Front Page Titles (by Subject) IV. Reasons for Wanting More Bullion - Studies in the Theory of International Trade
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IV. Reasons for Wanting More Bullion - Jacob Viner, Studies in the Theory of International Trade 
Studies in the Theory of International Trade (New York: Harper and Brothers, 1965).
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IV. Reasons for Wanting More Bullion
The Mercantilist Concept of Wealth.—The mercantilists wanted an export surplus primarily because they wanted more bullion and because they saw that for a country without gold or silver mines a favorable balance of trade was the only means available to procure bullion. The central problem in the interpretation of the mercantilist theories is the discovery of the grounds on which their belief in the desirability of an indefinite accumulation of the precious metals was based. The most common criticism of the mercantilists is that they regarded the precious metals as the sole constituents of the wealth of the nation. Adam Smith made this charge a central feature of his criticism of the mercantilist doctrines, and he has been accused, by modern apologists for mercantilism, of inexcusable misinterpretation of their doctrines.1 On behalf of the mercantilists they assert that the doctrine of the identity of wealth and bullion is so absurd as to make it incredible that able men, to whom the fable of Midas must have been familiar, should have adhered to it, and they either refer to passages in writings of the period revealing a broad concept of wealth, or else deny that the words “wealth,” “riches,” or “treasure” had the same meaning then which they have now.2 But the only reference to the Midas fable I have found in the literature prior to 1760 is in a work sharply critical of the mercantilist doctrines,3 and, although unobjectionable definitions of wealth are to be found, they are usually offered by moderate or skeptical writers as criticisms of the prevailing views. “Riches,” “wealth,” “treasure” had ambiguous meanings in the seventeenth and eighteenth centuries. They meant money, jewels, and other especially precious commodities at one moment, and all goods useful to man at another moment. Very often this shift of meaning occurred within the limits of a single paragraph or even sentence, and reasoning involving, and obtaining what plausibility it has from, such shifts in the meaning given to terms constitutes a large portion of the mercantilist argument, and especially of the balance-of-trade doctrine.
The mercantilists did not have in mind the possibility that a country may make investments abroad or may borrow from abroad, and there is no mercantilist writer who explains his desire for a favorable balance of trade as a desire that his country should export capital abroad rather than borrow abroad.4 If indebtedness is disregarded, the one difference between an export surplus and an import surplus is that there is a net exchange of goods for money in the first case, and of money for goods in the second case. It is impossible, therefore, to understand such common mercantilist arguments as that foreign trade was the only path to national wealth, that a country can gain from foreign trade only if it results in a favorable balance payable in bullion, that an export surplus is both the proof and the measure of gain from trade, and that an import surplus is both the proof and the measure of national loss,5 unless they believed, momentarily at least, that all goods other than money were worthless, or were of value only as they served as means of securing money. If it be replied that the mercantilists meant by “wealth,” “treasure,” “riches,” “gain,” “loss,” “poverty,” “prosperity,” “profit,” etc., only money or absence of money, their arguments generally become merely laborious tautologies, and it becomes a mystery: (a) why they should have thought it necessary to present so earnestly and at such great length arguments reducing to the assertion that the only way for a country without gold or silver mines to get more bullion is to obtain it from abroad in return for goods, and (b) what terms they used when they were thinking of what we mean today when we speak of riches, wealth, gain, prosperity.
Statements involving either the attribution of value to the precious metals alone, or else the use of all the terminology now associated with the notion of wealth to mean merely money, abound in the mercantilist literature, and only a few heretics were never guilty of the confusion, real or terminological, between mere money and wealth. There follow some representative passages, taken from the writings of prominent mercantilists, which cannot, I feel certain, be absolved from the charge that they reveal confusion between quantity of money, on the one hand, and degree of wealth, riches, prosperity, gain, profit, poverty, loss, on the other. It would be easy to multiply the number of such citations.
... the wealth of the realm 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 cheap; or by buying the foreign commodities too dear, wherein chiefly consisteth the aforesaid overbalancing. ... 6
If the native commodities exported do weigh down and exceed in value the foreign commodities imported, it is a rule that never fails, that then the Kingdom grows rich, and prospers in estate and stock; because the overplus thereof must needs come in, in treasure.7
The ordinary means therefore to increase our wealth and treasure is by foreign trade, wherein we must ever observe this rule: to sell more to strangers yearly than we consume of theirs in value.8
... the only way to be rich, is to have plenty of that commodity to vent, that is of greatest value abroad. ... 9
Foreign trade is the only means to enrich this Kingdom.... Where the consumption of things imported, does exceed in value the things exported, the loss will be as the excess is.10
For exportation is gain, but all commodities imported is loss, but ready silver or such commodities, that being carried out again bring in silver from other nations.11
... gold and silver is the only or most useful treasure of a nation ... nothing but bullion imported, can make amends for bullion exported.12
If we export any value of our manufactures for the consumption of a foreign nation, and import thence no goods at all for our own consumption, it is certain the whole price of our own manufactures exported must be paid to us in money, and that all the money paid to us is our clear gain.13
... to take the right way of judging of the increase or decrease of the riches of the nation by the trade we drive with foreigners, is to examine whether we receive money from them, or send them ours; ... 14
Mr. Deslandes says his country has a balance in trade of 7,000,000l. Sterling per annum; which, if true, is infinitely more than Britain can pretend to: It will follow from hence, that the French must be much richer than the English; ... 15
The general measures of the trade of Europe at present are gold and silver, which, though they are sometimes commodities, yet are the ultimate objects of trade; and the more or less of these metals a nation retains, it is denominated rich or poor.... Therefore, if the exports of Britain exceed its imports, foreigners must pay us the balance in treasure, and the nation grow rich. But if the imports of Britain exceed its exports, we must pay foreigners the balance in treasure, and the nation grow poor.16
Adam Smith, however, did exaggerate the extent of the dependence of the mercantilist case on the absolute identification of money and wealth, inasmuch as he failed to make clear that there were some mercantilists who were never guilty of such identification and few mercantilists who were never guiltless of it. Certainly, few writers of any prominence relied solely on this identification in arguing for the desirability of the indefinite accumulation of bullion, even though few failed to fall back on it to ease the course of their argument at critical points and to give it an axiomatic appearance both to themselves and to their readers.
To most of the moderate mercantilists the distinction between money and wealth was clear enough, if not always at least in moments of enlightenment and when recognition of the distinction would not hamper them and might even help them to make the point at issue at the moment. Thomas More had already, in 1516, tried to destroy the current illusions about the importance of gold and silver and in his ideal commonwealth they were to be relegated to use in the hire of foreign mercenaries and in the making of vessels serving lowly and unromantic purposes indeed, in order to free the Utopians from the tendency to exaggerate their importance: “And these metals, which other nations do as grievously and sorrowfully forego, as in a manner their own lives, if they should altogether at once be taken from the Utopians, no man there would think that he had lost the worth of one farthing.” 17 The following quotation from another sixteenth-century writer illustrates the use of the word “treasure” to signify more than merely the precious metals:
But he that hath treasure, gold, silver, house and land, He shall be obeyed as lord with young and old, ... 18
There follow some quotations from writers who had a broad concept of wealth and who used to signify wealth the same terms which we now use but which the apologists claim then had a different and narrower meaning. It is to be noted, however, that the authors cited were all critics of at least the more extreme monetary doctrines of the mercantilists.
