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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 


(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 
of language. 

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. 


Chapter Page 

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 

I. Introduction. 

The fourteenth century, the fifteenth and the first half of the 
sixteenth form in England a period of transition from feudal to 
capitalist society. 

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. 


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 
kingdom.» x 

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 
of Trade». 

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 
shippes.» l 

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 
credit.» 4 

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 
generally adhered. 

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 
thus repudiated. 

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, 
pp. 70—71). 

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. 
386, 388. 

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 


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 
of trade»? 

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. 


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 
British Merchant. 

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 
national emergency. 

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. 


»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 


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. 


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. 

p. 221. 

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. 


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. 


»>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 
of money. 

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 
p. 283. 

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 
time.» 1 

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: 















399 l 

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. 


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: 

1551—1570: 100 
1571—1602: 88 

1 Cunningham, o. c. Modern Times, pp. 169 — 70. 

B XVI 1,2 The Balance of Trade. 107 

1603—1652: 74 
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 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 
production, etc. 

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 

of Trade. 

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. 

as i—2. 

2 John Smith, Chronicon Rusticum, I. p. 413, note. 

3 Berkeley, The Querist. Works, IV. pp. 450, 582 


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 
nches.» 2 

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. 


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 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 
by them. 

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 
rather conservative. 

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. 


[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 
trade. »* 

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 
thereby lessened. 

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 
nothing else. 


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). 


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 
blessing.» 2 

These considerations have put beyond doubt 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 
foreign trade. 

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. 
p. 221. 

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). 


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. 

VI. Conclusion. 

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. 

Bibliographical Index. 

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— » — A Discourse Concerning Coining the New Money Lighter. 1696. 
Berkeley, George. An Essay towards preventing the Ruin of Great 

Britain [1721]. Works, ed by Fraser, IV. 1901. 
— »— The Querist [1735—37, 1750]. Works, IV. 
The Britannia Languens, or a Discourse of Trade. Early Engl. 

Tracts on Commerce, publ. by McCulloch. 1856 [1680]. 
The British Merchant; or, Commerce Preserv'd. 1721 [1713]. 
C a r y, John. A Discourse on Trade. 1695. 
— » — An Essay on Trade. 1695. 

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D'Avenant, C h a r 1 e s. An Essay on the Ways and Means of Supply- 
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Novels and Miscellaneous Works, XVII — XVIII. 1841. 
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168 Br. Suviranta. B XVII, 2 

A n E s s a y on the Causes of the Decline of the Foreign Trade. 1749 [1744]. 

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M a s s i e, J o s e p h. Ways and Means for Raising the Extraordinary 
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Mercator or, Commerce Retrieved. 1713 — 14. 

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Mun, Thomas. A Discourse of Trade from England into the East 
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BXVII.2 The Balance of Trade. 169 

Mun, Thomas. Englands Treasure by Forraign Trade.- Econ. Classics, 

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Philips, Eras m u s. The State of the Nation in respecl to her Com- 
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I - . 

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