Front Page Titles (by Subject) Mercantilism vs. Economic Liberalism - Literature of Liberty, April/June 1979, vol. 2, No. 2
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Mercantilism vs. Economic Liberalism - Leonard P. Liggio, Literature of Liberty, April/June 1979, vol. 2, No. 2 
Literature of Liberty: A Review of Contemporary Liberal Thought was published first by the Cato Institute (1978-1979) and later by the Institute for Humane Studies (1980-1982) under the editorial direction of Leonard P. Liggio.
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Mercantilism vs. Economic Liberalism
“A New Argument for Economic Freedom.” In Economic Thought and Ideology in Seventeenth Century England. Princeton. Princeton University Press, 1978, pp. 158–198.
By the early seventeenth century wealth was associated with a favorable balance of trade, that is, with an excess of goods exported over those imported. This view evolved into a theory of economic growth which emphasized foreign trade's capacity to generate specie or wealth. This theory gave primacy to commercial over political factors, an innovation crucial for subsequent theoretical developments. Attention was focused on the production of goods for sale, with almost no notice of consumption's role in economic progress. Linked with this one-sided view of economic activity was the treatment of trade as a “zero-sum game”—what one party to an exchange gained, the other party lost. Economic theorizing was often thinly disguised special-pleading by such groups as the clothiers, who wanted restrictions on imports of competing goods. To them, internal trade consisted merely of money transfers; consumption was “a necessary evil at best.”
The balance-of-trade doctrine was an economic ideology for an era of intense political rivalries. Nation competed against nation, politically and economically, but in this ideology members of a society were to be united in one enterprise. The economic aspect of this enterprise consisted in selling surplus goods abroad to obtain specie (wealth).
Rising levels of income and consumption challenged the old mercantilist position and led to revolutionary changes in attitudes and analyses. Prosperity was not only associated with increased consumption, but also with increased imports, particularly East India fabrics. Observors such as Henry Martyn launched an attack on the very idea of a need for political stimulation of employment and political controls on consumption and trade. In this conceptualization of the economy, individuals occupied center stage. Individuals not only competed in production, but they had different wants, which could best be served by the production and importation of the greatest variety of consummables. Competition and economic freedom were extolled. Consumption was analyzed as a constructive activity, part of a dynamic process stimulating exertion, inventions, the entrepreneurial spirit, and ever greater production. Wealth was no longer viewed as a specific commodity, but as the capacity to purchase. Consumption was treated as the end of economic activity and trade as mutually beneficial. The emphasis on economic freedom and the conclusions of the arguments for this freedom all ran counter to the old mercantilist position.
The new pamphleteers and writers developed a coherent and sometimes sophisticated picture of trade and commerce, of production and consumption, and of economic activity in general, all without recourse to equations. They did so by switching analysis from a static view of commerce to one in which commerce played a dynamic role in translating consumption wants into increased production. Moreover, this dynamic process was a coordinated one that could function without outside direction. Not anarchy, but lawful behavior based on natural forces would proceed from economic freedom.
Spokesmen for the privileged economic groups counterattacked, not by meeting the sophisticated arguments of the new economic theorists, but by appeals to patriotism, xenophobia, and “common sense.” They explicitly divorced private profit and the public weal, both denying the chief argument of economic liberalism and anticipating twentieth-century responses to free market ideas. The conclusion of this debate was only worked out in the latter part of the eighteenth century.