Cyclopædia of Political Science, Political Economy, and the Political History of the United States
MERCANTILE SYSTEM. The theory of the balance of trade and the consequences which were drawn therefrom constitute what is called the mercantile system, because the whole of this system tends to consider foreign commerce as the most productive branch of a nation's labor. It is supposed that a nation can sell more than it buys, in a way to ruin neighboring nations by absorbing their precious metals by the greatest possible exportation and the least possible importation. This false theory still prevails in the minds of the masses, and still serves as a rule for many administrations and governments; it forms the basis of the economic ideas of all the writers of the eighteenth century, who did not belong to the physiocratic school or to that of Adam Smith; it is still appealed to in our days by statesmen, and by all those who, by conviction or for financial considerations, defend prohibition, high tariffs and custom impediments.
—We have not to detail here, still less to refute, all the consequences of this fundamental error, which would necessitate a full course in political economy, and which would lead us to repeat what is already found in many articles of this Cyclopædia. We will limit ourselves to saying that the mercantile system is in opposition to the true notion of money and of production, to the nature of markets and the mechanism of the operations of commerce, and we will refer the reader more particularly to the articles, BALANCE OF TRADE, COMMERCE, EXCHANGE, OUTLET, MONEY, PRODUCTION OF WEALTH, EXPORTS AND IMPORTS.
—All sciences have begun in error; and the mercantile error is found in antiquity. It is plain from a passage in Cicero,*51 that the exportation of precious metals was often prohibited under the republic, and this prohibition was often renewed, although very uselessly, by the emperors. There is perhaps no state in modern Europe which has not formally interdicted the exportation of gold and silver. This exportation was, it is said, prohibited by the English laws before the conquest, and different statutes having the same purpose were passed at that time. One of these statutes (3 Henry VIII., chap. i.), approved in 1512, declared that any person who transported metallic specie, plate or jewels, to a foreign country, if it was discovered, would be liable to a confiscation equivalent to double the value of the merchandise transported.
—In 1848 when Rossi became minister of the pope, one of his first cares was to repeal the legal provisions which forbade the exportation of coin from the Roman states. About the same time, and a few days after the revolution of February in France, the commissary of the department of the Rhone opposed, by a decree, the exportation of coin from that department!
—It is known that commerce, during the fifteenth and sixteenth centuries, developed rapidly, on account of the direct relations of Europe with India by the cape of Good Hope, and the force of circumstances brought about the substitution of a more ingenious and less barbarous system for the gross system of the absolute prohibition of the exportation of coin. Indeed the exportation of gold and silver money by India was advantageous and was practiced notably by the East India company. This company was accused on this point of ruining the kingdom, by taking out of the country its gold and silver, but its defenders, Thomas Mun among others, claimed that this exportation was advantageous, because the commodities brought from India were chiefly re-exported into other countries, from which was received a larger quantity of coin than that required in the first place for the payment of these commodities in the east.
—It is from this time that the first theoretical essays on economic and commercial questions date. Mun wrote in 1635 or 1640; after him came, in England, Josiah Child, Dr. Davenant, the authors of the "English Merchant," and J. Steuart; in France, Melon and Forbonnais; in Italy, Genoiesi, who were, in the eighteenth century, the most distinguished writers, who defended, with more or less extensive restrictions, the principles of the mercantile system.
—The analyses of the physiocrats, and, later, those of Adam Smith, completely refuted this false idea, which all the treatises on political economy place among scientific heresies; but upon this point, we repeat, practice is about three-quarters of a century behind theory. The point of departure of this theory rests in this fact, that, since ancient times, money had principally consisted of gold and silver specie. From this fact it was concluded that the possession of money exclusively constituted wealth; the use of money for a long time prevented the perception of the true nature of purchase and sale, that is to say, of exchange, and confounded wealth with the instrument of exchange and the measure of this wealth. The consequences of this error have been formidable for humanity. They have, in fact, led men to misunderstand the freedom of labor, the advantages of the division of employments among nations; led them to create at the frontiers customs barriers to protect certain branches of work, but which hurt all; to direct most industries into unnatural ways; to give to governments a surveillance which they should not be allowed to exercise; to create a barbarous legislation, and to cast discord among nations. "It is no exaggeration," says Storch, "to affirm that very few political errors have produced more disasters than the mercantile system. Armed with power, it has imposed ordinances and prohibitions where it should have protected. The method of making regulations, which it has inspired, has been the cause of vexations of a thousand kinds to industry, to turn it from its natural paths. The mercantile system has persuaded each nation that the well-being of neighboring nations was incompatible with its own; hence was born that reciprocal desire to injure and impoverish each other, and with it that spirit of commercial rivalry which has been the immediate or remote cause of the greater part of modern wars. It is the mercantile system which has driven nations to employ force or cunning to extort from the weakness or ignorance of rival nations treaties of commerce which have been of no real advantage for themselves. It is this system which has presided over the formation of colonies, for the purpose of giving to the mother country the exclusive enjoyment of their commerce, and to force them to have recourse only to the markets of the mother country. Where this system has produced the least evil, it has retarded the progress of national prosperity; everywhere, besides, it has caused torrents of blood to flow; it has depopulated and ruined many countries, to which it might have been supposed it would have furnished in the highest degree power and wealth."
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