idea that the value of money was constant. All
later mercantile writers of the seventeenth century, all of any
importance, at least, who deal with this question adhere to the
new principles. Thomas Hobbes, the philosopher, has given
this point of view a fine expression: »And because silver and
gold have their value from the matter it self; they have first
this privilege, that the value of them cannot be altered by
the power of one, nor of a few common-wealths; as being a common
measure of the commodities of all places. — — But that coyne,
which is not considerable for the matter, but for the stamp of the
place, being unable to endure change of ayr, hath its effect at
home only; where also it is subject to the change of laws, and
thereby to have the value diminished, to the prejudice many times
of those that have it.» 2
Hobbes allows thus a certain validity to the bullionist theory:
As far as a coin is intended to circulate internally only, its value
depends upon law and may be deliberately altered by the author-
ities. But as soon as money »endures a change of air» and becomes
an international phenomenon, it derives its value »from the matter
1 M u n, England's Treasure, pp. 57-
2 Hobbes, Leviathan, pp. 193 — 4.
14 Br. Suviranta. B XVI 1, 2
itself» and cannot be altered by anyone. 1 As far as foreign trade
and the exchange of money are concerned, Hobbes point of view
was thus decidedly against bullionist principles.
Vaughan, the first English economist to write a mono-
graph on money, describes the value of money as follows: »I shall
convince hereafter an important and a popular error, by which
many are perswaded, that princes can give what value they list
to gold and silver, by enhancing and letting fall their coins, whenas
in truth gold and silver will retain the same proportion towards
other things, which are valued by them, which the general consent
of other nations doth give unto them, if there be a trade and com-
merce with other nations. » 2
In Fortrey we find a term which afterwards occurs in
numerous economic treatises by mercantile writers; money is de-
scribed by him as a »c m m d i t y». He says: »For it is in this
[money] as in all other commodities, where the commodity is
scarce, and the vent great, the purchase is always dear.» 3 The
term »commodity» is here evidently used to convey the idea, that
the value of money is subject to just the same economic laws of
supply and demand as that of anything else. That this is the true
interpretation, is settled beyond doubt, when similar expressions
from other economists are taken into consideration. In Sir
J s i a h Child we find a passage as follows: »Silver and gold.
coined or uncoined, though they are used as a measure of all other
things, are no less a commodity than wine, oil, tobacco, cloth,
or stuff, and may in many cases be exported as much to national
advantage as any other commodity*). 4 Petty asserts that
if there are too many coins »we may melt down the heaviest,
1 It may be of interest to note that a later philosopher and economist
of eminence, Montesquieu, has expounded a similar theory to that
of Hobbes of the dual character of the value of money (O n c k e n, Geschichte
der Nationalokonomie, I. p. 269).
2 V a u g h a n, A Discourse of Coin, pp. 7 — 8.
3 Fortrey, England's Interest. Econ. Tracts, p. 31.
4 Pal^rave's Iictionary, I. p. 277: Child.
B XVII, 2 The Balance of Trade. 15
and turn it into the splendor of plate, in vessels or utensils of
gold and silver; or send it out, as a commodity, where the same is
wanting or desired; or let it out at interest, where interest is high». *
North points out that »in this course of trade, gold and silver are
in no sort different from other commodities, but are taken from them
who have plenty, and carried to them who want, or desire them». 2
D'Avenant expresses the same idea as follows: »The want
or plenty of any commodity does give the rule to its price, between
country and country, and not only things of necessity, but those
of luxury, are subject to these variations, which money, the servant
of trade, is forced to follow.* 3 Bishop Fleetwood preached
on December 16, 1694 a sermon, in which he said: »The merchant
that exports less goods from home than he imports from abroad
must unavoidably discharge the over balance with good money:
this he can never do with clipped: for it is not Caesar's face
and titles, but weight and goodness that procure
Of the seventeenth-century writers it is, however, Locke
who gives the most explicit theory of the factors which determine
the value of money. He has set down his view in various passages
of his »Considerations» and »Further Considerations of the Lowering
of Interest*. Thus he says: »The rate of money does not follow
the standard of the law, but the price of the market. » 5 Another
passage runs as follows: »For it is certain, that one ounce of
1 Petty, Quantulumcunque. Writings, II. p. 446. Cf. also the follow-
ing passage: »Raising or embasing of moneys is a very pittiful and unequal
way of taxing the people; and it is a sign that the state sinketh, which catcheth
hold on such weeds as are accompanied with the dishonour of impressing a
princes effigies to justifie adulterate commodities, and the breach of publick
faith, such as is the calling a thing what it really is not» (Petty, A Treatise
of Taxes. Writings, I. pp. 90 — 1).
2 North, Discourse. Econ. Tracts, p. 25.
3 D'Avenant, Discourses on the Public Revenues. Works, I. p. 355.
4 M a c 1 e o d, Theory of Credit, p. 534.
5 Locke, Considerations. Essays, p. 583.
16 Br. Suviranta. B XVII, 2
silver is always of equal value to another ounce of silver, consi-
dered in its intrinsick worth, or in reference to the universal trade
of the world: but it is not of the same value, at the same time,
in several parts of the world, but is of the most worth in that
country, where there is the least money, in proportion to its trade. » *
And in another place he explains that »money therefore, in buying
and selling, being perfectly in the same condition with other commod-
ities, and subject to all the same laws of value ». 2
1 Locke, o. c. Essays, p. 592.
» , o.c. Essays, p. 582. It is somewhat embarrassing when Locke
elsewhere asserts that the general consent of mankind put an imaginary
value upon gold and silver and made them, by general consent, the common
pledges (Considerations. Essays, p. 572). Such a theory of value,
seemingly in contrast to that advanced in passages referred to above, must
be regarded as a mere abstraction describing the origin of money in the
spirit of natural philosophy, but having little to do with the actual pheno-
mena of economic life, as becomes fully evident when Locke proceeds in
the passage referred to to assert that gold and silver procure, as money,
what we want or desire, only by their quantity, the intrinsic value of silver
and gold, used in commerce, being nothing but their quantity. (Considera-
lions. Essays, p. 572). It may be noted that John Law rejected Locke's
theory of the imaginary value of money in sharp words: »I cannot conceive
how different nations could agree to put an imaginary value upon any thing,
especially upon silver, by which all other goods are valued; or that any one
country would receive that as a value, which was not valuable equal to what
it was given for; or how that imaginary value could have been kept up.»
»It is reasonable to think silver w r as barter'd as it was valued for its uses as
a mettal, and was given as money according to its value in barter. The
additional use of money silver was applied to would add to its value, because
as money it remedied the disadvantages and inconveniences of barter.» (L a w,
Money, pp. 14 — 16).
If we thus are fully justified in including Locke among economists attribut-
ing to money a »commodity» character, there was another economist, Nicho-
las Barbon, who clearly discarded the view generally accepted in his
time. He suggests: »Money is a value made by a law; and the difference
of its value is known by the stamp, and size of the piece* (A Discourse of
Trade. Econ. Tracts, p. 16). And in an other place: »Money is an immag-
inary value made by a law, for the conveniency of exchange*) (O. c, p. 22).
B XVII,2 The Balance of Trade. 17
We have thus been able to understand how an economic prin-
ciple, whose early formulators were Hales, Misselden and Mun,
was gradually developed into a sharply-cut economic doctrine, to
which mercantile economists at the end of the seventeenth century
This theoretical insight into the commodity character of money \
- Barbon's point of view is closely related to earlier bullionist principles.
Yet it would hardly be fair to include him among bullionists. The whole
argumentative method marks him, rather, as an early forerunner of later
c h a r t a 1 i s m which theoretically separates money from its metallic
basis. (The chief formulator of this theory has been Professor K n a p p
with his »Staatliche Theorie des Geldes»). The chartalist trend of thought
appears in the following words of Barbon: »It is not absolutely necessary,
money should be made of gold or silver; for having its sole value from the law,
it is not material upon what metal the stamp be set» (O. c. Econ Tracts, p. 16).
1 It is of some importance to note that in the eighteenth century money
was sometimes described as a commodity in another sense than above.
Joshua (lee writes, for instance: »So mistaken are many people, that
they cannot see the difference between having a vast treasure of silver and
gold in the kingdom, and the Mint employed in coining money, the only
true token of treasure and riches, and having it carried away; but they say,
money is a commodity like other things and think themselves never the
poorer for what the nation daily exports* (The Trade, p. 34). Gee points
out here that gold and silver are not commodities like other things, as they
are of much greater importance; while in the passages quoted above the
term »commodity» always conveyed the sense that these metals were sub-
mitted to the same economic laws as other things, not referring at all to
the value of economic services rendered by them. S c h a c h t is, therefore,
evidently wrong, when comparing the passage of Gee, referred to above,
with the saying of Fortrey: »Money and coin, which is also a commod-
ity as well as the rest» (Englands Interest. Econ. Tracts, p. 26), he comes
to the conclusion that Fortrey did not exaggerate the importance of money
as Gee did. — It may further be of interest to notice that this ambiguous
use of »commodity» caused confusion among mercantilists themselves. In
the British Merchant we find the following passage: »Now can
any man pretend to say that silver and gold are not commodities bought
and sold, as any other commodities are? Are they not bought and sold in
the markets daily? Is not this evident? Need any man go farther than to
L o m b a r d-s t r e e t, or the goldsmiths there-abouts, to be satisfied that
18 Br. Suviranta. B XVI 1,2
together with practical experience of the futility of preventing
the export of the precious metals, forms the basis of the rejection
of prohibitive measures. On this point economists writing aiter
Misselden and Mun were practically unanimous. A few specimen-
passages from a rich choice may be quoted: Roberts demon-
strates by the example of Spain, where »the traffike» is »wholly per-
formed by the use of blacke and copper monies», the uselessness
of sharp penalties and severe punishments for hindering the export
of bullion. On the other hand, he points out, »as a thing granted
and found true by experience, that in some countries and free
townes. where the exportation thereof is freely allowed and ad-
mitted, and the carrying out openly permitted by authority; no
such want or scarcity is discerned; but contrariwise, all abundance
and plenty thereof is noted, so that this being granted, the expor-
tation thereof may bee allowed without prejudice to the state or
kingdome where we abide». 1 F r t r e y condemns laws hindering
exportation of coin in the following words: »Our gold being of less
value at home then it is abroad it hath been all conveyed away
within these few years, and laws to prevent it shall always prove
fruitless, when it is advantageous to do it, there being means
sufficient to be found to effect it, by such as shall find it profitable.
Wherefore to make laws to hinder the exportation of coin or
bullion, I conceive altogether useless. » 2
And Petty says: »To prohibit the exportation of money,
in that it is a thing almost impracticable, it is almost nugatory
tiny buy silver and gold, and sell it daily?» (The British Merchant,
III. pp. 121 — 2). To which Mercator, the opponent of the British
Merchant, replied, calling it »a horrid assertion)), »a sophism», »a shuffle so
scandalous that nothing but such a Mountebank-merchant as we have to
do with can be concern'd in, (viz.) that bullion or silver is a merchandize or
commodity which we buy in Spain, as we do the other growth of their country*
(Mercator. Nr. 100). — Mercator employs the term commodity in the
same sense as Gee, as clearly appears from the connection.
1 R oberts, The Treasure of Traffike. Early Engl. Tracts, pp. 67—8.
2 For trey, England's Interest. Econ. Tracts, p. 3-1.
B XVII, 2 The Balance of Trade. 19
and vain; and the danger of it resolves either into a kinde of en-
surance answerable to the danger of being seized, or unto a sur-
charge of a composition by bribing the searchers. » 1
The only economist of consequence from the latter part of
the seventeenth century, approving of prohibitory laws, seems to
have been the author of the Britannia Languens. He
expresses his opinion as follows: »But of late years many of our
merchants very much contend for a liberty to export money or
bullion as advantagious to the trade of the nation, and have gotten
an Act of Parliament to legitimate the exporting of bullion, contrary
to many other former Statutes, and now bullion and money also
are become our usual exportable commodities.
But I shall oppose the ordinary exporting of money or bullion
in trade, especially as the constitution of our trade now is.» 2
The opposition of mercantile writers of the seventeenth century
towards bullionist prohibitions seems not to have been shared
by popular opinion of the time, as appears e. g. from M u n' s
assertion that »t h e exportation of our moneys in trade
of merchandize is a means to e n c r e a s e our treas-
ure. This position is so contrary to the common opinion, that
it will require many and strong arguments to prove it before it
can be accepted of the multitude, who bitterly exclaim when they
see any monies carried out of the realm.» 3 The very fact that
1 Petty, A Treatise of Taxes. Writings, I. p. 57.
2 Britannia Languens. Early Engl. Tracts, p. 307. The author
completes his view in another place of his book as follows: »Thoughthe ordinary
trading with exported money is condemnable, as that which tends to the
subversion of manufacture and people, and facilitates meer importation;
yet I cannot recommend prohibitory laws as a means to stop the exportation
of money, unless at the same time the methods of trade be regulated* (Bri-
tannia Languens. Early Engl. Tracts, p. 391). The ideal of this economist
was apparently, a minute state regulation, perhaps a kind of moderated
balance of bargain system. But he was clear-sighted enough to conceive
that without a thorough regulation of trade, mere prohibitory laws would
have remained useless.
3 M u n, o. c, p. 19.
20 Br. suviranta. B XVI 1,2
economists continued to regard repudiation of bullionism as
necessary and that Malynes' »Lex Mercatoria» was reprinted
so late as in 1686, points to enduring popular prejudices. And
they were not dead even in the eighteenth century; we find e. g.
Tucker exclaiming: » You will still reply, the money, the money,
the money goes abroad, and in the name of common sense, so let-
it go; for industry will be sure to fetch it back again with increase.* *
We have above accompanied the destructive criticism that
was offered by numerous mercantile writers against bullionist
principles. Let us now examine what constructive principles the
critics of bullionism were proposing instead of the old system they
Be it first carefully observed that there was no difference be-
tween the bullionists and their opponents as to the ends to be at-
tained. All of them were equally eager to secure to the nation the
greatest possible supply of gold and silver. The title of the book
of S e r r a, the prominent Italian economist, Breve Trat-
tato delle cause che posso no-fare abbondare
1 i r e g n i d'oro e d'argento dove non s 11 mi-
ll i e r e, was equally the common quest of all English mercant-
ilists. 2 It was not till the eighteenth century, when mercantilism
was already in decay, that the fundamental trend of bullionism
as well as of mercantilism in general, the chase after the precious
metals, was severely criticized.
The controversy between the bullionists and their critics was
only a question of the most adequate means for successfully acquir-
ing gold and silver from abroad. Against the adherents of the old
school, as we have seen, was brought the charge, that the policy
1 Tucker, The Important Question Concerning Invasions, p. 41.
2 In England practically all gold and silver was to be procured from
abroad. Locke asserted, »gold grows not, that I know, in our country,
and silver so little, that one hundred thousandth part of the silver we have
now in England, was not drawn out of any mines in this island* (Considera-
tions. Essays, p. 569).
B XVI 1, 2 The Balance of Trade. 21
recommended by them was fruitless and even hurtful, as they
were attributing to secondary causes something of which the effects
were wrought by another principal efficient. Now, the new school,
concentrating their whole attention on what was considered to be
the principal cause of the influx and efflux of the precious metals,
brushed all other considerations aside. Thus originated the Theory
of the Balance of Trade.
Richard A i 1 e s b u r y, one of the officers of the Mint,
stated, in the year 1381, in evidence given before Parliament, his
opinion of foreign trade as follows: »As to the fact that gold and
silver come not to England, whilst that which is in England is
carried abroad, ■ if the merchandise exported from England
be well and justly governed, the money which is in England will
remain, and great plenty of money will come from abroad. It
must be ascertained that no more foreign merchandise come within
the realm than the value of the merchandise of this country that
goes out of the realm. » 1
These sentences are the earliest forerunner of the later theory
of the balance of trade. But nearly two centuries were to elapse,
before the principles, first proposed by Ailesbury, began to make
a broader show. The first economist, resolutely to adhere to these
principles, seems to have been John Hales. He recognized
that gold and silver were best obtained by a favourable balance
of trade: »Yf we kepe with in us much of oure commodities, we must
spare manie other thinges that we have now frome beyonde the
seas; for we must alwaies take hede that we bie no more of
strangers then we sell them; [for so wee sholde empoverishe
owr selves and enriche theme]. For he weare no goode husband
that hath no other yearly revenewes but of husbandrie to live on,
that will bie more in the markett then he selleth againe.» 2
While Hales thus clearly and consciously described the balance
of trade as the principal efficient of the supply and demand of
1 Meredith, Economic History, pp. 94 — 95.
- Hal es, Discourse, pp. 62 — 3.
22 Br. Suviranta. B XVII, 2
gold and silver, Misselden and M u n were to become the
chief elaborators and propagandists of the new system of the balance
of trade; not until their time did the new principles find general
acceptance among economists. x The former expressed his vision
of the balance of trade in the following words: »For as a paire of
scales or ballance, is an invention to shew us the weight of things,
whereby we may discerne the heavy from the light, and how one
thing differeth from another in the scale of waight: So is also this
ballance of trade, an excellent and politique invention, to shew
us the difference of waight in the commerce of one kingdomme
with another: that is, whether the native commodities exported,
and all the forraine commodities imported, doe ballance or over-
ballance one another in the scale of commerce. » 2 — »If the native
commodities exported doe waigh downe and exceed in value the
forraine commodities imported; it is a rule that never faile's, that
then the kingdome growe's rich and prosper's in estate and stocke:
because the overplus thereof must needs come in, in treasure.)) 3 -
»But if the forraine commodities imported, doe exceed in value
the native commodities exported; it is a manifest signe that then
trade decayeth, and the stocke of the kingdome wasteth apace;
because the overplus must needs go out in treasure.* 4
The principles, laid down in these sentences by Misselden in
a concise and clear form, grew in the hands of M u n into a power-
ful economic vision. The fundaments of this vision were expressed
1 It is perhaps worth mentioning that William Cecil seems to
have adhered to the principles of the balance of trade. In a paper headed
»The Inconveniences of enlargyng any power to bryng any more wyne into
the realme», he maintains that »it is manifest that nothyng robbeth the
realm of England, but whan moore merchandisees is brought into the realme
than is carryed furth», because the balance »must be payd with mony». »The
remedy herof is by all pollycyes to abridg the use of such forrayn commod-
itiees as be not necessary for us» (C unhingha m, o. c. Modern Times,
2 Misselden, Circle of Commerce, pp. 116 — 117.
3 Misselden, o. c, p. 117.
4 Misselden. ibidem.
B XVII.2 The Balance of Trade. 23
by him thus: »Although a kingdom may be enriched by gifts
received, or by purchase taken from some other nations, yet these
are things uncertain and of small consideration when they happen.
The ordinary means therefore to encrease our wealth and treasure
is by f o r r a i g n t r a d e, wherein wee must ever observe this
rule; to sell more to strangers yearly than wee consume of theirs
in value. For suppose that when this kingdom is plentifully served
with the cloth, lead, tinn, iron, fish and other native commodities,
we doe yearly export the overplus to forraign countries to the
value of twenty two hundred thousand pounds; by which means
we are enabled beyond the seas to buy and bring in forraign wares
for our use and consumptions, to the value of twenty hundred
thousand pounds; by this order duly kept in our trading, we may
rest assured that the kingdom shall be enriched yearly two hundred
thousand pounds, which must be brought to us in so much treasure;
because that part of our stock which is not returned to us in wares
must necessarily be brought home in treasure. » l
In the closing chapter of his book, Mun, summing up the essence
of his economic doctrine, gives us an almost pathetic confession
of faith: »Let the merchants exchange be at a high rate, or at a low rate,
or at the par pro pari, or put down altogether; let forraign
princes enhance their coins, or debase their standards, and let his
Majesty do the like, or keep them constant as they now stand; let for-
raign coins pass current here in all payments at higher rates than they
are worth at the Mint; let the Statutes for employments by strangers
stand in force or be repealed; let the meer exchanger do his worst;
let princes oppress, lawyers extort, usurers bite, prodigals wast,
and lastly let merchants carry out what mony they shall have
occasion to use in traffique. Yet all these actions can work no
other effects in the course of trade than is declared in this dis-
course. For so much treasure only will be brought in or carried
out of a commonwealth, as the forraign trade doth over or under
ballance in value. And this must come to pass by a necessity beyond
1 M u n, o. c, pp. 7 — 8.
24 Br. Suviranta. B XVI 1,2
all resistance. So that all other courses (which tend not to this
end) howsoever they may seem to force mony into a kingdom
for a time, yet are they (in the end) not only fruitless but also
hurtful: they are like to violent flouds which bear down their
banks, and suddenly remain dry again for want of waters. » 1
The admirably lucid and concise manner in which Mun described
the mechanism and the fundamental principles of the balance of
trade, remained unsurpassed. Each generation of mercantile
economists went anew to school to »the ingenious Mr. Mun» and
tried to fit their ideas into the traditional formula, even after their
point of view had actually undergone considerable changes. We
have the evidence of Adam Smith that »the title of Mun's
book, England's Treasure in Foreign Trade, became a fundamental
maxim in the political oeconomy, not of England only, but of all
other commercial countries*). 2 We need not in this place follow
1 Mun, o. c, pp. 118—9. — Here it may be pointed out that Mai y-
n e s, though passionately defending bullionist principles, was, at the same
time, not unconscious of the role played by the balance of trade; he asserted
namely: »The prince (being as it were the father of the family) ought to
keep a certaine equality in the trade or trafficke betwixt his realme and
other countries, not suffering an overbalancing of forreine commodities
with his home commodities, or in buying more then he selleth. For
thereby his treasure and the wealth of the realme doth decrease, and
as it were his expences become greater, or do surmount his incomes or
revenues* (A Treatise of the Canker, pp. 2—3). The old and the new were
thus in a curious way mixed in his ideas. He believed, apparently, that if only
an end could have been made of exchange manipulations by irresponsible per-
sons, the state of the balance of trade would be the ultimate efficient in the
jnflux and efflux of gold and silver. A similar uncertainty of thought, cha-
racteristic in a time of transition, is to be found in the prominent Spanish
economist, Geronimo Uztariz ( W i r m i n g h a u s, Zwei spa-
nische Merkantilisten, p. 56). And also the author of the Britannia
Languens, though he approved of prohibitory measures, granted that
»if a nation hath no gold or silver-mines within its own territory, there is no
practicable way of bringing treasure into it (in times of peace) but by
forreign trade» (Britannia Languens, Early Engl. Tracts, pp.
2 A (1 a in S m i t h, 0. c.,~ I. p. 401.
B XVII, 2 The Balance of Trade. 25
the reiteration of the principles of the balance of trade to be found
in the works of subsequent mercantilists, since we shall have in
the course of this treatise plenty of opportunities to examine their
exposition from different points of view. As a single example of
the strange persistence of this theory's outward apparition, a
passage, written as late as 1749, may be quoted: »In the exchange
of commodities, if one nation pays the other a quantity of gold
and silver over and above its property of other kinds, that is
called a balance against the nation in favour of the
other. And the whole science of ga i n f u 1 com-
merce consists in the bringing this single point
to bear. Now there can be but one general method for
putting it in practice; and that is, since gold and silver is the
universal standard for making an estimate of 1 he
value, and regulating the price of the commodities or
manufactures of both countries, to export larger quantities
of our own and import less of theirs, so that what is
wanting in the value of their merchandize, c o m p a r e d
with ours, may be paid in gold and silver. » 1
Two important problems, or, better, groups of problems, closely
connected with the mechanism of the balance of trade, the funda-
mental principles of which have been set out above, are yet to be
examined. The one refers to the scope of the balance of trade and
the other to the criteria by which the state of it was to be as-
As to scope, the balance of trade was, first, a question of general
balance and particular balances; and, secondly, a question of a
balance of trade (in the narrower sense of the term) and a balance
of international indebtedness.
We shall first turn to the question of general balance and parti-
cular balances and examine what part each of them played in the
mercantile theory of the balance of trade. We may at once put
'Tucker, A Brief Essay, Introduction.
26 Br. Suviranta. B XVII,*
down as a matter self-evident that as soon as men began to re-
cognize that the sum of particular bargains formed an organic
whole and that money was brought in if the balance of trade with
a particular country was favourable, the vision of the sum of all
particular balances, i. e. of a general balance, must also have
presented itself to the thoughtful observer.
M u n has stated the relation of the particular balances to
the general balance with his usual ability: »As namely in some
countrys we sell our commodities and bring away their wares,
or part in mony; in other countreys we sell our goods and take
their mony, because they have little or no wares that fits- our turns:
again in some places we have need of their commodities, but they
have little use of ours: so they take our mony which we get in
other countreys: And thus by a course of traffick -the partic-
ular members do accomodate each other, and all accomplish the
whole body of the trade.)) 1
The economic principle that particular balances are only to
be judged with a view to the whole circle of trade, was elsewhere
illustrated by Mun with a fine analogy: »For 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 accompt
him a mad man than a husbandman: but when we consider his
labours in the harvest which is the end of his endeavours, we find
the worth and plentiful encrease of his actions. » 2
The same principles were propagated by other economists.
Thus Child lays down a rule as follows: »A true measure of
any particular trade, as to the profit or loss of the nation by it,
cannot be taken by the consideration of such trade in itself singly;
but as it stands in reference, and is subservient to the general
trade of this kingdom.)) 3 The practical application of this general
rule appears from his assertion that »Silver and gold, coined or
1 M u n, o. c, pp. 46 — 7.
2 M u n, o. c, p. 27.
3 G h i 1 d, A New Discourse, pp. 169-70.
B XVII,2 The Balance of Trade. 27
uncoined, — - may in many cases be exported as much to national
advantage as any other commodity.* 1 This assertion sounds paradox-
ical in the mouth of a mercantilist, but was, nevertheless, not incom-
patible with the true principles of the theory of the balance of trade
(according to which there was nothing objectionable e. g. in the
export of bullion by the East India Company if only for trade-
purposes). Another economist, the author of England's
Great H a p p i n e s s», makes a very similar assertion: »How-
ever, 'tis our great advantage to export money.» 2
The common principle of mercantile writers, adhering to the
theory of the balance of trade, that any gain or loss accruing from
foreign trade was decided by the general balance alone, and not
by particular balances, did not hinder, however, the greatest
attention from being paid to the state of particular balances. Each
trade was carefully scrutinized as to its advantage or disadvantage,
the moral being: »If the trade was unprofitable, let it be suppressed;
if not, let it be supported and countenanced by some public declar-
ation. » 3 In the course of the discussion carried on about this matter,
the Spanish and the Portuguese trades were commonly approved
of, the net-balance of these trades consisting of bullion. On the
other hand, the trade with East India and that with France caused
especially animated controversy.
The great attention given to particular balances, appears very
natural if it be considered that the state of the general balance
of trade was nothing but all the balances with particular countries
together. Any change for the better or the worse in particular
lines of trade could not but directly react upon general balance.
It was therefore no wonder that economists and politicians tried
to ascertain »by what trades this kingdom gains and by what
trades it loses» 4 , as that was the way to encourage or discourage
1 Pal grave's Dictionary, I. p. 277: Child.
2 England' s Great Happiness. Early Econ. Tracts, p. 259.
3 H e wi n s, o. c, p. 62.
4 C h i 1 d, A New Discourse, p. 194.
28 Br. suviranta. B XVII, 2
particular branches of commercial activity with the attention
fixed on the general balance of trade.
The extraordinary interest in particular balances was, never-
theless, open to one serious objection. That objection was very
forcibly raised by D' A v e n a n t in the following passage: »To
enquire whether we get or lose by this or that branch of trade,
is an endless and uncertain speculation; the only question of im-
portance, and which indeed should employ the thoughts of con-
sidering men, is, in main do we get, or lose? We deal with
one country to loss, but this is the cause of, or lets us into, a. trade
with another region by which we get. ■ It is hard to trace all
the circuits of trade, to find its hidden recesses, to discover its
original springs and motions, and to shew what mutual dependance
all traffics have one upon the other: And yet, whoever will cate-
gorically pronounce, that we get or lose by any business, must
know all this, and, besides, have a very deep insight into many
other things. » 1
This contemptuous utterance of D'Avenant was not without
foundation: Much of the controversial argumentation carried on
by the bulk of mercantile writers on the topic of particular balances,
gives, indeed, the impression of an »endless and uncertain specul-
ation», for as we shall see when we come to speak of the criteria
of the balance of trade, there was no certain method by which
the outcome of particular trades was to be ascertained. And it
might have paid better to follow D'Avenant's advice of letting
particular balances find their own course, all possible care being
taken of the general state of trade.
But even if it be true, as it certainly is, that mercantile writers
cannot be wholly exonerated from the charge of unfruitful and
directly misleading calculations as regards particular trades, we
must not forget that in the circumstances of the seventeenth century
a specific care of particular balances was surely much more justifi-
1 D'Avenant, Discourses on the Public Revenues. Works, I. pp.
B XVI 1, 2 The Balance of Trade. 29
able than it would have been at a later time. In the age of early
capitalism, the modern mechanism of foreign exchange was not
developed; communication between one country and another was
difficult, even in Europe. The countries were therefore in a much
higher degree dependent on a certain reciprocity of trade trans-
actions between separate countries than has been the rule in modern
times when the development of finance, credit and telegraph as well
as of the whole system of communication has brought countries
close together, so that now the particular balances are quickly
and nicely adjusted to the general state of trade. In the age of
early capitalism the rule to be the customer of one's own customers
lest buying elsewhere should make the latter unable or unwilling
to carry on a one-sided trade, was certainly obvious enough. x This
rule was set down and explained by the British Merchant
as follows: »If the Bill of Commerce should pass, should we not
consume more of the French wines? And should we not abate in
proportion of those of P o r t u g a 1 and Italy? And would not those
countries then prohibit our goods, to prevent the payment of the
ballance? Again, would not this Treaty of Commerce, if made
effectual, increase our consumption of French wrought silk and
paper? And should we not consume so much the less of those of
Italy and Holland? And lastly, would not our consumption of
French linen be increas'd, and that of Holland, Germany,
and Fl ande r s be abated? And why should we imagine that these
countries will not abate of their consumption of our manufactures?
or that they will not retaliate upon us by prohibitions and high
duties, to make the account of exports and imports even, and
that they may not pay us any ballance? It is a very dangerous
1 We may note the interesting fact, that in many countries the break-
down of financial, credit and communication system during and after the
last war, put those countries partially back into an age of early capitalism
so that they were compelled to pay great attention to the state of particular
30 BR. SUVIRANTA. B XVII, 2
thing to provoke the nations that pay us money, and which have
it in their power to pay us none.» 1
The great attention given to particular balances is further
explained, if not justified, by the fact that political aversions or
friendships played a great role in judging the character of particular
balances. That was especially the case with regard to the trade
with France. Without proceeding to give examples of this mode
of judgment, we may refer to the testimony of a later economist:
»But party- prejudice running high against the F re nc h king's am-
bitious designs — — and this balance being considered abstract-
edly, without any view to our general trade; an inconsiderate
zeal hurried our ancestors into the scheme of distressing the French
king by prohibitions and high customs on his goods, not considering
the hurt we should thereby do ourselves*. 2
Turning now to consider the relation of the balance of
trade to the balance of international indebtedness, we may
at once note down the fact that mercantile writers of the seven-
teenth .century never directly speak of anything but a balance of
trade. The question is: Was the existence of a balance of interna-
tional indebtedness wholly overlooked by mercantilists? Or was
1 British Merchant, II. pp. 3 — 4. — Gf. also an assertion of
Joseph Massie: »But French and Canary wines, were the fashion-
able wines in England at that time [before 1688], and a very unlucky
fashion it was for the trade of this nation; for the people of Old
Spain and Portugal were not able to pay money for all the English
commodities they wanted; and as Englan d then paid three hundred
thousand pounds a year for French and Canary wines, she not only
lost that sum of money annually, but the sale of w o o 1 1 e n manufac-
tures, etc. in Spain and Portugal, to the amount of three hundred
thousand pounds a year. So that upon the whole, this nation then lost
six hundred thousand pounds yearly, by drinking the wines of
France and the Canary Islands, instead of drinking the wines of Old
Spain and Portugal)) (Ways and Means for Raising the Extraordinary
Supplies, p. 27).
2 An Essay on the Causes of the Decline of the
Foreign Trade, pp. 131 — 2.