... all men do know, that the riches or sufficiency of every kingdom, state, or commonwealth, consisteth in the possession of those things, which are needful for a civil life.19
It is true that usually the measure of stock and riches is accounted by money; but that is rather in imagination than reality.... The stock or riches of the kingdom doth not only consist in our money, but also in our commodities and ships for trade, and in our ships for war, and magazines furnished with all necessary materials.20
By riches, is meant all such things as are of great value. By value, is to be understood the price of things; that is, what anything is worth to be sold....21
It is a very hard thing to define what may be truly called the riches of a people.... We esteem that to be treasure, which for the use of man has been converted from gold and silver into buildings and improvements of the country; as also other things convertible into those metals, as the fruits of the earth, manufactures, or foreign commodities and stock of shipping. We hold to be 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.22
We commonly count money and bullion riches, whereas they are not riches in themselves, but the instruments and conveyances of them.... The riches therefore of a man consist in the abundance of those things that are in themselves useful to our delight or sustenance.... The riches of a nation consist in the plenty of those commodities which are most useful in human life, whose air is healthy, whose soil is fruitful, whose people are diligent and ingenious, and busied in manufactures, whose ports are open and free for commerce with the nations about it. This nation is rich, tho' it has not in it an ounce of gold and silver....23
The abuse or indefinite use of words, has in no one article of human reasoning caused greater confusion in ideas, than the calling wealth or riches by the name of money:—Riches, in respect to a nation, are the universal plenty of all necessaries, as food, raiment, houses, and furniture, provision for war, etc. Money, as gold or silver coin, are properly the medium of exchange, but by its quantity may become, and is an article of commerce itself; yet, where it most abounds, as in Portugal, it makes but a small proportion of the riches of that country, though the country itself is extremely poor. And nothing is so erroneous, as to judge of the riches of a country by the quantity of gold and silver in it.24
Similar passages can occasionally be found in the works of even the extreme mercantilists, but if they are examined in their context it will generally be found that they justify including other things than gold and silver as wealth only because gold and silver can be obtained in exchange for them;25 or defend the inclusion of other things on less than parity with the precious metals, on the ground that it cannot with certainty be assumed that these other things can and will be sold abroad in exchange for bullion.26
Identification of wealth with the precious metals, whether explicitly or as a tacit assumption underlying their reasoning, is to be regarded, however, as an extreme phase of mercantilist doctrine, prominent in the literature, and contributing largely, no doubt, to its hold on public opinion, but resorted to somewhat apologetically by its faint-hearted adherents, and not present at all, and even expressly repudiated, in the writings of a few of the most enlightened mercantilists, whose enlightenment, however, tended to take the form of an abandonment of some of the central propositions of mercantilism. Some of the apparent identification may have been purely terminological, although it must be repeated that the ambiguity of terminology was closely associated, as both cause and effect, with genuine confusion of thought. Much more important in the writings of the abler mercantilists than the absolute identification of wealth with gold and silver was the attribution to the precious metals of functions of such supreme importance to the nation's welfare as to make it seem proper to attach to them a value to the commonwealth superior to that of other commodities of equal exchange value. These functions, of which different ones or combinations were stressed by different writers, were to serve as state treasure, as private stores of wealth, as capital, and as a circulating medium. In the following sections, the mercantilist theories with respect to these functions of the precious metals will be examined.
State Treasure as an Emergency Reserve.—The mercantilist argument for the importance of accumulating precious metals which is logically most easily defended is that resting on the value to the state of having a financial reserve on hand in liquid form immediately available in case of emergency. When monetary transactions had become the normal state of affairs, but before public borrowing could be relied upon as a quick and dependable source of funds, and before taxation had become a regular source of revenue quickly responsive to changed fiscal needs, there was much to be said for the accumulation of a state treasure consisting of a stock of the precious metals. This was a common practice in the medieval period, and it has had survivals into modern times, notably in Prussia. It is an important element in present-day monetary policy. The maintenance intact of a state treasure required, however, the exercise by the monarch of a certain degree of restraint in his expenditures, and the profligacy of Henry VIII resulted in the dissipation of the treasure which he had inherited from his predecessor, and the disappearance of the institution as a phase of English state finance. Later monarchs, without exception, relied upon borrowing and special taxation to finance their wars. Even if a state treasure were maintained, moreover, it would call, not for an indefinite accumulation of the precious metals, but only for an amount sufficient for the probable needs. The requirements for the upbuilding of a state treasure could not logically have served, therefore, as a sufficient basis for the mercantilist insistence upon the urgent need of an indefinite augmentation of the national stock of the precious metals No state treasure, moreover, was in existence or projected during the seventeenth century, and even the most loyal adherent of the Stuarts could have had no great confidence in their ability to restrain themselves from encroaching for current purposes upon any state treasure which they might inherit or have bestowed upon them. In fact there is little mention of state treasure in the mercantilist literature, and its use as an argument for the importance of a favorable balance of trade is extremely rare. The common impression that it played an important part in English mercantilist doctrine has no historical basis.
