Critics of Mercantilism

Critics of Mercantilism, Theories Of International Trade

The mercantile system was the dominant form of economic thought in the 17th century, and it was clearly the pattern of the practical statesmanship of the times. Nevertheless, another system of thought hostile to Mercantilism was growing increasingly popular. While the origin of the new ideas was in England (for at least the first hints of the new doctrine appear in English literature) France was the first nation to adopt them as a natural philosophy and to give them practical expression.

Some writers in economic history look upon Petty, Locke, and North as the authors who laid the foundations for the revolutionary doctrine of freedom in trade. Although Petty is usually classified as a Mercantilist because of his general acceptance of the philosophy of Mercantilism, his greatest contribution was a destruction of the mercantile theory of money and prices. Hence his inclusion among the forerunners of free trade. He understood that a nation needed money, but he believed there could be too much or too little of it, thus affecting price levels. Although the idea of an automatic control of the quantity of money in a nation was not yet developed, Petty advocated the removal of all restrictions upon the export of money. His work in statistics on the commerce of Ireland showed that an abundance of exports under certain circumstances was actually harmful, and that other things than goods and money influenced a nation's economic position.

Locke's importance lay not in his economic ideas, but in the philosophical support he gave to the search for freedom generally. As a matter of fact, a survey of his purely economic writings might lead one to label him as a Mercantilist. He believed in the importance of a nation having a greater abundance of the precious metals than its neighbors, and maintained that in the absence of mines such abundance of gold and silver could be acquired only through conquest or commerce. But in his opposition to arbitrary authority and his explanation of the advantages of individual liberty he challenged the basic assumptions of Mercantilism.

For purely economic criticism of mercantilist ideas of trade no one in the 17th century surpassed the directness and forcefulness of the writings of Sir Dudley North. In his Discourse upon Trade, published in 1691, he showed that wealth could exist independently of gold or silver. Agriculture and industry were the true sources of wealth. Money he conceded was one element of wealth, and it performed invaluable services in facilitating the exchange of goods. The quantity of money in a country might be in excess or less than the requirements of the nation's trade but this was something which would regulate itself without human interference. North's belief in the importance of domestic trade was extraordinary in a world so dominated by the concern over foreign trade, but it was quite logical considering the emphasis he placed upon domestic agriculture and industry. He condemned the practice of granting business privileges and concessions to one particular group of merchants, saying that every such exclusive privilege was to the public's disadvantage. North stands out as an independent thinker, as a herald of the new economic era that was ushered in nearly a century later by Adam Smith.

The names of Roger Coke, Nicholas Babton, and Charles Davenant should be added to the list of critics of Mercantilism. Their work kept aflame the smoldering fires of discontent that were threatening to destroy the doctrine of foreign trade operated under government control for the sake of more metal. Coke pointed out the probable reaction of foreign nations to the tight-fisted money policy. He foresaw the diminution of England's foreign trade as rival countries refused to trade with a nation that would not reciprocate, just as he foresaw the stagnation of domestic industries when freed from competition. Babton showed how trade might increase rather than diminish if restrictions against imports were removed; and Davenant expressed the opinion that trade was self regulating and would prosper better if freed from control.

The reaction against Mercantilism was particularly strong in France where the evils of an exaggerated mercantilist policy had brought financial ruin to the country. The unrest among the people, oppressive taxes, and a depressed condition of agriculture led to violent protests against the financial administration of Jean Baptiste Colbert. Unwittingly Colbert became the chief exponent of Mercantilism in Europe to such an extent that the system became known on the continent as Colbertism. The extravagant demands of Louis XIV forced Colbert to find new and fruitful sources of revenue. He developed the pattern of Mercantilism in France not as a studied purpose but as the inevitable result of hundreds of independent moves to increase the revenues of the state.

Pierre Boisquillebert wrote voluminously in opposition to the mercantile school of thought. In his various works he insisted that national wealth did not consist in an abundance of precious metals, but in useful things. He protested against restrictions on both domestic and foreign commerce. Such artificial control of trade as occurred through government regulations was harmful, since there were natural laws of the economic order which could not be violated without undesirable consequences. To Boisquillebert the world was a unit. Economic prosperity could result only as commercial relations between all peoples were allowed to develop naturally. For France, he believed, the way to economic well-being lay along the road of a revived and prosperous agriculture.