B XVII,2 The Balance of Trade. 31
this conception, perhaps, implied, in the very term »the balance
H e y k i n g has expounded an interesting theory of the early
relation of these two conceptions: So soon as money began to
play a more important part in trade and the attention of govern-
ments was turned to attracting precious metals into the country,
attempts were made at periodical estimation of changes taking
place in the amount of gold and silver in the country. Strict cal-
culations were made, e. g. in Spain, of the quantities of gold and
silver brought home from the colonies. Further, figures of ransoms
for distinguished prisoners, of all kind of money tributes, subsidies,
expenses for armies and for travelling abroad were compiled and
calculated. But with the greater expansion of commerce and
traffic, the disbursements of the precious metals arising from these
various causes, were bound to lose in importance in comparison
with money disbursements arising from import and export of
commodities. The attention of statesmen came therefore when
reflecting over the movements of the precious metals more and
more to be directed to phenomena of trade. Thus the idea of a
balance of gold and silver narrowed down and only a balance of
trade, i. e. a balance accruing from export and import of commod-
ities, was generally recognized. 1
To this explanation the express reservation must be made that
mercantilists never actually lost from sight the vision of a broader
balance than a balance of trade. Of that we have full evidence
in their writings. Thus the following passage of M u n' s is very
clear on this point: »If it happen that his Majesty doth make over
any great sums of mony by exchange to maintain a forraign war,
where we do not feed and clothe the souldiers, and provide the
armies, we must deduct all this charge out of our exportations
or add it to our importations; for this expence doth either carry
out or hinder the coming in of so much treasure. And here we
n i ust remember the great collections of mony which are supposed
H e y k i n g, Zur Geschichte tier Handelsbilanztheorie, pp. 19 — 20.
32 Br. Suviranta. B XVII, 2
to be made throughout the realm yearly from our recusants by
priests and Jesuits, who secretly convey the same unto their col-
leges, cloysters and nunneries beyond the seas, from whence it
never returns to us again in any kind.» 1 Further Mun enumerates
expenses of travellers, the gifts to ambassadors and strangers,
interest of mony, insurance upon English goods and their lives,
and »some other petty things which seem to have reference to
this ballance». 2 Another early economist, Robinson, writes
as follows: » Though greater quantities of forrain wares toe be
brought in, then we send out of native, yet it doth not follow
necessarily that our gold and silver must goe to pay for. them, in
regard that Italian, Spaniard, French, and Dutch doe many times
fraight English ships, whereby good soms of money are yearly
raised by our nation abroad, and may serve to pay for the advance
of forrain commodities that wee bring in, at least for such a proportion
as this fraight money imports, which is to a considerable vallew.» 3
Robinson, mentions also expenses of travellers and ambassadors. i
Similar explanations to those referred to above, are to be found
in numerous other seventeenth century writers, such as M i s-
s e 1 d e n, Child, Petty, the author of the Britannia
Languens, Locke, D' Avenant, P 1 1 e x f e n, etc.
It is then clear enough that .while mercantilists continually
spoke only of a balance of trade, that was not the result of ignorance.
It was not that, that they overlooked the existence of a balance,
of indebtedness, but that they usually did not regard this balance
worth special attention. It was spoken of only incidentally and
sometimes directly described as unimportant. Thus M u n once
asserted: »Although a kingdom may be enriched by gifts received,
or by purchase taken from some other nations, yet these are things
uncertain and of small consideration when they happen. The
1 M u n, 0. c, p. 116.
2 M u n, 0. c, p. 117.
3 Robinson, England's Safety, p. 50.
4 R <j b fn s n, 0. c, p. 51
B XVII, 2 The Balance of Trade. 33
ordinary means therefore to encrease our wealth and treasure is
by for r a i g n trade. » 1 And the author of the Britannia
Lanpens said: »As a nation may grow rich and
populous, and consequently strong by forreign trade; so may
a nation grow poor and dispeopled, and consequently
w e a k by forreign trade; nor is there any possible or practicable
way for the treasure of a nation in peace, to be exhausted and export-
ed into another nation to any considerable and sensible degree, but
by forreign trade. » 2 Locke advanced a similar opinion: »We
have seen how riches and money are got, kept or lost, in any country;
and that is by consuming less of foreign commodities, than what
by commodities or labour, is paid for. This is in the ordinary
course of things: but where great armies and alliances are to be
maintained abroad, by supplies sent out of any country, there
often, by a shorter and more sensible way, the treasure is dimin-
ished. But this, since the holy war, or at least since the improve-
ment of navigation and trade, seldom happening to England, whose
princes have found the enlarging their power by sea, and the
securing our navigation and trade, more the interest of this king-
dom than wars, or conquests, on the continent: Expences in arms
beyond sea, have had little influence on our riches or poverty. » 3
Material as well as psychological grounds may be brought
forward to make clear the mercantile attitude. For the first, inter-
national payments of gold and silver above and beyond those
accruing from the balance of trade were relatively unimportant.
They played an insignificant role not only in comparison with an
earlier time as pointed out by Heyking above, but even more in
comparison with later times. At the present day, money disburse-
ments accruing from export and import of commodities form a
much smaller part of the balance of international indebtedness
than was the case two or thre^ hundred years ago. On that account
1 M u n, o. c, p. "J.
2 Britannia Languens. Early Engl. Tracts, p. 371.
3 Locke, Considerations. Essays, p. 571.
Br. Suviranta. b XVII, 2
•>during the seventeenth century imports and exports were a fairly
good test of international indebtedness)). } And what was fairly
good, appeared certainly as good enough, to the mercantile writers.
For, as will he sufficiently demonstrated in the course of this study,
mercantilists, whose writings were usually based on practical con-
siderations, showed little interest in theoretical niceties.
Secondly, money disbursements, not accruing from the balance
of trade, were, as Mun said, »things uncertain*), for which reason
there was little chance of creating machinery for their effective
control, while, on the other hand, the balance of trade was auto-
matically regulated by directing and improving the commercial
activity of the nation. Here also, consequently, the practical sense
of mercantilists played its part and tended to turn attention
exclusively to the narrower field of international payments, namely
that of the balance of trade
Lastly, a generalization of the term »balance of trade» so that
it included also »the balance of international indebtedness)), was,
presumably, based on current practice. At least we may point
out that even at a time, when the material difference between
the balance of trade and the balance of international indebtedness
has grown more substantial, the term »balance of trade» is occas-
ionally given a broader sense than that which it usually connotes.
Thus we may quote from so eminent an economist as Viscount
Goschen a passage running as follows: »It is an error often
committed to imagine these [international] debts to be incurred
simply by the importation of foreign commodities, and to look on
the balance of trade as a mere question of import and export, as
being the excess of the one over the other. It is necessary to look
closer into the transactions between two countries before an idea
can be formed of the position of their mutual indebtedness.)) 2 And
in another place, the same writer speaks of the »balance of trade,
1 H e w i n s, English Early Econ. History. Palgrave's Dictionary,
I., p. 724.
2 Goschen, Foreign Exchanges, p. 11.
B XVI 1,2 The Balance of Trade. 35
in its simplest sense», thus distinguishing it from the balance of
international indebtedness (which would be, the balance of trade,
in its broader sense). l
Considering the significance that was attributed to the balance
of trade, it was only natural that mercantilists tried to state which
way the general balance or the balance with a particular country
actually was running. This point was expressed by M u n as
follows: »Now, 'that we have sufficiently proved the ballance of
our forraign trade to be the true rule of our treasure; it resteth
that we shew by whom and in what manner the said ballance may
be drawn up at all times. » 2
Mun appealed in ascertaining the state of the balance of trade
to custom house books. These books had been before
him recommended for the same purpose by M a 1 y n e s and:
Missel den. In 1603 the former had already asserted that
•>this overbalancing is knowne by the increase of the custome of
the goods inwards, and the decrease of the custome of the goods
outwards.* 3 Missel den, on the other hand, did not apply
to the custom house books without qualification: »There are some
things of speciall consideration, which cannot be discerned by
the customes. — In our e x p o r t a t i o n s, wee are to reckon
our forraine commodities imported, and not spent in the kingdom,
but exported againe into forrain trade, as the native commodities
of the kingdome.» 4 The fishing trade and smuggling were not to
be discerned, nor »fraight and merchants gaine». 5 And lastly »in
the imp o r t at i o n, the customes doe not lead a man so neere to
the value of the goods, as in the exportation: so that thereby you
1 Goschen, o. c, p. 96. The following sentence of another modern
economist may also be quoted: »Consequently, although the relative indebt-
edness, or balance of trade between two countries, does exercise a potent
influence over the exchanges — — .» (Spalding, Foreign Exchange, p. 9).
2 Mun, o. c, p. 113.
3 M a 1 y n e s, England's View, p. 148.
4 M i s s e 1 d e n, Circle of Commerce, p. 124.
5 M i s s e 1 d e n, ibidem.
36 BR. &UVIRA.NTA. B XVI 1. 2
can neither know, what the goods imported cost with charges
abroad, nor what the same are worth at home». l
Returning now to M u n' s appeal to the custom house books,
we find it very much the same as Misselden's had been. He too,
limits the validity of the custom house books considerably: »First
therefore, concerning our exportations, when we have valued their
first cost, we must add twenty-five per c e 11 1. thereunto for
the charges here, for fraight of ships, ensurance of the adventure,
and the merchants gains. » 2 Moreover, the fishing trade and the
money which are carried out in trade by license from his Majesty,
are to be reckoned. 3 »Secondly, for our importations of forraign
wares, the custome-books serve onely to direct us concerning the
quantity, for we must not value them as they are rated here, but
as they cost us with all charges laden into our ships beyond the
seas. Wherefore our said importations ought to be valued
at twenty-five per cent, less than they are rated to be worth
here.» 4 Lastly, Mun points to the various categories, included
in the balance of international indebtedness, as referred to above. 5
The modifications which Misselden as well as Mun made when
employing custom house books as criteria of the balance of trade
(which they understood as a balance of international indebtedness),
did not hinder them from resorting to these books, for, as Mun
explicitly asserted, ^although (it is true) they »the officers of his
Majesties customes* cannot exactly set down the cost and charges
of other men's goods bought here or beyond the seas; yet never-
theless, if they ground themselves upon the book of rates, they
shall be able to make such an estimate as may well satisfie this
enquiry: for it is not expected that such an account can possibly
be drawn up to a just ballance, it will suffice onely that the differ-
ence be not over great*. 6
1 M i s s e 1 d e n, o. c, p. 125.
2 Mun, o. c, pp. 113 — 4.
3 M u n, o. c, p. 114.
4 Mun, ibidem
5 Cf. above, pp. 31—2
8 Mun, o. c, p. 113.
B XVI I, 2 The Balance of Trade. 37
Successive economists frequently resorted to custom house
books, with or without express reservation, as a criterion of the
balance of trade. When we consider the attitude of Misselden
and Mun as well as the fact that a balance of international indebt-
edness was generally recognized, we may take for granted that
even in cases, where it was not directly pointed out, this criterion
was used in spite of the fact that its defectiveness was ac-
knowledged. The discussion carried on on this point afforded little
nf interest, for nothing positively new was brought forward.
Child seems to have been the first wholly to reject it as a
criterion. He pointed out »the difficulty and impossibility of taking
a true account, as well of the quantity as of the value of commodities
exported and imported. The general rule for this has been the
custom-house-books; but that they cannot be in any measure
certain, will easily be granted». l And at the end of the century,
Barbon categorically asserted that »there can be no finding
out the balance of trade by the custom-house-books». 2
Besides the custom house books, there was another criterion
often applied. That were the rates of exchange. In one
sense, this criterion may be said to have originated simultaneously
with the theory of the balance of trade. For as we have seen, the
balance theory was founded on the view that money was a com-
modity as all other commodities and that the rate of exchange
did not follow the declaration of the prince but was subject to
the general economic law of supply and demand. In other words,
the rate of exchange appeared as a natural criterion of plenty or
scarcity of gold and silver. »It is not the rate of exchanges)), M i s-
s e 1 d e n said, »but the value of monies, here lowe, elsewhere
high, which cause their exportation: nor doe the exchanges, but
the plenty or scarcity of monies cause their values». 3 And in other
connection he asserted that »the ballance of trade» was the true
1 C h i 1 d, A New Discourse, p. 165.
2 Barbon, Discourse Concerning Coining, p. 38.
3 Misselden, Free Trade, p. 104.
38 BR. Suviranta . B XVU, 2
»par of exchange*). 1 M u n advanced a similar view: »The prizes
of the exchanges doe rise and fall according to the plentie or
scarcitie of money, which is to be taken up or delivered out.» 2
Otherwhere he asserted: »These exchanges — — are not con-
tracted at the equal value of the moneys, according to their re-
spective weights and fineness: First, because he that delivereth his
money doth respect the venture Of the debt, and the time of for-
bearance; but that which causeth an under or overvaluing of
moneys by exchange, is the plenty or scarcity thereof in those
places where the exchanges are made.» 3 And a little later: »As
plenty or scarcity of mony do make the price of the exchange
high or low, so the over or under ballance of our trade doth
effectually cause the plenty or scarcity of mony.» 4
But as to the rates of exchange also as a criterion of the balance
of trade, express reservations were made by many seventeenth
century economists. Petty recognized how narrow the limits were
within which the rates of exchange fluctuated: »As for the natural
measures of exchange, I say, that in times of peace, the greatest
exchange can be but the labour of carrying the money in specie,
but where are hazards emergent uses for money more in one place
then another, &c. or opinions of these true or false, the exchange
will be governed by them.» 5 Child was very explicit in his
1 Misselden, Circle Of Commerce, p. 98.
2 Mun, A Discourse, p. 43.
3 M u n, England's Treasure, p. 53.
4 M u n, o. c, p. 54.
5 P e 1 1 y, A Treatise of Taxes. Writings, I. p. 48. Petty, however,
did not bring forward his observation directly in connection with the question
of employing the course of exchange as the criterion of the balance of trade.
That conclusion was later drawn from the same premisses by P o s 1 1 e t h-
w a y t, in the following passage: »If the course of exchange between this
country and any other be against us, it may be allowed to be almost a certain
indication that the ballance of trade is against us; but it cannot be allowed
to be a certain indication of the quantum of the ballance, because
whenever the course of exchange rises much above the value of the risque
and charges of exporting gold and silver, such quantities of these two metals
B XVII, 2 The Balance of Trade. 39
view. Allowing that there was a great deal of truth in
the notion »that the way to know whether the nation gets or loses
in the general by its foreign trade, is to take an inspection into
the course of the exchange*), he pointed out, on the other hand,
that »because this is likewise subject to vary on many accidents
or emergencies of state and war, &c. and, because there is no settled
course of exchange, but to and from France, Holland, Flanders,
Hambrough, Venice, Leghorn, and Genoa, and that there are many
other great and eminent trades besides what are driven to those
countries, this cannot afford a true and satisfactory solution to
the present questions *
Locke attributed to this criterion a much greater practical
value than Child, though he was by no means blind to its defects:
»I think the over-balance of trade is that, which chiefly raises the
exchange in any country, and that plenty of money, in any country,
does it only for so much of the money as is transferred, either to
be lett out to use, or to be spent there. I suppose it is the
present balance of trade, on which the exchange immediately
and chiefly depends, unless some accident shall make a great deal
of money be remitted at the same time from one place to another,
which will for that time raise the exchange all one as an over-
balance of trade; and indeed, when examined, is generally very
little different from it.» 2 In another place he asserted: »The reason
of high exchange, is the buying much commodities in any foreign
country, beyond the value of what that country takes of ours.» 3
Lastly we may quote a passage of Barbon in which the question
is dealt with in the same spirit as Child had shown before: »Some
are of the opinion, that the' way to find out the balance of
trade, is by the foreign exchange. — — This seems to be
the nearest way of guessing of the balance of the trade
will be exported as must soon bring the exchange back to it's natural course*
(The Universal Dictionary, I. p. 188).
1 C h i 1 d, A New Discourse, pp. 174 — 5.
2 Locke, Considerations. Essays, p. 593.
3 Locke, Further Considerations. Essays, p. 659.
40 Br. Suviranta. B XVII, i
of a nation; but this is altogether as uncertain. For exchanges
rise and fall every week, and at some particular times in the year
run high against a nation, and at other times run as high on the
contrary. As against a vintage, a great mart, or some public k
sale, the exchange may run higher to Bourdeaux, Franc-
fort, or Holland, upon an East India sale: And at other
times the exchange may have run to the same places as much
on the contrary. Therefore there can be no account of the
balance of trade by foreign exchange. » r
The two criteria of the balance of trade, referred to above,
custom house books and the course of exchange, have been pointed
out by later economists as the only criteria to which mercantilists
used to appeal. 2 That is, however, not quite accurate, for besides
these criteria there was not seldom an appeal to a third category
of phenomena from which the state of the balance of trade might
be discerned, namely the general condition of trade.
That was e. g. C h i 1 d' s attitude, after having disqualified the
other two criteria, as we have seen. »How shall we then come to
be resolved of the matter in question*, Child asks and answers
the question as follows: »The best and most certain discovery,
to my apprehension, is to be made from the encrease and diminution
of our trade and shipping in general; for, if our trade and shipping
diminish, whatever profit particular men may make, the nation
undoubtedly loses; and on the contrary, if our trade and shipping
encrease, how small or low soever the profits are to private men,
it is an infallible indication that the nation in general thrives.* 3
The author of England's Great Happiness pursues
the same line of argumentation: »If we have great magazines for
war, and multitudes of brave ships; if we have a Mint employ' d
with more gold and silver than in a considerable time they can
well coin; — — if our good lands be made much better, and our
1 B a r b o n, Discourse Concerning Coining, pp. 39 — 40.
2 A d a m Smith, Wealth of Nations, I. p. 439.
3 C h i 1 d, A New Discourse, pp. 175 — 6.
B XVII,2 The Balance of Trade. 41
bad have a sixfold improvement; if our houses be built like palaces,
over what they were in the last age, and abound with plenty of
costly furniture; and rich jewels be very common; if we have
most part of the trade of the world, and our cities are perhaps
the greatest magazines thereof; — ■ — if we have an universal peace,
and our king in such renown that he is courted by all his neigh-
bours, and these only the marks of poverty, then I have been
under a great mistake. » *
D'Avenan t, after having pointed out the impossib-
ility of finding out the state of particular balances, will have the
general balance recognized thus: »A nation that by its whole deal-
ing gets in the general balance, visibly encreases in strength and
power, as the Northern Kingdoms have done since the war, and
as England and Holland did before it; and a country that by its
dealings loses at the foot of the account, does visibly grow weak
and decline, as Spain has done for these last 60 years. » 2
Those were the criteria applied for ascertaining the state of
the balance of trade. Now, what is to be said of their practical
value? Shortly this: As to the custom house books and the course
of exchange, the criticism offered by contemporary economists,
must, as a whole, be said to go to the point. With regard to these
criteria what the British Merchant said of one of them
holds for both: »Custom-house accounts tell us the truth,
but not the whole truth.» 3 This sort of half-truth was, indeed,
worse than nothing, being often badly misleading. As to the third
test, the general state of trade, the suggestion was, considered
from the mercantile point of view, a very natural one, as accord-
ing to the received opinion favourable balance of trade was a con-
ditio sine qua n o n for prosperous economic life. Its truth
depends, however, exclusively upon the validity of such a notion.
1 England' s Great Happiness. Early Econ. Tracts, pp.
2 D' A v e n a n t, Discourses on the Public Revenues. Works, I. p. 386.
3 The British Merchant, II. p. 226.
42 BR. gUVIRANTA. B XVII, 2
And that remains yet to be seen. But even if we ad interim
should suppose such a direct relation between the balance of trade
and economic life as a whole to have existed, the question arises,
whether the good or bad consequences arising from fluctuations
in the balance of trade, always were contemporary phenomena;
in other words, whether the cause and the effect necessarily always
coincide in time? Further, it may be justly maintained, that this
criterion was much too vague, too subject to individual differences
of judgment, to have been of any considerable practical value.
All things considered we cannot but agree with B a r b o n when
he says: »There is nothing so difficult, as to find out the balance
of t r a d e in any nation; or to know whether there ever was, or can
be such a thing as the making up the balance of trade betwixt
one nation and another; or to prove, if it could be found out, that
there is any thing got or lost by the balance*; 1 or with the state-
ment of Adam Smith: »There is no certain criterion by which
we can determine on which side what is called the balance between
any two countries lies, or which of them exports to the greatest
value. » 2
The conclusion we have thus arrived at becomes the more
evident, if the practical computations of mercantile writers as to
the state of the balance of trade are taken into consideration. We
have already pointed out that controversies concerning particular
balances were, in general, an »endless and uncertain speculation*.
That was especially the case when partisan or individual interests
came to play a greater role, as was e. g. the case with the document
prepared in 1674 by some leading London merchants, in which
were put forward statistical data for the assertion that England
was a loser by nearly a million a year, in her trade with France;
a document which was frequently appealed to in 'the protracted
discussion as to the merits of the French trade. The case was
similar with the controversy between Mercator and the
1 B a r b o n, Discourse Concerning Coining, p. 36.
2 A d a m Smith, Wealth of Nations, I. p. 439.
B XVI 1,2 The Balance of Trade. 43
But computations based upon the general balance of trade
were equally unreliable. This appears best from the fact that at
the same time as F o r t r e y, the author of the Britannia
L a n g u e n s and Roger Coke were speaking of the declin-
ing condition of England's trade, the author of England's
Great Happiness and D'Avenant entertained a very
different opinion of the state of trade. And when in the following
century e.g. Hutcheson, Gee and the author of »A n
Essay on the Causes of the Decline of the
Foreign T r a d e» regarded trade as being in a ruined con-
dition, other economists, as Daniel De Foe and Erasmus
Philips asserted that the wealth of England had been steadily
Later critics of the theory of the balance of trade found ex-
cellent matter for derision in these mercantile miscalculations. They
were, especially, ridiculed by David Hume and Adam
Smith. Tucker's view was similar. x The attitude of the
mercantile writers may, however, be, to a certain extent, defended
by pointing to the fact that mercantilists themselves, as we have
seen above, were not blind to the defectiveness of the criteria
applied, though they were usually inclined to accept one or another
1 Tucker, Cui Bono?, pp. 73—5. »For the English have a most
unaccountable propensity towards the gloomy and the dismal in their
prospects concerning trade. And nothing seems to please them better, as
the celebrated Lord Chesterfield used to say, than gravely to be
told, that they are ruined and undone. Therefore his friend Lord B o-
1 i n g b r o k e grounded all his patriotic dissertations on this very basis. — —
An author of some repute, one Joshua Gee, was so possessed with this de-
sponding notion, that he undertook to demonstrate by figures, and tables
of accounts, that the balances of trade were almost everywhere prodigiously
against us: So that according to this comfortable demonstration, there
would not have remained one shilling in Great-Britain for these 60
years last past. Yet Sir, we have spent and lavished away, since that period,
chiefly in unnecessary and unprofitable wars, upwards of 150,000,000 £
sterling: — a sure proof that he was miserably deceived in his calculations;
tho' a most melancholly refletcion on our own prudence. »
44 Br. Suviranta. BXVII 2 ,
pf the proposed criteria as giving some rude index of the balance
of trade. We may, moreover, call attention to the fact that this
question of criteria never played any considerable part in the
writings of the more important mercantile economists. The prim-
ary question for them was, how to improve the balance of trade,
and not, how to ascertain the state of the balance of trade. That
was expressly stated by Child: »I answer, that though the
study of the ballance of trade, in this last mentioned respect
[i. e. as to the state of the balance of trade], be a study very
ingenious and commendable; yet in my poor opinion, the enquiry,
whether w T e get or lose, does not so much deserve our greatest
pains and care, as how we may be sure to get; the former being
of no use, but in order to the latter.» 1
Child, A New Discourse, p. 180.
III. Gold and Silver: Stores of Value.
The questions dealt with in the previous chapter have been
grouped under the common name of the »M e c h a n i s m of
the Balance of T r a d e». We have now to turn to the
other, equally organic part of the theory which was called above
the »I m p o r t a n c e of the Favourable Balance of
Trad e». We have to seek answer to the question: Why did
mercantilists consider the favourable balance of
trade so highly important? We shall try to clear up
the details of the question as carefully and satisfactorily as possible.
But before attempting this, it will be convenient to consider generally
its central phenomenon by enquiring preliminarily, what actual
services were rendered to early capitalist society by the precious
metals, and what conceptions of those services were held by
economic writers in the period. To this we shall devote the present
and the following chapter.
Three distinct economic functions in society are performed by gold
and silver. They are used for industrial and ornamental
purposes, as stores of value, and as the standards
of money. The two first-named functions are closely related
to eachother being also historically older than the third. 1 For real
understanding of the economic role of the precious metals, a clear
1 J e v o n s, Money, p. 16: historically speaking, such a generally
esteemed substance as gold seems to have served, firstly, as a commodity
valuable for ornamental purposes; secondly, as stored wealth; thirdly, as
a medium of exchange; and lastly, as a measure of value. »
46 Br. Suviranta. B XVII.2
discrimination between the two first-named functions and the third
is highly necessary. When we speak of money in its strict economic
sense, we have no regard to its intrinsic .nature, to the material
it is made of, but only to the specific functions it performs, whether
by law or by convention, as a medium of exchange and a measure
of value. When we, on the other hand, speak of gold and silver
as used for industrial purposes or as stores of value, we are re-
ferring to functions belonging to these metals as commodities,
and it is of no consequence whether they are in the form of bullion,
coin, or ornament.
The fact that one and the same substance may be used in
different ways naturally leads those different applications to
be easily confused in thought. Such a danger of confusion was
particularly great in the period of early capitalism, when the state
of economic thinking was relatively undeveloped and the specific
characteristics of money were more closely connected with gold
and silver, than has been the -ease -since, because these metals alone
were employed as the standards of money, paper currency having
not yet been introduced. It will also appear from many of the
passages referred to below, that mercantile writers did not manage
to avoid confusion: »Gold and silver» and »money» were generally
used as synonymous terms. It lies with us to interpret in every
particular case the true sense given to these terms and to refer
each to its proper place among the functions of gold and silver.
It should however not be OA 7 erlooked that even in seventeenth
century literature there was some tendency towards differentiated
use of such terms as »money» and »gold and silver». Thus V a u-
g h a n speaks of »money and the materials thereof*). x Petty
is remarkably consistent in discriminating between »gold and
silver», on the one hand, and »money» or »coined money», on the
other. In Locke a. passage runs as follows: »That money
differs from uncoined silver only in this, that the quantity of silver
in each piece of money, is ascertained by the stamp it bears: which
1 V a u g h a n, o. c, p. 1 10.
B XVI 1,2 The Balance of Trade. 47
is there to be a publick voucher of its weight and fineness. » l And
in Barbon we find the two conceptions even theoretically
distinguished in the following passage: »Some men have so great
an esteem for gold and silver, that they believe they have an in-
trinsick value in themselves, and cast up the value of every thing
by them: The reason of the mistake, is, because money being
made of gold and silver, they do not distinguish betwixt mony,
and gold and silver. Mony hath a certain value, because of the
law; but the value of gold and silver are uncertain, & varies their
price, as much as copper, lead, or other metals. » 2 It should be
observed, however, that Barbon draws the line of demarcation,
not between money and its standard, but between bullion and
money as coins. 3 A theory clearly distinguishing between the
abstract nature of money and gold and silver as physical substances,
seems to have been produced first by Harri s, more than half
a century later, in a passage running as follows: »Money as such,
though very useful and necessary in all sorts of traffic, yet
scarce falls within the idea of riches (Money is here considered
in the astract; but as it is reducible into bullion, plate, &c.
in that sense it is wealth like other commodities).*) 4
1 Locke, Further Considerations. Essays, p. 661.
2 Barbon, A Discourse of Trade, p. 18.
3 It may be of interest to note that some decades later Franklin
brought forward a similar view: »In order to make a true estimate of the
value of money, we must distinguish between money as it is bullion,
which is merchandize, and as by being coin'd it is made a currency: For
its value as a merchandize, and its value as a currency, are two distinct
things; and each may possibly rise and fall in some degree independent of
the other* (A Modest Enquiry. Writings, II. p. 149).
4 H a r r i s, An Essay upon Money, I. p. 83. A few years later Steu-
art laid down the same principles as follows: »The terms gold and
silver, money of accompt, coin, bullion, and price, are
often understood, and made use of as synonimous, although no things can be
more different. The terms gold and silver should convey to us no other
idea than that of pure physical substances. That of money of accompt
represents an invariable scale or measuring vaiue.» (Inquiry, II. p. 46).
Br. Suviranta. B XVII,.,
Having thus distinguished between the different functions
gold and silver perform in society, we may now proceed further
and examine in what relation each of these functions stood to the
theory of the balance of trade. First We shall consider the employ-
ing of gold and silver for industrial purposes and for storing of
value, and then their use as the standards of money.
The industrial application of the precious metals may be
briefly dismissed, as we find in the mercantile literature of the
seventeenth century practically no direct reference to it. Generally
speaking, this use of the precious metals is only mentioned when
there is some connection with the other functions of money; i. e.
with their use as stores of value or the standards of money. This
indifference to the industrial use of gold and silver has its na-
tural explanation in the fact that, in industry, gold and silver
were mostly used for ornamental purposes. But mercantilists
were not, as a rule, seeking an answer to the question how hu-
man wants, say the desire for luxury, were to be satisfied, but
solely to the question how the ends of political safety and economic
expansion were best to be secured. To this mental disposition,
characteristic of the mercantile age as a whole, we shall return
later; for the moment it makes clear why the application of gold
and silver to industrial purposes does not appear as one of the
motives for the general chase after gold and silver.
When we turn from the use of gold and silver for industrial
purposes to their employment for storing value, we approach a
problem that actually did play an exceedingly important part in
the theory of the balance of trade. M u n e. g. emphasizes thus
the importance of such an application of the precious metals:
»Those princes which do not providently lay up treasure, or do
immoderately consume when they have it, will sodainly come to
want and misery.» x What the writer meant by laying up a state
treasure, becomes quite evident when he some pages later points
out that states being not able to amass much treasure, may in-
1 M u n, o. c, p. 90.
B XVII.., The Balance of Trade. 49
stead of it take care to provide the country with ships of war.
torts, granaries, colonels, captains, soldiers, commanders, mariners,
gunpowder, brimstone, saltpeter, shot, ordnance, tnusquets, swords,
pikes, armours, horses and »many other such like provisions fitting
\var» and then continues as follows: »Thus we have seen that a
small state may lay up a great wealth in necessary provisions,
which are princes jewels, no less precious than their treasure, for
in time of need they are ready, and cannot otherwise be had (in
some places) on the suddain, wdiereby a state may be lost, wildest
munition is in providing: so that we may account that prince
as poor who can have no wares to buy at his need, as he that hath
no money to buy wares; for although t r e as ur e is said t o
be the sine w s o f the w ar. yet this is so because it doth
provide, unite and move the power of men. victuals, and munition
where and When the cause doth require; but if these things be
wanting in due time, what shall we then do with our mony?»?
Thus, treasure represented for Man a kind of national reserve
stock to be used in cases of emergency. As such, it was no economic
category strictly separated from other economic groups, for not
only gold and silver, but all kinds of necessary provisions of war
could be hoarded as stores of value. The only difference was that
a hoard of gold and silver was preferable as being most conveniently
laid up and preserved. It is well to remember, however, that a
stock of gold and silver was preferable only provided that in time
of need necessary provisions of war actually were to lie purchased;
for »if these things be wanting in due time, what shall we then
do with our mony?» Treasure was thus no end in itself, but simply
a means to further ends.
The same current of thought as that represented by Mun, is
to be found generally in the economic literature of the seventeenth
century. Indeed, already in the seventeenth century H a 1 e s
and Cecil had given expression to the same point of view.
The former wrote: »I saie; his Maiestie bathe most losse, by this
- M u n, e. c, pp. 94 — 5.
50 Br. Suviranta. B XVI I, .>
common dearthe. of all other; and not only losse, but daunger to
the realme and all his subiectes, if his grace should wante treasure
to purchace the sayde habyliments and necessaries for warre, or to
fynde soldiers in time of nede;)) 1 Cecil asserted: »Without havyng
of masts, boords, cabeles, cordag, pitch, tarr, copar out of Estland.
all Spays is not liable to mak a navy redy to carry the meanest
army that can be imagined, and if his money brought out of the
Indies shold not tempt the Hanzes to bryng hym these provisions,
Spayn wold not offer to make war by sea with England. » 2 R o-
b e r t s describes the importance of gold and silver thus: »First
it must be considered and granted, that silver and gold- is not grow-
ing in every region, and therefore as things in themselves scarce,
and by all princes sought after, may b" accounted a forraigne
commodity, and the rather, for that the same carrieth with it,
the preheminence, and predominancy over all other' commodities.
whatsoever the worldly rich doe possesse. and therefore by reason
<>f the excellency, power, vertue, generall use, and need of it, when
once it entereth into some countries and kingdomes; the princ* s
thereof forbid the exportation. » 3 And in another place the same
writer says: »For that which produceth riches, doth consequently
also beget strength and safety, so farre forth as treasure is accounted
the principal nerve and sinnew oi war, either offensive, or defensive. » 4
In V a u g h a n we find an extraordinarily instructive passage:
»Now all the common-wealths of the world are grown to such a
depravation, that not only the exchange of necessaries, for which
money was first invented, but all things else are valued by money,
the services and duties of the common-wealth, the virtue and the
lives of the citizens; so that in the common opinions, that state,
that abounds in money, hath courage, hath men, and all other
instruments to defend it self and offend others, if it have wisdom
how to make use of it: and upon this ground it was said, during
1 Hales, o. c, p. 35.
2 Cunningham, o. c. Modern Times, p. 62, note 1.
3 Roberts, The Treasure of Traffike. Early Engl. Tracts, p. 67.
4 R o b e r t s, o. c, p. 111.
B XVII, 2 The Balance of Trade. 51
the time of the late wars in F r a n c e, that that si d e t h a t
had t li r last crown to spend must be infall-
ibly victorious. And it seems that in the L o w - C o u fi-
1 1 i e 8, on both sides they are of the same opinion. - - Hence
it is that in the modern forms of common-wealths there is no
proportion, no mediocrity of money, but all do strive to abound
with it, without any stint. And hence it is that rarity is
almost the sole inconvenience in matter of money.* 1
According to H o b b e s, gold and silver »have the privilege
to make common-wealths move, and stretch out their amies, when
need is, into forraign countries*). 2 The author of the »B r i t a n n i a
Languens» has set down the principles of treasure at length.