Even the few references to state treasure which do occur in the literature of the period are not enthusiastic in tone. Sir Thomas More refers to state treasure only to urge the need of subjecting it to a maximum limit, to keep the king from becoming avaricious, and so that “his people should not lack money, wherewith to maintain their daily occupying and chaffer.” 27 Another early sixteenth century writer also recommends that the king should limit his accumulation of treasure in due proportion to the amount of gold and silver that was in the country or could be procured from abroad in return for English commodities, as otherwise there would be scarcity of money for the people and impairment of their capacity to produce.28 Mun discusses the desirability of a state treasure more fully than any other mercantilist writer. He defends the institution against unnamed critics, but seems to urge it more as an inducement to frugality on the part of princes in dealing with their ordinary revenues in times of plenty than as an emergency reserve deliberately built up by special exactions or taxes. He advises, very much along the same lines as the sixteenth century writers referred to above, that the prince should not add to his treasure annually, in the form of gold and silver, more than the amount of the year's excess of exports over imports, even if his revenues exceed his expenditures by more than that amount, since otherwise he would draw into the treasure all the money needed for trade and industry. He states that it is not necessary, or even desirable, for all the state reserve to be accumulated in the form of a stock of the precious metals, for it can better and more profitably be used to build ships of war, to store up grain against periods of dearth, and to accumulate war supplies, or lent to citizens for productive use. He writes:
... although treasure is said to be the sinews of the war, 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 money?29
Except for minor references to state treasure,30 the only other discussions of it that I have found in the literature of the period are by John Houghton and Henry Home. Houghton, in the course of a plea that Parliament vote Charles II whatever funds he should ask for, deals with the possible objection that the king might hoard the money. He argues that such a hoard would lend prestige and power to the king in his dealings with foreign countries. He claims that Henry VII was the only English king who accumulated a great hoard, and that no ill resulted to the country in that case. He argues that by making money dear in England, hoarding would lead to the import of further supplies of bullion from abroad. But he concedes that hoarding would be the worst use to which the king could put his revenue, except expenditure on sinful purposes.31 Home supports the maintenance of a state treasure, but contingent upon the existence of wise and good government: “In the hands of a rapacious ministry, the greatest treasure would not be long-lived: under the management of a British ministry, it would vanish in the twinkling of an eye; and do more mischief by augmenting money in circulation above what is salutary, than formerly it did good by confining it within moderate bounds.” His chief reason for supporting a state treasure, moreover, would have seemed paradoxical to the ordinary mercantilist. Its virtue was that it could absorb a redundancy of currency, which otherwise would get into circulation, raise prices, and thus hamper trade. Where there was no redundancy of currency, the accumulation of treasure, he held, would be prejudicial to commerce. Its availability as a reserve in emergencies was apparently a minor factor to him32
There are other passages in the mercantilist literature which may have state treasure in mind, even though they do not explicity refer to it. Such perhaps are the frequent references to money as the “sinews of war,” and especially to its importance in diplomacy and in conducting war in foreign territory with mercenary troops. But money procured through current taxation or borrowing would serve as well, and the emphasis may therefore be intended to be rather on the importance of plenty of gold and silver within the country thán specifically in the state treasure.33 Many of these passages, moreover, seem to identify money with the things which money can buy, and financial power with the size of the stock of the precious metals.34
The Precious Metals as a Store of Wealth.—The really important bases of the mercantilist belief in the desirability of the indefinite accumulation of the precious metals still remain to be dealt with. They divide the mercantilist writers into two fairly distinct groups, holding different and, to a large extent, conflicting views as to the important functions of the precious metals. The first group attached great significance to the precious metals because they held saving or the accumulation of wealth as the chief objective of economic activity and, failing to understand the nature of the process of productive investment, believed that the only, or the most practicable, form in which wealth could be accumulated was in an increase in the national stock of the precious metals.
The disparagement of consumption and the exaltation of frugality and thrift were common doctrines of the period, not wholly dependent upon economic reasoning but deriving much of their vitality from moral and religious principles and class prejudices. The Puritans disapproved of luxury and regarded thrift and saving as one of the major virtues on moral and theological, as well as on economic, grounds. The landed gentry, on the other hand, were typically not Puritans themselves either in their religion or in their mode of life, but they tended to regard extravagance and expensive display as the exclusive prerogatives of the hereditary aristocracy, and thrift and frugality as the appropriate virtues of the middle and lower classes. Eulogy of frugality and thrift and condemnation of luxury are common throughout the mercantilist literature, and only a few instances need be cited. Sir William Temple praises the Dutch and, following a custom which seems already to have become established at the beginning of the seventeenth century and to have persisted until late in the eighteenth, sets them up as a model to be followed by the English in economic matters, because, among other virtues, “they furnish infinite luxury, which they never practice, and traffic in pleasures, which they never taste.” 35 Petty stresses saving above all other means of acquiring wealth:
But above all the particulars hitherto considered, that of superlucration ought chiefly to be taken in; for if a prince have never so many subjects, and his country be never so good, yet if either through sloth, or extravagant expenses, or oppression and injustice, whatever is gained shall be spent as fast as gotten, that state must be accounted poor; ... 36
The emphasis on saving is shown also by the frequent exclusion of consumable goods, or goods destined for consumption instead of for accumulation, from “riches,” the latter term being confined to saved or accumulated goods. The following passages are representative of such verbal usage:
The two great principles of riches are land and labor; ... whatever they [i.e., the people] save of the effects of their labor, over and above their consumption, is called riches....37
And this increase of wages is the greatest tax on the nation, though the receiver is made no richer, only sprucer and lazier.38
... By what is consumed at home, one loseth only what another gets, and the nation in general is not at all the richer; ... 39
The notion that saving consisted of the piling-up of valuable goods led naturally to an identification of saved wealth or “riches” with stored-up goods of a special kind suitable for accumulation and not capable of, or destined for, current consumption. Commodities of high value and of great durability and not liable to loss of value through change of fashion would be specially suitable as the constituent items of stored-up wealth. The exaltation of saving led in turn to the attachment of superior importance to such commodities than to more perishable commodities and those destined for current consumption. The precious metals met these tests of suitability as stores of wealth better than any other commodities. Here is an important element in the explanation of the importance attributed to gold and silver by the mercantilists. There follow a few quotations, illustrating the attachment of superior importance to the precious metals than to other commodities because of their greater suitability as stores of wealth:
Also they [i.e., foreign merchants] bear the gold out of this land And soak the thrift away out of our hand; As the waffore sucketh honey from the bee, So minceth our commodity.40
