Wealth Is Money: Mercantilist Doctrine

Wealth Is Money: The Mercantilist Doctrine

The Mercantilists thought of wealth primarily as gold and silver, or—to use a term common at that time—treasure. Most followers of this doctrine acknowledged, perhaps indirectly, that consumable goods were ultimately more important than money; yet since most people wanted money it was always possible to buy what was needed, whether it be goods for domestic consumption or materials of war—including mercenary soldiers. Consequently an abundance of money was more desirable than an abundance of goods. In the absence of a natural supply of silver and gold a favorable balance of exports over imports, which would be paid for in "treasure," was the broad way to wealth.

Thomas Mun (1571-1641) gave the clearest exposition of the Mercantile theory. He was an Englishman with an active interest in trade. As a merchant he had amassed a large fortune and he subsequently became a member of the Committee of the East India Company and of the parliamentary standing commission on trade. The statement of Mercantilist principles is found in his book bearing the enlightening title England's Treasure by Forraign Trade, or, The Balance of Our Forraign Trade Is the Rule of Our Treasure. His main contention was that to increase the wealth of the nation, England must sell to other countries more than she bought from them. In a series of clear admonitions he advised his people to cultivate unused lands; reduce the consumption of foreign wares and avoid frivolous changes in fashion; be clever in selling to foreign nations, holding the prices high on necessities which they must buy and cutting prices on goods having strong competitors; carry English goods to foreign nations in English bottoms, thus getting the price of the goods and the fees of the transporter; be frugal in the use of natural resources, saving them as much as possible for export; develop industries at home to supply necessities; make England a center for exchange between other nations, thus increasing the trade in and out of England; trade as close to the primary producer as possible, thus eliminating or acquiring for England the fees of the trader; place no embargo on the export of money because it is necessary to foster trade between other nations from which England can earn a profit by acting as middleman; place no taxes on articles made primarily for export. These are the tenants of the thrifty business man extended to apply to the nation. They imply the close co-operation of the government and the business interests. Indeed, during the financial administrations of Colbert in France and Cromwell in England, these principles were given fuller application than most economic principles have ever had the opportunity to enjoy. Mercantilism was above all a practical working philosophy of wealth-getting.

Italy was the home of the earliest and most positive exponent of the Mercantilist doctrine. Antonio Serra admitted no quibbling over what constituted wealth—it was gold and silver. In his pamphlet, A Brief Treatise on the Causes Which Can Make Gold and Silver Abound in Kingdoms Where There Are No Mines, he set forth certain rules for the production of an abundant supply of the precious metals aside from a natural supply. He advised emphasis upon manufactures; an abundant population; an extensive foreign trade with a favorable balance; and positive government regulations fostering and protecting such trade. These principles were illustrated by a comparison of the favorable economic position of Venice as contrasted with the poverty of Naples.

A more nationalistic twist was given to Mercantilism by Antoine de Montchretien (1576-1621). In his Traicte de I'Economie Politique, published in 1615, this French theorist, berated his country not alone for the importation of goods which by a little effort the people could produce for themselves but also for throwing their country open to foreign traders who drained off the natural wealth of the country, and for the importation of foreign books which undermined the strength and vitality of French culture. Montchretien deviated from the line of pure Mercantilist thought, if there can be said to be such, in the emphasis he placed upon domestic trade to the exclusion of foreign trade. His point was simply that France could, if all would labor industriously, be self-sufficient and maintain a high level of material existence. He also acknowledged that wealth was constituted not alone of money but of the abundance of commodities maintaining life. To make sure that sufficient quantities of such commodities were available for all was the chief business of the state. It was this obligation of the state for the economic well-being of the people which led to his coining the term by which economics was so long known, political economy.
The last of the Mercantilists was Sir James Steuart (1712-1780). His Inquiry into the Principles of Political Economy (with an extremely long secondary title), published in 1867, was the most systematic and comprehensive survey of the Mercantile theory up to that time. Unfortunately for Steuart, the labor and penetrating insight he brought to bear upon the subject yielded him no recognition; for Mercantilism had fallen into disrepute, and Adam Smith gave it the coup de grace only nine years later with a keen analysis of both the practical and logical shortcomings of Mercantilist doctrine, Steuart's viewpoint was a strange mixture. He believed that a favorable balance of foreign trade was necessary to keep up the wealth of the nation in terms of money, yet he realized that an excess of specie might be detrimental. His discourse on such topics as population, value, agriculture, interest, credit, and taxation was sound and in line with the best thinking of his time; but throughout the work there is the constant emphasis upon the paternal responsibility of the state to regulate, control, and direct economic activity in the interest of national advantage. It was this aspect of his treatise which prevented his rightful recognition in England, yet made him respected above Adam Smith in Germany.

In the works of Philipp W. von Hornick, Johann Joachim Becker, and J. H. Justi (Austrian and German economists of the 18th and 19th centuries) a particular brand of Mercantilism known as Kameralism (Kameralwissenschaft) was expounded. Their ideas on wealth were similar to those of the true Mercantilists except that while in their theory money was important to the wealth and power of the state, economic self-sufficiency was likewise important. Hence all kinds of produce, agricultural and industrial, was wealth as long as it was produced at home. The same articles produced abroad and imported actually represented a loss of wealth. These writers were predecessors of the more modern economic nationalists.