In his opinion »it is evident that national power is not
chimerical, but is founded on p e o pie a n d t r e a s u r e 9 ;
and that, according to the different condition of these its true
pillars, it immediately glows more vigorous or languid*. 3 Treasures
are necessary for the following purposes: »For the purchasing of
many provisions for war by land and sea. as arms, victuals, ammun-
ition, materials for shipping, and many others, which being gotten,
yet neither souldiers nor seamen will now adventure themselves
,it the mouths of cannon and musket without pay. whereof the
further consequence is that the prince and nation which hath the
greatest treasure, will finally have the victory, and probably with
little or no fighting. Since the wealth of the Indie s came
to be discovered and dispersed more and more, wars are managed
b y in uch t i' e a s u r e and little f i g h t i n g, and
therefore with little hazard to the richer nation. » 4
The phrase that money was the »sinews» or the »aerves of war»,
that we have seen recur in some of the passages referred to above,
was a common-place in the mercantile literature. 5 M i s s e 1 d e n,
1 V a u g h a n, Money, pp. 59 — 60.
2 H o b b e s, Leviathan, p. 194.
3 Britannia Languens. Early Engl. Tracts, pp. 457 — 8.
4 Britannia Languens. Early Engl. Tracts, p. 293.
5 This phrase is really a very old one. It is to be found already in M a-
52 Br. Suviranta. B XVII,,
for instance, speaks of »sinewes of warre and of state*; 1 Pollex-
f e 11 asserts that »gold and silver hath alwayes been esteemed the
sinews of wan>. 2
The man who may be given the honour of having transformed
such principles of treasure into what may be characterized as a~
»theory of the store of value», was Petty. His »theory» is set
out in the following two passages: »The great and ultimate effect
of trade is not wealth at large, but particularly abundance of silver,
gold, and jewels, which are not perishable, nor so mutable as other
commodities, but are wealth at all times, and all places: Whereas
abundance of wine, corn, fowls, flesh, &c. are riches but h i c &
n u n c, so as the raising of such commodities, and the following
of such trade, which does store the country with gold, silver, jewels.
&c. is profitable before others. » 3 Further: »If money be taken
from him, who spendeth the same as aforesaid upon e a t i n g
and drinking, or any other perishing commodity; and the
same transferr'd to one that bestow r eth it on c 1 o a t h s ; 1 say.
that even in this case, the commonwealth hath some little advantage;
because c 1 o a t h s do not altogether perish so soon as m eats
and drinks: But if the same be spent in furniture of
houses, the advantage is yet a little more; if in building
of houses, yet more; if in improving of lands; working
of mines, f i s h i n g, ,&c. yet more; but most of all, in bring-
ing gold and s i 1 v e r into the country: Because those things
are not only not perishable, but are esteemed for wealth at all
times, and every where: Whereas other commodities which are
<• h i a v e 1 1 i who was quoting it from an old Roman authority, Quintu s
< '. u r t i u s (B o n a r, Philosophy and Political Economy, p. 60). It occurs
in B o d i n and is frequent in the German cameralist literature (e\ g. in
Obrecht: »et quidem peeuniam nervum belli esse satis constat. »
Vide: Zielenziger, Die alten deutschen Kameralisten, |». 178).
1 M i s s e 1 d e n, Free Trade, p. 7.
2 Pollexfen, Discourse of Trade, p. 75.
;! Petty, Political Arithmetic,!;. Writings, I. pp. £59—60.
B XVI I, 2 • The Balance of Trade.
perishable, or whose value depends upon the fashion; or which
are contingently scarce and plentiful, are wealth, but pro hie
ec 11 11 H ('.') '
We see: l'etty proceeds in these passages from the principle
of storing wealth and classifies, in the detail, the whole range of
economic phenomena according to that principle, i. e. according
to the grade of durability and value of commodities. Nowhere
else, either before or later, are the principles of treasure put so
logically. Nor did Petty himself remain faithful to his own theory,
for elsewhere we find him arguing from an other point of view,
that of productivity of economic categories.
From our exposition it has appeared what an extraordinary
importance was attributed in the early capitalist period to amassing
state treasure. -
This importance of treasure is in strange contrast with the
time before mercantilism as well as with that after it. 3 Obviously,
such a contrast cannot be merely accidental, for an idea so widely
1 Petty, Political Arithmetick. Writings, I. p. 269.
2 Everywhere in Western Europe the importance of treasure is emphas-
ized in the same spirit. Thus Marshal T r i v u 1 z i o is said to have an-
swered the question what was needed in conducting wars: »Tre cose, Sire,
ci bisognano preparare, danari, danari, ei poi danari>> (Z i e 1 e n z i g e r,
o. c, p. 54); in the mouth of ('. o 1 u m b u s the words arc put: Money is
the most excellent among all things; the owner of it may do in this world
just what he likes, nay, he may even transmit souls to Paradise (Kaul z.
Entwickelung der National-Oekonomie, II. p. 226, Note); King Lew i-
XIV. of France is reported to have exclaimed in 1692, with regard to the
prevailing war between England and France: >)No matter, the last piece
of gold will win» (Ma caul ay, History of England, IV. p. 317). Ami
(hat illustrious minister of his, C o 1 b e r t. lias written: »Je crois que Ton
demeurera facilement t d'accord de <<- principe qu'il ify a que l'abondam :e
d'argent dans un Etat, qui fasse la difference de sa grandeur et de sa puis-
sance* (Som'bart, Der Moderne Kapitalismus, I. p. 366).
3 State treasure as such is, of course^ of old foundation, but in earlier
times primarily it served the personal ambition and desire for luxury of
princes; as has, indeed, been the case in East India until modern times.
Br. Suviranta. b XVII,
and universally adhered to by the ablest thinkers must have had
;i natural foundation in the conditions then prevailing in England,
as well as in Europe as a whole, a foundation not existing either
before or since. What was this foundation?
The cause of the growing importance of the precious metals
at the end of the Middle Ages is not far to seek and has, indeed,
already been pointed out in the Introduction: We their saw mer-
cantilism arising from the transition from natural economy to
money economy as well as from the concentration of economic
leadership in the hands of the central government. Thereby,
naturally, also the financial requirements of the state underwent
fundamental changes. »In Western Europe, as early as the fifteenth
century, the command of wealth in a readily exchangeable form
was of supreme importance, with a view to international conflicts.
Landed proprietors, with their retainers, could not hold their own
against professional soldiers; the prince, who commanded large
feudal levies, was likely to be worsted by an enemy whose purse
enabled him to put well-trained mercenaries into the field. A large
territory, manned with dependents, was no longer such a source
of strength; and money, which had been a useful adjunct, became
the prime necessity for supplying the »sinews of war*. 2
A reference to the breakdown of mediaeval society, though
explaining much, cannot, however, wholly solve the question why
the precious metals came to be regarded as the sinews of war. For
are not money economy and a centralized system of national
government still at the present day prevailing in Europe, and yet
'treasure has everywhere ceased long since to play any part in the
considerations of statesmen and economists? There must, evidently,
have existed some special feature in the economic structure of
early capitalism which made treasure important, a feature that
has later disappeared or become inoperative. That feature we
shall find in the undeveloped state of public credit.
The origin of public credit in England lies far back in time:
2 Cunningham, o. c. Modern Times, pp. 1 — 2.
B XVI I, o The Balance of Trade. 55
The Kings of England had been in the habit, from time immemorial,
of borrowing in anticipation of the taxes, and obtaining money
for immediate use by guaranteeing repayment when certain forms
of revenue were collected. Until the end of the seventeenth century,
the Grown kept to those old practices. That was the expedient
of Charles I., of the Long Parliament, and especially of Charles II.
who habitually relied on advances from Goldsmiths.
It is the Glorious Revolution that marks the end of those
practices and leads to the modern phase of finance. The immediate
cause of this most important change, is to be found in the financial
.straits of the time: The Stuart Kings had left the Exchequer in
deplorable condition at a time when extraordinary sums were
needed for the carrying on of continuous wars. The sums required
were so large as to exceed any possible proceeds from taxation. l
In 1694 these financial difficulties led to the establishment of the
Bank of England, whose capital was lent to the Government, and
two years later to the introduction of Exchequer Bills.
These new expedients in finance came to be of profound signi-
ficance in the conduct of public affairs: borrowing by the state
was thereby rendered much easier than it had ever been before
and the Government secured greater economic stability. The
rapidity of the expansion of public credit in the years to follow is
amazing: In 1691 the floating charges amounted to over £ 3.000,000;
in 1697 the capital of the debt had reached £ 21,000,000. and in
1 M a c a u 1 a y gives the following description of the extreme pecuniary
difficulties of the time: »The year 1692 had bequeathed a large deficit to
the year 1693; and it seemed probable that the charge for 1693 would exceed
by about five hundred thousand pounds the charge for 1692. More than
two millions had been voted for the army and ordnance, near two millions
for the navy. Only eight years before fourteen hundred thousand pounds
had defrayed the whole annual charge of government. More than four times
that sum was now required. Taxation, both direct and indirect, had been
carried to an unprecedented point: yet the income of the state still fell short
of the outlay by about a million, it was necessary to devise something.
Something was devised, something of which the effects are felt to this day
in every part of the globe (History of England, IV. pp. 318 — 19).
56 Br. Suviranta. B XVI 1, 2
1713, £ 53,000,000. 1 The efficiency of the public credit system
had really undergone a revolution. A contemporary economist.
Charles D'Av e n a n t, has described in an interesting passage
the practical effects of this financial revolution: »The millions
given every year in Parliament were presently raised, and the
public supplied, though the fund was never so unsound or chimer-
ical; provisions .were brought in fox the navy without difficulty:
the soldier had his subsistence, and the war was carried on by land
and sea, without the fleet or army being in any great arrear.» 2
But let us now return to the time preceding the modern phase
of the public credit system. We must, in face of the facts referred
to above, describe the period after the general introduction
of money economy and b e f o r e the related revolution of public
credit as forming a financial epoch of its o w n.
Financial problems, then presenting themselves for statesmen ami
economists and demanding solution, bore a peculiar character
and necessitated ways and means differing from earlier as well
as from later expedients. In the lack of effective credit, the command
of wealth in a readily exchangeable form alone afforded ready
command over the means supporting military forces in cases of
In modern society there are three general classes of property
which are exchangeable abroad: (1) Fixed capital, e. g. factories,
railways or land, represented by negotiable securities; (2) exportable
commodities; (3) gold and silver. In the seventeenth century.
the first of these categories was practically unknown, for it has.
of course, arisen first with the expansion of credit economy. As
to tlie second class, exportable commodities, it was not of nearly
so great consequence as it has been later, when the extension of
industry, improvements in communication and the uncomparable
development of commercial credit, have brought countries closer
together and. what is even more important, have rendered the
1 Meredith, Outlines of the Economic History, \>. 220.
2 I)' A v e n ;i 11 I, Discourses on t lie Public Revenues. Works, I. p. 444.
B XVII,., The Balance of Trade. 57
proceeds of export available at a much earlier date. ' As to the
third class, gold and silver, it possessed, as it possessess still at
present, the characteristics of ready exchangeability and stable
value in the highest degree. There was an old sentence, running:
d'ecuniam nab ens habet o nine in rem. q n a m
vult h ab e r e.» L o c k e expressed the same idea as follows:
»The intrinsick value of silver, considered as money, is thai estimate
which common consent has placed on it, whereby it is made equi-
valent to all other things, and consequently is the universal barter.
or exchange, which men give and receive for other things, they
would purchase or part with, for a valuable consideration: and
thus, as the wise man tells us, money answers all things. » 2
Gold and silver represented thus in the sixteenth and the greater
part of the seventeenth century almost alone easily exchangeable
values, required for financial operations by the state. In those
conditions the amassing of treasure was, certainly, a very natural
expedient of statesmen. That was, indeed, acknowledged even by
Adam Smith, when he said: »Among nations to whom com-
merce and manufactures are little known, the sovereign, upon
extraordinary occasions, can seldom draw any considerable aid
from his subjects. It is in such countries, therefore, that
he generally endeavours to accumulate a treasure, as the only
resource against such emergences.)) 3 While on the other hand.
1 By the time of A d a m S in i t h exportable commodities had
already grown more important for the finances of the state, as appears from
the following passage: »The commodities most proper for being transported
to distant countries — - seem to be the liner and more improved manu-
factures; such as contain a great value in a small bulk, and can, therefore,
be exported to a great distance at little expence. A country whose industry
produces a great annual surplus of such manufactures, which are usually
exported to foreign countries, may carry on for many years a very expensive
foreign war, without either exporting any considerable quantity of gold
and silver, or even having any such quantity to export* (Wealth of Nations,
1. p. 410).
2 L o c k e, further Considerations. Essays. \>. 652.
3 Adam Smith, The Wealth of Nations. 1. p. 412.
58 BR. SliVIRANTA. B XVII,,
»the sovereigns of improved and commercial countries are not
under the same necessity of accumulating treasures)). *
If thus the conditions of early capitalism were in themselves
enhancing the importance of the precious metals, there was n the
course of the sixteenth century added a secondary factor working
in the same direction That was the discovery of the
A m e r i c an s i 1 v e r min e s. ( 'ountries, first affected by the influx
of vast quantities of new silver, found themselves unexpectedly
in possession of »the sinews of war», whereby the old political
equilibrium of Europe was. naturally, greatly endangered. An
exciting hunt after the precious metals arose. A hunt, in which it
was not <mly necessary for every nation to keep the old stock of
those metals, but equally necessary to get a share of the new
supplies of silver, at least corresponding to the share they formerly
possessed of the silver and gold stock of the world, if the balance
id' power was not to be altered to their prejudice.
This chase after gold and silver, this keeping of the eyes on the
increasing or diminishing stock of neighbouring countries, appears
clearly enough from mercantilist statements. Thus, already
R aleigh asserted that the power of Philipp II. was not based
on the wine or the orange trade nor on any other productions of
i he mother-country, but on the American mines: »It is his Indian
gold that indanuereth and disturteth all the nations of Europe,
it purchaseth intelligence, creepeth into counsels, and setteth
bound loyaltie at litertie, in the greatest Monarchies of Europe. » -
Petty, answering the question as to when the nation should
rest from the great industry of hoarding, asserts: »I answer,
when we have certainly more money than any of our neighbour
slates, (though never so little) both in Arithmetrical and
i l-i unieirical proportion (i.e.) when we have more years pro-
vision aforehand. and more present effects. » 3 And Locke lays
1 A (1 a in S in i I h. ibidem.
2 Schacht, o. c. p. 59.
:i Pel I y, Yerhuin Sapienli. Writings, I. |>. 11*.'.
B XVI I, 2 The Balance of Trade. 59
vs: v»Money als
down the same idea as follows: v»Money also is necessary to us,
in a certain proportion to the plenty of it amongst our neighbours.
For, if any of our neighbours have it in a much greater abundance
than we. we are many ways obnoxious to them. 1. They can
maintain a greater force. 2. They can tempt away our people,
by greater wages, to serve them by land, or sea, or in any labour.
3. They can command the markets, and thereby break our trade,
and make us poor. 4. They can on any occasion ingross naval
and warlike stores, and thereby endanger us.» x
To conclude: Seen against the background of the age of early
capitalism, the importance that mercantile writers attributed to
gold and silver in their function as stores of value appears as a
natural outcome of historical conditions. In those conditions it
was not necessarily an exaggeration to call gold and silver »the
sinews of wat» 2 , or to assert, as Roberts did. that they carried
with them »the preheminence, and predominancy over all other
commodities*, or, as Vaughan did. that »in the modern forms
1 Loc k e, Further Considerations. Essays, p. 658. Gt'. also: »Riches
do not consist in having more gold and silver, but in having more in pro-
portion than the rest of the world, or than our neighbours, whereby we are
enabled to procure to ourselves a greater plenty of the conveniences of life,
than comes within the reach of neighbouring kingdoms and states, who.
sharing the gold ami silver of the world in a less proportion, want the mean.-,
of plenty and power, and so are poorer. Nor would they be one jot the richer,
if. by the discovery of new mines, the quantity of gold and silver in the world
becoming twice as much as it is, their shares of them should be doubled*
(Locke, Considerations. Essays, pp. 5r,:, —6).
2 Bishop B e r k e 1 e y objected to denoting money "the sinews of war.-.
on the following grounds: »So just is that remark of Machiavel — that there
is no truth in the common saying, money is the nerves of war; and though
we may subsist tolerably for a time amongst corrupt neighbours, yet if ever
we have to do with a hardy, temperate, religious sort of men, we shall find,
to our cost, that all our riches are but a poor exchange for that simplicity
of manners which we despise in our ancestors* (An Kssay towards Preventing
the Ruin. Works, IV. p. 327). Berkeley overlooked the fact, that the early
mercantilists, by calling money the sinews or the nerves of war, did not forgel
that people, materials of war. etc. were the primary requisites of war.
MO Br. Suviraxta. B XVI 1 , 2
df commonwealths there is no proportion, no mediocrity of money,
but all do strive to abound with it. without any stint. And hence
it is that r ar it y is almost the sole inconvenience in matter
• if money*. All this was not necessarily an exaggeration if only
the acquiring of the precious metals was clearly perceived, not as
an end in itself, but as a means to further ends. And that that
actually was the case, as far at least as leading mercantile economists
are concerned, has appeared in the course of our exposition.
IV. Gold and Silver: The Standards of Money.
The general functions of money are: (1) Money is used as a
medium of exchange, when, in a particular bargain, it is trans-
ferred from the buyer to the seller; (2) Money is used as a measure of
value, when by means of it prices are expressed and calculated.
These functions of money were not unknown to mercantile
writers. 1 Thus Hales asserted: »Gould and silver are
chosen by a common consent of all the world, that is knowen
to be of anie civilitie, to be instrumentes of exchange to measure
all thinges by». 2 Malynes wrote: »Money was ordained as a
pledge or right betwixt man and man. and in contracts and bar-
gaining a iust measure and proportion. » 3 C According to Mun,
»Money doth attend merchandize, for money is the price of wares,
and wares are The propel' use of money; so that their coherence
is unseparable.*) 4 Vaughan described the function of money
1 In the Middle Ages, the <5anonist theory had regarded money only
as a denominator of value. A broader conception had riot, however, been
wholly wanting': Thus, the famous French economist. Bishop Ore s in e,
had so early as in the fourteenth century clearly pointed out the function
of money as a medium of exchange, showing the convenience of exchange,
because of the difference of natural products in different [daces and defining.
money as the instrument of interchanging the natural riches which in
themselves supply human wants (C u n n i n g li a m, o. c. Early and Middle
Ages, p. 357).
2 Hales, o. c, p. 73.
3 Malyn e s, St. George, p. On.
4 Mun, A Discourse, p. 22.
82 Br. Suviranta. B XVII „
as a medium of exchange in these words: »The first invention of
mo ne y was for a pledg and instead of a surety, for when men did
live by exchange of their w ants and superfluities, both parties
could not always fit one another at the present. » x In II o b b e s we
find a passage explaining the function of money as follows: »Gold
and silver, being (as it happens) almost in all countries of the world
highly valued, is a commodious measure of the value of all things else
between nations: and money (of what matter so ever coyned by
the soveraign of that common- wealth), is a sufficient measure of
the value of all things else, between the subjects of that common-
wealth. By the means of which measures, all commodities, move-
able, and immoveable, are made to accompany a man, to all places
of his resort, within or without the place of his ordinary residence:
and the same passeth from man to man, within the common-
wealth; and goes round about, nourishing (as it passeth) every
part thereof. » 2
Towards the end of the seventeenth century defin tions of
money gain more and more in clearness. Here may be quoted a
passage of Lock e, distinguished by its lucidity: »Now money is
necessary to all these sorts of men, as serving both for counters and
for pledges, and so carrying with it even reckoning, and security,
that he, that receives it, shall have the same value for it again,
of other things that he wants, whenever he pleases. The one of
these it does by its stamp and denomination; the other by its in-
trinsick value, which is its quantity. » 3
It being thus generally recognized by mercantile writers that
the utility of money consisted in its specific economic functions, at-
tention was, very naturally, directed to the question of the quantity
of money needed to perform these functions. It was just this ques-
tion of quantity that brought speculations on money into close
relation with the balance of trade, gold and silver, the materials of
1 V a u g h a n, o. c, p. 1.
2 llobbes, Leviathan, p. 193.
3 Locke, Considerations. Essays, p. 572.
B XVI I, 2 The Balance of Trade. 63
money, being only acquirable through an active foreign trade. y
The question was touched upon by M u n in the following passage:
>It resteth now that I distinguish the seeming plenties of mony
from that which is only substantial and able to perform the work:
For there are divers ways and means whereby to procure plenty
of mony into a kingdom, which do not enrich but rather empover-
ish the same by the several inconveniences which ever accompany
such alterations. As first, if we melt down our plate into coyn- -it
would cause plenty of mony for a time, yet should we be nothing the
richer, but rather this treasure being thus alteied is made the more
apt to be carried out of the kingdom. » 2 The meaning of this passage
seems to be that only a certain quantity of money was required
»to perforin the work*, an excess of which would be useless and
flow to countries where a stronger demand for it existed.
Vaughan discusses the question of quantity at length.
Mis exposition is exceedingly interesting and is well deserving of
a close examination. He starts by putting down some general
monetary principles as follows: »If I were to handle this subject
as part of a treatise of the best form of a common-wealth, I would
first endevour to search out what proportion of money Were fittest
for the common- wealth, for if money were invented for the exchange
of things useful to man's life, there is a certain proportion for that
use, and there is as well a too much as a too little; because that
the want of money makes the life of the citizens penurious and
barbarous, so the over-great abundance of money makes their
1 Be it noted, that this question of quantity had reference only to money
as a medium of exchange, for money, in its function as a measure of value}
was not fettered as to any definite quantity. This fact was pointed out by
L o eke as follows: »The necessity, therefore, of a proportion of money
to trade, depends on money, not as counters, for the reckoning may be kept,
or transferred by writing; but on money as a pledge, which writing cannol
supply the place of» (Considerations. Essays, p. 572). On this account, die
question of money as a measure of value was of little consequence to the
theory of the balance of trade, and shall not be further referred to, conse-
quently, in the course of our study.
2 M u n. England's Treasure, p. 28.
Br. Suviranta. B XVII, 2
lives luxurious and wanton, by reason of the great coniniutability
Of all things for money, by which the vain and vicious fancies of
men are presently supplied with all that they do affect.*) 1
These sentences of Vaughan display considerable theoretical
insight into the character of money. But having put down them.
the author stops, unexpectedly, short in his reasoning; the passage
continues namely as follows: »But I must apply my conceit to the
eninmon- wealth as it is, not as a philosopher may frame it
by discourse: and therefore ought rather to imitate a good rider,
than a good breaker of horses, whose part it is to perfect the horse
in all his natural actions, and to redeem and win him from all
vicious affections; but for the rider it is enough if he do use him to
the best advantage such as lie finds him.» - Continuing the passage
the author then points out how in the common opinion a state
;i bounding in money has courage, has men and all the instruments
to defend itself and how, therefore, »rarity is almost the sole in-
convenience in matter of money». 3
The conclusion to which Vaughan thus finally comes, seemingly
contradicts his view at the outset of the exposition. He was
apparently himself aware of the inconsistency of his reasoning.
but was not able to reconcile what he seems to have regarded as
a purely theoretical point of view, with a view apparently better
suited to the practical conditions of life. For us it is not difficult
to point out where the fault in Vaughans reasoning lies: Employ-
ing the term money simultaneously in two different senses, he had
al the outset the conception of the medium of exchange in his
thoughts; in the course of the exposition this conception was,
however, dropped and its place was taken, unawares, by that of
gold and silver as stores of value. Thus. Vaughan was not at fan i
in either of his views; he only confused them together.
William Potter, by mentioning besides the abundance also
1 Y a u »' h a n. o. c, pp. 58 — 59.
- V a U g h a n. 0. e., p. 59.
3 Vaughan. 0. C, p. 60. CI', above, p. 50.
B XVI 1,2 The Balance of Trade. 65
the mobility of money, seems to have been the first to draw
attention to the fact that the effective quantity of money did not
depend on the absolute quantity of money alone, but also on the
rapidity with which every particular piece of money was circulat-
ing. 1 Child, for his part, pointed out the extended circulation
arising from the use of credit facilities: »The law that is in use
among them [the Dutch] for transferring of bills for debt from
one man to another: this is of extraordinary advantage to them
in their commerce; by means which, they can turn their stocks
twice or thrice in trade, for once that we can in England. » 2
But Petty and Locke are the two economists of the
seventeenth century discussing the topic of the effective quantity
of money in the ablest way. The former proceeded on the following
lines: »The keeping or lessening of money, is not of that conse-
quence that many guess it to be of. For in most places, especially
Ire la n d, nay, Engl a n d it self, the money of the whole
nation is but about Vio of the expence of one year; viz. I r e-
1 a n d is thought to have about 400 m. 1. in cash, and to spend
about -t millions per a n n. Wherefore it is very ill-husbandry
to double the cash of the nation, by destroying half its wealth;
or to increase the cash otherwise than by increasing the wealth
simul & s e m e 1 .
That is, when the nation hath Vio more cash, I require it should
have Vw more wealth, if it be possible. For, there may be as well
too much money in a country, as too little. I mean, as to the best
advantage of its trade; onely the remedy is very easy, it may be
soon turn'd into the magnificence of gold and silver vessels. » •
This passage of Petty, by the side of other passages of his
written in the same spirit, is a remarkable proof of his mental
power of penetrating intricate theoretical problems. We have
already in discussing the topic of treasure mentioned him as the
most logical formulator of what was called »the theory of a store
1 Potter, The Trades-man's Jewel, p. 5
2 Child, A New Discourse, p. 7.
3 Petty, Tin 1 Political Anatomy. Writing. s 1. pp. 192
66 BR. SUVIRANTA. B XVI hi
of value». There he was pleading for amassing gold and silver
practically in any quantity; here the same writer draws clearly
defined limits for the effective quantity of money, excess being
as little desirable as shortage. Petty thus succeeded in avoiding
the fatal trap into which V a ugh an had fallen by not clearly
distinguishing the different functions of gold and silver. Petty
was in expounding those principles of an effective quantity of
money, far ahead of the prevalent opinion of the age, as may be
seen, for instance, from the interesting objection raised by a friend
of his, Sir Richard Cox, in a letter dated June 15th, 1687,
and running as follows: »It is difficult to prove that there can
be too much money in a kingdome.* 1
Petty was fully aware not only of the fact that the amount
of money that was requisite for the trade of the nation was de-
pendent on the scope of her commercial intercourse, but also of
the influence which the rapidity of circulation and exchange without
the medium of money exert upon the effective amount of money,
as appears from the following passage: »Now as the . proportion
of the number of farthings requisite in comerse is to be taken from
the number of people, the frequency of their exchanges; as also,
and principally from the value of the smallest silver pieces of money;
so in like maner, the proportion of money requisite to our trade
is to be likewise taken from the frequency of commutations, and
from the bigness of the payments, that are by law or custome
usually made otherwise. » 2
Locke proceeds on the same lines. He proposes in the form
of an economic maxim: »That in a country, that hath open com-
merce with the rest of the world, and uses money, made of tin
same materials with their neighbours, any quantity of that money
will not serve to drive any quantity of trade; but there must be ;i
certain proportion between their money and trade. » 3 The agents
1 Petty, Writings, I. p. 193, note 1.
2 Pet t y. A Treatise of Taxes. Writings, I. pp. 35—6.
3 Locke, Considerations. Essays, p. 591.
B XVI 1 ,2 The Balance of Trade 67
determining this just proportion between money and trade, arc
pointed out: »Every man must have at least so much money, or
so timely recruits, as may in hand, or in a short distance of time,
satisfy his creditor who supplies him with the necessaries of life,
or of his trade. For no body has any longer these necessary supplies,
than he has money or credit, which is nothing else but an assurance
of money, in some short time. — - — This shews the necessity of
some proportion of money to trade: but what proportion it is.
is hard to determine; because it depends not barely on the quantity
of money, but the quickness of its circulation. The very same
shilling may, at one time, pay twenty men in twenty days: at
another, rest in the same hands one hundred days together.)) 1
It being recognized that the use of money lay in its
circulation and that its efficacy largely depended upon the
velocity with which it circulated, attention was very naturally
turned to the question how money was to. be best employed
for the purposes of trade. 2 Already B a c o n had been
comparing the precious metals with manure: hoarded they were
barren, diffused over the country, they became fertile. 3
Thomas Mini emphatically condemned the amassing of any
considerable quantities of money by private people: »It were
vanity and against their profit to keep continually in their hands
above forty or fifty pounds in a family to defray necessary charges,
the rest must ever run from man to man in traffique for their
benefit. » 4 The welfare of the country demanded that money should
circulate, for »it is a true lesson for all the land to* observe, lest
1 Lock e, Considerations. Essays, p. 573.
2 It being also recognized that the existing stock of metallic money could
be extended by means of credit, greater use of credit facilities was recom-
mended by many of the seventeenth century economists. As such considerat-
ions were ultimately to destroy the theory of the balance of trade, they
'are best studied in connection with the decay of the balance theory.
:i f> n eke n, o. c., p. 217.
1 M u n. o. c, p. 41 .
68 Br. Suviranta. B XVII...
when wee have gained sonic store of niony by trade, woe lose
it again by not trading with our mony». x
There is an apparent contradiction in Mun's reasoning. We
have before 'seen him strongly pleading for hoarding of treasure;
but here he stands for the greatest possible diffusion of money.
This peculiar attitude of Mun was a consequence of the fact, that
two opposite currents, equally important, were here in conflict:
The safety of the nation demanded, on the one hand, keeping of
an effective national reserve. stock in the form of a state treasure;
the expansion of trade demanded, on the other hand, increasing
stock and quicker circulation of money. These contradictory
interests Mun tried to co-ordinate as far as it was to be done, by
a compromise: he recommended the amassing of state treasure.
but rejected private hoarding. And further: he put certain limits
even to hoarding by the state: that had always to be suited t<>
the conditions of trade, »for although tin.- revenue of a king should
be very great, yet if the gain of the kingdom be but small, this
latter must ever give rule and proportion to that treasure which
may conveniently be laid up yearly, for if he should mass up more
mony than is gained by the overbalance of his forraign trade, he
shall not fleece, but flea his subjects, and so with their
ruin overthrow himself for want of future sheerings». a
»For a prince (in this case) is like the stomach in the body,
which if it cease to digest and distribute to the other members,
it doth no sooner corrupt them, but it destroyes it self.» 3
We have here really before, us the same financial problem that
has been the foremost in our own time: that of the taxable
capacity of the community; and we have also the warning of the
economist against killing the goose that lays the golden eggs. The
form in which this problem presented itself to Mun, was only dif-
ferent according to the peculiar financial circumstances of the
early capitalist epoch.
1 M u n, o. c, p. 24.
2 M u n, o. c, pp. 92 — :j.
;; M u n, o. c, p. 95.
B XVI 1,2 The Balance of Trade. 69
The point of view, that we have seen Mun expounding, seems
to have been the prevailing opinion among economists of his age. 1
All economic writers of importance from the latter part of the
seventeenth century, referring to the question, condemned private
hoardings and recommended an effective use of the stock of money
and of the national resources of gold and silver. Thus V a u g h a. n
said: »A til i-r d cause of the r a r i t y of money and the materials
thereof, is the w as t i n g and c o n s u m i n g it within the king-
dom, as in g u i 1 d i n g s, g 1 d and si 1 v e r - 1 h r e a d, and i n-
1 a y i n g s. all which is consumed in a manner to nothing, the
excessive use likewise of plate maketh money scant, but all
these defects are to be remedied by sumptuary laws.» 2
Petty, likewise, would have preferred money to plate: »Much
of our plate, had it remain'd money, would have better served
trade.» 3 For trey defended luxurious expenditure within
certain limits as »money would thereby be more moving, which
would be a great encouragement and satisfaction to the people». 4
C h i 1 d pointed out the bad effects of unequal distribution of
money: »This complaint in the country, proceeds from the late
practice of bringing up the tax-money in waggons to London,
which did doubtless cause a scarcity of money in the country.» '°
D' Ave n a n t produced a similar complaint: »In former times the
wealth of England was far more equally dispersed than it has
been of late. It could never be said till now, that London
was at one time owner and mistress of almost the whole species
1 Similar views were brought forward also in other countries; for instance,
by the Italian economist, B o t e r o, and the German, Schroder, who
wrote: »Die Sparsamkeit des Fiirsten soil sich nicht weiter erstrecken. als
so viel jahrlich die Einkommen des Landes die Ausgaben ubertref'fen, und
ja nicht das Kapital des Landes angreit'en und davon etwas in seinen Schatz
legem (Rose her, Geschichte der \ational-Oekonomik, p. 2'.>7).