... gold and silver are ... the most necessary and lasting instruments to procure all things that are, or shall be found useful, or any ways serviceable to mankind, being portable and durable, when most other goods are burthensome, subject to perish and decay.... Silver and gold being preferable to house and land, and the only instruments that have increased and improved trade.41
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, etc., are riches but hic & nunc, so as the raising of such commodities, and the following of such trade, which does store the country with gold, silver, jewels, etc., is profitable before others.42
All other commodities end with the consumer, but money still lives, and the more hands it runs through the better; so that in a sense the use doth not destroy it, as it doth other commodities, but leaves it as it were immortal.43
Gold and silver, for many reasons, are the fittest metals hitherto known for hoarding: they are durable; convertible without damage into any form; of great value in proportion to their bulk; and being the money of the world, they are the readiest exchange for all things, and what most readily and surely command all kinds of services.44
As gold is a treasure, because it decays not in keeping ... no other metals are a treasure, because they either decay in keeping, or are in too great plenty.45
If the only possible or practicable means of saving is by the accumulation of a hoard of the precious metals, it becomes obvious that the accumulated wealth of a country is limited to its stock of the precious metals and can increase only through an increase in the latter. If that country is without gold or silver mines, it can therefore add to its saved wealth only through a favorable balance of trade payable in bullion. Reasoning such as this explains—and exposes—the balance-of-trade theories of an important and numerous group of the English mercantilist writers. There follow several representative passages in which the ideas of riches as saved wealth, of saving as the piling-up of the precious metals, and therefore of a favorable balance of trade as necessary for an increase of riches, are stated or clearly implied:
... no trades carried on by the exportation of [our] own products and manufactures, or those from our plantations, though what brought back in return be all perishable commodities, can diminish our riches, for all such goods of ours (unless some objection be made as to tin and lead) would have perished by time, if had been kept here; but a great distinction ought to be made, between trades carried on by the exportation of our products, and trades carried on by the exportation of our bullion, to purchase perishable commodities, because in such case we exchange what is durable, and most useful, for what cannot long do us any service.46
That silks, woolen goods, wines, etc., may be esteemed riches between man and man, because may be converted into gold and silver, yet do not deserve to be esteemed the riches of the nation, till by exportation to foreign countries are converted into gold and silver, and that brought hither, because are subject to corruption, and in a short course of years will consume to nothing, and then of no value.47
Now it falls out in the natural course of things, that whilst men are employed in searching after the necessaries of life, they find riches: for the earth is grateful, and repays their labor, not only with enough, but with abundance; and out of the plenty of these materials, plenty of things are formed to supply the wants of mankind. Now the more of these things any nation has, the more comfortably the people live; and whatever they have of them more than they consume, the surplus is the riches of that nation, I mean, the intrinsic riches of it. This surplus is sent to other nations ... and is there exchanged or sold; and this is the trade of a nation. If the nation, to which it is sent, cannot give goods in exchange to the same value, they must pay for the remainder in money, which is the balance of trade; and the nation that hath that balance in their favor, must increase in wealth; for this is the only way to bring money into any nation, that has no natural fund of it in mines in its own bowels; and the only way to keep it in any nation that has.48
The doctrine of thrift also led to emphasis on the importance of a favorable balance of trade through another chain of reasoning. Throughout the mercantilist period, the imports into England consisted largely of expensive luxuries and conveniences which contributed more to the pleasures and comforts of life than to the dull but virtuous process of enrichment through thrift. Also if Englishmen were sparing in their consumption of even domestic goods, there would result, it was claimed, either unemployment or the piling-up of unsold and perishable commodities, unless the surplus stocks of domestic goods were exported abroad. Small imports and large exports were therefore a necessary adjunct of thrift and enrichment. These views were widely prevalent, and they are sufficiently illustrated by passages cited in other connections.
Protests against the importation of “apes and peacocks,” “toys and baubles” recur throughout the mercantilist period and were already common in the sixteenth century. Thus Starkey makes one of the participants in his dialogue reproach as “ill-occupied” “all such merchants which ... bring in ... vain trifles and conceits, only for the foolish pastime and pleasure of man,” although his adversary does say something in defense of the joys of life.49
Money as Invested Capital.—With only a few exceptions, the mercantilists either identified or failed clearly to distinguish between money, on the one hand, and capital or “stock” employed by its owner or lent out at interest, on the other. They always wrote of direct employment of capital and of loans at interest in monetary terms, and as a rule they showed no signs that they had penetrated in their analysis beneath the monetary surface. Verbally, at least, they identified money with capital; much of their argument can be explained only if they regarded money and capital as identical in fact as well as in name. This is most clearly brought out in the important doctrines of the period: that interest was paid for the use of money, that the rate of interest depended on the quantity of money, and that high interest rates were proof of the scarcity of money, doctrines which were questioned by very few writers before Hume.50 Several passages illustrating the common confusion of money with capital follow:
That by the plenty of money [resulting from raising the nominal value of English coin and thus keeping it from being exported] the price of usury may of course decrease and the price of lands be improved.51
It is an infallible sign that money abounds, and is plentiful, when the interest thereof is low, for interest or forbearance is the price of money....52
Now, I think, the natural interest of money is raised two ways: first, when the money of a country is but little, in proportion to the debts of the inhabitants, one amongst another.... Secondly, that, which constantly raises the natural interest of money, is, when money is little, in proportion to the trade of a country. For in trade everybody calls for money, according as he wants it, and this disproportion is always felt. For, if Englishmen owed in all but one million, and there were a million of money in England, the money would be well enough proportioned to the debts: but, if two millions were necessary to carry on the trade, there would be a million wanting, and the price of money would be raised, as it is of any other commodity in a market, where the merchandise will not serve half the customers, and there are two buyers for one seller.53
This confusion of money with capital contributed directly to the attachment of great importance to the size of the national stock of money, and indirectly to emphasis on the importance of a favorable balance of trade as the only way in which that stock could be increased.
The Analogy from Personal Finance.—All the variants of the mercantilist doctrine which rest on an identification of money with wealth, or with accumulated and stored wealth, or with loanable capital, found support for their position in a superficially plausible analogy with personal finance which with unimportant modifications recurs repeatedly in the mercantilist literature from the earliest to the latest writers, and is frequently supported by citations from classical writers. Two early statements of the analogy follow:
... we must always take heed that we buy no more of strangers than we sell them; (for so we should empoverish ourselves and enrich them). For he were no good husband that hath no other yearly revenues but of husbandry to live on, that will buy more in the market than he selleth again.54
The ordinary means therefore to increase our wealth and treasure is by foreign trade, wherein we must ever observe this rule; to sell more to strangers yearly than we consume of theirs in value.... 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.