2 V a u g h a n. o. c, p. 66.
3 Petty, Political Arithmetic!;. Writings. 1. p. 2'.:!.
4 F o r t r e y, o. c. p. 27.
5 C h i 1 d, A New Discourse. Preface.
;u Br. Suviranta. B XVI 1. 2
of silver; and yet; it is to be fear'd, this is our case at present. » *
And Locke opposed private hoarding as follows: »The provident
publick, or private care, is to keep it [money] from venting, or
consuming, i. e. from exportation, which is its proper consumption;
and from hoarding up by others, which is a sort of ingrossing.» 2
Lastly a passage of D'Avenant may be quoted, a passage
in which the principles of the medium of exchange found their
most advanced expression in the seventeenth century:
»It is not the taking in a great deal of food, but it is good diges-
tion and distribution that nourishes the body and keeps it healthy.
The same thing holds in the body politic; so that gold and sil-
ver are often a surfeiting diet to a nation; and there may be as
well too much as too little of this kind of treasure, if it be not
Turned to proper uses.
Where it flows so fast in as to choke industry, or where it is
suffered to stagnate, it does more hurt than good.
The lazy temper (which is now grown inveterate nature in the
Spaniards) came undoubtedly upon them, with that affluence of
money which was brought into their country in the reign of Philip
II. presuming upon which, they neglected arts, labour and manu-
Trade and manufactures are the only mediums by which such
a digestion and distribution of gold and silver can be made, as
will be nutritive to the body politic. — —
These metals then are so far from being — — 'the only, or
most useful riches'; that sometimes they may be hurtful, and arc
never at all useful, but when in motion and ministring to trade
and the other business of a people. » 3
We have thus shortly inquired into the general character of
money as a medium of exchange as it was understood in the mer-
cantile literature of the seventeenth century and as it throws light
1 D'Avenant, Discourses on the Public Revenues. Works, I. p. 158.
2 Locke, Considerations. Essays, p. 588.
• D'Avenant, Discourses on the Public Revenues. Works, I. pp.
B XVII, 2 The Balance of Trade. 71
upon the problems of the theory of the balance of trade. In consider-
ing the theoretical achievement of these mercantilists, we have to
draw attention to the great obstactles which were to be surmounted
before a clear insight into the nature of money could be gained.
(1) There was little monetary theory handed down by an earlier
age. and useful in the changed economic structure of early capital-
ism; (2) The problems of money are in themselves of an extra-
ordinarily intricate nature, as was humorously pointed out by
Petty when he said that »one might lanch out into the deep
ocean of all the mysteries concerning money*. 1 The problems of
money defy, indeed, still to-day the attempts of economists to
establish a universally accepted theory of money. 2 (3) Confusion
between the different functions of gold and silver was, as has been
pointed out, easier in the conditions of a pure money economy
than in those of a credit economy, as these metals were simultane-
ously and urgently required for purposes of treasure as well as
for purposes of exchange.
When all this is considered, it must be readily allowed that
these mercantile writers need not be ashamed of the principles
of money they were expounding. They cannot, it is true, be ex-
onerated from the charges of obscurity in terminology and of much
confusion in thought, but then there may also be found delightful
theoretical remarks on the subject and a steady progress in insight
into the real character of money. The expositions of Petty or
Locke or D'Avenant mark already a high stage of monetary theory.
1 Petty, A Treatise of Taxes. Writings, I. p. 85.
2 Not to speak of all the rude fallacies as regards money still prevailing.
What Harris asserted a hundred and fifty years ago holds even to-day:
»And unfortunately, money is a subject wherein men in general have given
themselves the least trouble of enquiry; and yet a subject upon which they
think themselves best qualified and best entitled to decide: A subject upon
which, more jejune, incoherent and dangerous positions have been held,
and more glaring absurdities advanced, than, perhaps, upon any other
whatsoever. (An Essay upon Money. II. Preface).
72 Br. Suyiranta. B XVII, 2
Now thai We possess full knowledge of the general character
attributed to the medium of exchange by mercantile writers. we
may proceed to consider what importance was given to the economic
services rendered by the medium of exchange, for only now are we
assured of being able to avoid misconceptions as to the true mean-
ing of passages to be referred to.
The mercantile attitude towards money is clearly illumined.
A great number of passages might be brought forward from the
economic literature of the seventeenth century describing the eco-
nomic value of money. In almost all of them the mode of argument
was practically the same. The current notion of money appears
as in a nutshell from the epithets by which the writers tried to
characterize the economic services of the medium of exchange.
M a 1 y n e s called money »soule in the body»; * M i s s e 1 d e n
called it »vitall spirit of trade>>. 2 In the instructions of the Stan d-
i n g C m m i s s i n n Trade of 1622, a passage began
as follows: »And because the life of commerce and trade is mony
.» 3 Vaughan asserted that money »is not ill compared
to the m a t e r i a p r i m a, because, though it serves actually
to no use almost, it serves potentially to all uses». 4 Hobbes,
again, said that money is »as it were the sanguification of the
common-wealth: For naturall blood is in like manner made of
the fruits of the earth; and circulating, nourisheth by the way,
every member of the body of man». 5 According to F r t r e y
the use of money was »the life and sinews of trade*. 6 Child
described money as »onr tools, our stock, to drive a great trade
with»; 7 and Petty, the physician, denoted it »the fat of the
1 M ;i I y 11 e s, The Maintenance, p. 2.
- Miss eld en, Free Trade, p. 28.
;! Cunningham, 0. c. Modern Times, p. 216, note 2.
' V a u g h a n, 0. c, p. 3.
5 II l» b es. 0. e.. p. 193!
6 F o r I r e y. 0. C, p. 36.
7 c. li i I d. A New Discourse, p. 178.
B XVII.2 The Balance of Trade.
body-politick»; for, so he asserted, »as fat lubrieates the motion
of the muscles, feeds in want of victuals, fills up uneven cavities,
and beautifies the body, so doth money in the state quicken its
action, feeds from abroad in the time of dearth at home; even
accounts by reason of it's divisibility, and beautifies the whole,
altho more especially the particular persons that have it in plenty». 1
According to Locke money was »as necessary for trade as food
is to life»; ■ and D 1 A ven ant asserted that money keeps »the
wheels of the machine in motion*. 3
The metaphors and comparisons with which mercantilists
liked to characterize the valuable services money rendered t<»
society, give, thus, a very vivid impression, indeed, of what an
important place money occupied in their considerations. But the
importance of money was not always expressed with the aid of
images; often it was put down in plain English. Malynes
asserted that »by money a trade is made for the imployment of it
both at home and abroad. » 4 Thomas Mun said outright:
-Alone v begets trade, and trade encreaseth mony.» 5 The same
idea was expressed by Y a u gdi a n in the words: »For manu-
factures do breed money, and money again doth breed manu-
factures)): 6 and by Lock e as follows: »Trade, then, is necessary
to the producing of riches, and money necessary to the carrying
on of trade j> 7
A few more passages may be quoted in which the important
role of money was very strongly emphasized. In Petty we
find the following passage: »If the largeness of a publick exhibition
should leave less money then is necessary to drive the nations
trade, then the mischief thereof would be the doing of less work,
1 Petty. Verbum Sapienti. Writings, 1. p. 113.
2 L C k e, Considerations. Essays, p. 562.
a D' A v e n a n I, Discourses on the Public Revenues. Works, I. |>. 448.
1 Malynes, Lex Mercatoria, II. p. 253.
' M u n, o. c, p. 20.
6 V augh-a n, o. c, p. 61.
7 L o <• k c. Considerations. Essays, p. 566.
BR. SUVIRANTA. B XVII.a
which is the same as lessening the people, or their art and industry;
for a hundred pound passing a hundred hands for wages, causes a
10,000 1. worth of commodities to be produced, which hands would
have been idle and useless, had there not been this continual motive
to their employment. » 1 According to D' A v e n a n t, »Numbers
of men, industry, advantageous situation, good ports, skill in
maritime affairs, with a good annual income from the earth, are
true and lasting riches to a country; but to put a value upon all
this, and to put life and motion to the whole, there must be a quick
stock running among the people; and always where that stock
increases, the nation grows strong and powerful; and where it
visibly decays, that decay is generally attended with public ruin*. 2
And in an other place the same author writes: »Trade brings in
the stock; this stock, well and industriously managed, betters
land, and brings more product of all kind for exportation; the
returns of which growth and product are to make a country gainers
in the balance. » 3
The passages quoted above have together given an eloquent
testimony to the importance attributed to money by mercantile
writers. Money was thought to be a powerful stimulus to trade,
and it appeared even in the role of a creator of new commercial
activities. There was, indeed, almost something mystical about
the power money seemed to exercise in society.*
This mercantile attitude towards money stands in strange
and deep contrast with the corresponding opinions of a previous
age. The canonist theory had stigmatized money as barren in the
course of economic activities, appreciating it merely as a denomin-
ator of value. 4 This view found its shortest expression in the
maxim: n u m m u s n u m m u m non p a r e r e p o t e s t.
1 Petty, A Treatise of Taxes. Writings, I. p. :u>.
2 D' A v e n a n t, Discourses on the Public Revenues. Works, 1. p. 447.
;i D'Avenant, An Essay upon the Probable Methods. Works, If.
4 Here may be pointed out a passage of L o c k e running as follows:
> lor land product's naturally something new and profitable, and of value to
B XVII.2 The Balance of Trade. 75
The contrast between the views current in the Middle Ages
and those of the mercantile age, finds its natural explanation in
The fact, that in the meantime money economy was being generally
introduced., as was pointed out in the Introduction. As long as
natural economy held its own, there was, of course, no temptation
to overrate the role of money; it had, indeed, primarily, the character
of a denominator of value. With the introduction of money
economy and the simultaneous reconstruction of society on a capital-
ist basis, the position of money underwent, however, a complete
change; the foremost function of money came now to be more and
more that of a m e d i u m of exchange. But let us try exactly
to define the general role of the medium of exchange in the type
of society prevailing since the end of the Middle Ages;
In the capitalist system, organized on the principles of private
ownership and division of labour, an exchange of commodities
among the members of society, is a practical necessity. Without
a common medium, exchange could take place only by barter.
But where barter is the prevailing form of exchange, an effective
division of labour and a diversification of industry is difficult, if
not impossible, for then the produce]-, in directing his productive
activities, can, in general, have only regard to the requirements
of his own wants or to the wants of individuals whom he comes
in personal contact with and who belong thus to a comparatively
narrow circle. It is only after the introduction of money economy
that a greater subdivision of labour is made possible. Production
is freed from the fetters of a narrow circle, whereby production
for a market, the true characteristic of the capitalist system, be-
comes possible. This function of money is well compared with
the services rendered by the means of transport. For. as by means
mankind, but money is a barren thing, and produceth nothing; but by
compact transfers that profit, that was the reward of one man's labour,
into another man's pocketo (Considerations. Essays, p. 582). The assertion
that money is a barren thing, is here not to be taken in the mediaeval sense,
as appears from the continuation of this passage where the paying of interest
is justified, as well as from the author's attitude in general.
76 BR. feUVTRANTA. B XVII, 2
of money, production is freed from the fetters of personal contact
in twvcn producer and consumer, so with improving means of
transport, the supplying of wants is lived from the narrowness
of local demand.
Monet plays a part — Jet it be clearly understood - not only
in the distribution and redistribution of finished goods; it is directly
connected with the process of production by facilitating exchanges
necessary for every particular act of large-scale production. Before
the introduction of money economy energetic and vigorous men
had little opportunity of displaying their powers in the industrial
sphere, as facilities lor forming capital were not available.
»The existence of the precious metals in a community enables tin-
type known as 'the business man' to arise and function by direct-
ing the flow of 'superfluous industrial energy' from tbe productimi
of immediate to that of mediate goods; or in other words, from
the direct production of consumers' wealth, to the production of
industrial and commercial capital-goods». 1 By means of money,
workshops, machines, materials and labour are brought together
and into the hands of organizers of industry who know how to
use them to most advantage.
To sum up: Money is indissolubly connected with capitalism
and capitalist enterprise and may, truly, be designated as one of
the most essential economic forces in modern society. Much in
1 II (i li s (i i). The Evolution el' Modern Capitalism, p. 6. Gu nningh a m
write-: »The predominance of capital is the leading feature which -dis-
tinguishes modern economic conditions from those of the Middle Ages.
There undoubtedly were energetic and vigorous men in all eras of his-
tory; hut they had no opportunity of displaying their powers, in the
industrial sphere, till facilities were available for forming capital, ami there
was freedom for employing it in many kinds of business. This slate id'
affairs existed, to some extent, in the Elizabethan era. and it has be-
come moie and more common in subsequent limes. The moneyed men
who organise labour on a large scale and bring il to bear in the direc-
tions which offer the best prospect of a profit, have given a feverish.
restless character to modern life, that seems (0 us to have been lacking
in mediaeval days.* (O. <•. Modern Times, p 12).
B XVII. 2 The Balance of Trade. 77
the appreciation of money by mercantile writers docs not, there
lore, appear unreasonable. There was certainly nothing blamable in
calling money »the life of traded or »the wheels of the machine*,
or some such thing. (Due allowance being made for the fact that
a metaphor never gives the whole truth but throws light only on
the specific aspect in question). Nor were mercantilists wrong in
affirming that without sufficient money trade could not flourish.
Surely, a contrary attitude would have been a fatal mistake.
But what strikes a. modern reader of mercantile expositions of
money, is. in general, the fact that the emphatic stress laid on money
stands in a strange contrast to the attitude that has been, as a.
whole, prevalent among economists and politicians of a later age:
and, in particular, the frequent suggestions that money plays a
creative, an active role in trade, when, on the contrary, the very
function of money is to be a wholly passive partaker in economic
transactions. The question presents itself: Was this mercantile
mentality a mere exaggeration arising from incapacity for exact
thinking, or had it perhaps some foundation in the historical
conditions of early capitalism? This question will be closely in-
quired into in the two remaining sections of this chapter.
One strong motive to the' attention paid to money questions,
was the opinion, to be found in most mercantile writers of the
seventeenth century, that England was suffering from a scarcity
of money, permanent or temporary, or. that such a stage of things
was, at least, imminent unless all possible care was taken of the
balance of trade. Thus Malynes asserted that »all the said causes
of the decay of trade in England are almost all of. them comprised
in one. which is the want of money». ■ Missel'den, the ant-
agonist of Malynes. was on this point in full agreement with him;
the first chapter of his »Free Trade» bears the characteristic heading:
1 Malynes, Tin- Maintenance of Free Trade, p. 104.
78 Br. RUVIRANTA. B XVII.2
»>The Causes of the Want of Money in England.** The Standing
Commission on Trade, appointed in 1022. were to inquire how to
remedy the unusual scarcity of money. 2 Petty, for his part,
asserted that scarcity of money is another cause of the bad payment
<>f taxes». 3 In Loc ke we find a passage in which the case was
discussed at length: »This was the ordinary course, whilst we had
money running, in the several channels of commerce: but that
now very much failing, and the farmer, not having money to pay
the labourer, supplies him with corn, which, in this great plenty,
the labourer will have at his own rate, or else not take it off his
hands for wages. And as for the workmen, who are employed in our
manufactures, especially the woollen one, these the clothier, not
having ready money to pay, furnishes with the necessaries of life.
and so trucks commodities for work. What kind of influence
this is like to have upon land, and how this way rents are like to
be paid at quarter-day, is easy to apprehend: and it is no wonder
to hear every day, of farmers breaking and running away. For, if
they cannot receive money for their goods at market, it will be
impossible for them to pay their landlord's rent » 4
As appears from this passage, Locke took a very gloomy view
as to the consequences of the decreasing stock of money. Land-
owners, especially, were to suffer from a scarcity of money. A
like opinion was expressed by other mercantile writers. The author
of the B r i t a n n i a L a n g u e n s depicted the course of events
as follows: »This consumptive importing trade must be of very
fatal consequence in its nature. — — As the national treasure
comes to be more and more diminished, the people must generally
have less and less, which must cause the price of all home-commod-
ities, and consequently land-rents to fall continually, the
home manufactures must be choaked and stifled by importations,
1 Miss el den. Free Trade, p. 1
2 H ewi ns, o. c, p. XXVI.
3 Poll y. A Treatise of Taxes. Writings. I. p. 34.
4 Locke, Considerations. Essays, p. f>74.
B XVI 1 ,2 The Balance of Trade. 79
so that both the farmers and manufacturers must fling up; the
values of their stocks must be contracted, and will be eaten out by
rent, wages and other standing charges before- they are aware;
men cannot provide against misfortunes which have unseen causes:
and as home-trade grows worse and worse, industry it self must
be tired and foiled, to the great amazement, as well as affliction
of the people. » * D' A vena nt argued in the same vein: »Our
gold and silver will be carried off by degrees, rents will fall, the
purchase of land will decrease, wool will sink in its price, our stock
of shipping will be diminished, faim-houses will go to ruin, in-
dustry will decay, and we shall have upon us all the visible marks
of a declining peoples 2
The consequences declared by these writers to follow a sub-
stantial decrease in the circulating stock of the nation, are not in
themselves to be contradicted. For just as capitalist society would
simply fall into pieces, if the mediums of exchange were to be
eliminated from economic life, so, evidently, the usual volume of
economic activities cannot be satisfactory carried out, if the cir-
culating stock at any time falls short of that amount to which
society has once adjusted itself (supposing that money is not in
a corresponding degree compensated by credit and banking facil-
ities). In want of a sufficient supply of money, a certain part nf
the prospective demand for goods or services must become ineffect-
ive, as the potential buyer and seller either do not find eaGhother
at all, or on doing so are compelled to fall back on the troublesome
expedient of barter. The damage brought about, is greater or
smaller according to the degree and the duration of such a shortage
The general principle in the mercantile reasoning was thus
not wrong. But this is not. after all. the question of primary im-
portance for us; the real question is: W as England d u r-
1 Britannia L a n g u e n s. Early Engl. Tracts, p. 574.
2 D' A v e n a n t, An Essay upon the Probable Methods. Works, II
sii Br. Suviranta. B XVI-I.i
i n g T li e s e v e n t e en t h cent u r y s u f f e r i n g f r o m
;i c t u a 1 o r potential shortage of m o n e y j u s t i-
f y i n g t h e a n x i e t y of c o n t e m p o r a ry e c o n o ni-
i s t s and politicians for attaining a f a v u r-
a b 1 e balance of t r a d e a n d t li e r e b y s e c n r i n g
a g r e a t e r supply of the precious metals ?
The accuracy of conclusions in the mercantile literature
cannot be relied upon. And that for many reasons. For the first,
the opinion was not quite unanimous. Thus Mun writes: Con-
cerning the evill or want of silver, 1 thinke it hath beene, and is ;i
general] disease of all nations, and so will continue untill the
end of the world; for poore and rich complaine they never have
enough: - 1 hope it is but imagination maketh us sicke, when
all our parts be sound and strong.* 1 Petty asserts that »it
is probable that (some allowance being given for hoarded niony)
the whole cash of England was then [after the Restoration]
about six millions, which I conceive is sufficient to drive the
trade of England, not doubting but the rest of his Majesties
Dominions have the like means to do the same respectively*; -
Child has stated his point of view very distinctly: »And if it
be doubted we have not money enough in England, besides what
I have said in my former treatise as to the encrease of our riehes
in general. 1 shall here give further reasons of probability, which
are the best that can be expected in this case, to prove that we
have now much more money in England than we had twenty
years past.» 3 The writer then enumerates several proofs of his
case, such as the expansion of trade, the rise of rents, etc.. and
concludes then his passage as follows: »But - how comes it
to pass that all sorts of men complain so much of the scarcity
1 Mu n, A Discourse, p. 38.
- I'.tty, Political Arithmetic]*. Writings, I. \>. 310. CX also the
following statement: »Nor is in > wanting i<> answer all the ends of a
well policied stair, notwithstanding the great decreases thereof, which have
happened within these twenty years» (Verbum Sapienti. Writings, 1. p. 113,.
3 Child, A New Discourse. Preface.
B XVII,, The Balance of Trade. 81
of money especially in the country? — My answers to this query
are, viz. 1. This proceeds from the frailty and corruption of
human nature, it being natural for men to complain of the pres-
ent, and commend the times past; so said they of old, 'The for-
mer days were better than these;' and I can say in truth, upon
my own memory, that men did complain as much of the scarcity
of money ever since I knew the world, as they do now; nay, the
very same persons that now complain of this, and commend that
This passage, as that of Mun's quoted above touches upon a psych-
ological reason why we cannot take the mercantile complaints of
scarcity of money at their face value. In almost every country people
have from time to time been inclined to attribute all kind of evils
to the want of money, e. g. the slackness of trade, falling prices, de-
clining revenue, poverty of the people, want of employment, political
discontent, bankruptcy, and panic. 2 The mental habit of bringing
every economic straitness back to the outward, and therefore
the most apparent cause: the want of money, must have been
doubly strong at a time when the value of money was put extra-
ordinarily high. The same reason for the complaints of scarcity
of money was referred to also by Sir Dudley N o r t h, who
wittily derided the common cry for money. 3
A third reason for doubting the accuracy of mercantile state-
ments lies in the intricacy of the matter itself, as the amount of
currency a nation requires depends not alone upon the amount
of her trade, but also upon the number and frequency of payments
to be made. In the absence of statistical material it must have
been difficult for the mercantile writers to get even an approximately
correct idea of the effective quantity of money needed by commerce
at a certain moment. 4
1 Child, ibidem.
2 Cf. J e v o n s, Money, p. 334.
3 N or th, o.c, p. 36.
4 It may be noted that Petty as well as Locke tried to compute
what sum of money was required by the trade of the country. Petty thought
82 Br. Suviranta. B XVII, 2
The fact that it is difficult to examine, at this distance of time,
the trustworthiness of the opinion of seventeenth century writers
as to the presumed scarcity of money, and that, moreover, that
view was not shared by all economists, compel us to look away
from those subjective creeds and to look for more reliable criteria
of the question we are concerned with. The only way this can be
done, is to inquire as far as possible into the actual fluctuations
in the supply of and the demand for money and into the proportion
in which the supply and the demand stood to eachother.
Turning first to consider what fluctuations there occurred in
the supply of money, there are statistics available throwing light
upon the question. The world output of gold and silver in
the sixteenth and seventeenth centuries has been computed as
follows : x
The average annual amount:
1521—1544 7,160 kg. gold 90,200 kg. silver
that the money »sufficient for» the nation is »so much as will pay half a year's
rent for all the lands of England and a quarter's rent of the houseing, for
a week's expense of all the people, and about a quarter of the value of all
exported commodities)) (Quantulumcunque. Writings, II. p. 446). Locke
estimated that »one fiftieth part of the labourer's wages, one fourth part
of the landholder's yearly revenue, and one twentieth part of the broker's
yearly returns in ready money, will be enough to drive the trade of any
country» (Considerations. Essays, p. 576). Such inquiries, inspiring as they
may be as logical experiments, were bound to fail, as far as their practical
use is concerned, and are for us of merely curious interest.
1 The figures are taken from Soetbeer, Materialien zur Erlaute-
rung der Edelmetallverhaltnisse, p. 7.
B'XVII,, The Balance of Trade. 83
As appears from these figures, the output of gold did not undergo
very substantial changes during this time, while, on the contrary,
the supply of silver was more than tripled about the middle of
the sixteenth century and continued to rise until the first decades
of the seventeenth century. The great event causing this revolution
in the output of silver was the discovery of the American silver
mines, above all, that of Potosi in 1545. What a part this American
silver played, may be seen from the fact that in the period from
1581 to 1600 the mines of Potosi alone produced annually an
average of 254,300 kg. x
These vast supplies of silver became gradually diffused all over
the commercial world. In Europe, Spain and Portugal were first
reached by the American stream. Italy, France and Holland were
the next to be affected thereby. But England was the last of the
West-European countries to share in the new supplies. That did
not happen until after the accession to the throne of Queen Eliz-
abeth: in the preceding age it had been impossible, because the
balance of an international indebtedness was then unfavourable to Eng-
land as a result of the coinage-debasement practised by Henry VIII.
and his successors. The first sensible effects of the new silver can-
not be detected in England till after 1560. 2 But from that time
onwards, a favourable balance continued, without much interruption
for centuries to come, to pour in vast quantities of gold and silver.
The mint statistics of England give us a relatively trustworthy
idea of the extent by which the stock of money was annually in-
creased. It appears that at the end of the fifteenth century the
quantity of coined silver came yearly to about 1100 kg.; during
the reign of Queen Elizabeth, this average figure had [risen to
12,000 kg., in the years 1603—49, as high as 24,600, and in 1649—
1701, to 26,000 kg. 3 On the basis of these figures, it has been
1 Soetbeer, Edelmetall-Produktion, p. 7 8.
2 W i e b e, Zur Geschichte der Preisrevolution, p. 304.
3 Cf. Wiebe, o. c, p. 313. The stock of gold coin increased relati-
vely even more rapidly than that of silver, for in the Middle Ages only
little gold was coined.
84 Br. Suviranta. B XVII, 2
estimated that England possessed in the seventeenth century
from twenty to thirty times as much money as two hundred years
earlier. x This great increase much surpassing the rate of increase
in the output of the precious metals of the world as a whole,
depended partly upon the mighty expansion of England's foreign
trade during this period and partly upon the fact, that much
hoarded treasure, e. g. those of monasteries, were put into circul-
A notable feature in this vast increase in the stock of money
is the fact that by the middle of the seventeenth century some-
thing like a state of equilibrium had been reached in the supplies
of money. From that time onwards the absolute quantity of money
shows only an inconsiderable increase, in comparison to the rapid
increase during the preceding seventy years or so. And if we take
into account not the absolute increase of money, but the relative,
we find that the total stock of specie in hand had been so swelled
that successive additions were much less in proportion. The ratio
of the yearly output of gold and silver proves to be as follows:
Having been at one per cent from 1493 to 1544, the ratio rose
for the years between 1545 and 1600 to 2,02, declining then between
1601 and 1660 to 1,26, and between 1661 and 1700 to 0,79. 2 The
proportion in which the annual increase of money in England
stood to the existing stock, of course, roughly followed the fluctu-
ations in the output of gold and silver, though here the relative
decline only began later and cannot have been so heavy as it was
in the output of the precious metals.
The efficiency of the successive increments of money is to be
measured not by the absolute but by the relative increase, as the
new money had to exert its influence on the stock in existence. 3
1 Wieb e, o. c, p. 313.
2 Wiebe, o. c, p. 282.
3 Cf. the following statement of Price: »A previous increase in the
supplies itself diminishes the relative effects of a subsequent increase. The
percentage of the increase declines; and few more treacherous pitfalls await
the tyro in statistics than those which lie beneath arguments from percent-
B'XVIL- The Balance of Trade. 85
We are therefore entitled to conclude that the supply of money
in England was unusually efficient during the last decades of the
sixteenth century, but that its efficiency was gradually diminish-
ing during the seventeenth century.
Turning now to examine what fluctuations the demand of
money was subject to during the period in question, it is perfectly
clear that no statistical facts, however inadequate, are here avail-
able. The actual volume of demand can, therefore, be concluded
only indirectly and that from the vigour and the direction of
economic activities as well as from the extension or the contraction
of economic life as a whole.
(1) There existed at the beginning of the sixteenth century a
natural demand for money on account of the fact that during the
closing centuries of the Middle Ages the supply of money had
generally fallen short of the requirements of trade. Commercial
intercourse was in that period perplexed by »a real dearth of the
precious metals, in a sense that to us is almost unintelligible*. *
(2) The substitution of money economy for natural economy,
gradually progressing during the sixteenth century, and even the
seventeenth, created extended demand for the means of exchange. 2
(3) England's trade and industry was rapidly advancing during
these centuries. That may be illustrated by a few characteristic
figures: Export of woollen manufactures amounted in 1588 to
ages, for he should always take account of the amount on which the percent-
age is reckoned» (Money, p. 86).
1 Nicholson, The article »Balance of Trade» in Palgrave's
Dictionary, I. p. 85.
2 S o m b a r t points out that barter was practised to some extent until
the eighteenth century. According to the Barnabees Journal of Richard
B r a t h w a i t (1631) the trade of pedlars was in great part based on barter.
(Der moderne Kapitalismus, II. p. 517). Here may also be quoted a passage
of Child, as follows: »The course of our trade from the encrease of our
money is strangely altered within these twenty years, most payments from
merchants and shopkeepers being now made with ready money, whereas
formerly the course of our general trade ran at three, six, nine, twelve
and eighteen months time» (O. c, Preface).
86 Br. Suviranta. B XVII,,
200,000 pieces, but in 1687—88, to 570,770 pieces. The total
tonnage of ships leaving English harbours was in 1663 — 142,900,
but in 1688 — 285,800, and in 1714 — 448,004. 1 The population
of England grew according to King from 3,840,000 in 1500 to
4,620,000 in 1600, and to 5,500,000 in 1700. 2 The growth of
population and the increase of trade required, naturally, a sub-
stantial increase in the circulating stock. (4) The trade to the
East must also be mentioned in this connection, for by it much
of the treasure was carried away that was procured from the West.
»The nations of the East were willing to give their produce and
merchandise in exchange for the precious metals. The mineral
wealth of America, in short, furnished the traders of Europe with
a commodity which the East was ready to take in unlimited
quantities. » 3 (5) Lastly, it must be observed that a part of the
precious metals procured from abroad was consumed in the arts
and was thus withdrawn from circulation.
When all the different factors referred to above are taken into
account, there is no doubt but that the demand for money was
steadily growing during the sixteenth and the seventeenth centuries.
And it was growing not only absolutely, but considering the rapidly
advancing industry and commerce of England, very likely also
relatively. That at least seems to have been the case during the
atter part of the seventeenth century, a period called by C u n-
ningham »The Era of English Expansions. 4
We have thus seen that the large supply of money had its
counterpart in a large demand for it. Only the development of
the supply and the demand did not proceed side by side: the one
rose to its height during the sixteenth century and was afterwards
relatively in decline; the other grew continuously in vigour and
reached its acme during the decades after the Restoration.
1 The figures are taken from Sombart, o. c, II. pp. 999, 1056,
2 King, Natural and Political Observations, p. 42.
3 Price, o. c, p. 97.
4 Cunningham, o. c. Modern Times, p. 193.
B XVI I )2 The Balance of Trade. 87
The question is: What were the consequences of these fluctu-
ations in the supply of and the demand for money for the money
market? Was the increase of money in the sixteenth century great
enough fully to answer the vigorous demand after the long medi-
aeval dearth of money? And how was the internal relation between
supply and demand turning out in the seventeenth century when
the supply of money tended to decline relatively and the demand,
to increase? No exact answer can be given to these questions at
this distance of time. Some light may, however, be thrown upon
them by inquiring into the fluctuations to which general prices
were subject during the period we are here concerned with. Prices
afford the best criteria of the reciprocal effect of the supply of and
the demand for money on one another, according to the economic
principle: if the supply at any time surpasses the demand, prices
tend to rise; if, on the contrary, the demand surpasses the supply,
prices tend to fall.
The most reliable figures marking the course of prices during
the sixteenth and the seventeenth centuries are, probably, those
brought forward by W i e b e in his excellent study: Zur Ge-
schichte der Preisre volution des XVI. und XVII. Jahrhunderts.
The figures showing changes which were occurring in the cost of
subsistence, are quoted below, as best serving our purpose:
As appears from these figures, the time from the first influx
of American silver to the end of the seventeenth century falls into
1 W i e b e, o. c, p. 179. As appears from these figures, a considerable
rise in prices had already taken place before 1570, the time when the Amer-
ican silver began to pour in. This rise was chiefly effected by the
debasement of English money.
88 Br. suviranta. B XVII,',
two distinct periods: From 1570 to the middle of the seventeenth
century the cost of subsistence rose by more than one hundred
per cent, while during the latter part of the seventeenth century
the rise was relatively inconsiderable, amounting only to about
ten per cent.
As to the former period, the period of rapid rise of prices, there
seems to be no question but that the heavy inflation was chiefly
caused by a falling value of silver. The close connection in which
the increasing supply of silver and the rising prices stood to each-
other, appears in the clearest way from the fact that prices began
to rise in European countries in the same order in which American
silver reached them; * and that, on the other hand, the period of
rapid rise of prices came to an end, when the annual supply
of money was no longer growing in the same proportion as
This causal connection between the silver influx and the in-
flation was also early recognized by contemporary economists.