For in this case it cometh to pass in the stock of a kingdom, as in the estate of a private man; who is supposed to have one thousand pounds yearly revenue and two thousand pounds of ready money in his chest. If such a man through excess shall spend one thousand five hundred pounds per annum, all his ready money will be gone in four years; and in the like time his said money will be doubled if he take a frugal course to spend but five hundred pounds per annum, which rule never faileth likewise in the Commonwealth....55
There was little contemporary criticism of this analogy, obvious though its shortcomings seem to be both as an analogy and as an interpretation of personal finance. Papillon pointed out that it was foolish for a person managing a farm to buy less than he sells in order to accumulate a stock of money.56 Barbon tried to meet it by the argument that although the “stock” of a person is finite, and therefore exhaustible, that of a country is infinite, and “what is infinite can neither receive addition by parsimony nor suffer diminution by prodigality.” 57 Mandeville conceded that frugality or “saving” was the most certain method to increase an estate, but he denied, on “make-work” grounds, that this also held true for a nation.58 Hume pointed out, on quantity theory of money grounds, that while an individual would be richer if he had more money, the same would not hold for a country.59
More Money in Order to Have Higher Prices.—In the modern literature on mercantilism, the desire of the mercantilists for more money is sometimes explained as largely due to a prevailing desire for higher prices, and the apologists find economic justification for such a desire in the circumstances which they allege then prevailed, for example, the necessity for increase in the national stock of money if the period of transition from a barter to a money economy were not to be accompanied by the evils of falling prices. But even in the literature of the early seventeenth century, barter is already referred to as a system characteristic of a primitive economy from which England had long since emerged. From early in the sixteenth century to late in the eighteenth, the general trend of English commodity prices was decidedly upward rather than downward, although the economic historians do seem to be agreed that there were intervals of some length during which prices were falling. But throughout the period the complaints of scarcity of money were unintermittent. I can find in any case very few mercantilists who wanted higher prices and wanted more money as a means of obtaining a higher price level. For such to have been the case, recognition of the dependence of prices on the quantity of money would have been necessary, and many mercantilists showed no trace of such recognition, while others denied the existence of any such relationship between the quantity of money and the price level.60 Some mercantilists, moreover, who shared in the general desire for more money, complained of high prices and wanted lower instead of higher prices. To them high prices were an evil which they did not associate with the quantity of money, or which they thought could be remedied by more money, or which created a need for more money if trade was to be carried on and the poor were to be able to buy the necessaries of life. Two typical complaints that prices were too high, made by writers who nevertheless were anxious that England have a favorable balance of trade in order that bullion should flow in, are cited below:
... the high price of all things is not only the greatest matter that the people grudge at; and one of the principal occasions of poverty and famine; but also the chiefest cause that the king's majesty cannot without expense of wonderful great sums of money maintain his wars against his enemies....61
... cheap wares do increase trade, and dear wares do not only cause their less consumption, but also decline the merchant's trade, impoverish the Kingdom of treasure, lessen his Majesty's customs and imposts, and abate the manufactures and employments of the poor in shipping, clothing, and the like....62
There were very few price inflationists among the English mercantilists, and even the advocates of paper money did not want higher prices. Many mercantilists claimed that if their projects were adopted land values would rise, but such claims were made in order to win the support or weaken the opposition of the landed classes to their proposals. In any case, they were usually based on the argument that more money meant lower interest rates, and lower interest rates meant higher land values, or on the argument that more money meant more trade and therefore a readier sale for agricultural products, or more production and therefore greater exports, and rarely made specific reference to higher commodity prices. Some mercantilists argued, on what would now be called “terms-of-trade” considerations, that it was desirable that export prices should be high and import prices low.63 But one of these writers said that it did not matter what domestic prices were,64 and others argued that even with respect to exports low prices were desirable if, or because, high prices would mean a small volume of sales.65 I have found very few mercantilist writers who unambiguously expressed a desire for higher prices in general,66 although there were probably many mercantilists who would not have regarded higher prices as an evil if accompanied by at least an equal increase in money, stocks or incomes. Such seems to have been Misselden's position in his answer to the possible objection, against his proposal to raise the denomination of English coin, that it would result in an increase in commodity prices:
And for the dearness of things, which the raising of money bringeth with it, that will be abundantly recompensed unto all in the plenty of money, and quickening of trade in every man's hand. And that which is equal to all, when he that buys dear shall sell dear, cannot be said to be injurious unto any. And it is much better for the kingdom, to have things dear with plenty of money, whereby men may live in their several callings, than to have things cheap with want of money, which now makes every man complain.67
More Money in Circulation Means More Trade.—Many of the mercantilists, some of whom also used the arguments already discussed, wanted more money because they regarded money, not merely as a passive medium of exchange, but as a force acting through its circulation from hand to hand as an active stimulus to trade. An increased amount of money in circulation, they believed, meant (or caused) an increased volume of trade, and since men would produce only what they could sell a quickening of trade meant an increase of production and therefore a wealthier country. Here, it should be noted, money is valued as an instrument or stimulus of trade rather than for its own sake. The writers who stressed “circulation” as the valuable service of money often shifted, however, from the concept of money circulating as a medium of exchange to money passing from the hands of a lender to those of a borrower, and rarely distinguished clearly between them. The underlying reasoning is often presented in the form of analogies, especially with the circulation of the blood, which William Harvey had discovered not long before.68
Stress on the importance of an abundance of money in circulation if trade was to flourish is already to be found in very early writers.69 The most elaborate expositions of the “circulation” argument were made by William Potter70 and John Law.71 Potter's argument seems to reduce to this: The wealth of a country is equal to the value of the goods of all sorts therein, money being valuable only as it serves to bring about the production of more goods.72 The more money men have, the more they spend and the faster they spend it. If men acquire more money and spend it as fast as they receive it, the sales of merchants and manufacturers will increase proportionately. If they sell five times as much in money value, they will produce five times as much, and even more, in physical quantities, since they can afford to charge lower prices on the greater volume of sales.73
... in reference to a commonwealth, or any society of men, the greater quantity there is amongst them, of money, credit, or that which is taken by them for commodities, the more commodity they sell, that is, the greater is their trade. For whatsoever is taken amongst men for commodity, though it were ten times more than now it is, yet if it be one way or other laid out by each man, as fast as he receives it, it must needs come to pass, that (resting nowhere) it doth occasion a quickness in the revolution of commodity from hand to hand, that is trade, proportionable to the greatness of its quantity.74
John Law's argument is essentially the same, although stated more conservatively.75 The most enthusiastic advocates of the circulation argument, Potter and Law included, were advocates of paper money. But if paper money were accepted as of equal value to metallic money, the great reason for desiring a favorable balance of trade, that it results in an inflow of bullion, should lose its force. Such in fact was the case with some of them, as the following extracts show:
... for whether a nation have any silver amongst them or no, yet if they can trade as well without it, what need they care? for their estates in vendible commodities (and consequently their credit) is of as real value as if it were in money.76
Whatsoever quantity of credit shall be raised in this office, will be as good, and of as much use, as if there were so much money in specie added to the present stock of the nation ... 'tis more prudent and advantageous to a nation, to have the common standard or medium of their trade within their power, and to arise from their native product, than to be at the mercy of a foreign prince for his gold and silver, which he may at pleasure behold.... Credit can neither be hoarded up, nor transported to the nation's disadvantage; which consequently frees us from the care and necessity of making laws to prevent exportation of bullion or coin, being always able to command a credit of our own, ... as useful, and as much as shall be necessary.77
The only necessity of a foreign trade for England is because we make a foreign commodity (gold and silver) the standard of all ours, and the only medium of commerce, which (as long as it continues so) if we want, all trades must cease; but if we can find out another and safer medium of exchange (as this credit) appropriated to the place where we live and not subject to such obstruction as the other, why should we not readily embrace it?78
And if the proprietors of the bank can circulate their fundation of twelve hundred thousand pounds, without having more than two or three hundred thousand pounds lying dead at one time with another, this bank will be in effect, as nine hundred thousand pounds, or a million of fresh money, brought into the nation....79
Whether in any one year half a million is brought into a commercial country by trade, or issued out by banks, in notes, upon good security, it will serve for the same purposes.80
Some advocates of paper money made little or no reference to the balance of trade or to trade policy in their tracts. This freedom from the prevailing obsession with the state of the balance of trade may have been due to a loss of interest in a policy of securing laboriously through the complicated regulation of trade the increase of money which could be secured more quickly, with greater certainty, and with less effort, by means of the printing press. But some of the advocates of paper money displayed loyalty to the current belief in the importance of a favorable balance of trade, either because of blind acceptance of traditional doctrine, or on the basis of the store of wealth argument or the analogy from personal finance that one should buy less than one sells, and these writers claimed that an increase of paper money would not drive bullion out of the country, but on the contrary would make the balance of trade more favorable through its beneficial effect on production and trade.81
The Quantity Theory of Money.—Those mercantilists who sought an increase in the supply of money because they wanted more circulation or more invested capital clearly wanted genuine physical increases in trade or capital and not merely nominal increases in terms of a depreciated monetary unit. Their doctrines, therefore, would seem to come into sharp conflict with any theory of the value of money which makes it vary inversely with its quantity, whether proportionately or not.82 Only for those mercantilists who wanted an increase of money for use as hoards or stores of wealth would acceptance of a quantity theory of money involve no problem of reconciliation. Many of the mercantilist writers gave no evidence of recognition of the dependence of the value of money upon its quantity. A few of them, in fact, wanted more money as a cure for the evils resulting from high prices. But, although Locke is sometimes credited with the first clear English formulation of the quantity theory, many of the mercantilists, from the beginning of the seventeenth century on, did present, in one connection or another, some simple version of the quantity theory,83 although in most cases they failed to incorporate it as an integral part of their foreign-trade doctrine and failed also to show any concern about its consistency with the rest of their doctrine. There follow quotations from writings antedating Locke by some forty to ninety years which present some form of quantity theory of the value of money:
... plenty of money maketh generally things dear, and scarcity of money maketh likewise generally things good cheap. Whereas things particularly are also dear or good cheap according to plenty or scarcity of the things themselves, or the use of them.84
... even as plenty of money maketh things dear, and scarcity of money maketh things good cheap: even so plenty or scarcity of commodities maketh the price thereof to rise and fall according to their use more or less.85
It is a common saying, that plenty or scarcity of money makes all things dear or good or cheap ... 86
Gold and silver ... in the intrinsic ... are commodities, valuing each other according to the plenty or scarcity; and so all other commodities by them; and that is the sole power of trade.87
... money through want or plenty raises or diminishes the price of all things ... 88
... in those countries where monies are scarce, there the lands and native wares are cheap, so likewise where money doth abound, there the lands and wares are dear; ... 89
Several mercantilists faced squarely the apparent conflict between the quantity theory of money and their doctrines and attempted to meet the issue either by arguing that they could be reconciled or by denying the truth of the quantity theory.90 Apparently the first of these was William Potter, who has not received the attention which he deserves in this connection.91 Potter, as has been shown,92 claimed that an increase of money in circulation would result in an even more than proportionate increase in trade and production, or in goods in circulation. In order to refute it, he states a quantity theory of money in its simplest one-sided form:
If then, in opposition to what is thus undertaken to be proved, it should be objected, that an increase of money would occasion an increase in the price of commodities, proportionable to such increase of money, (that is, if the money were twice as much, commodity would be twice as dear) consequently (going never the further in commodity by the increase thereof) would not occasion any increase in the sale of commodity: therefore not any increase of trade; and yet (by causing the price of commodities to rise) incur an inconvenience, contrary to what is before affirmed.93
His answer is elaborate and not always intelligible. He assumes the basis of the theory of money he is attacking to be that an increase of money increases prices by increasing the (physical?) volume of sales (by increasing the demand for commodities?). He replies that if, when money is doubled, the prices of commodities are also doubled, there will be no increase in the (physical?) amount of sales. The theory therefore involves a contradiction.94 He then attempts to meet it by another line of reasoning. Quick trade permits of a small profit, and therefore a lower price. Quick sales enable artisans and others to produce more quickly, and if they sell more they can afford to charge a lower price. The increase in the amount of commodities resulting from the stimulus to trade of an increase in money, instead of raising prices, will therefore lower them. Prices will rise only if the increase in commodities is proportionately less than the increase in money, which is not likely to be the case. But even if prices should rise somewhat, it is better to have an abundance of comforts, though dear, than a smaller amount thereof, though never so cheap.95
Another advocate of paper money, John Asgill, denied the truth of the quantity theory of money on different and exceedingly slender grounds: an increase in money would lower the rate of interest and therefore raise land values, but not the prices of commodities in general, because “the price of corn and cattle don't rise and fall with the interest of money.” 96 John Law attacked it, partly by arguments closely resembling those of Potter, partly on reasoning peculiarly his own. The stimulus to trade and industry resulting from an increase in money would result in an increase in commodities. Because money would be easier to borrow, merchants would be able to increase the extent of their operations and to sell at lower rates of profit, and therefore the value of the money would not fall, i.e., prices would not rise.97 Money falls in value only when given to a people in greater quantity than there is demand for; if the money is issued only as there is demand for it, its value will not depreciate, “the quantity and demand increasing and decreasing together.” 98 Law concedes that if the quantity of money in any particular country “should increase beyond the proportion that country bears to Europe,” prices would rise there, but the rise of prices would spread elsewhere, so that the value of money would become the same, or about the same, everywhere. The country which had acquired the increase of money would profit greatly thereby, “for that country would have the whole benefit of the greater quantity, and only bear a share of the lesser value, according to the proportion its money had to the money of Europe.” 99 What would make the prices rise elsewhere, he does not explain.
Another writer, James Hodges, who complained of scarcity of money, wanted plate called in and coined and the monetary value of the English standard coin raised as a remedy for this scarcity. He claimed that these measures would result in higher prices only after they resulted in an increase in the number of coins in circulation. The effect on prices would therefore be gradual, and meanwhile there would be a stimulus to trade. After a short time the value of the coin could be gradually lowered, and the surplus bullion returned to be made into plate again if its owners so desired. His argument is interesting as an anticipation of Hume's doctrine that rising prices are a stimulus to trade, and for its endeavor to find a method of obtaining this stimulus without involving a permanent increase in the price level. The difficulty with the scheme, granting its logic, is, of course, that the period of stimulus would be followed by a period of at least corresponding depression.100
Both Potter and Law claimed that an increase of (paper) money would make the balance of trade more favorable and would lead to an inflow of bullion. Potter argued that the beneficial effects of an increased quantity of money would enable England to outsell other countries, for “the greater trade of one country hath a capacity of undermining and eating out the lesser trade of other countries.” 101 For reasons not explained, unless it be the fall in English prices alleged to result from an increase in the quantity of money, both foreign and English commodities would fall in price in England, but not abroad. Exports would therefore be paid for with bullion (and presumably imports would be paid for with English commodity exports), and the bullion could be coined into English money without loss. But with unusual consistency Potter admits that when paper money or credit is available as a substitute, metallic money would be of little importance to England.102 Law showed more concern than did Potter about the state of the balance of trade, but he also claimed that an increased amount of money through the issue of paper money would make the balance favorable: “Most people think scarcity of money is only the consequence of a balance due; but ‘tis the cause as well as the consequence, and the effectual way to bring the balance to our side, is to add to the money.” 103 More money, by employing more people, would make a surplus of goods available for export, and if sufficient money was issued production would reach a level at which more would be exported than imported. Conversely, if the amount of money was reduced, some of the laborers would be rendered idle, the domestic output would shrink, exports would fall, and an unfavorable balance would result.104 These results of a change in the quantity of money he would apparently expect not to be transitory but to persist as long as the new quantity of money persisted.