B o d i n, in France, pointed as early as about 1570 to the internal
dependency of the rising prices on the increasing stock of money;
and in England, W. S., the publisher of Hales' Discourse of
the Common-weal, did the same a few years later. Afterwards,
it came to be a generally accepted view that the inflation had been
caused by the great influx of the precious metals. Adam Smith
e. g. saw in the American silver supply »the sole cause of this
diminution in the value of silver in proportion to that of corn».
And according to his assertion »it is accounted for accordingly in
the same manner by every body; and there never has been any
dispute either about the fact, or about the cause of it». 2
There can, thus, be no doubt that the influx of the precious
metals from America caused a very serious fall in the value of
silver and a corresponding rise of prices in England. And we may
1 Leslie, Essays in Political Economy, p. 270.
2 Adam Smith, o. c, I. p. 191. Smith's statement goes too far,
there being also other factors effecting a rise of prices, as will be seen below.
B XVII, 2 The Balance of Trade. 89
therefore denote the period of rapid rise of prices as a time when
the demand for money was greatly outstripped by the supply of it. x
The case becomes somewhat different when the latter part of
the seventeenth century is considered. During this period, as we
have seen, the supply of money was, on the whole, relatively de-
creasing, while the demand tended steadily to increase.. Thereby
of course, the large margin that had existed between the supply
of and the demand for money in the former period, was growing
narrower and narrower. 2 Now, whether this margin actually
disappeared at any time, so that supply and demand were brought
into equilibrium, or whether the supply of money was, perhaps,
occasionally even outstripped by the greatly growing demand
for it, cannot be ascertained with any accuracy. Such a possibility
must at any rate be taken into account in discussing the economic
problems of the time. 3
This at least is certain: The slight rise that occurred in prices
during this period cannot be used to prove the case that the supply of
money was still surpassing the demand for money, for it is not difficult
1 To this conclusion must, however, be made the express reservation
that it holds only as to the general tendency of development, as allowance
has to be made for temporal and regional exceptions. This reservation is
not without importance as will be seen later.
2 The influence of credit, that was beginning its great expansion during
this period, must naturally also be taken into account, when the situation
in the money market is considered. The role of credit seems, however, to
have remained relatively insignificant until the last decade of the seventeenth
century when the modern epoch of credit system was being inaugurated.
About the same time the money market was eased also by the output of
the precious metals beginning to increase anew.
3 We cannot agree with W i e b e' s conclusion that »even without
being able to proceed on the firm ground of statistics, one comes, having
regard to all factors of any importance, to a well established conclusion;
which can only be that during the sixteenth and the seven-
teenth centuries the production of the precious
metals increased much more rapidly than the de-
mand for them; the stock of money, much more than
the need for m o n e y» (O. c, p. 315).
90 Br. Suviranta. B XVII,,
to point to other agents by which such a rise could have been effected,
if there actually was any rise of general prices at all. l Thus, the
rapid growth of population, especially the expansion of cities,
must have brought about some rise in the cost of living, as is always
the case, if an increased demand for the necessaries of life cannot
be met by supplies procured from abroad at a cheap rate. But
apart from this factor, equally effective at all times, there were
some special factors tending to raise the price of land products:
It is, for the first, to be noticed that England suffered during
the seventeenth century from many bad harvests and that the
scarcity of corn was bound to raise its price. 2 Further, we
cannot leave out of account the influence upon prices exer-
cised by the economic policy of the day which fostered the
interest of the agricultural producer; it seems highly probable
that the price of cereals was thereby raised more rapidly than
would have been the case had there been only the fall in the
value of silver; notice must be taken also of the rise in corn
prices that was effected by the civil war. Here we may appeal
to the authority of Adam Smith. According to him there
happened in the period 1637 — 1700 »two events which must have
produced a much greater scarcity of corn than what the course
of the seasons would otherwise have occasioned, and which, there-
fore, without supposing any further reduction in the value of silver,
will much more than account for this very small enhancement
of price. The first of these events was the civil war, which, by
discouraging tillage and interrupting commerce, must have raised
the price of corn much above what the course of the seasons would
otherwise have occasioned. — — The second event was the bounty
upon the exportation of corn, granted in 1688. — — During this
short period [1688 — 1700] its only effect must have been, by en-
couraging the exportation of the surplus produce of every year,
1 Tooke & New march, A History of Prices, VI. p. 410: » After
the culminating point of 1640, prices somewhat declined during the sixty
years to 1700.»
2 Rogers, History of Agricultural Prices, V. p. 783.
B XVII,, The Balance of Trade. 91
and thereby hindering the abundance of one year from compensat-
ing the scarcity of another, to raise the price in the home-market». l
So far we have paid attention only to the general lines of de-
velopment. Here we might stop without troubling ourselves any
further about details, in the conviction that the picture we have
thus got, gives a fairly satisfactory answer to the question we were
inquiring into; at least, we might do so, were the question at issue
one of modern times. But that it is not; we are here concerned
with a question belonging to the epoch of early capitalism, and
that greatly changes the situation. For in that age temporal and
local deviations from general lines of development played a much
more important part than has later been the case; it would, there-
fore, mean a fatal neglect if an inquirer into the historical conditions
of the mercantile age were content only with clearing up the main
lines of development.
A keen authority on the history of early capitalism has pointed
out in an instructive passage the great fluctuations which that
age was subject to: »When one first sets out to examine the fluctu-
ations in the economic life of the early epoch of capitalism, one
gets the impression of a total irregularity, a total want of rhythm.
Favourable and unfavourable periods seem to change at will from
place to place, from trade to trade, from year to year. This local
and temporal pell-mell of different tendencies appears almost as
the chief characteristic of the market conditions of the centuries
in question. The fluctuations in the figures of production, in the
figures of export and import, in the prices from year to year be-
wilders at first anybody turning to study the course of economic
life during early capitalism. » 2
The distribution of money was unsatisfactory: the normal
course of economic life was often harassed by the fact that parts
of the country or particular towns might be overtaken by a sudden
'Adam Smith, o. c, I. p. 193.
2 S o in b a r t, o. c, II. p. 225.
92 Br. Suviranta. B XVII, 2
scarcity of money at a time when an equal scarcity was not felt in
other parts of the country. Such a local scarcity of money might
arise from various causes. There might, for instance, happen an
abrupt interruption in the normal supply of money or of the
precious metals. We know from letters of business-men that in
the sixteenth and the seventeenth centuries trade conditions were
greatly affected by the amount of gold and silver that was annually
brought from America; that the profits of the fairs in Portobello
and Vera Cruz depended on the quantities of the precious metals
that were brought forward by producers of gold and silver; that a
severe crisis was inevitable, if the Spanish silver fleet happened
to perish. * Shortage of money could also arise, if much money
was suddenly carried away from some part of the country to
another. Thus Child complained that the country was deplet-
ed of money by »the late practice of bringing tax-money in waggons
to London*. 2 According to the same author, scarcity used also
to proceed from banking, »for the trade of bankers being
only in L o n d o n, doth very much drain the ready money from
all other parts of the kingdoms 3
The fact that the normal course of economic life was much
more dependent upon a steady supply of the precious metals than
at present and that an accidental interruption would call forth
fateful consequences, must naturally be seen against the back-
ground of an undeveloped credit system. After the introduction
of paper currency and the widening of the net of modern credit
services all over the country and, indeed, over the whole world,
such local shortages of money which the mercantile age was
witnessing, have become practical impossibilities.
But a reference to these local straitnesses does not exhaust
the subject of temporal fluctuations in the supply of money; for
from time to time a scarcity of money might make itself felt equally
1 Cf. Sombart, o. c, II. p. 224—5.
2 Cf. above, p. 169.
3 Child, o. c, p. 49.
B XVII, 2 The Balance of Trade. 93
ill all parts of the country. Thus even during the period that has
been characterized above as a time of an excessive supply of money,
there used to occur intervals of real shortage of the mediums of
exchange. In the years 1621 — 22, for example, England was
suffering from a severe crisis. »Every testimony points to the
fact that the crisis was as purely a monetary or currency crisis,
as later crises have been distinguishedly credit crises. Between
1613 and 1621 hardly any silver monies were coined in the English
Mint; for example, between 1617 and 1620 the -total silver coinage
was only £ 1070, whereas in the four succeeding years the silver
coinage at the Tower Mint amounted to -£20 5,500. » x
The same authority on the monetary history of England ex-
plains the causa agens of this phenomenon as follows: »The
cause, opportunity, channel, or machinery of the drain was the
incessantly shifting, badly tariffed, imperfectly understood bi-
metallic system of the times; and the crisis of 1622 was only the
most patent expression of its malignant action. » 2 The bimetallic
system was exposed to the consequences of the economic law
(G- r e s h a m' s Law) according to which bad money drives out
good, but good money cannot drive out bad. The conditions were
particularly favourable for the operation of this law. The vast
silver supplies from America caused a change in the relative value
of silver and gold; the value being gradually changing in the degree
as the new silver came to be spread to successive countries. But
the governments were not able to cope with the situation thus
created: the Mint ratios of gold and silver were inelastic and did
not follow quickly enough the changed ratio on the market, so
that one of the precious metals became, necessarily, overrated,
the other, underrated. That was the exchanger's opportunity
and it effected the disappearance of one or the other of the precious
metals from circulation and its export abroad where a higher price
could be obtained for it. In addition to the bimetallic system, much
1 Shaw, The History of Currency, p. 144.
2 Shaw, o. c, p. 145.
94 Br. Suviranta. B XVI 1, 2
of the trouble was due to the badness of the coins and to clipping,
which led to the good coins being melted down or smuggled
abroad; the money shortage was, thus, often really a shortage
of good coins.
These were the causes not only of the severe crisis referred to
above, but of many other crises by which the monetary system
of the different countries was brought into confusion. In France
a most acute crisis occurred in 1570; in Germany, in 1622. The
best known of all is that which befell England in the last decade
of the seventeenth century and which caused Locke to write
his famous essays on the question of recoinage.
Now, as we have, at last, arrived at the end of our investigation
into the internal relation of the supply of and the demand for money
during the seventeenth century, we stand once more before the
question: Was England suffering during the seventeenth century
from actual or potential shortage of money justifying the anxiety
for attaining a favourable balance of trade so as to secure a greater
supply of the precious metals?
It has appeared from the course of our exposition, that in one
sense the former part of this question may be answered in the
affirmative: there is no doubt that the economic intercourse of
the country was periodically straitened and perplexed for the
want of convenient mediums of exchange. So far, therefore, as
mercantile writers were referring in their clamour of »scarcity of
money» to such occasional straitnesses, they had no imaginary
inconvenience in their minds. x But it is evident, on the other
1 It is very interesting, indeed, to notice that complaints of a scarcity
of money were during the economic crisis in 1621 and 1622 at their loudest.
Cf. the passages referred to above, p. p. 77—9. The following passage, written
about the same time, may be quoted as a further specimen: »England was
never generally so poor since I was born as it is at this present; inas-
much that all Lomplain they cannot receive their rents. Yet is there
plenty of all things but money, which is so scant, that country people
of."er torn and cattle, or whatsoever they have else, in lieu of rent —
but bring no money.» (T o o k e & Newmarch, o. c, I. p. 23).
B XVII, 2 The Balance of Trade. 95
hand, that such shortages of money did not justify any special
attention to the balance of trade. That was to call at the wrong
address. For as has been pointed out, the fault lay, in these cases,
not in an unfavourable balance of trade — as a matter of fact,
the balance of trade seems to have continued favourable throughout
the seventeenth century — but in an undeveloped credit system,
the badness of the coins and the incessantly shifting, badly tariffed,
imperfectly understood bimetallic system of the times. Relief was
to be brought about only by removing these primary causes.
And in these respects, a fundamental change happened, indeed,
in the last decade of the seventeenth century, with the foundation
of the Bank of England and the Recoinage.
So much for the temporary scarcity of money arising from
defects in the economic structure of early capitalism. That question
has, as we have seen, nothing to do with the internal relation
between the supply of and the demand for money in general. As
to these general lines of supply and demand, it has become evident
that from the first influx of American silver until about the middle
of the seventeenth century, the demand for money was greatly
surpassed by the supply of it. The case is more complicated as
far as the latter part of the seventeenth century is concerned. It
seems to be certain that the money market was then more straiten-
ed than before; but whether there actually was at any time prevail-
ing what may be characterized as absolute shortage of money, is
questionable, though it is not impossible.
But there is another matter, more important for the real under-
standing of the mercantile anxiety for a steady supply of money
than the question whether England actually was. suffering
from scarcity of money: it is this; as long as effective credit facil-
ities were wanting, and especially as long as paper currency had
not been introduced, there existed permanently, even at the time
of the largest supply of money, a potential scarcity of money.
A stoppage or even a substantial slackening in the supply of the
precious metals would have, by the steadily growing demand for
money, changed, sooner or later, the imminent danger of a scarcity
96 BR. Suviranta. B XVII, 2
into a painful reality. It is against this background that the
mercantile psychology must be seen and that the anxiety for a
steady supply of money only becomes fully intelligible for us, who
are living in greatly changed conditions.
We have seen above that the precious metals were during a
long period, roughly from 1560 to 1650, pouring in into England
in so great abundance that the demand for money was substantially
outstripped by the supply of it. On the basis of this phenomenon
we then concluded that England could not, possibly, suffer dur-
ing this period from a general scarcity of money. But the ques-
tion of the excessive supply of money may also be discussed
from another, and not less important standpoint, and that is:
What were the positive effects of the successive increments of
money upon economic life and how was the theory of the balance
of trade thereby affected?
Students of mercantilism have, in general, paid insufficient
attention to the economic consequences of the considerable influx
of American silver. The matter has mostly been dismissed with
the superficial treatment which Ada m S m i t h gave to it.
According to him, the increase of the precious metals afforded
»a real conveniency, though surely a very trifling one», as gold and
silver plate was thereby rendered more plentiful. But, he added,
this conveniency was more or less outweighed by the inconveniency
brought about thereby: »The cheapness of gold and silver renders
those metals rather less fit for the purposes of money than they
were before. In order to make the same purchases, we must load
ourselves with a greater quantity of them, and carry about a
shilling in our pocket where a groat would have done before.*) 1
That is all that Adam Smith had to say of the question. A closer
inquiry into it leads, however, to very different conclusions.
'Adam Smith, o. c, I. p. 414.
B XVIL 2 The Balanc of Trade. 97
In submitting the question of what influence the increase of
money possibly exerted upon economic life, to a closer examin-
ation, attention may first be given to the fact, that the transition
from natural economy to money economy, begun in the Middle
Ages, continued, as has been pointed out, through the sixteenth
and seventeenth centuries. It is hardly conceivable that, but for
extraordinary supplies of the precious metals, this transformation
of natural economy into money exchange and money payments
would have taken place so thoroughly and in so relatively short a
time, because that would have been possible only by a continual
decline of general prices, a larger number of transactions being
effected by an unchanged, or nearly unchanged, stock of specie.
This view has been expounded by Taussig as follows: »In
communities so tied by custom as were those of Europe at the
time, this process could have taken place, if at all, only with the
greatest difficulty. The mere absence of a supply of specie, ad-
equate for carrying on a larger volume of transactions without
a great lowering of prices, was an almost insuperable obstacle to
the extension of monetary exchanges. The new specie vastly
facilitated the transition. It supplied a lubricator, so to speak,
for the smooth and rapid working of the more effective machinery
of exchange. It penetrated quickly and easily into all western
Europe, and made possible a much wider adoption of money
payments; not only without the distress, real or fancied, that
lower prices bring, but, through the abundance of the supply,
with markedly higher prices. Thereby the division of labor was
extended into many new industrial fields, and the ease of exchange
was made greater in many fields where such a division already
was practised. A real advance in the efficacy of production was
secured, and a real gain in welfare. » 1
The new supplies of money came, thus, to be a powerful spur to
the expansion of money economy in the conditions prevailing during
the first centuries of modern times, when society was at the point
1 Taussig, Principles of Economics, I. pp. 248 — 9.
9 8 Br. Suviranta. B XVII, 2
of transition from feudalism into capitalism. Had the conditions
been different, had economic development been yet unripe for
the introduction of money economy or equally had money economy
been fully established, then this peculiar effect of the new supplies
would of course have been impossible.
But that was not the only way in which the increase of the
stock of money affected the economic progress of the nation. x
In order to understand this, we have to consider that a heavy
expansion in the supply of money calls forth, in all conditions,
changes in the normal course of economic life, as the new supplies
cannot be mechanically dispersed all over the country; the distrib-
ution can occur only in rotation and along various channels, so
that the supplies become ultimately divided among the members
of the nation in a way not proportional to the division of the old
stock of money. It is therefore of the greatest importance for us
to examine along what channels the new supplies of money were,
in the case we are at present concerned with, thrown out into
circulation and how they ultimately came to be dispersed among
the individuals or groups of individuals the nation consisted of.
We have then to start in our investigation from the very point
where the new supplies made their first appearance in the economic
life of England. That is, as England had no considerable mines
of her own, we have to start from the individuals who brought
the new specie from foreign countries. These individuals were, of
course, as a rule merchants carrying on export trade with countries
abounding in gold and silver, above all with Spain and Portugal.
During the period of the continual influx of silver from America
into Europe, these merchants' commercial dealings turned out to
be extraordinarily advantageous, since, on account of the greater
abundance of the precious metals in the selling market, they were-
able to get a higher price than they had been expecting and thus
1 It may be noticed that Taussig denies that the increase of money
in any other way favourably affected the course of economic life than that
referred to above (O. c, I. p. 249).
B XVII.I Th- Balance of Trade. 99
to secure for themselves a windfall profit upon which they had
not calculated. On the home market, this profit represented freshly
created purchasing power. And to the degree that it actually was
thrown out into circulation as money, and was not anew exported
abroad, or used for industrial purposes, or hoarded, it operated
as an effective demand for commodities and services.
Proceeding now to consider how the home market of commod-
ities and services was affected by the new money thrown out into
circulation, we have first to examine what kind of commodities
and services that money primarily was being devoted to. We
have to ask: Were the men, in whose hands that freshly created
purchasing power first was concentrated, or who in the course
of trade gained a share of it, spending it in an unpro-
ductive way? Or were, perhaps, the economic and political
conditions of the country such that a productive use of the purchas-
ing power was impossible? If the one or the other of these were
the case, the larger supply of the precious metals did not, naturally,
promote the productive expansion of economic life. 1
But that was not the case in England. That is manifest enough.
In England political and economic conditions were particularly
favourable for economic progress. And there the first receivers
of American silver were, as we have seen, no spendthrifts, but
thrifty and industrious merchants. On that account there need
be no doubt but that these active and provident men, in order
1 That was, indeed, the case in Spain. There the first possessors of Amer-
ican silver were mostly adventurers, people least inclined to engage upon
production of new economic values. And in the cases, where an extension
of productive activity actually was attempted, the design was frustrated
by the wretched social and political conditions. The only lasting effect of
the silver influx in Spain was an inflation of prices and a general demoraliz-
ation. And ultimately the country was depleted not only of most of its
industry, but also of its stock of the precious metals, as in want of sufficient
supply of home products, commodities were to a large extent purchased
from abroad. Of this course of events a most instructive description may be
found in M. J. Bonn's book: Spaniens Niedergang wahrend der Preis-
revolution des 16. Jahrhunderts.
100 Br. Suviranta. B XVII 2
to earn a greater profit by their future dealings, were more disposed
to extend their commercial activities than to waste the profits
they had already secured upon unproductive commodities and
To this trend towards increasing production, the foundation
of which lay in the character of the commercial classes of England,
we must add the fact that, according to a general economic law,
a concentration of purchasing power tends to further the capitaliz-
ation of national income. This economic law may be stated as
follows: It is easier to save from a larger than from a smaller in-
come. If one man has £ 5,000 a year and another man has £ 500,
and both of them are of exactly the same disposition as regards
thrift, the first will save, not only absolutely but also relatively
more than the second, because a person's need of the necessaries
and conveniences of life do not generally grow in proportion with
the amount of the purchasing power at his disposal.
The first receivers of the increasing supplies of money were
thus not only induced to extend their commercial activities but
they had also the power of diverting a relatively greater part of
their earnings into channels of production than before. They spent,
consequently, a larger share of income on ordering new ships, on
hiring more seamen, on procuring more commodities for which
countries supplying the precious metals, felt a demand, and so
on. In this way the new-come money began its circulation in the
Here it must be taken into account, that the amount of com-
modities and services procurable in the market, was, of course,
adapted to the customary volume of effective demand. The
first consequence of the expansion of the purchasing power called
forth by the heavy influx of gold and silver, was therefore a grow-
ing competition for commodities and services actually existing
in the market. The men who had come into the possession of the
extended purchasing power, were able to enlarge their share of
commodities and services merely by offering so much higher prices
that a sufficient number of the weakest demanders were knocked
B XVI 1, 2 The Balance of Trade. 101
out from the market. The suppliers of the commodities and services
in demand, such as farmers, merchants, shipbuilders, etc. came
thereby in their turn to profit by the higher prices offered to them
and were induced to extend their productive activity, in order
to meet the growing demand. So the stronger demand, created
-by the new supplies of money, was bound to spread further district
by district and trade by trade. The successive groups of producers
affected thereby, were able and very probably, in general,
also inclined to enlarge the capital stock of their respective
There seems then to be no doubt but the increase in the circulat-
ing stock of money, while concentrating much purchasing power
in relatively few hands and thereby rendering a greater accumul-
ation of trading capital possible, afforded the economic life of
England a mighty and an immediate encouragement. But that was
not all; for if we inquire into the price movements called forth by
the expanding stock of money, we shall find that they, too,
were not without importance for the economic progress of the
As we have seen above, the increase in the supply of money
tended to raise the prices of such commodities and services towards
which the growing demand came to be directed. That was the
case because the supply of commodities and services actually
procurable in the market was falling short of the increasing require-
ments of trade. But* it was also pointed out that this tendency
of prices to rise could not but stimulate producers profiting thereby,
to increased activity directed towards meeting the larger demand,
if possible, by a correspondingly increased production. Such an
extension of production exerted, of course, a retarding influence
on the advancing prices, it being obvious that as far as the pro-
ducers actually managed to produce commodities in an increased
quantity, the prices were by the larger supply of commodities
thus created pressed back towards their old level. The first and
primary tendency towards rising prices was thus counteracted by
a neutralizing current.
102 Br. Suviranta. B XVH.a
What the ultimate result was to be of these different price
tendencies of which one was pressing upwards, the other, down-
wards, depended naturally on their relative strength, i. e. partially
on the ability of society to procure commodities and services in
continually increasing quantities, and partially on the size and
permanence of the supply of the precious metals. As to the ability
of society to procure commodities in continually growing quantities,
it is of importance to notice that this ability always greatly varies
in different brandies of production. There are commodities which
can be multiplied in almost any quantity without much loss of
time or increased cost of production. Nay, there are even cases
where production, if carried on on a larger scale than before, may
lead to a cheaper system of production, by making possible technical
improvements and a more effective division of labour. But there
are, on the other hand, also cases where an increased supply of
products can be effected, if at all, only by a long and difficult
process and, consequently, at greatly increased cost. As the
possibility of extended production thus substantially differs from
trade to trade, the result of a general extension of production must
always be that prices become differentiated.
The lines along which such a differentiation of prices takes
place, are determined by the economic law called the law of
increasing and diminishing return. Marshall
describes the operation of this law as follows: »While the part
which nature plays in production shows a tendency to diminish-
ing return, the part which man plays shows a tendency to increas-
ing return. The law of increasing return may be
worded thus: — An increase of labour and capital leads generally
to improved organization, which increases the efficiency of the
work of labour and capital. Therefore in those industries which
are not engaged in raising raw produce an increase of labour and
capital generally gives a return increased more than in proportion;
and further this improved organization tends to diminish or even
override any increased resistance which nature may offer to rais-
ing increased amounts of raw produce. The two tendencies
B XVII, 2 The Balance of Trade. 103
towards increasing and diminishing return press constantly against
one another.)) 1
We may then conclude that, by virtue of the law of increasing
and diminishing return, the price movements called forth by the
influx of American silver, must have brought the prices of raw
products and of agricultural products to a higher level than those
in the spheres of economic activity, where the cost of production
depended chiefly on human labour. What the price level of different
commodities ultimately was to be, depended, however, as we al-
ready said, not only on the inherent ability of particular trades
to procure commodities in an increased quantity, but also on the
size and permanence of the supply of the precious metals. 2 If
these supplies had not been too large to be easily absorbed by the
augmented demand arising from the expanding volume of business,
no inflation of general prices could have taken place. But that
was, indeed, not the case in England during the sixteenth and
the seventeenth centuries, as has been demonstrated in the course
of this study. The silver supply was so great and it continued
through so long a period that, in spite of the favourable conditions
for an expansion of trade and industry, a considerable rise in the
level of general prices was brought about.
An inflation of prices carries always with it far-reaching conse-
quences for the course of economic life. The increase of the
general price level affects different classes unequally, transferring
1 Marshall, Principles, pp. 318 — 9.
2 Here it may be noted that in the period of early capitalism, prices were
more sensitive to an increase in the supply of the precious metals than at
the present day, when »the connection between the metals and prices is at
the best indirect and remote, and is continually becoming more complex
and obscure» (Price, o. c, p. 152). The changed situation is a conse-
quence of the later elaboration of credit and banking, whereby it has become
easier to adjust the circulating stock to the volume of trade. Thus, e. g.
in the case of an excessive supply of gold and silver, paper and credit sub-
stitutes for the metals may be easily contracted to an amount better accom-
modating the mediums of exchange.
104 BR. SUVIRA.NTA. B XVII, 2
wealth from one to another and bestowing affluence here and
embarrassment there. And if we enquire on what special lines
such a redistribution of wealth generally takes place, we shall
find that »those persons, whose incomes are fixed, and whose ex-
penditure is variable, will profit by a fall, and lose by a rise of
prices; and those whose expenditure is rigid, and income flexible,
will reap advantage from a rise, and sustain loss by a fall in prices*). 1
Now, those persons whose expenditure was rigid, and income
flexible were persons belonging to classes carrying on active pro-
duction, such as farmers, merchants and manufacturers. C u n-
n i n g h a m has distinctly stated in the following passage how
these groups of people were able to raise their income in proportion
to the general rise of prices during the sixteenth and seventeenth
centuries: »To whatever extent the fall of silver and the rise of
general prices may have occurred there can be no doubt about
the nature of its influence on society. Merchants and moneyed
men would be able to recoup themselves at once by selling the
goods they bought dear, at still higher rates. The landed
gentry would pass through a time when their circumstances were
severely strained; but, on changes of tenancy, or when leases fell
in, they would be able to obtain increased fines, or to raise their
rents. In their circumstances, and with the general agricultural
progress of the time, their troubles would only be temporary, and
were probably over in the latter part of the reign [of Queen Eliz-
abeth]. » 2
Those persons again whose incomes were fixed, and whose
expenditure was variable and who therefore lost by the general
rise of prices, were above all those belonging to the wages and
salaried classes. These classes have always been injured by an
inflation of general prices; Taussig has stated the fact as
follows: »That wages go up more slowly than prices is one of the
best-attested facts in economic history. It holds good of almost
1 Price, 0. c, p. 54.
2 Cunningham, 0. c. Modern Times, p. 169.
B XVII, 2 The Balance of Trade. 105
all sorts of hired persons, — not only manual laborers, but clerks,
overseers, teachers, salaried officials. It is due mainly to the force
of custom, which is especially strong as to wages; and it is strength-
ened often by the lack of bargaining power among laborers.
It is connected with many peculiarities in the dealings between
employers and employees, and especially with the position of the
employer as feeling the brunt of any industrial change. Of the
fact can be no question; when prices rise, the wages of hired workers
do not rise as fast.» x
Of the fact there can, indeed, be no question. In the period
of the heavy influx of American silver, an effective rise of wages
was greatly checked by vis inertia-e of custom as well as
by the lack of bargaining power among labourers. Cunning-
h a m has described the situation of labourers as follows: »In
so far as wages were settled by competition, there would be great
obstacles in the way of securing a rise; the practical restrictions
on freedom of movement, which were laid down by the Act of
Artificers and the Poor Law System, would seriously interfere
with the fluidity of labour, and the consequent freedom for the
1 T a u s s i g, o. c, I. p. 304. Price likewise asserts that »it is a well-
attested fact of economic experience that prices change with more rapidity
than wages* (O. c, p. 57). So it has, indeed, been hitherto, but it should
be noticed that in quite recent years the situation has been partially reversed.
J. M. Keynes has pointed out these recent experiences as follows: »It
is an orthodox commonplace of economic text-books that wages tend to lag
behind prices and that consequently the real earnings of the wage-earner
are, at least temporarily, diminished during a period of rising prices. This
has often been true in the past, and may be true even now of certain classes
of labour which are ill-placed or ill-organized for improving their position.
But in Great-Britain, at any rate, some of the most important categories
of labour were able to take advantage of the situation not only to obtain
money wages equivalent in purchasing power to what they had before, but
to secure a real improvement, to combine this with a diminution in their
hours of work (and, so far, of the work done), and to accomplish this at a
time when the total wealth of the community as a whole suffered decrease*
(The Consequences to Society of Changes in the Value of Money. »Recon-
struction in Europe», p. 328. The Manchester Guardian Commercial, 1922).
106 Br. Suviranta. B XVI 1,2
individual to bargain; while the combination of labourers would
not have been tolerated. The man, who was solely dependent on
his earnings, was in a position of great economic weakness; and
we hear, at times, of starvation rates paid to weavers by the
employers. In so far as the machinery for assessing wages failed
to secure adequate increase in the labourers' income, he would
have little prospect of obtaining a rise.» x
In what degree labour actually was injured by the inflation
of prices, can, of course, be only very roughly estimated at this
distance of time. The following figures based on computations
made by W i e b e, give, however, some idea of the state of things.
There occurred in the wages of unskilled labour the following
During the same period the cost of subsistence rose as appears
from the following figures:
These figures demonstrate that though the wages of unskilled
labour rose very substantially indeed they did not rise in pro-
portion to the prices of the necessaries of life. The purchasing
power of the wages of unskilled labour were thus considerably de-
creased; the scale of this relative decrease appears from the follow-
ing figures showing the purchasing power of these wages:
1 Cunningham, o. c. Modern Times, pp. 169 — 70.
B XVI 1,2 The Balance of Trade. 107
1653—1702 84. l
The wages of other groups of labour were, of course, fluctu-
ating in very much the same way as those of unskilled labour.
To sum up the case: The heavy inflation of prices, occurring
in England during the sixteenth and seventeenth centuries, effected
a substantial reduction in the purchasing power of wages and
salaries, while classes carrying on active production were able
to recoup themselves by selling their products at higher rates.
But this meant that, since the classes of independent producers
were receiving a larger share of the national income than before,
the process of capitalization was accelerated.
The results of our inquiry into the effects arising from the
American silver flow, may be summed up as follows: The increase
in the circulating stock was of the very greatest importance for
the economic progress of England and that for many reasons.
First, it was occurring at a time when society was in the stage of
transition from natural economy to money economy; this process
of transformation was undoubtedly considerably accelerated by
the large increase in the stock of means of exchange. Further,
the influx of money effected a new division of the national income
in favour of classes carrying on active production. This result
was called forth partially directly, by the new-come money's being
concentrated in the hands of the producing classes, and partially
indirectly, by the fact that the price-inflation brought about
by the sudden expansion of the circulating stock of the country
was to the benefit of these same classes.
1 W i e b e, o. c, p. 179. It must be remembered that »no ne.ar approach
to accurate estimates in regard to the purchasing power of wages even in our
own time is attainable: and of the numerous questions, which arise in
regard, to early entries relating to wages, only a very few can be
answered even approximately!) (Marshall, Industry and Trade, p.
708, note 1).
108 Br. Suviranta. b XVII )2
But to all this there was added one factor more that must not
be left out of account: »the powerful influence of imagination
as an economic factor.*) 1 It is not difficult to realize how the rapid
expansion of economic life and the big profits accruing from the
increase of the precious metals and falling into the lap of people
engaged in trade and commerce kindled speculative imagination
and raised the desire for gold and silver. Such competition and
speculative spirit could not, in ordinary cases, hut lead to productive
enterprise, as in England new supplies of the precious metals were
to be procured only by the extension of trade and industry.
Before closing, it must be noted that the consequences of the
heavy supply of money, were, by no means, altogether beneficial.
Its drawbacks were, however, of less importance than its advant-
ages. The lowering of the purchasing power of wages, especi-
ally, was bound to create distress among labouring classes.
This social injustice, in itself bad enough, seems, however, to
have been outweighed to a considerable extent by the fact
that during the long boom period all hands found generally
plenty of employment. As another undesirable consequence of
the inflation the fiscal difficulties of the state may be men-
tioned. The land was at that time the principal source from
which taxation was obtained; but this sort of income of the Crown
was inelastic, as the tenths and fifteenths, and general subsidies,
had alike become fixed payments. 2 But here, too, it must be
taken into consideration that any temporal loss or straitness of
the Government was, in the long run, amply compensated by the
steady growth of English industry and commerce, whence new
sources of revenue were arising.
1 P r i c e, o. c, p. 46.
2 According to G u n ping h a m I lie fiscal difficulties of the Stuarts
caused by the inflation, were of far- reaching political consequences: »It is
practically certain that the constitutional crisis of the seventeenth century,
and the parliamentary disputes which led to the Civil War, were greatly
embittered by the fall in the value of silver and the consequent poverty of
the Crowm) (O. c. Modern Times, p. 170).
B XVII-,, The Balance of Trade. 109
All things considered, there seems to be good reason for agree-
ing with the assertion that we have the fullest warrant for con-
cluding, that any partial inconvenience that might ensue from the
effect of the American supplies of the sixteenth century in raising
prices, was compensated and repaid a hundred fold by the activity,
the expansion, and vigour which they impressed, for more than
one generation, upon every enterprise, and every art which dignifies
human life or increases human happiness». l
It is now time to return to the question we started from: How
was the theory of the balance of trade affected by the great supply
of money? In answering this question, let us for a moment consider
the position of the mercantile writer. Daily experience demon-
strated to anyone living at the time of the heavy supply of money,
how trades or districts particularly affected by the increase of
circulating stock, were displaying a life and vigour unknown be-
fore; how enterprising men large sums of money being concentrated
in their hands, were induced to enlarge and intensify their demand
for commodities and services and how this led to an extended
Considering this position of the mercantile observer,] it is no
great step to bring the two phenomena into causal connection,
viz. the part that money actually played in the conditions of early
capitalism, on the one hand, and the peculiar importance attributed
to money by mercantile writers, on the other. For just as the
effects arising from the great supplies of money were nourishing
1 T o o k e & Newraarch, o. c, VI. p. 414. — Here may also be
referred to the view held by Price and running as follows: »If the lethargy
of ages was already giving way before the influence of a variety of causes,
and the old order was breaking up of itself, it can hardly be doubted that
the fresh supplies of the precious metals, partly by firing the ambitions of
men with rumours of the wealth of the newly-discovered world, partly by
encouraging and developing the trade to the East, partly by assisting and
stimulating the legitimate growth of commerce, contributed no insignificant
element to the movement of affairs» (O. c, p. 97).
MO Br. Suviranta. B XVI I 2
the imagination of practical men and spurring them to extended
enterprise, so they could not but induce people, reflecting on the
occurrences of the times, to speculations on phenomena of economic
life and impress upon the views held by them a mark of their own.
There is, indeed, a striking parallelism between the two develop-
ments: the services actually rendered by money to the society
of early capitalism and the importance attributed to money by
the mercantile age. Money did not only operate, as has been
sufficiently demonstrated above, as a passive medium of exchange,
but acted simultaneously as one of the dynamic forces of the time
accelerating the pace of economic progress. And in the mercantile
literature, either of the time when the heavy increments of money
actually were taking place, or of a successive time continuing the
tradition of earlier economists, just this dynamic character of
money was given the greatest emphasis. We need only once
more call to mind mercantile assertions of the importance of money,
referred to above, such as: money drives trade; money creates
trade; money breeds manufactures; or, trade brings in the stock;
this stock, well and industriously managed, betters land and brings
more product of all kind for exportation; the returns of which
growth and product are to make a country gainers in the balance.
This connection between economic life and mercantile theory,
though in itself so manifest, does not mean, however, that the
particular lines on which the promotion of economic life actually
was effected by money, would also have been clearly present to
the minds of mercantile economists. That was, indeed, so far from
being the case that mercantile literature offers, save general assertions
such as those quoted above, exceedingly little material in this
respect . 1
1 The fact that money was thought a powerful stimulus to trade, while
tin' lines on which it promoted economic activities were not clearly present
to, and the limitations of its effects only dimly understood by mercantile
writers, induced many of them to expound fantastic theories when they
iame to discuss the possibilities of paper issues. The best known of these
• inflationists* is John Law; he thought that »as this addition to the money
B XVII, 2 The Balance of Trade. Ill
Only the most apparent movement arising from the increase
of money and working for economic progress, the tendency towards
rising prices, was clearly noticed by many mercantile writers. In
M u n we find e. g. a passage as follows: »As the treasure which
is brought into the realm by the ballance of our forraign trade is
that money which onely abide with us, and by which we are en-
riched: so by this plenty of money thus gotten (and no otherwise)
do our lands improve. For when the merchant hath a good dispatch
beyond the seas for his cloth and other wares, he doth presently
return to buy up the greater quantity, which raiseth the price
of our woolls and other commodities, and consequently doth
improve the landlords rents as the leases expire daily: And also
by this means money being gained, and brought more abundantly
into the kingdom, it doth enable many men to buy lands, which
will make them the dearer. » 1
Thus, according to Mun the trade of England was benefited
by the rise of prices due to the increased supply of money. It is
especially interesting to notice what a particular emphasis was
given to the rise of rents, as that demonstrates how closely Mun
followed the lessons given to him by practical experience. For
as has been pointed out above, it was just the price of land and
its products which was by virtue of the law of diminishing return,
bound to be raised more than that of any other category of com-
Other mercantile economists of the seventeenth century were
arguing on very much the same lines, especially emphasizing the
close connection between landed interest and the expansion of
trade. That point of view was expressed by Malynes: »The
more readie money either in specie or by exchange, that our
merchants should make their returne by. the more employment
will employ the people who are now idle, and these now employ'd to more
advantage: so the product will be encreas'd, and manufacture advam 'd.»
(Money and Trade, p. 198). Of these inflationist theories, an instructive
account may be found in Tallqvist, Mtrkantilistiska banksedeltcoritT.
1 M u n, England's Treasure, pp. 29 — 30.
112 Br. Suviranta. B XVII.a
would they make upon our home commodities, advancing the
price thereof, winch price would augment the quantitie by setting-
more people on work: and would also increase her Maiesties
customes outward. All which is tending to the generall good
of her Maiesty, the whole realme, and everie inhabitant thereof. 1
The close relation of trade and land was expounded by Child
as follows: »The inseparable affinity that is in all nations, and
at all times between land and trade, which are twins, and have
always, and ever will wax and wane together. It cannot be ill
with trade, but land will fall, nor ill with lands, but trade will feel
it,» 2 The author of the Britannia Languens opens his
Preface with the following remark: »My original design was to
examine by what means our English land-rents, lately fallen,
might be universally advanced; which I have principally pur-
sued; but have found such a concatenation and sympathy between
the interest of land and trade, and between these, and that of the
Government; that I have been carried into all the considerations
you will meet with.» Of his considerations, the following instructive
passage may be quoted: »A forreign trade (if managed to the best
advantage) will yet further advance the values of lands, by neces-
sitating a vast increase of people, since it must maintain
great multitudes of people in the very business of trade, which could
not otherwise be supported. ■ And hence must arise a kind of
competition amongst the people who shall farm or purchase land,
when the revenue of land is certain, and grows higher daily, as
the treasure and people increase, which must cause land to rise
as well in the years' purchase, as in the years' value. » 3 Further
we may quote D' Avenant's assertion that »the price of land,
value of rents, and our commodities and manufacturies rise and
fall, as it goes well or ill with our foreign trade» 4 , and the assertion
of Locke that the country gentleman »is more concerned in
1 Malynes, A Treatise of the Cancer, pp. 109—10.
2 C h i 1 d, o. c. Preface.
3 Britannia Languens. Early Engl. Tracts, pp. 291 — 2.
4 D' A v e n a n t, An Essay upon Ways and Means. Works, I. p. 17.
B XVI 1, 2 The Balance of Trad*-. 113
trade, and ought to take a greater care, that it be well managed,
and preserved, than even the merchant himself ». x Pollexi'en writes:
»Plenty of money will alwayes produce variety and plenty of
chapmen to purchase, or take lands at annual rents, and cause
the products to advance in price; but scarcity of coyn will
alwayes have the contrary effect: And it is not likely that any
other way can be found out to advance the value of lands
that will be general, or hold for any long time.» 2
To conclude: the seventeenth century mercantilists generally
connected a favourable balance of trade, increasing prices and the
progress of economic life. They were, in doing so, less putting
forward an economic theory of the internal relation of money and
prices than simply stating a practical experience, a truism, based
upon the course of economic development as it actually showed
itself in the age of early capitalism. But these practical experiences
were, as we have seen, of great importance for the current notion
of the nature of money and the balance of trade.
1 Locke, Considerations. Essays, p. 595.
2 Poll ex fen, A Discourse of Trade, p. 43.
V. The Importance of the Favourable Balance
In the two preceding chapters we have inquired into the
importance of the precious metals in the age of early capitalism.
These chapters form, as has been pointed out, a discourse prelimin-
ary to a broader question: that of the importance of the favour-
able balance of trade in the mercantile system.
These two questions — the question of the importance of
gold and silver and that of the importance of the favourable balance
of trade — have not always been kept strictly apart, They
have, on the contrary, been often treated as synonymous con-
ceptions. The mercantile doctrine, so it has been stated,
made wealth and money identical, and regarded it therefore as
the great object of a community so to conduct its dealings with
other nations as to attract to itself the largest possible share of
the precious metals. * This notion that mercantilists, by confusing
1 Cf. Ingram, History of Political Economy, p. 37. The tradition
of this notion is generally traced back to some utterances of the founders
of the liberal school, David Hume and Adam Smith. Especially
the following passage of Smith has played a conspicuous role in the propagation
of the idea: »I thought it necessary, though at the hazard of being tedious, to
examine at full length this popular notion that wealth consists in money, or in
gold and silver. Money in common language, as I have already observed, fre-
quently signifies wealth; and this ambiguity of expression has rendered
this popular notion so familiar to us, that even they, who are convinced of
its absurdity, are very apt to forget their own principles, and in the course
of their reasonings to take it for granted as a certain and undeniable truth.
BXVII,2 The Balance of Trade. 115
wealth and the precious metals, regarded the chase after these
metals as the ultimate end of economic activity and, consequently,
as the sole purpose of the balance of trade, is without real found-
ation in mercantilist literature.
That has, indeed, appeared clearly enough in the course of
our inquiry. Nowhere did we find that acquiring gold and silver
was regarded as the ultimate end of economic activity. When
mercantilists pleaded for the hoarding of gold and silver as treasure,
that was done wholly with a view to the safety of the nation in
cases of emergency. And still less were these metals held as the
<»nly species of wealth, when acquired and used as the standards
of money; for it was perceived that the very function of money
was to serve as a m e d i u m of exchange in pursuing further
Some of the best English writers upon commerce set out with observing,
that the wealth consists, not in its gold and silver only, but in lands, houses,
and consumable goods of all different kinds. In the course of their reason-
ings, however, the lands, houses, and consumable goods seem to slip out of
their memory, and the strain of their argument frequently supposes that
all wealth consists in gold and silver, and that to multiply those metals is
the great object of national industry and commerce* (The Wealth, I. pp.
415 — 6). Adam Smith did not charge mercantile writers with an absolute
ignorance of the principles of wealth, though he reproached them with bad
confusion in thought. In the hands of later liberals the charge was, however,
reshaped into an absolute. As one of the most striking examples, the fol-
lowing passage of M a c 1 e o d may be quoted: »Midas was the parent
of the Mercantile System, and for several centuries every Government in
Europe was imbued with his ideas; though alas! .with more direful conse-
quences, for unluckily there was no merry god at hand to release them
from their folly. Midas saw that, with treasure in his hand, he was
wealthy — he could obtain what ever he wanted, and could command
the services of others. He quite forgot that gold was only of use
while it could command something else, and if that something else
were changed into gold, his gold would be of no use whatever. Gold
therefore, was only of use because of the multitude of things which
were not gold.» (Principles of Economical Philosophy, p. 50).
116 BR. Suviranta. B XVII.2
ends. How often was it urged that money should circulate! x The
fallacy of the charge that mercantilists considered public opulence
to consist in money, has, indeed, been thoroughly refuted during
the last fifty years. Canna n, for instance, has stated the case
in concise terms as follows: »It is quite possible to quote from
these [mercantile] writers passages in which bullion and wealth
are identified, and the riches or poverty of a nation made to depend
upon the quantity of bullion it possesses. But whether this is
absurd or not entirely depends on the meaning given to the words
wealth, riches, and poverty. A writer may use a word in a sense
which is not given to it in ordinary conversation without being ridi-
culous. It would be ridiculous, indeed, to contend that a nation could
be well fed and comfortably clothed and housed by gold alone; but
there is no reason to suppose that the wildest mercantilist ever suf-
fered from this delusion. The mere existence of the fable of Midas
was a sufficient safeguard. The mercantilists may be justly accused
of exaggerating the importance of having a hoard of bullion and
of recommending a number of useless regulations for the purpose
of securing such a hoard, but none of them ever imagined gold
and silver to be the only economic good.» 2
The notion of mercantile fallacy as to the principles of wealth
being itself a fallacy, it would appear, perhaps, a waste of time
to dwell further on so sterile a notion. 3 This question has, however,
1 Cf. above, pp. 67-70. If it be true, as J. St. Mill asserts, that the
mercantile theory was first refuted when men began to reflect »that money,
like other things, is only a desirable possession on account of its uses; and
that these, instead of being, as they delusively appear, indefinite, are of a
strictly defined and limited description, namely, to facilitate the distribution
of the produce of industry according to the convenience of those among
whom it isshared» (Principles of Political Economy, I. p. 6), surely, mercant-
ilists were themselves the first to refute mercantilism.
- C anna n, Theories of Production, pp. 2 — 5. "
3 It is a remarkable instance of the tenacity of deep rooted however
false ideas, that reminiscences of the old charge ■ against mercantile writers
may still be occasionally found even in the work of prominent economists.
Helfferich e. g. has brought forward the following view: »The notion
BXVII.2 The Balance of Trade. 117
another aspect, far more interesting, and that is: How is it possible
that tlie mercantile idea of wealth has been so utterly misinterpret-
ed by a later time? This question upon which some light will be
thrown in the following pages, carries us deep into mercantile
psychology and clears the way to the broader problems still ahead.
Anybody who has been perusing mercantile expositions must
allow that the subsequent confusion has to a very considerable
extent been caused by the mercantile writers themselves. The
inefficient way in which they often stated their point of view,
their indifference to the theoretical side of the questions, their
inclination to rash generalizations: all these considered, it seems
no wonder if readers of a later time were lead astray, readers who
neither were imbued with the spirit of mercantilism, nor managed
of the mercantile age, according to which money is the true embodiment
of wealth, did not comprehend that the volume of the demand for money,
at any time, was determined by the actual conditions of economic life of
the nation; the amassing of the greatest possible hoards of the precious
metals — these alone were considered to be money — appeared, without
any regard being paid to what ends they were to be employed in, as intrin-
sically worth striving for; mone^y was still looked upon in the same way as
e. g. the treasures of Indian princes, among whom hoarding is itself an end,
and not limited to any special use» (Das Geld, pp. 474 — 5. Cf. also p. 2).
Knut W i c k s e 1 1, the well known Swedish economist, writes: »In
modern times, the Quantity Theory has arisen as a reaction against
the mercantile opinion, that opinion that saw in money the true substance
of wealth, not merely an outward representative of it, and that therefore
necessarily ascribed to money an intrinsic value (Wert an sich), independent
of its function as a medium of exchange* (Vorlesungen liber Nationalokono-
mie. Theor. Teil, II. pp. 163—4). Among less prominent writers on eco-
nomics, one sometimes chances on even more radical assertions. Thus in
M u r r a y's New English Dictionary on Historical Principles, the mercantile
system is defined as »a term used by Adam Smith and later Political
Economists for the system of economic doctrine and legislative policy
based on the principle that money alone constituted wealth» (XYI. ). „
And a Viennese economist has recently proposed as mercantile ideas:
>>Money is the wealth, the prosperity, the happiness. The active balance
of trade, indicating an increase of money, indicates consequently wealth
and prosperity* (Kerschagl, Die Lehre vom Gelde, p. 5).
118 Br. Suviranta. B XVI 1, 2
to get beneath the surface of mercantile expositions. The obscurity
of language was, indeed, so great that long before the time of David
Hume and Adam Smith economists were already occasionally
charging eachother with having confused money and wealth. This
fact seems not to have been duly noticed by later students of
mercantilism. We find, for instance, in England's Great
Happiness a passage where the author pleading against
bullionist prohibitions and pointing out that if the precious metals
were not allowed to be exported to the East Indies, the English
would have to strike out that trade altogether, adds with subtle
irony: »which the Dutch will heartily thank you for, and give
you a golden god to boot.)) 1
The point of this sentence was directed against an exaggeration
of the value of precious metals in general. A few years later,
D' A v e n a n t brought forward a similar charge, but expressly
directed it against a contemporary economist, Pollexfen.
This writer had asserted that »jewels, lead, tin or iron, though
durable, — — do not so well deserve to be esteemed treasure* 2 ,
against which proposition D'Avenant puts down his protest:
»It is a very hard thing to define what may be truly called the
riches of a people. Our author in a manner confines it only to gold
and silver; but with submission to better judgments, we think it
has a signification far more extensive.
We understand that to be wealth, which maintains the prince
and the general body of his people, in plenty, ease and safety.
We esteem that to be treasure, which for the use of man has
been converted from gold and silver, into buildings and improve-
1 E n g 1 a n d' s Great Happiness. Early Engl. Tracts, p. 259.
A curious incident may here be related: Mc G u 1 1 o c h, who published
England' s Great Happiness among other early tracts, speaks
in the preface to that publication of »the gilded image of clay and mud»,
thus denouncing »the slavish adorations of gold and silver in almost the
same words as one of the accused does in the passage quoted above (Early
English Tracts. Preface, p. VII).
2 Pollexfen, England and East-India, p. 7.
B XVII.s The Balance of Trade. 119
ments of the country; as also other things convertible into those
metals, as the fruits of the earth, manufactures, or foreign com-
modities and stock of shipping.
We hold to he riches, what tends to make a people safe at home
and considerable abroad, as do fleets and naval stores.
We shall yet go farther, and say, that maritime knowledge,
improvement in all kind of arts, and advancing in military skill;
as also wisdom, power and alliances, are to be put into the scale
when we weigh the strength and value of a nation.)) 1
This exposition of D'Avenant 's has been quoted at such length,
because it forms one of the most clear and interesting statements
of the conception of Wealth current in the seventeenth century.
In his attack upon Pollexfen, D'Avenant was, however, decidedly
wrong, as this writer had used »treasure», not as synonymous with
wealth, but as synonymous with gold and silver. D'Avenant
himself had no better fortune than to be himself charged by
a later mercantilist, John S m i t h, with »want of a true and
full idea of what are riches», because he had neglected home trade
as being »no part of the balance of trade directly». 2
As futher examples of early charges of confusion as to the
fundaments of wealth, the following queries of Bishop Berkeley
may be quoted:
»Whether, if money be considered as an end, the appetite thereof
be not infinite? But whether the ends of money itself be not
»Whether the mistaking of the means for the end was not a
fundamental error in the French councils?)) 3
The Dean Josiah Tucker criticized the instructions
touching the Bill for a Free Trade*, drawn up by Sir Edward Sandys
during the reign of James I., as follows: »The error is, that money
is wealth; whereas in fact, industry is wealth: and money
1 D'Avenant, Discourses on the Public Revenues. Works, I. pp.
2 John Smith, Chronicon Rusticum, I. p. 413, note.
3 Berkeley, The Querist. Works, IV. pp. 450, 582
120 BR. SUVIRANTA. B XVII ,2
is only the ready and expeditious method of circulating the produce
or manufactures of this industry from hand to hand.» »In the
first place, the capital mistake, that money is riches, is
the basis of alb) 1
These writers were thus charging one another with entertaining
false ideas of wealth. These charges had apparently about the
middle of the eighteenth century already grown up into a popular
creed, that needed but to be pickedup by David Hume and Adam Smith
and reformed into a general repudiation of the theory of the balance
of trade. The confusion arose, as has already been pointed out.
partially from mere obscurity of language, as was e. g. the case
in the controversy between Pollexfen and D'Avenant, and partially
also from the fact that the precious metals were little by little
losing the important position held by them in the sixteenth and
the seventeenth centuries. But to these factors must be added a
third, equally important. And that is the fact that mercantilists
were employing the term »riches» simultaneously in two different
senses, neither of which fully corresponds to the modern conception
of riches. Sometimes it was evidently used as a synonym for »gold
and silver», but not for wealth in general. Thus e. g. in the author
of the Britannia L a n g u e n s, who, stating the evil conse-
quences of a passive balance of trade, asserted: »And upon this
occasion I shall add, that there is no possible way for restoring
the securities and credits of England, but by restoring its
riches. » 2 Po lie x fen wrote: »A great difference, should be made
between such trades and imployments that in their nature and
design tend to get and bring riches into the nation, and those
1 Tucke r, The Elements of Commerce, pp. 157, 162. May it be pointed
out that some French economists repudiated remarkably early the notion
that riches consist in money. That was, indeed, done already by M o n-
Chretien (1615) and Boisguillebert (1695) who expressly pointed
out the fallacy: »Que c'est une erreur grossiere de regarder TOr et P Argent
eomme l'unique principe de richesse, et de la felicite de la vie» (Cf. On eke n,
o. c, pp. 175, 252).
2 Britannia L a n g u e n S. Early Engl. Tracts, pp. 453 — \.
B XVII. 2 The Balance of Trade. 121
that can only serve to make it change hinds. » x Locke said:
»For, we having no mines, nor any other way of getting, or keeping
of riches amongst ns, but by trade » 2 , or. in another place:
•Kingdoms are seldom found weary of the riches they have, or
averse to the increase of their treasure. » 3
But more often »riches» was used in a broader sense. So it was
used in D' Ave n ant's definition of riches quoted above. 4
The same is the case with the following passage of Robert*:
>Xow the aboundance, plenty, and riches of an estate or nation,
may be said, principally to consist in three things. 1. In natural]
commodities or wares. 2. In artificial commodities or wares.
3. In the profitable use and distribution, of both by commerce
and traffike.» 5 Mun says: »And forasmuch as the people which
live by the arts are far more in number than they who are masters
of the fruits, we ought the more carefully to maintain those
endeavours of the multitude, in whom doth consist the great «>t
strength and riches both of king and kingdom; for where the
people are many, and the arts good, there the traffique must be
great, and the countrey rich.» 6 And Child writes: »That wool
1 Pollexfen, A Discourse of Trade, p. 154
2 Locke, Considerations. Essays, p. 565.
3 Locke, Further Considerations. Essays, p. 685. As a further
example, the following passage of Berkeley may be quoted: »Men
are apt to measure national prosperity by riches. It would be righter to
measure it by the use that is made of them. Where they promote an holiest
commerce among men, and are motives to industry and virtue, they are,
without doubt, of great advantage; but where they are made (as too often
happens) an instrument to luxury, they enervate and dispirit the
bravest people» (An Essay towards preventing the Ruin. Works, IV. p. 327).
Tucker asserts: »It is not therefore riches, considered merely in them-
selves, that can make a kingdom flourish* (A Brief Essay, p. 84). Be it noted
that in the third edition of the same book the sentence is altered and runs
as follows: »It is not therefore gold and silver, considered merely in them-
selves, that can make a kingdom flourish..)
4 Cf. above, p. 118.
5 Roberts, o. c, p. 60.
6 M u n, o. c, p. 17.
122 Br. suviranta. B XVII, 2
is eminently the foundation of the English riches, I have not heard
denied by any.» l
These examples of employing »riches» in the broader sense are
taken at random and could easily be multiplied. Common to all
of them is a peculiar trend that strikes a modern student carefully
surveying them: the mercantile writers, in denoting certain
economic categories as »riches», are paying special regard to their
productive capacity, or, as Roberts expressed it, to the
profitable use and distribution of natural and artificial commodities
and wares by commerce and traffic. This mercantile conception
of riches does not wholly correspond to what we should call wealth
or riches, for speaking with M a r s h a 1 1, »There is a clear trad-
ition that we should speak of Capital when considering things
as agents of production; and that we should speak of Wealth when
considering them as results of production, as subjects of con-
sumption and as yielding pleasures of possessions 2
It appears from this definition that the mercantile term »riches»
was sirnultaneously covering the modern conceptions of wealth
and capital. This peculiarity of mercantile terminology must in
the first place be ascribed to the fact that the economic vocabulary
did not then contain any acknowledged equivalent for the modern
term »capital». Not till the middle of the eighteenth century was
the word capital employed in a sense approaching to later practice. 3
The fact again that »riches», this double conception, was used by
mercantilists of the seventeenth century predominantly in the
sense of »capital» or »capital wealth», was a natural consequence
of mercantilism's preoccupation, as a rule, with production rather
than with consumption and the pleasures of possession.
We have thus seen that the term »riches» was used in mercantile
literature in two different senses: in a narrower sense to denote
1 Child, o. c, p. 155.
2 Mar s li a 1 1, Principles, p. 81.
3 G a n n a n, Early History of the Term Capital. Quaterly Journal
of Economics, XXXV. (1921), pp. 469, etc.
B XVII,? The Balance of Trade. 123
gold and silver and in a broader sense to denote capital wealth. x
This ambiguous use of the term »riches» was, indeed, easy to fall
into, the two conceptions being closely related to eachother, as
money represented at that time a most effective part of the capital
resources of the nation. In the light of this alone, mercantile
passages where money is praised as riches or even the riches
of the nation become reasonable, though the writers may be charged
with being guilty of exaggerations or undue generalizations. That
was e. g. the case with a sentence of Locke's: »The overbalanc-
ing of trade, between us and our neighbours, must inevitably carry
away our money; and quickly leave us poor, and exposed. Gold
and silver, though they serve for few, yet they command all the
conveniences of life, and therefore in a plenty of them consists
But as neither of the senses in which »riches» was employed
by mercantilists exactly corresponds to the conception of riches
that has been current in later times, confusion was unavoidable,
when later economists, when reading mercantile expositions, un-
awares substituted for the original conception of riches, the
fundamentally different idea of wealth held by themselves. Thus,
an economist starting from the point of view that »the opulence
of a nation does not consist in the quantity of coin, but in the
abundance of commodities which are necessary for life, and what-
ever tends to increase these tends so far to increase the riches of
1 There is a remarkable resemblance in the use of the corresponding
firms in the German and French economic literature. An expert on the
rameralist literature in Germany has interpreted the sense of »Reichtum»
as follows: »To make the term Reichtum, as it was used by the cameralists,
equivalent to the term wealth in nineteenth-century abstract political
economy, is an arrant anachronism. The term was virtually a synonym of the
more technical cameralistic phrase bereitestes Vermogen, or »re-
ady means» (Small, The Cameralists, p. 154). In France, the term »l'argent>>
as used by Colbert in the phrase »attirer 1'argent dans le royaume»,
did not mean money alone, but commodities in general, to be used as pro-
ductive wealth (Oncken, o. c, p. 178).
- Locke, Considerations. Essays, p. 565.
124 BR. SUVIRANTA. B XVII. 2
a country* 1 , could not hut be inclined to stigmatize »the notion
that the riches of a country consists in moncy» 2 , as an absurdity
comparable to the delusion of Midas.
Prom our preceding considerations it is clear that the theory
of the balance of trade was not founded upon the falkcy that
public wealth consists in gold and silver. We have seen that the
precious metals were valued by mercantilists, primarily, not as
wealth, but as an important capital force. But some later economists
haying rightly perceived that gold and silver were sought for on
account of their character as capital, have drawn from mercantile
expositions denoting home trade as sterile and foreign trade alone as
productive, the conclusion, that money was regarded as the only,
or at least, by far the most essential productive force. 3
This notion has. indeed, the appearance of being exceedingly
well-founded. Almost any of the early mercantilists might be
called upon to bear witness in the case. To take a few examples:
According to Hales, »A11 the expenses of buyldinges, for the
1 A d a m Smith, Lectures, p. 192.
2 Ada m S m i t h, Lectures, pp. 199 — 200.
3 Among the advocates of such an opinion, may be noted: RoscTie r
who asserts that mercantilists understood by money mostly what we should
call capital (Geschichte der Xational-Oekonomik, p. 229); Hey king,
who maintains that »Money was the mask behind which capital was con-
cealed with its innumerable different forms. For this narrow form of capital,
that alone was known to them, mercantilists were striving, when they urged,
instead of mere consumption, the hoarding of money». They regarded there-
fore that labour alone as- productive whose products could be exchanged
for gold and silver (Ok c, p. 75); Z i e 1 e n z i g e r, who has come to the
conclusion that money represented capital for mercantile writers and that
their fallacy lay in that money was considered to be the only productive
force of the nation (O. c, p. 55); L a u g h 1 i n, according to whom»the belief
that money and capital were nearly synonymous was widespread, and as
a consequence nations tried to encourage the inflow, and discourage tin 1
outflow, of specie.) (Principles, p. 225).
B XVII.a The BaJanee of Trade. 125
most parte, is spout emonge oure neighboures and countriemen;
as emonge carpenters, masons and laborers; except men will fall
to gildinge or paintinge of these howses, for in that much treasure
may be spent to no use. Allso the arrisses, verderers, and tapstrie
worke, wheare with they be hanged, commonly conveieth oyer
into Flanders, and other strange countries wheare they be had
fro, much of our treasure)). 1 Malyn.es writes: »The wealth
of the realme cannot decrease but three manner of ways, which
is by the transportation of ready money, or bullion out of the same:
by selling our home commodities too good cheape: or by buying
the forreme commodities too deare, wherein chiefly consisteth
the aforesayd overballancing.» 2 Mun asserts: »The pomp of
buildings, apparel, and the like, in the nobility, gentry, and other
able persons, cannot impoverish the kingdome; if it be clone with
curious and costly works upon our materials, and by our own
people, it will maintain the poor with the purse of the rich, which
is the best distribution of the commonwealth. » 3 Fort re y. too,
is willing to maintain and encourage expenditure on apparel, &c.
if only the following rules are observed: »First, that the vanity
of the expence do not depend on such commodities, as have too
much of the substance of gold, silver, or silk; whereby the publick
treasure is wasted and lost. Secondly, that we impoverish not
our selves to enrich strangers, by that unnatural vanity, in pre-
ferring forein commodities though worse, before our own, that
are better. Thirdly, that the excess of this expence consist chiefly
in the -art, manufacture and workmanship of the commodity made
in our own country; whereby ingenuity would be encouraged,
the people employed, and our treasure kept at home', so as the
prince would be nothing damnified by the excess: for the ruine
of one would raise as much another of his subjects; and money
1 Hales, o. c, pp. 84 — 5.
2 M a 1 y n e s, A Treatise of the Canker, pp. 3 — 4.
3 Mun, o. c, p. 81.
126 Br. Suviranta. B XVII, 2
would thereby be more moving, which would be a great encourage-
ment, and satisfaction to the people. » x
In Petty we find the following: »Now the wealth of
<vcry nation, consisting chiefly, in the share which they have in
the foreign trade with the whole commercial world.
rather than in the domestick trade, of ordinary m e a t. d r i n k.
and c 1 a t h s, &c. which bringing in little gold, s i 1 v e r,
jewels, and ether u 11 i v e r sal wealth; we are to con-
sider, whether the subjects of the King of England,
head for head, have not a greater share, than those of F r a n c e.» 2
Locke suggests: »It is with a kingdom as with a family. Spend-
ing less than our own commodities will pay for, is the sure and
only way for the nation to grow rich.» 3 And according to D' A ve-
il ant, »It is the exportation of our own product that must make
England rich; to be gainers in the balance of trade, we must carry
out of our own product what will purchase the things of foreign
growth that are needful for our own consumption, with some over-
plus, either in bullion or goods, to be sold in other countries; which
overplus is the profit a nation makes by trade». 4 Elsewhere the
same author asserts that »by what is consumed at home, one loseth
only what another gets and the nation in general is not all the
richer». 6 According to Pollexfen »Buying, selling, and
trading amongst our selves, may occasion that one man may grew
richer than another, but hath no immediate influence upon the
inriching or impoverishing of the nation*). 6
The passages quoted above seem to indicate that the organic
process of production was very badly understood by mercantile
writers. But in order to get as clear an insight as possible iifto
1 F r t r e y, 0. c, p. 27.
2 Petty, Political Arithmetick. Writings, I. p. 295.
3 Locke, Considerations, p-ssays, p. 608.
4 D' A v e n a n t, An Essay upon the Probable Methods. Works, II.
5 D'Avenan t, En Essay on the East India Trade. Works, I. p. 103.
"Pollexfen, A Discourse of Trade, p. 40.
B XVII,2 The Balance of Trade. 127
their idea of production, let us get down to particulars and examine
how far the prerequisites of production were actually recognized
L a n d.
The part which hind plays in production was none of the current
topics in the mercantile literature of the seventeenth century.