The Mercantilists on Hoards and Plate.—Because the mercantilists differed among themselves as to the character of the benefit which resulted from an increase in the amount of bullion in a country, they also differed in their attitudes toward the miser, the collector of gold or silver plate, the usurer, and the spendthrift. Those mercantilists for whom the chief virtue in an increased supply of bullion lay in its stimulus to circulation condemned private hoards as an evil, and also regarded other practices which kept bullion from circulating as money, such as its use in the manufacture of plate, as objectionable.105 Vaughan condemned hoarding and the use of plate as contributing factors to the scarcity of money, and recommended sumptuary legislation to check the melting of money and its manufacture into plate.106 An anonymous writer criticized the Established church on the ground that it hoarded riches which should circulate, so that “the money that before ran current in trading, is dammed up in their coffers.” 107 Another pamphlet, written as an answer to this one, condemned the excess of silver plate for the same reason, but claimed that there was no occasion for alarm about hoarding, as there was not much of it, and urged in the defense of the church that it could be charged with responsibility for the prevailing scarcity of money only if the clerics kept “banks of money dead by them,” which was not the case. Complaint against the usurer as a hoarder of money was likewise without basis, since “his money walks, though upon other legs, either serving the tradesman or the gentleman, for preparing commodities to export, or to buy what is imported for his expenses.” 108 Manley found fault with the miser, because “money locked up in the miser's coffers is like dung in a heap, it does no good, but being dispersed, and orderly disposed abroad, enricheth the land.” 109 An anonymous writer wanted misers’ hoards taxed, in order to draw some of their money into circulation, especially in time of war when trade was slack. “I know no difference,” he wrote, “betwixt bringing treasure out of an iron chest by a good law, and plowing the seas by long and dangerous voyages” in order to secure bullion through foreign trade.110 One of Locke's objections to the reduction of the interest rate by law was that it would result in men keeping their money “dead” by them, instead of lending it, with resultant loss to trade.111 Petty expressed a preference for money over plate, because it served trade better,112 as did also Hugh Chamberlain: “Money is living riches, plate but dead; that being capable of turning and improving trade, when this is not.” 113
Hodges's scheme for a forced three-year surrender of plate in return for “raised” money, with prohibition of ownership of plate in the interval, in order for a time to secure relief from the prevailing scarcity of money, and to obtain the stimulus to trade of slowly rising prices, has already been referred to.114 Another writer urged a similar scheme for raising money 5 per cent, in order to draw hoards of the old, and therefore undervalued, coins into circulation.115 One writer made the same sort of contrast between hoarded and circulating money, hoarded credit being the exchequer bills which, because of the high rate of interest they carried, were held instead of being used as money: “... in the frequent passing of credit from hand to hand, consists its great usefulness in trade; for when either money or credit is hoarded up, it may more properly be said to stagnate, than to circulate.” 116 Postlethwayt, in a curious argument, claimed that lending of money at interest involved hoarding and therefore on circulation grounds was to be condemned. If some money is hoarded, the volume of trade will fall. In order to bring the hoarded money back into trade, those in great need of it will offer interest (“profit”) for its loan. The result will be that other moneyed men, instead of “circulating their money” in trade, will “lock it up,” while awaiting the opportunity to lend it, preferring to get their income by usury instead of by trade. Eventually the money so withdrawn from trade would be lent and would thus return to trade, but bearing an interest charge which would act as a restraint on trade.117
Some writers objected, on similar grounds, to the establishment of banks, holding that they monopolized money, and kept it from circulating. Child, for example, maintained that “principally this seeming scarcity of money proceeds from the trade of bankering, which obstructs circulation.” 118 Strangely enough, considering his views on the effect of lending at interest on monetary circulation referred to above, Postlethwayt made the most effective rejoinder to this argument which I have found:
It may be here requisite to take notice of that erroneous notion entertained by some, that banks and bankers engross the money, hoard it up, and hinder its circulation in trade; but, if such will consider this matter in its true light, they will easily be convinced, that the money lodged in banks, and in the hands of bankers, is the most constantly employed of any; for, though the specie should lie still till called for, yet the notes given out for its value, are continually circulating; whereby is done abundantly more service to trade, than if the same lay dormant in private hands; and yet the necessities of the depositors are effectually answered.119
Once hoarding and the use of coin or bullion in the making of plate were attacked, there were few to come to their defense, and the use of gold and silver in the making of thread or in gilding met with almost general condemnation. Mun, however, opposed restrictions on the melting-down of coin into plate on the ground that gold and silver were more apt to be carried out of the kingdom in payment of purchases of foreign goods if in the form of coin than if kept in the form of plate,120 and Misselden before him, while conceding that too much plate in the kingdom would cause scarcity of money, nevertheless held that it was better to have bullion kept in the form of plate than to turn it into coin and thus turn it out of the kingdom because of the undervaluation of coin which he alleged then prevailed in England.121 A sixteenth-century writer condoned the use of bullion for plate, because it resulted in the formation of a sort of secondary national reserve for emergencies, upon which the king, in case of a great war, could draw “without any grouching of the Commons.” 122 The same argument is to be found occasionally in the later literature, and is made by Briscoe to serve as a defense of private hoards. Hoarded treasure, bullion and coin, is part of the “capital stock of national treasure” and can be drawn upon in a national emergency. Private hoarding is as good as having treasure stored by the king.123
Toward the end of the seventeenth century there appeared a new doctrine of the existence of a “due proportion” between money and goods, and therefore of the possibility of excess of money as far as trade needs were concerned. The quantity theory of money also tended to lead to the conclusion that an increase in the amount of money by increasing prices would reduce exports and thus eventually be lost to the country. Writers who on “due proportions of money to trade” or on quantity-theory grounds conceded that there was under any given set of circumstances a maximum amount of money which could be kept in circulation, and who still attached special importance to the precious metals, were likely to approve of turning the money into plate or of its hoarding as a means either of stimulating the further import of bullion or of, checking an outflow. It was doubtless such reasoning which led John Houghton to the conclusion that “if the King should hoard up much money, it would for the present make it dearer, that dearness would make it be brought in more plentifully, and that would make it more plentiful than it was before.” 124 Petty wrote: “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; only the remedy is very easy, it may be soon turned into the magnificence of gold and silver vessels.” 125