That the productive role of land was, however, not overlooked.
appears from the following: M u n divides wraith into natural
and artificial riches and notes the natural riches as »proceeding
of the territorie it selfe». 1 Rob e r t s writes: »The earth, though
notwithstanding it yeeldeth thus naturally the richest and most
precious commodities of all others, and is properly the fountaine
and mother of all riches and abundance of the world .» 2
Hobbes denotes the role of land with a well-chosen image:
»As for the plenty of matter, it is a thing limited by nature, to
those commodities, which from (the two breasts of our common
mother) land and sea, God usually either freely giveth or for
labour selleth to man-kind. » 3 Child, too, speaks of land as
»our common mother»; 4 Petty describes it as »the mother of
wealth»; 5 and according to Locke, nature is »the common
mother of all». 6 D' A v e n a n t gives great esteem to land: »Gold
and silver are indeed the measure of trade, but the spring and
original of it in all nations, is the natural or artificial products
of the country; that is to say. what their land, 01 what their labour
and industry produces. >> 7
1 M u n, A Discourse of Trade. Early Engl. Tracts, p. 40.
2 R o b e r t s, o. c, p. 61.
3 Hobbes, o. c, p. 188.
4 C h i 1 d, o. c. Preface.
5 Petty, A Treatise of Taxes. Writings, I. p. 45.
6 Locke, Of Civil Government, p. 23.
7 D'Avenant, Discourses on the Public Revenues. Works, I. p, 354.
128 Br. Suviranta. B XVII ,2
L a b o ur.
The economic writers of the seventeenth century pay the
greatest attention to matters of population. According to M u n.
in a multitude of people »doth consist the greatest strength and
riches both of king and kingdom)). 1 The author of the Brit-
a 11 n i a L a n g u e n s says: »People are therefore in truth
the chiefest, most fundamental, and pretious commodity, nut of
which may be derived all sorts of manufactures, navigation, riches.
conquests, and solid dominion: This capital mat e r i a 1,
being of it self raw and indigested, is committed into the hands
of the supreme authority; in whose~ prudence and disposition it
is. to improve, manage, and fashion it to more or less advantage.* 2
Child writes: »That most nations, in the civilized parts of the
world, are more or less rich or poor, proportionable to the paucity
or plenty of their people. The whole world is witness to the
truth of it.» 3 Petty asserts that »fewness of people, is real
poverty; and a nation wherein are eight millions of people, are
more then twice as rich as the same scope of land wherein are but
four». 4 The same is the idea in the following passage: »There is
nothing so much wanting in England as people: and of all sorts
of people, the industrious and laborious sort, and handicraftsmen
are wanted to till and improve our land and help to manufacture
the staple commodities of the kingdom: which would add greatly
to riches thereof.)) 5
These quotations have demonstrated what an extraordinary
importance was attributed to people. One ken has also very
appropriately observed that mercantilists might with more right
lie charged with having identified people and wealth, than money
1 M u n, England's Treasure, p. 17.
2 Britannia Languens. Early Engl. Tracts, p. 458.
3 C h i 1 d, o. c, p. 195.
4 Petty, A Treatise of Taxes. Writings, 1. p. 34.
5 The Grand Concern of Engl a n d. Quoted by G r e g o r y,
in »Economica», 1921, p. 10.
B XVII, 2 The Balance of Trade. 129
and wealth. 1 Such a charge would, however, be equally ill-founded.
From the passages quoted above has clearly appeared that the
mercantile writers do not so much refer to people themselves
as to the productive power, the prospective wealth, inherent in
the »stock» of people. ^Population was looked upon mainly as a
factor of production. » 2
Labour is also directly spoken of as an agent of production;
and with advancing time, as economic terminology gains in pre-
cision, the terms »people» or »population» are less and less used
instead of »labour». 3 In Mun we find the following passage:
»And indeed our wealth might be a rare discourse for all Christen-
dome to admire and fear, if we woidd add our labour
to our n a t u r a 1 m e a n s.» 4 P e 1 1 y asserts: »Labour is the
father and active principle of wealth. » 5 And Locke estimates
labour as almost the exclusive source of wealth: »It is labour
indeed that puts the difference of value on everything. If
we will rightly estimate things as they come to our use, and cast
up the several expenses about them — what in them is purely
owing to nature, and what to labour — we shall find that in most
of them ninety-nine hundredths are wholly to be put on the account
of labour.» 6
It may be pointed out lastly that Petty recognized the
influence of the division of labour upon its efficiency: »For in so
vast a city m a n u f a c t u r e s will beget one another, and each
1 O n c k e n, o. c, p. 179.
2 Gregory, The Economics of Employment. In »Economica», 1921,
p. 40. —
3 When there is still in the eighteenth century any talk of people as
riches, it is mostly with express reference to them as producers: »People
are the wealth of a nation, yet it can only be so, where we find imployment
for them, otherwise they must be a burthen to it» (Car y, An Essay towards
Regulating the Trade, p. 48); »People are the riches of a kingdom, if properly
employed)) (Gee, The Trade, p. 77).
4 M u n, o. c, p. 100.
5 P e 1 1 y, A Treatise of Taxes. Writings, p. 49.
6 L o c k e, Of Civil Government, p. 30.
130 Br. Suviranta. B XVII,*
manufacture will be divided into as many parts as possible,
whereby the work of each a r t i s a n Avill be simple and easie; as for
example. In the making of a watch, if one man shall make the
wheels, another the spring, another shall engrave the dial-
plate, and another shall make the cases, then the w a t c h
will be better and cheaper, than if the whole work be put upon
any one man. And we also see that in towns, and in the
streets of a great t o w n, where all the i n h a b i t a n t s
are almost of one trade, the commodity peculiar to those places
is made better and cheaper than elsewhere. »*
The seventeenth century forms also a period of transition in
the sense that the economic life was steadily developing towards
the industrial system of modern times. Economic policy paid
much attention to developing the latent capital resources of the
country. At every step the inquirer into that period is confronted
with schemes of extending native industries, such as agriculture,
fishery, cloth, iron, paper-making, etc.. or of planting and fostering
new industries, like alum, glass, soap, oils, salt, saltpetre, etc.
Great efforts were also made to improve the system of communic-
ation, by building new roads and canals, not to speak of the
fostering of mercantile marine that was given since the times of
William Cecil »a prominence which it had never had before,
and which it has never since lost». 2
This trend of the time is naturally reflected by contemporary
economic literature. Thus M u n writes as follows: »If we duly
consider E n g 1 a n d s largeness, beauty, fertility, strength, both
by sea and land, in multitude of warlike people, horses, ships,
1 Petty, Another Essay. Writings, II. p. 473.
2 Cunningham, o. c, Modern Times, p. 64. As a characteristic
example of the tendency of economic policy, it may here be mentioned that
during the sixteenth century 9, during the seventeenth 24, and during the
eighteenth, 36 laws were passed ordering improvement of rivers (S o m-
bart, o. c, II. p. 252).
B XVI I )2 The Balance of Trade. 131
ammunition, advantageous situation for defence and trade, number
of seaports and harbours, which are of difficult access to enemies,
and of easie out-let to the inhabitants wealth by excellent fleece-
wools, iron, lead, tynn, saffron, corn, victuals, hides, wax, and
other natural endowments; we shall find this kingdome capable
to sit as master of a Monarchy. For what greater glory and ad-
vantage can any powerful nation have, than to be thus richly and
naturally possessed of all things needful for food, rayment, war,
and peace.)) 1 -Petty enumerates different means by which
employment might be procured for people: »Making all high-wayes
so broad, firm, and eaven, as whereby the charge and tediam of
travelling and carriages may be greatly lessened. The cutting
and scowring of rivers into navigable; the planting of usefull trees
lor timber, delight, and fruit in convenient places. The making
of bridges and cawseys. The working in mines, quarries, and
colleries. The manufactures of iron, &c.» »I pitch upon all
these particulars, first, as works wanting in this nation; secondly,
as works of much labour, and little art; and thirdly, as introductive
of new trades into England, to supply that of cloth, which
we have almost totally lost.» 2
These examples may suffice to denote the attitude of mercantile
writers as regards the capital wealth of the nation in general. If
we turn our attention to particulars, the extreme importance
attributed to shipping must especially be pointed out. There was
scarcely any economist in the seventeenth century who would
not have been anxious for the improvement and expansion of
shipping. Here may only be referred to Child, according to
whom the state of shipping offered the best criterion of the state
of trade and industry. On the other hand, the fact strikes a modern
reader, that there was little direct mention and appreciation of
tools, machinery and other labour saving technical implements,
in other words, of that auxiliary capital of industrial
1 M u n, o. c, p. 97 — 8.
2 P e 1 1 y, A Treatise of Taxes. Writings, I. pp. 29 — 30.
132 Br. Suviranta. i3 XVII, 2
enterprise which holds such a prominent place in the modern con-
ception of capital. Only now and then do we find special attention
paid to this kind of capital. Thus Fortrey points out that
the Norwegian timber »employs a great shipping, and makes us
build houses, ships, and cases for merchandise, at cheap rates.
and if we might have a thousand saw-mills, for ought I know tin iy
might do us as much kindness as engine looms, and for all the talk
of the short sighted rabble, employ twice the people too». 1 Petty
writes: »One man by art may do as much work, as many without
it; viz. one man with a mill can grind as much corn, as twenty
can pound in a mortar; one printer can make as many copies, as
an hundred men can write by hand; one horse can carry upon
wheels, as much as five upon their backs; and in a boat, or upon
ice, as twenty.*) 2 And elsewhere the same author says: »H o 1 1 a n d
is a level country, so as in any part thereof, a windmill may be
set up, and by its being moist and vaporous, there is always wind
stirring over it, by which advantage the labor of many thousand
hands is saved, forasmuch as a mill made by one man in half a
year, will do as much labor, as four men for five years together. » 3
In Cary we find a passage as follows: »The refiners of sugars
lately sold for six pence per pound what yieled twenty years
since twelve pence; the distillers sell their spirits for one
third part of what they formerly did; glass-bottles, silk-stockings,
and other manufactures (too many to be here . enumerated) are
sold for half the prices they were a few years since, without falling
the labour of the poor. ■ But then the question will be, how
this is done. I answer, it proceeds from the ingenuity of the
manufacturer, and the improvements he makes in his ways of
working: thus the refiner of sugars goes thro' that operation in
a month, which our forefathers required four months to effect;
'Fortrey, o. c, p. 26.
2 Petty, Political Arithmetick. Writings, I. pp. 249—50.
3 Petty, o. c. Writings, I. p. 256. It may be noted that in 1691 Petty
published a paper called, »An Account of Several New Inventions and Im-
provements now necessary for England. »
B XVII, 2 The Balance of Trade. 133
thus tlie distillers draw more spirits, and in less time, from
the simples they work on, than those formerly did who taught
them the art; the glass m a ker hath found a quicker way
of making it out of things which cost him littie or nothing; silk-
stockings are wove instead of knit; tobacco is cut by engines in-
stead of knives; books are printed instead of written; deal boards
are sawn with a mill instead of men's labour; lead is smelted by
windfurnaces instead of blowing with bellows. — — New pro-
jections are every day set on foot to render the making our woollen
manufactures easie, which are made cheap by the heads of the
manufacturers, not by falling the price of poor peoples labour.» *
The fact that so little attention was paid by seventeenth century
mercantilists to labour saving instruments of production, finds,
in the first place, its explanation in the then prevailing economic
conditions. Such instruments played in the seventeenth century
only an. insignificant role, compared with later times. Not till
the eighteenth century was the era of expensive implements in-
augurated in England; until that time »the only trade that used
very expensive implements was the trade of carrying goods by
water: the weaver's looms, the husbandman's ploughs and the 1
blacksmith's anvils were of simple construction and were of little
account beside the merchant's ships». 2 The domestic system was
still the typical form in the most important industry of England,
the clothing trade, as well as in many other trades too. 3
But though it is true that the use of steam power first caused
a rapid substitution of inexpensive hand tools by expensive
machinery in one department of production after another and
that this change did not take place until! the eighteenth century,
a reference to this fact cannot wholly explain the attitude of the
seventeenth century economists to auxiliary capital. For it must
not be forgotten that there had already taken place a steady
1 C a r y, An Essay on Trade, pp. 145 — 7.
2 Marshall, Principles, p. 221.
3 Cf. Ashley, The Economic Organisation, pp. 143 — 5.
134 Br. Suvlranta. B XVIL2
progress in industrial technic since the end of the Middle Ages, a
progress, though insignificant, indeed, in comparison to the
achievements of the eighteenth - century, important enough as
compared to the former stationary state of development. Especi-
ally the latter part of the seventeenth century is distinguished in
this respect. The period after the Restoration was characterized
by De F e as a Projecting Age». l Cary's enthusiastic account
of the gains in technic demonstrates also that there was already
during the seventeenth century a powerful tendency towards
technical development, a tendency that was in the following century
to bring about the Industrial Revolution. It cannot, therefore,
be denied that the indifference of the bulk of economic writers
to the possibilities opened up by new technical improvements,
signifies a serious lack of foresight and fertile economic imagin-
ation, though this mercantile indifference may be to some degree
explained by the two different interests which here seemingly
clashed: Technical improvements tended to save labour, while
the general cry of the time was: More labour! More employment
of labour! It was this very trait of mercantile thought that led
later some eighteenth century economists to propagate such »short
sighted rabble» as regards technical improvements as was already
repudiated by Fortrey in the passage quoted above; thus, for
instance, Defoe and Postlet liwayt directly opposed
introducing labour saving machines.
The mercantile conception of production, may on the basis
of what has been shown above, be shortly stated as follows: The
different agents of production — Land, Labour, Capital — were
all known to and appreciated by mercantile writers; only land
did not take any prominent place in economic speculations and
1 De Foe, An Essay on Projects, p. 19. In this connection the great
projector, Somerset, the second Marquis of Worcester (1601 — 70),
may be mentioned, who in 1663 published a book of inventions called, A
Century of the names and Scantlings of such Inventions as at present I can
call to mind to have tried and perfected, etc.
B XVII,2 The Balance of Trade. 135
tin. 1 prevalent attitude towards auxiliary capital was as a whole
It is thus beyond doubt that mercantilists possessed a funda-
mentally right idea of production. But that being so, it is also
evident that the numerous passages where home trade was ex-
pressly stigmatized as sterile and foreign trade alone thought
productive, must not be taken at their face value. We have here
rather to do with the same kind of generalizations as in the case
of the balance of trade v. the balance ot international indebtedness:
One factor regarded as the most important among several different
factors, is more or less consciously abstracted and to it is alone
attributed the character common to them all. In this case the
bearing of such a generalization must be interpreted as follows:
In economic life, though all the different factors in the process
of production are necessary for the succesful carrying on of economic
activities, the trades producing goods for exportation are, never-
theless, of such an importance, that special attention should be
directed to the promotion of such economic activities. In other
words, the foreign trade was regarded as productive, the home
trade as sterile, not in an absolute, but in a relative sense.
Now and then this relativity of the importance of the balance
of trade was expressly stated by mercantilists themselves. Thus
Roberts pointed out three ways of enriching a kingdom: »The
first whereof is by arms and conquest, but this way must be con-
fessed to be, both chargeable, bloody & hazardable. The second
is, by planting of colonies, building of well scituated townes, and
the like, and this is also accounted uncertain, chargeable and
tedious. But the third and last is by traffike, and forraigne trade,
which is held the most certain, easiest, and soonest way; money
and time must bee consumed to effect the two former; but immun-
ities, privileges, and liberties to the merchant, will not only assure,
but perfect the latter.» 1 The author of the B r i t a n n i a L a n-
g u e n s wrote: »Now should these restraints and discouragements
1 Roberts, o. c, p. 58.
136 BR. SUVIRANTA. B XVII, 2
[of corporations] on our own people and trade be removed, it would
doubtless much advantage our trade in some time; but would
not bring us so sudden an increase of people, manufactures, ships,
and riches, as is highly requisite for the carrying on of a mighty
trade, or perhaps for our national security; nor can these so suddenly
be had, but from other parts of the world, where they are moving;
men, ships, or riches, do not grow on the trees, nor yet drop out
of the clouds. » l
Some misconceptions about the importance of the favourable
balance of trade have been above cleared up. We have seen that
the favourable balance of trade was not thought to be the only
means of procuring wealth, nor of procuring capital. Wealth as
well as capital were for mercantilists much broader conceptions
than could be covered by a single, though never so important
category of commodities, such as gold and silver. We have also
seen that the real cause why the balance of trade was so greatly
emphasized, was the belief that economic activities were thereby
strongly accelerated. Having now a closer grip of the importance
of the favourable balance of trade, we may proceed further and ask:
What were exactly the economic services of the favourable balance
of trade by which the pace of economic progress was thought to be
increased? In order to get a satisfactory answer to this question,
we shall now go to examine the function of foreign trade. This
function was a combination of two distinct functions: A function of
export and a function of import.
The Function of Export.
At the close of the Middle Ages the question of employment
came to be of paramount importance in economic policy That
was partially a consequence of growing population. But it was also
a consequence of changes in the economic structure of society,
especially of the progress of »enclosures» whereby, tillage being
1 Britannia Languens. Early Engl. Tracts, p. 358.
B XVII, 2 iThe Balance of Trade. 137
substituted for pasturage, large numbers of the rural population
were reduced to the condition of homeless wanderers, and of the
decay of the gild system whereby market considerations became
paramount. There arose thus a numerous class of people for whom
exchange of products and services for money was necessary for the
support of life. But money was only obtainable in larger quantities
by producing goods for sale on foreign markets. It came therefore
to be a natural endeavour of official policy to get the greatest
possible part of the population employed in export trades. l
With the formation of the balance of trade theory, this tradi-
tional care for creating employment for the population grew, very
naturally, to be an organic part of the new theory. A favourable
balance of trade signified, consequently, not only gaining gold and
silver, but also extended foreign markets whereby sale was secured
for home commodities and additional employment furnished to
the people. Further an extended export trade meant a sure way
to bigger population, that common goal of mercantile aspirations.
Let us only listen to the practically unanimous opinion of
seventeenth century economists. M u n writes: »In our export -
ations 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 (besides the vent of the materials) gain so much of mani-
facture 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 the
use of some such like wares from other places, and with little in-
convenience; we must in this case strive to sell as cheap as possible
we can, rather than to lose the utterance of such wares. » 2 Or take
the following passage of the same author: »Our fishing plant at ion
likewise in N e w-E n g 1 a n d, V i r g i n i a, Groenlan d,
1 H e y ki n g, o. c, p. 12.
2 Mu n, o. c, p. 10.
138 BR. Suviranta. B XVI 1, 2
the Summer Islands and the N e w-f u n d-1 a n d, are
of the like nature, affording much wealth and employments to
maintain a great number of poor, and to encrease our decaying
To these passages of Mun we could easily add others similar,
where emphasis was laid upon the fact that foreign trade meant
employment for labour. And that this point of view was, by no
means, a mere counterpart of the mercantile chase after gold and
silver, appears with particular distinctness from Mun's assertion
that there should be an endeavour to sell the wares dear, »s far
forth as the high price cause not a less vent
in the q u a n t i t y», i.e. so far forth as employment is not
The same trend of thought characterizes the mercantile attitude
in general. Hales writes: »I woulde know what would bringe
us treasure from beyonde the seas and from strange partes, or
wheare wieh so manie people should be set a worke, as have now
theire livinges by clothinge, yf that occupation weare laide downe?» 2
In the instructions of the Standing Commis-
sion on Trade of 162 2, there is a passage as follows
»We have understood — — that the cloth of this kingdom
hath of late yeares wanted that estimation and vent in forraign
parts which formerlie it had, and that the wolls of this kingdom
have and are fallen much from their wonted values, and trade
in generall to be so far out of frame, that the merchants and
clothiers of this kingdom are greatlie discouraged, so that great
nombers of people ymployed by them, and depending on them,
want work, the best meanes of their livelihood -.» 3 Robin-
son asserts with much emphasis: »I beleeve it will bee thought
more beneficiall for a common-wealth to vent store of their com-
modities, at such lower, but moderate rates, as both manufactors
1 Mun, 0. c, p. 13.
2 H a 1 e s, 0. c. p. 89.
3 Cunningham, 0. c. Modern Times, p. 216, note 2.
BXVII.,1 The Balance of Trade. 139
and merchants may live thereby, though with Jesse profit, than
to sell a iesse qnantitie at greater rates, the profit of the greater
parcell in the whole exceeding that of the lesser, especially so many
men more being set a work untiU we have other employment for
them.)) 1 According to Roberts »traffike» »in?icheth the in-
habitants of a conntrey in the generall, by setting arts-men on
worke, by imploying the poore, by furthering and incouraging of
all professions whatsoever; for every arts-man, workeman and
artificer, is conducible one way or other to traffike, and every
hand is set on worke, where a well governed commerce is observed
to be driven, and exercised by judicious and skillfull merchants*). 2
G h i 1 d asserts: » Where a great trade is driven, especially where
much shipping is employed, whatever becomes of the poor mer-
chant, that drives the trade, multitudes of people will be certain
gainers, as his Majesty, and his officers of custom, besides ship-
wrights, butchers, brewers, bakers, rope-makers, porters, seamen,
manufacturers, carmen, lightermen, and all other artificers, and
people that depend -on trade and shipping, which indeed, more
or loss, the whole kingdom does. 3 According to England's
Great Happiness: »The honest way that finds most
employment and gets most money, is sure the best for any nation.» 4
And Pollexfen is of the opinion that »the safest way for a
nation to enrich its self is to have many people, and many materials;
for games made by a large trade, may continue in spite of all
opposition, but gaines made by a high price or small trad e,
not like to endure; and to the nation much better to have the gains
arising by t r a d e, divided amongst many, then few». 5
On the basis of the passages quoted above, we cannot but
come to the evident conclusion, ♦ that mercantile writers of the
seventeenth century did not desire only ;i favourable balance,
1 R o b i n s o n, o. c, pp. 55 — 6.
-Roberts, o. c, p. 110.
3 Child, o.C, p. 178.
4 England's Great Happiness. Early Engl. Tracts, p 262.
5 Pollexfen, A Discourse of Trade, p. 5i.
140 Br. Suviranta. B XVII,*
but, at the same time, also »a big balance», or »a great traded, as
Child put it. Besides a large profit, a large sale was wanted. l
This request for a »big» balance, induced mercantile writers
sometimes to recommend exportation of English commodities,
even if the return should consist of things more or less undesirable.
Such speculations on foreign trade, throwing special light on an
important characteristic of mercantile mentality, are of more
than usual interest. Thus Mini writes: »A11 kind of bounty
and pomp is not to be avoided, for if we should become so frugal,
that we would use few or no forraign wares, how shall we then
vent our own commodities? what will become of our ships, mariners,
munitions, our poor artificers, and many others? doe we hope
that other countreys will afford us money for all our wares, without
buying or bartering for some of theirs?» 2 According to Child,
»If we would engage other nations to trade with us, we must re-
ceive from them the fruits and commodities of their countries,
as well as send them ours.» 3 But on this point, Petty is the
most explicit: »As for prohibition of importations, I say that it
needs not be, until they much exceed our exportations. For if
we should think it hard to give good necessary cloth for debauching
1 This aspiration found perhaps its most advanced expression in a
passage of Petty, where he proposes that the wealth of every nation
consists chiefly in the share which they have in the foreign trade with
the whole commercial world and where the advantage of trade, is estim-
ated by considering the volume of exports as well as of imports. (Poli-
tical Arithmetick. Writings, I. pp. 295 — -7.) Lord Edmond Fitz-
maurice has pointed out that Petty saw »that the wealth of a
country did not consist — — in the value of the exports exceeding
that of the imports and the exporter gaining the difference in
hard coin: but the value of the trade of any particular country was, on the
contrary, to be ascertained by adding the values, so far as they could be
ascertained, of the imports and exports together, not forgetting to take
into account the value of the payments made for freight and seamen's wages
and the value of cash payments received from abroad* (The Life of Sir Wil-
liam Petty, p. 199).
2 M u n, o. c, p. 81.
3 Ghil d, o. c, p. 190.
B XVII 2 The Balance of Trade. 141
wines, yet if we cannot dispose of our cloth to others, it were better
to give it for wine or worse, then to cease making it.* 1
Thus, foreign commodities were to be bought, not because
they were wanted (for just the contrary was the case e. g. with
the »debauching wines») but because only by that means could
English products be sold abroad; not consumption, but production
was the factor these writers were primarily concerned with. Such an
attitude was, at all events, far remote from the view that the service
of foreign trade consisted in supplying of gold and silver, ami
In this connection some attention must be paid to a slow, but
continual change in the mercantile point of view, a change of the
greatest importance for the right understanding of the balance
of trade theory. C u n n i n g h a m has dealt with this remarkable
change in the following passage. After having pointed out that
in the earlier part of the seventeenth century, »the general balance
served to indicate how much of the precious metals the king might
hoard in any given years without withdrawing money from circul-
ation)), he continues: »In the latter part of the Stuart period and
during the greater part of the eighteenth century the calculation
of the balance of trade began to attract attention from another
point of view. It was felt to be important for public men not only
to know that the volume of our trade was increasing, but to see
that this increased commerce was reacting favourably on the
industry of the country. The examples of Spain and Portugal
had made it clear that an enormous expansion of colonial and
commercial enterprise was compatible with the decadence of the
agricultural and industrial life of the mother country; wdiereas,
in the case of Holland, expansion abroad had called forth incre sed
Vitality at home. Just as the men of the day asked not merely
about the numbers of the population, but also took account of
the opportunities of employment, so they endeavoured to use the
1 P e t t y, A Treatise of Taxes. Writings, I. p. 60.
142 Br. Suviranta. B XVII,2
balance of trade as an index which might show how the commerce
of the country was affecting its industry. To what extent did it
serve the great purpose of affording a vent for our surplus, and so
increasing the demand for labour, or to what extent did it bring
foreign competition to bear in the home market, and thus diminish
the opportunities of native workmen?» l
The account which Cunningham gives in this passage of the
change taking place in the function ascribed to the balance of
trade, is not quite correct. "We have seen above that the theory
of the balance of trade was from the very beginning much more
than a mere formula on how gold and silver were to be procured.
The very first expounders of balance of trade principles took
account of the question how the commerce of the country was
affecting its industry, only following in this traditional lines of
But that a remarkable transformation of the balance theory
actually took place at the end of the seventeenth century, is not
to be denied. The real course of events appears from the following:
When the theory of the balance of trade was first expounded
its leading idea was the question how gold and silver wnv
to be procured. The benefit of any trade was judged from the
point of view of, whether it ultimately tended to increase or
diminish the stock of these metals. Were the latter the case, no
excuse could be advanced for carrying on such a »losing» trade.
This principle was put clearly by M u n : »If the trade was un-
profitable, let it be suppressed; if not, let it be supported and
countenanced by some public declaration.)) 2
But little by little, the other great principle of the balance of
trade, the labour principle, the care for procuring employment
to labour and for extending the industry and commerce of Eng-
land, began to gain in relative importance over the governing
money principle. The precious metals, however, remained, as a
1 Cunningham, o. c. Modern Times, p. 396.
2 Mun, Petition and Remonstrance. Cf. H e w i n s, o. c, p. 62.
B XVII, 2 The Balance of Trade. 143
rule, the chief criterion of an advantageous trade until the end
of the seventeenth century. 1
With the eighteenth century the situation, however, becomes
changed. The labour principle appears now more and more as
the criterion by which the benefit of foreign trade is to be judged.
the money principle appearing often as a mere afterthought. The
old balance of trade theory was, indeed, in a dying condition.
Already Mercator and the British Merchant were,
generally, proceeding on new lines. Let us only listen to Mer-
cator' s assertions: »Were it true, as these people say, that
we lose great sums by the ballance of commodities between the
nations, which yet is manifest we do not, yet even with that loss,
were we to suppose it true, we were better with the trade than
without it, considering that at the same time we keep at home
our goods and our ships.
I shall explain my meaning thus: suppose we sold four hundred
thousand pounds a year to France, in English manufactures, or
any other sum, let them take it as they will, a certain sum for an
uncertain, and took back from France eight hundred thousand
pounds value, in the produce and manufacture of that kingdom,
yet may we be gainers by this trade; and it may be so, that it were
better for us to carry on this trade than not.
First, the making and venting of four hundred thousand pound
sterling in manufactures, is the employ and subsistence of a pro-
digious multitude of poor; whereas the import of the foreign goods
being a superfluous expence, goes out of the hands of but a few;
and it were better to abate a hundred thousand pound a year in
1 The following passage of the Britannia Languens, in which
»profits» appear only as a secondary thought, forms a rare exception in
seventeenth century mercantile literature; the author charges companies
with mischievous profit-hunger: »These companies having also mono-
polies on these forreign natives with whom they trade, may set arbit-
rary prizes upon them, for our home-manufactures exported; and will get
more, by selling a little very dear, then by selling much more at moderate
profit* (Early Engl. Tracts, p. 335).
144 BR. &UVIRANTA. B XVII.a
the publick ballance, than not export four hundred thousand
pound a year in manufactures. » x
This passage, though representing an advanced opinion, reflects
the attitude of many economists of the eighteenth century. When
we mention De Foe, Berkeley, John Smith, Tucker
and S t e u a r t, we have mentioned the chief supporters of this
reformed balance of trade theory. Tucker comes, indeed, to
give the theory even a new name: »In a word, where the greater
numbers are imployed, there lies the ballance; — such a ballance,
I mean, as only deserves public regard: The ballance of
industry; for money without industry, is an hurt, not a
These considerations have put beyond doubt that.it was not
the introduction of any new labour principle by which a change
in the balance theory was brought about. As a matter of fact,
»the balance of industry) of which Tucker speaks, was potentially
present already in M u n' s England's Treasure by Forraign Trade,
though holding only a subservient place. Indeed, the change was
actually called forth by the fact that the relative importance of
the two great principles of the balance of trade, the money prin-
ciple and the labour principle, underwent a change. As time ad-
vanced, gold and silver were rapidly losing the peculiar position
which they had held in the age of early capitalism, a position of
which an analysis has been given in earlier parts of this study.
With the decline of the money principle, the rival principle, of
course, automatically gained in importance. But that was not
all; the labour principle itself grew in vigour all the time. England
was energetically developing from an agricultural to an industrial
country. The manufacturing interest grew stronger and a keen
competition arose with foreign industries. The balance theory
came, naturally enough, to be more and more a defence of pro-
tectionism. The cry being: Employment for labour!
1 M e r c a t o r, Nr. 48.
2 Tucker, The Elements of Commerce, p. 103.
B XVI I,-. The Balance of Trade. 145
These short remarks suffice, perhaps, to characterize the change
in the function ascribed to the balance of trade which took place
at the end of the seventeenth century and during- the first part
of the eighteenth. A closer examination falls outside the specific
object of the present study. It was only thought necessary to
refer to this reformation of the balance of trade theory in order
to get a correct view of the relative importance of the factors of
which the theory was composed.
The F u n c t i ci n of I m p o r t.
Import signified for seventeenth century economists, in the
first hand, import of gold and silver. Other items of import played
a less conspicuous part in mercantile considerations, and when
account was taken of them, it was often in a negative sense, for
the purpose of devising preventives 1 of such importation. This
prevailing attitude of mercantilism has done its share in propagat-
ing the notion that mercantile writers regarded gold and silver
as the only wealth, or, may be. the only capital, and that the favour-
able balance of trade was treated as synonymous with a balance
of production over consumption. 1
In order to obtain a fair judgment of the mercantile conception of
import, account must be taken of the state of commerce in the
seventeenth century. Now, even a most superficial survey of the
conditions then prevailing, demonstrates that the nature of im-
portations differed fundamentally from what we customarily
understand by import. England was in the age of early capitalism
in a high degree independent of the things procured by foreign
trade (gold and silver excluded); being still a country exporting
corn, and her chief industry, the woollen manufacture, being
1 H e y k i n g, for instance, charges mercantilists with having held
money alone as capital, since they did not perceive that a consumption of
foreign goods tends often indirectly to increase the productive powers of
the nation, so that the. original expenditure may ultimately be fully com-
pensated by an extended production (O. c, p. 74).
146 Br. Suviranta. B XVI 1 ,2
supplied with raw material from the home market, she was almost
self-sufficient. Only a smaller part of her import consisted of
indispensable necessaries and raw materials, such as tar, salt, timber,
etc. »Exchange between nation and nation of the bulky articles
which constitute the necessaries of life is a thing which has
grown up with modern facilities of transport. In the seventeenth
century the articles other than bullion imported into England
were mostly of a somewhat insignificant character. Most of them
were superfluous, and many deleterious.*) 1 Silks, furs, fine cloth,
wines, spices made a great show among the imports.
Seen against this background of historical conditions, the mer-
cantile attitude of indifference or direct hostility towards the im-
portation of foreign goods finds its explanation. For it makes,
of course, a vast difference whether imported goods consist chiefly
of luxuries, or indispensable necessaries of life and capital goods.
In the opinion of Adam Smith, if the proprietors of gold
and silver »employ it in purchasing foreign goods for home con-
sumption, they may either, first, purchase such goods as are likely
to be consumed by idle people who produce nothing, such as foreign
wines, foreign silks. &c; or. secondly, they may purchase an
additional stock of materials, tools, and provisions, in order to
maintain and employ an additional number of industrious people,
who re-produce, with a profit, the value of their annual con-
Si* far as it is employed in the first way, it promotes prodigality,
increases expence and consumption without increasing production,
or establishing any permanent fund for supporting that expence.
and is in every respect hurtful to the society.
So far as it is employed in the second way, it promotes industry;
and though it increases the consumption of the society, it provides
a permanent fund for supporting that consumption, the people
who consume re-producing, with a profit, the whole value of their
annual consumption.') 2
1 C a n n a n, Theories of Production, p. 3.
2 Adam Smith, o. c, I. pp. 277 — 8.
B XVI 1,2 The Balance of Trade. 147
The great critic of mercantilism appears in this passage as a
vindicator of the theory of the balance of trade. For in the seven-
teenth century the greater part of the expense on foreign commod-
ities was, indeed, according to the passage of Smith »in every
respect hurtful to the society*. That was just what the mercantile
writers thought it to be! These writers were only not generally
able or did not care to express their opinion so precisely as Smith
did. Instead of expressly stating, »We do not want foreign commod-
ities except those of real benefit for the progress of economic
life», they argued in their generalizing way, »We do not want for-
eign commodities*), and the unstated reason was, »Because they
mostly consist of luxuries and such consumable commodities which
tend to increase consumption without increasing production*). In
not a few mercantile expositions, indeed, may be found a view clearly
discriminating between what were regarded as necessary and what,
unnecessary commodities to be imported.
Thus John Hales writes: »I mervell no man taketh heade
unto it, what nombre first of trifles commeth hether from beyonde
the seas, that we might ether clene spare, or els make them with
in oure owne realme», such as: »glasses, as well lookinge as drinckinge,
as to glasse windowes, dialies, tables, cardes. balles, puppetes,
penhornes, inckehornes, toothepikes, gloves, knives, daggers,
pouches, broches, agletes, buttons of silke and silver, erthen potes,
pinnes, poyntes, haukes belles, paper both whit and browne, and
a thowsand like thinges.» x On the other hand, Hales approves
of importing iron and salt as well as »tar, rosin, pitch, oile, steile». 2
Lord Bacon writes: »In the importation of foreign commodities
let not the merchant return toys and vanities, as sometimes it
was elsewhere apes and peacocks, but solid merchandise first for
necessity, next for pleasure but not for luxury.)) 3 Malynes
repudiates the giving the good commodities, or even gold, silver
and precious things, »for beades. bels, knives, looking-glasses, and
1 H a 1 e s, o. c, p. 63.
2 Hales, o. c, pp. 61 — 2.
3 C f. H e y k i n g, o. c, p. 66, note 1.
148 Br. Suviranta. B XYII, 2
such toyes and trifles»; on the other hand, England shall with ad-
venture make return »in very needfull and necessarie commodities
of pitch, tar, deales, clapboords, cables, ropes, and such like». l
Missel den asserts that the »general remote cause» of the
want of money is the great excess in consuming foreign commodities
»which prove to us discommodities, in hindering us of
so much treasure, which otherwise would bee brought in,
in lieu of those t o y e s»; and he enumerates as such »toys»: wines,
raisins, silks, sugar and tobacco, etc.; »all which are of no necessity
unto us, and yet are bought with ready money». 2
Roberts points out that »some have also eased all raw
materials, that have beene imported, being commodities, tending
to set the poore subjects on work, as is cotten, hempe, yarne, flaxe,
woolls, raw silke, and the like; and all these practised in some
places, have met with a happy successe, which hath both inriched
the subject, set the poore native artists on worke, and proved the
maine furtherer of the commerce of that kingdome, where the
same hath been daily, and industriously put in use and practised*.
He further maintains that »graine, butter, cheese, and all provisions
for food, should every where be freely receaved», and that also
»all ammunition for the defence of our countrey are ever
to be receaved». 3 Lastly, the following instructive passage from
the Britannia L a n g uens may be quoted: »Our im-
portations must as necessarily be increased, both by the decay
of our own former manufactures at home, and by our modern
gawd'ry and affectation of foreign goods; and as our trade from
port to port hath become more impracticable to any advantage, the
exporters of our remaining manufactures and other home-commodities,
must either come back empty, or else must freight themselves
homewards with such consumptive foreign commodities, as for
gawdry, novelty, cheapness, or lyquorislmess, will dazle. tempt
and bewitch our people to buy them; in which course of trade our
1 Malynes, A Treatise of the Canker, pp. 68, 71.
2 M i s s e 1 d e n, Free Trade, pp. 11 — 12.
3 Roberts, o. c, pp. 75 — 7.
B XVII.2 The Balance of Trade. 149
merchants may gain considerable proportions of our remaining
treasures as long as there is any in the nation. Nay, rather than
sit idle, they will, and do freight themselves outwards with meer
ballast and bills of exchange (by which the importation
of foreign bullion or money is prevented): or if bills of exchange
cannot reasonably be had (as they usually cannot to those countries
where we are over-ballanced in trade), then they export moiiy
and bullion and buy and import consumptive goods which are
spent at home; which kind of trade deserves rather to be called
foreign pedling, than merchandise. » A little later the author
asserts that »this consumptive importing trade must be of very
fatal consequence in its nature*'. 1
It has appeared from passages quoted above that importations
were detested on account of their »consumptive» character; they
were believed to further, primarily, unnecessary consumption and
not productive activities of the nation, and to interfere with the
employment of labour. But as far as raw materials and commod-
ities supplying elementary wants of the nation actually were in-
cluded m the importations, not only was the attitude of mercant-
ile writers not hostile, but the import of those commodities was
regarded to be in the true interest of the nation. This attitude
was only natural and in accordance with the general principles of
mercantilism, as the import of these commodities, especially of
raw wares, ultimately tended to improve the general balance of
trade. This point of view was distinctly stated in the following
passage of the Britannia L a n g u e n s : »If forreigners
will vend their r a w materials of manufacture, it is necessary,
or highly convenient for a nation to import them, and put them
into manufacture at home; after which, this manufacture may be
either exported and sold for much more than the materials cost,
or being used at home, will prevent the necessity of import-
ing the like from abroad, by which the nation will save to
the value of the manufacture. » 2
1 Britannia Languens. Early Engl. Tracts, pp. 372 — 4.
2 Britannia Languens. Early Engl. Tracts, p. 299.
150 Br. Suviranta. B XVII.s
This trend of thought seems to have been further developed,
at the end of the century, in the direction that certain other
categories of commodities besides gold and silver came directly
to be included in the idea of a favourable balance of trade. D : A v e-
n a n t. for instance writes: »We agree so far with Mr. Pollexfen,
that when we speak of trade in general, the gain is so much only
as the nation does not consume of the imports; but either lays
up in commodities, in specie, or converts into money, or some
such adequate treasure.") 1 Another passage of the same author
runs as follows: »Mr. King observes, that by how much the nation
does not consume of its imports, but either lays up, or encreases
the stock of gold or silver, or other adequate treasure, or of durable
commodities in specie; by so much, at least, does the nation gain
by foreign trade, besides all other advantages of navigation. »-
And Locke proposes: »Upon examination it will be found,
that our growing rich, or poor, depends not at all upon our bon ow-
ing upon interest, or not; but only, which is greater or less, our
importation, or exportation of consumable commodities. » 3
A current running against the predominant idea of the function
of foreign trade, was the vision of an international division of
labour, hints of which may now and then be found in early mer-
cantile l'terature. Thus Hales assorts that »God hath ordeiiiKl
that no countrie shoulde have all commodities; but that, that
one lacketh, an other bringes furth, and that, that one countrie
lacketh this yeare, a nother hath plentie thereof the same yeare,
to the entent that one male know they have nede of a nothers
healpe, and therby love and societie to grow emonst all the more». *
Malynes writes in a similar vein: »God caused nature to
distribute her bmolits. or his blessings to severall climates, supply-
ing the barennesse of some things in our countrey, with the fruit-
1 D'Avenant, Discourses on the Public Revenues. Works, II. pp
2 D'Avenan t, An Essay upon Probable Methods. Works, II. p. 273.
3 Locke, Considerations. Essays, p. 567.
4 H al e s, o. c, p. 61.
B XVI 1, 2 The Balance of Trade. 151
fulnesse and store of other countries, to the ende that entercfrange-
ably one common-weale should live with another.* x Mi s se J de n
has given to the same idea a fine expression: »And to the cud
there should be a commerce amongst men, it hath pleased
God to invite as it were, one country to traffique with another,
by the variety of things which the one hat h, and the o t h e r
hath not: that so that which is wanting to the o n e, might
be supplied by the o t h e r, that all might have sufficient. Which
thing the very w i n d e s and seas proclaime, in giving passage
to all nations: the Wi rides blowing sometimes towards one
country, sometimes toward another; that so by this divine
i u s t i c e, every one might bee supplyed in things necessary for
life and maintenance. » 2 D'Avenaht expresses the mutual
dependency of the nations as follows: »The various products of
different soils and countries is an indication, that providence
intended they should be helpful to each other, and mutually supply
the necessities of one another. And as it is great folly to compel
a youth to that sort of study, to which he is not adapted by genius
and inclination; so it can never be wise, to endevour the introduc-
ing into a country, either the growth of any commodity, or any
manufacture, for which, nor the soil, nor the general bent of the
people is proper: and as forced fruits (though they may look fai^ to
the eye) are notwithstanding tasteless and unwholesome; so a
trade forced in this manner, brings no natural profit, but is pre-
judicial to the public.)) 3
These passages are of particular interest as early forerunners
of the free trade doctrine. But in regard to them may be justly
1 M a 1 y n e s, A Treatise of the Canker, p. 6.
2 M i s s e 1 d e n, Free Trade, p. 25.
3 D' A v e n a n t, An Essay on the East India Trade. Works, I. pp.
104 — 5. In Pollexfen we find the following passage: »Most trades
are carried on between nations by a permutation of commodities, as a mutual
conveniency, for the supplying each the other with what they want; pro-
vidence having so ordained that different nations may abound with different
commodities (A Discourse of Trade, p. 59).
152 Br. Suviranta. B XVII.a
remarked that they exerted at their time little, if any influence
upon the balance theory, being of more or less occasional character
and lying wholly apart from the highway of mercantile thought.
We have now a picture of the function of foreign trade: Export
meant a necessary outlet for home products, consequently more
employment and, ultimately, bigger population. In import, gold
and silver were (together with raw materials) the most desirable
commodities, for instead of tending to lessen employment at home,
or to induce people to »debauchery», as was the case with the bulk
•of imported goods, they were performing, as standards of money
and stores of value, the most essential economic functions. Writers
of the age of early capitalism may, therefore, well be excused for
having thought that the main function of import was to introduce
gold and silver rather than articles of luxury and other commodities
of questionable value, and for calling a balance of gold and silver
»favourable» above any alternative balance of trade.
A favourable balance of trade was, thus, to further economic
progress. This role was, without doubt, in itself very important
indeed. But, the question now arises, were the services which a
favourable balance rendered to society, after all, of such a uni-
versal value as to justify the exclusive attention paid to it by
mercantile economists above all other questions of economic
life? Or, was it not rather the case that these economists had,
by making all factors of production subservient to a single factor,
the balance of trade, to a certain degree lost the sense of pro-
Take, for instance, the question of land as an economic category.
Land was not paid nearly so much attention, as'the other agents
of production, or, as industry and commerce. Nowhere in the
economic literature of the seventeenth century was emphasis given
to the economic value of land, in any way comparable to that
given later by p h y s i o c r a t i c economists, or, indeed, already
B XVI 1,2 The Balance of Trade. 153
by Vanderlint, the early forerunner of physiocratism, who
founded his system upon the productivity of land: »A11 things,
that are in the world, are the produce of the ground originally;
and thence must all things he raised. The more land therefore
shall be improv'd and cultivated, etc. the greater will the plenty
of all things be, and the more people will it also imploy.* 1
And then there is the question of foreign trade and home trade.
The treatment of them was all but well-balanced. Sir Dn d 1 e y
N o r t h already regarded it as necessary to protest against
assertions »that the home trade signifies nothing to the enriching
a nation and that the increase of wealth comes out of forreign
trade», by pointing out that the foreign trade cannot subsist with-
out the home trade. 2 And it makes the impression of a real eco-
nomic discovery when the British M e r c h a n t comes
forward with the assertion that home trade is more important
than foreign trade. »A11 our annual exportations to foreign countries,
both of our own and foreign goods and merchandizes, do not amount
to seven millions; and therefore since our own people are a market
for our own product and manufactures to the value of forty —
two millions yearly, all our foreign markets join'd together are
not one sixth part of that value. » 3
The apparent fallacy of mercantile argumentation was pointed
out by a later mercantilist, who was already emancipated from
the old theory of the balance of trade, in an able and. convincing
passage: »Some figuring to themselves a circle of commerce, which
takes in the several interests of the community, fix upon f o r-
e i g n trade, as the first point; as if there was any such thing
as first, or last, in a circle, or that by striking out any one point,
the circle would not be destroyed. But figurative expressions,
it may be said, are not to be taken strictly; which tho' it be true,
1 Vanderli nt, Money answers all Things, p. 6.
2 N o r t h, o. c, Econ. Tracts, p. 28. This statement of North has,
characteristically enough been treated as a challenge to a »cardinal mercantilist
idea.» (Haney, History of Economic Thought, p. 93).
3 British Merchant, I. p. 167.
154 Br. suviranta. B XVII.2
and a circle is no improper emblem in this case; yet to consider
the body politic of the nation under the similitude of a plant, or
a tree, is at least as proper; and then land will undoubtedly be
acknowledged as the root and the stern. Or again, if we speak of
the community, as a fabric, — — the land will be allowed to be
the foundation and chief corner-stone. And therefore, to think
of enriching tne community with trade; by exposing the land-
owners particularly to hardship and lose, is as in a p 1 a n t i 11 g,
to fix the branches in the earth, instead of the root; in build-
i n g, to attempt the upper story first. It is in short, to think
of thriving by trade, w i t h u t c n s t m e r s, or by customers,
who are without money.*) 1
These lines of argument have demonstrated that mercantilism,
at least that of the seventeenth century, did not offer any well-
balanced theory of production. It is. however, not quite fair to
use that argument as criticism of the balance theory, for such a
criticism would be to expect to find what never was intended to
be given. For as has appeared in the course of this study and has
also been expressly stated on several occasions, mercantilists did
not generally care for nicely balanced'economic principles. Pamph-
leteers as they mostly were, they were primarily pursuing certain
practical ends; They were in search of a working plan of economic
progress, the crucial question being: How to improve the economic
state of the country?
Now, in such a working plan of economic progress many things
appeared, necessarily, in another light and order than would have
been the case in an »Inquiry into the Nature and Causes of the
Wealth of Nations*. The inquiry being dynamic, stress came to
be laid, of course, not upon the nature of wealth, but upon
the conditions f production. It has. indeed, appeared
above, that not so much wealth as the agents of production and
money, were primarily described as »riches» in mercantile literature.
1 John Smith, Chronicon Rusticum, I. pp. 334 — 5.
B XVII,2 The Balance of Trade. 155
The practical problem to be solved, consequently, was that of
preserving and strengthening the productive powers of the nation,
»the procuring causes of riches». 1
And so, the particular agents of production came to be ascribed
a very unequal importance. Thus land, according to John ►Smith
»the root and stem». was here of less consequence than the other
agents of production. And that for the simple reason that there
did not exist any scarcity of land, nor could it be taken away by
any ill-will or cunning policy of foreign nations. Plenty of land
lay ready for use, if only other agents of production were procur-
able in sufficient amount. M u n asserted: »And indeed our wealth
might be a rare discourse for all Clristendome to admire and fear,
if we would but add art to nature, our labour to our
natural means.)) 2 And Child said: »It is evident that,
this kingdom is wonderfully fitted by the bounty of God Almighty,
for a great progression in wealth and power: and that the only
means to arrive at both or either of them, is to improve and ad-
vance trade. » 3
The reality of production depended upon a sufficient
supply of the other agents of production, labour and capital, and
of money. The foundation of labour was the »stcck» of the people
This »stock» of the people could be increased and improved in
quality by a wise economic policy; therefore great attention was
paid to this question in mercantile literature Different expedients
were recommended and applied for that purpose. Here it is only
of interest to note that the principles of the balance of trade came
thereby to play an important role. Manufacture and commerce
were given precedence above agriculture. This point of view was
put down very distinctly by Mu n : »In all things we must endeavour
1 »Whatever does advance the value of land in purchase, improve the
rent of farms, encrease the bulk of foreign trade, multiply domestick artificers,
encline the nation to thriftiness, employ the poor, encrease the stock of
people, must be a procuring cause of riches (Child, o. c, p. 46).
2 M u n, o. c, p. 100.
3 Child, o.c, Pref.
156 Br. Suviranta. B XVI 1,2
to make the most we can of our own, whether it be natural
or artificial; and forasmuch as the people which live by
the arts are far more in number than they who are masters of the
fruits, we ought the more carefully to maintain those endeavours
of the multitude, in whom cloth consist the greatest strength and
riches both of king and kingdom: for where the people are many,
and the arts good, there the traffique must be great, and the countrey
rich But what need we fetch the example so far, when we
know that our own natural wares doe not yield us so much profit
as our industry? .For iron oar in mines is of no great worth, when
it is compared with the employment and advantage it, yields being
digged, tried, transported, bought, sold, cast into ordnance, muskets,
and many other instruments of war for offence and defence, wrought
into anchors, bolts, spikes, nayles and the like, for the use of ships,
houses, carts, coaches, ploughs, and other instruments for tillage.
Compare our fleece-wools with our cloth, which requires shearing,
washing, carding, spinning, weaving, fulling, dying, dressing and
other trimmings, and we shall find these arts more profitable than
the natural wealth. » l In the Britannia Languens we
find the following passage: »Manufacture and a great forreign
trade, will admit of and oblige an increase of people even to infinity:
And the more the manufacturers increase, they will the more
enrich one another, and the rest of the people; It may then be
1 M u n, o. c, pp. 17 — -8. — Here may be pointed out as an interesting
incident that M. Joseph Caillaux, the ex-Prime Minister of France,
has recently pleaded for manufacture above agriculture, just in the spirit,
of mercantilism, as a way to bigger population: — As an agricultural country
France cannot hope to maintain a population even approximating that
which industrial countries can support on the food they import in exchange
for their manufactures. If France is to have as many sons as she thinks
necessary for her safety, she must submit her fair face to the disfiguring
process of industrialisation. — To this the Manchester Guardian,
which relates it, adds: »The logic of M. Caillaux is irrefutable* (M a n-
Chester Guardian Weekly, The Population of France. 1923,
VIII, p. 163).
B XVI 1,2 The Balance of Trade. 157
proper to inquire how manufactures of a nation may be
increased and improve d.» 1
As to capital, it has already been pointed out that the
artificial implements which were in use required no special attention,
as they were, as a rule, inexpensive and easily procurable by wadd-
ing labour to the natural means». Only one form of capital was
in a very different position: ships. But then, shipping was duly
in the foreground of the discussions and the current opinion was
that it was best taken care of by taking care of the expansion of
If we, lastly, consider the case of m o n e y, it was admittedly
so far in a peculiar position that gold and silver could not
be had at home. But as these metals were wholly indispensible
for progressive economic life as well as. for political safety, they
came naturally to play a foremost part in the practical consider-
ations of mercantile economists. The question above all other
questions came to be: How to procure gold and silver from abroad?
And the only practicable answer to be found: by a favourable
balance of trade!
Seen from this point of view, the fixing upon foreign trade as
the first point in the circle of commerce was not so absurd as John
Smith thought, for as stated by the Britannia L a n g u e n s :
»The home trade in every nation hath dependance on the fofreigp
trade: if a nation hath no gold and silver-mines within its own
territory, there is no practicable way of bringing treasure
into it (in times of peace) but by forreign trade: And if such a
nation be not enriched by imported treasure, its home trade can
only be managed by e x c h a n g e of go o d s f o r g o o d s.» '-
Nor did it mean fixing the branches in the earth, instead of the
root, or attempting to build the upper storey first, when manu-
facture was preferred before agriculture. In a working plan of
economic progress that was the practicable order; the increase
1 Britannia Languens. Early Engl. Tracts, p. 302.
2 Britannia Languens. Early Engl. Tracts, pp. 28 ( .» — 90.
158 Br. Suviranta. B XVII, 2
of labour, capital, and money lead to improved and extended
agriculture ; and not the converse. This point of view was stated
by D 1 A ven ant as follows: »For the future, as we grow in
riches and as our people encrease, those many millions of acres
which now are barren, will by degrees most of them be improved
and cultivated; for there is hardly any sort of ground which numbers
of men will not render fertile.* * Here may also be quoted an
interesting passage of Lock e in which is pointed out that
only by expansion of trade and introduction of money economy,
was the necessary spur given to agricultural improvements. The
passage runs as follows: »As different degrees of industry were
apt to give men possessions 111 different proportions, so this invention
of money gave them the opportunity to continue and enlarge
them. Where there is not something both lasting and scarce,
and valuable to be hoarded up, there men will not be apt to en-
large their possessions of land, were it never so rich, never so free
for them to take; for I ask, what would a man value ten thousand
or a hundred thousand acres of excellent land, ready cultivated,
and well stocked too with cattle, in the middle of the inland parts
of America, where he had no hopes of commerce with other parts
of the world, to draw money to him by the sale of the product?
It would not be worth the enclosing, and we should see him give
up again to the wild common of nature whatever was more than
would supply the conveniences of life to be had there for him and
his family.)) 2
1 D' Ave riant, An Essay upon the Probable Methods. Works, II.
2 Locke, Of Civil Government, pp. 34 — 5. This point of view was
stated with greater accuracy by S u s s m i 1 c h, the celebrated German
statistician, in the following interesting passage: >>S6 richtig es ist, dass der
Ackerbau den Fabriken insoweit vorzuziehen, dass die erste und vornehmste
Sorgfalt auf dessen Beforderung gerichtet sein muss, so ist es doch ebenso
gewiss, dass die moglichste Ve'rbesserung des Ackerbaues nicht eher erfolgen
konne, als bis nebst din nothigsten Fabriken und Manufakturen auch der
Handel befordert worden. Ohne diese wird der Ackerbau immer bey dem
mittelmassigen stehen bleiben. Je mehr inlandische Produkte in den Fabriken
B XVI 1,2 The Balance of Trade. J 59
The best evidence of the relative practicability, at least, of
this »system» of mercantilism, in which, the balance of trade appear-
ing as a criterion of the state of economic life, foreign trade was
valued above home trade, and manufacture and trade, above
agriculture, is the fact that there is no proof, that, in England,
home tradp and agriculture were impaired by the system. The
contrary seems, rather, to have been the case. 1 We have already
in an other connection pointed out that the increase of population
and expansion of industry and commerce tended to further agriculture
by increasing effective demand for land and the products thereof.
De Foe has described in an interesting passage how these results
were brought about: »Trade has been a principal agent even in the
improvement of our land: as it has furnished the money to the
husbandman to stock his land, and to employ servants and la-
bourers in the working part; and as it has found him a market for
the consumption of the produce of his land, and at an advanced
price too, by which he has received a good return to enable him
to go on.
The short inference from these premises is this: as by trade
the whole kingdom is thus advanced in wealth, and the value of
lands, and of the produce of lands, and of labour, is so remarkably
increased, why should we not go on with vigour and spirit in trade,
verarbeitet werden, desto mehrere werden gebaut. Die Vermehrung der
Consumtion vermehrt auch den Getreidebau. Und es ist noch die Frage, ob
eine gute Agronomie eher werde stattfinden konnen, bis der Fleiss in jenen
Stticken gehorig befordert ist. Der Ackerbau in Engelland wilrde wol nie
so hoch gekommen seyn. wenn ihm der ausgebreitete Handel nicht zu Hiilie
gekommen wares (Quoted by S o m b a r t, o. c, II. pp. 940 — 1). S o m-
b a r t strongly emphasizes the dynamic viewpoint of mercantilism, maintain-
ing that physiocrats, by starting from agriculture, put, evidently, the cart
before the horse and made the effect the cause (O. c, II. p. 940). R o s c h e r
has also distinctly defended the mercantile point of view (Geschichte der
National-Oekonomik, p. 234).
1 It should be remembered that the economie policy of the day directly
fostered the interest of the agricultural producer. Gf. above, p. 90.
160 Br. Suviranta. B XVII,a
and by all proper and possible methods and endeavours, increase
and cultivate our commerce; that we may still increase and im-
prove in wealth, in value of lands, in stock, and in all the arts of
trade. Such as manufactures, navigation, fishery, husbandry, and,
in short, study an improvement of trade in all its branches. » 5
In understanding the balance of trade to be the criterion of
the state of economic progress, mercantilism differs from what
has been the current view at a later time; not a balance of trade,
but a balance of production over consumption has signified the
degree of prosperity of a nation. This view was clearly stated
already in the Lectures of Adam Smith: »It may be ob-
served in general that we never heard of any nation ruined by
this balance of trade. - - It is to be observed that the poverty
of a nation can never proceed from foreign trade if carried ou with
wisdom and prudence. The poverty of a nation proceeds from
much the same causes with those which render an individual poor.
When a man consumes more than he gains by his industry, he must
impoverish himself unless he has some other way of subsistence.
In the same manner, if a nation consume more than it produces,
poverty is inevitable; if its annual produce be ninety millions and
its annual consumption an hundred, then it spends, eats, and
drinks, tears, wears, ten millions more than it produces, and its
stock of opulence must gradually (go) to nothing. » 2
The difference between the mercantile and the liberal point
of view was not accidental, arising merely from confusion in thought,
but it was deep-rooted in the different character of these economic
systems. Liberals, starting from the question: What is the end
of economic activity?, answered: Producing wealth for satisfying
human wants, i.e. the ultimate end is consumption.
1 De Foe, An Humble Proposal. Works, XVIII, pp. 10—11.
2 A d a m Smith, Lectures, pp. 206 — 7. — S e 1 i g m a u says:
»Judged from the present point of view, the error of the Mercantilists lay
in confounding a balance of exports over imports with a surplus of production
over consumption (Principles, p. 117).
B XVI 1 ,2 The Balance of Trade. 161
Idam Smith said: 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.* 1 That maxim had,
however, not always been so perfectly self-evident: »But in the
mercantile system, the interest of the consumer is almost con-
stantly 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. » 2
This passage of Smith is, without doubt, to the point as show-
ing the fundamental difference between mercantilism and liberal-
ism. For true it is that in mercantile literature of England, in the
seventeenth century at least, production was not, as a whole,
regarded as the servant of consumption, and wealth brought into
relation with the material well-being of individuals. 3 Individuals
were mentioned in mercantilism, not as the fundamental cause for
industry, but generally as means to acquiring that wealth upon
which the economic and political strength of the country depended.
People represented, indeed, a »capital material*, which »being of it
self raw and indigested is committed into the hands of the
1 Adam Smith, The Wealth of Nations, II. p. 159.
2 A d a m Smith, ibidem.
3 Mercantilists did not, of course, overlook the services rendered by trade in
supplying elementary human wants. But these services were less esteemed
as increasing individual well-being than as being a practical necessity.
Adam Smith measured at the very outset of his »Wealth» the wealth
of a nation by the proportion which its produce bears to its population thus
c®nsidering that nation which was well supplied with all the necessaries and
conveniences for which it had occasion, to be a wealthy nation. (The Wealth
of Nations, I. p. 1). In the seventeenth century, the national wealth was
understood to be »the aggregate and not the average wealth, and to ge-
neral opinion in the first half of the eighteenth century the plan of creat-
ing an imaginary average individual as the representative of the nation
would have appeared strange and almost incomprehensible* (C anna n,
Theories of Production, p. 11).
162 BR. SUVIRANTA. BXVII.2
supreme authority; in whose prudence and disposition it is, to
improve manage, and fashion it to more or less advantage. » x
Only much later did it begin to dawn on some mercantilists that
»the number of people is both means and motives to industry*. 2
The logical consequence of the fact that the people were prim-
arily thought of as a capital material, was that consumption also
came primarily to be a servant of production, and not a means of
satisfying human wants. It was approved of if furthering, it was con-
demned if impairing the productive powers of the nation: — Money,
people, shipping, fishery, etc. The deciding rule was, that con-
sumption was injurious, if the stock of gold and silver was thereby
diminished, either directly by wasting money upon foreign super-
fluities, or indirectly by consuming home products which would
have possibly found a market abroad. Practically, in all other
cases consumption was regarded as beneficial. »Wealth» (in the
modern sense of the word) was readily sacrificed if the productive
powers of the nation seemed thereby to be supported, if labour
was employed, agriculture, fishery, shipping and other useful
economic activities promoted. That explains why home con-
sumption was not considered to impoverisch the nation, and why
a great trade was recommended even when the return consisted
of undesirable commodities. The following passage of Petty
gives, indeed, to this cardinal idea of mercantilism an admirably
concise and lucid expression: »As fos prohibition of importations,
1 say that it needs not be, until they much exceed our exportations.
For if we should think it hard to give good necessary cloth for
debauching wines, yet if we cannot dispose of our cloth to others,
it were better to give it for wine or worse, then to cease making
it; nay, better to burn a thousand mens labours for a time, then
to let those thousand men by non-employment lose their faculty
of labouring. » 3
1 Britannia Languens. Early Eng. Tracts, p. 458.
2 Berkeley, An Essay towards preventing the Ruin. Works, IV. p. 324.
1 Petty. A Treatise of Taxes. Writings, I. p. 60. Cf. also passages
quoted above, pp. 124—6 and p. 140.
B XVII, 2 The Balance of Trade. 163
These considerations have made it manifest that a balance of
production over consumption could not possibly appear to mer-
cantile writers as the first criterion of economic progress. Creation
of »wealth» was not regarded as the final object of production,
but only as a means to the further end: creation of productive
powers. A balance of productive powers was, accordingly, the
true criterion of economic progress. But this balance of productive
powers appeared to mercantilists in the shape of the balance of
trade, as has been shown in the course of this study. a This function
of the balance of trade, to which the economic progress of the nation
was considered subservient, was stated by M u n in the closing
passage of his famous treatise of foreign trade, as follows: »Behold
then the true form and worth of forraign trade, which is, the great
revenue of the King, the honour of the kingdom, the noble pro-
fession of the merchant, the school of our arts, the supply of our
wants, the employment of our poor, the improvement of our lands,
the nurcery of our mariners, the walls of the kingdoms, the means
of our treasure, the sinnews of our wars, the terror of our enemies.
For all which great and weighty reasons, do so many well governed
states highly countenance the profession and carefully cherish
1 It is not our task here to judge, whether mercantilism was right or
wrong in its view of the productive powers of the nation. That is a problem
arising out of mercantilism in general; we have been considering only the
importance of the favourable balance of trade in mercantilism. It may be noted,
however, that opinions seem to have varied on this point. Cunningham
has recognized the real fallacy of mercantilism in its relation to consumption:
»It was assumed, as an obvious maxim, that additional employment would
be furnished either by opening up new markets and thus securing a vent
for our commodities, or by stimulating consumption at home. Unsound doctrine
in regard to the consumption of wealth, rather than any confusion as to the
nature of wealth, appears to have been the most widely current economic
fallacy of the times (O. c. Modern Times, pp. 391 — 2). Sombart, on the
•other hand, is of the opinion that mercantilists were right in recommending
consumption of luxuries, as the development of capitalist industry was
thereby mightily furthered (O. c", II. p. 939. Cf. also Luxus und Kapita-
lismus, pp. 134 — 8).
164 Br. Suviranta. B XVII >2
the action, not only with policy to encrease it, but also with power
to protect it from all forraign injuries: because they know it is a
principal in reason of state to maintain and defend that which
doth support them and their estates. » x
M u n, o. c, p. 119.
Money economics and national economics form the character-
istics of the epoch of early capitalism: natural economics and local
economics were in decay; credit economics and world economics
being still insignificant, compared with their later expansion.
»The Theory of the Balance of Trade» was a natural child of
this age. (1) The economic services rendered by the precious metals
as stores of value and standards of money were of peculiar im-
portance. This importance was still further accentuated by the
discovery of the American silver mines. (2) In England, gold and
silver could be had only from abroad. And the only practicable
means of procuring them was a favourable balance of trade, since
other constituents of an international balance account were un-
important and not controllable. (3) In foreign trade, imports con-
sisted to a great extent of luxuries and other unnecessary commod-
ities; gold and silver, and raw materials, were the most desirable
form of importation; gold and silver represented, at the same time,
an effective demand for English products.
In such conditions, the question of the balance of trade came
necessarily, to play an important part. But mercantile speculations
on the balance question were never formulated as an e c p n o m i c
t he or y : in the strictest sense of the word. That would, indeed,
have been beside the point, since the mercantile literature generally
discussed practical and often very limited questions without show-
ing much interest in theoretical problems.
By reducing speculations on the balance of trade, to be found
in mercantile literature, from the rank of an economic theory to
166 BR. SUVIRANTA. B XV 11,2
that of a collection of practical experience and advice, we are able
to do mercantilists more justice. Instead of reproving them for
a theory, fallacious and insufficient, we may, on the contrary,
grant that we find in their writings much common sense and
also, often, fine theoretical judgment.
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