On similar grounds another writer would tolerate the increased use of plate if there was more money than was necessary to carry on trade and “defray the expense of living,” 126 and Vanderlint, who accepted the quantity theory and wanted low prices but at the same time wanted a favorable balance of trade payable in specie, recommended as a means of attaining these apparently conflicting objectives that the private hoarding of gold and silver and their use in plate, and even in gold and silver cloth and gilding, be encouraged. He cited with approval the practice of the East Indians of hoarding the silver they receive, with the result that prices remained low there, exports continued to exceed imports, and the balance was paid in still more silver.127 Harris presents a similar solution of the same dilemma. If the inflow of bullion resulting from a favorable balance of trade is kept:
as a dead stock, either by turning it into plate or by any other method, so as to prevent its getting into trade as money; it may continue to go on increasing in more bullion, which in this case will be a real increase of wealth.... Let an increased stock of bullion get out again into trade, and it will soon turn the balance the other way.128
But gold and silver can be best stored up in the form of plate:
But people in general will not hoard up cash; all like to display their wealth, and to lay out their superfluities in some costly things. There seems then no method so effectual for the securing of a dead stock of treasure in any country, as the encouraging the use of plate, by making it fashionable, preferable to more brittle or more perishable commodities. Plate would be a national resource in case of emergency, and not the less so, because the precious metals had not as yet received the shape of coins.129
Hume in 1752 claimed that state hoarding was the only expedient by which a country could raise its supply of the precious metals above the equilibrium level, but commented that this was “a practice which we should all exclaim against as destructive, namely, the gathering of large sums into a public treasure, locking them up, and absolutely preventing their circulation.” 130
Henry Home accepted so whole-heartedly the lesson of the quantity theory of money that he looked upon an export surplus alike with an import surplus as dangerous to the country. The latter meant an outward drain of money, with a consequent fall of prices and stoppage of industry. The former meant an influx of specie, extravagance, rise in prices, and finally a fall in exports, rise in imports, an unfavorable balance again, and a recurrence of the drain of specie. What was to be desired was an even balance. Therefore, “let the registers of foreign mints be carefully watched, in order that our current coin may not exceed that of our industrious neighbors.” But it was not the quantity of gold and silver in a country that determined the price level, but the quantity of money in circulation. Still retaining some traces of the mercantilist attachment for the precious metals, he therefore advocated the conversion of money into plate and even, under favorable circumstances, the formation of a state treasure.131
Cf. A. Oncken,Geschichte der Nationalökonomie, 1902, pp. 154 ff.; William Cunningham, “Adam Smith und die Mercantilisten,” Zeitschrift für die gesammte Staatswissenschaft, XL (1884), 44 ff.
An amusing conflict of interpretation pervades the apologetic literature. Some defend the balance-of-trade theory against its modern critics on the ground that the mercantilists knew that the favorable balance brought in money, and that when they spoke of wealth, treasure, or riches being increased as the result of a favorable balance, they meant money by these terms. Others defend the mercantilists against the charge of overemphasis on money, claiming that what they wanted was an increase of real wealth, or capital, and not merely of money. How a favorable balance of trade can constitute an increase in the total amount of capital or wealth within a country if money and capital or wealth are not the same thing they do not explain. These two lines of defense of mercantilist doctrine are, of course, mutually contradictory, and reflect the persistence into modern times of the confusion from which the original mercantilists suffered.
[Jocelyn] An essay on money & bullion, 1718, p. 15.
Steuart is the only mercantilist I have found who even cites the desirability of investment abroad as one of the reasons for desiring a favorable balance, and he does so only incidentally and obscurely.—Principles of political æconomy, 1767, II, 425–26: “... a balance may be extremely favorable without augmenting the mass of the precious metals ... by constituting all other nations debtors to it, ...”
These arguments must be carefully distinguished from the milder forms, as, for example, that foreign trade will be more profitable if it produces an export surplus than if it does not, or that foreign trade is the best source of wealth. What is said above does not necessarily apply to the milder forms, which are open, however, to other objections. See infra, pp. 22 ff.
Malynes, A treatise of the canker , T.E.D., III, 387.
E Misselden, The circle of commerce, 1623, p. 117.
Mun, England's treasure , Ashley ed., p. 7.
Samuel Fortrey, Englands interest and improvement , Hollander ed., 1907, p. 29
Roger Coke, A discourse of trade, 1670, pp. 4, 6.
Carew Reynel, The true English interest, 1679, p. 10.
[John Pollexfen] England and East-India inconsistent in their manufactures, 1697, pp. 18–19. A vindication of some assertions relating to coin and trade, 1699, undoubtedly also the work of Pollexfen, is an elaborate defense of Pollexfen's argument cited above against Davenant's attack on it in his Discourse of Publick Revenues . Pollexfen's argument is also effectively criticized in [Gardner] Some reflections on a pamphlet, intituled, England and East India inconsistent in their manufactures, 1696, pp. 6–7. (This tract, in spite of the date (1696) on its title page, cannot have been written before 1697.)
The British merchant [1713/4], 3d ed., 1748, I, 28.
Joshua Gee, The trade and navigation of Great-Britain considered , 1767 ed., p. 205.
W. Horsley, A treatise on maritime affairs, 1744, p. 37.
[Matthew Decker] An essay on the causes of the decline of the foreign trade , 1756, pp. 1–2.
Utopia , A. W. Reed ed., 1929, p. 78.
Roger Bieston, The bayte and snayre of fortune [ca. 1550], 1894 reprint, p. 21.
Mun, A discourse of trade from England , 1930 reprint, p. 49.
Papillon, A treatise concerning the East India trade , 1696 reprint, p. 4.
Barbon, A discourse concerning coining the new money lighter, 1696, p. 2.
Davenant, Discourses on the publick revenues , Works, I, 381.
[Jocelyn] An essay on money & bullion, 1718, p. 11.
[Robert Wallace] A view of the internal policy of Great Britain, 1764, p. 2. Similar definitions of wealth are to be found in: Gardner, Some reflections, 1696, pp. 6–7; Petty, Political Arithmetick ,The economic writings of Sir William Petty, C. H. Hull ed., 1899, I, 259; ibid.,The political anatomy of Ireland , Economic writings, I, 192; Bernard Mandeville, Fable of the bees , F.B. Kaye ed., 1924, I, 197, 301. (See also Mandeville's own index, ibid., I, 376, under “Nations: What the wealth of all nations consists in”); Berkeley, The querist [1735–37], in Works, Fraser ed., 1871, III, 357, 402; John Bellers, An essay for imploying the poor to profit, 1723, p. 6; [Robert Wallace] Characteristics of the present political state of Great Britain, 1758, pp. 113 ff.
E.g., Lewes Roberts, The treasure of traffike , McCulloch ed., A select collection of early English tracts on commerce, pp. 60–65; John Cary, An essay on the state of England in relation to its trade, 1695, p. 10; Erasmus Philips, An appeal to common sense, 1720, p. 18; ibid.,The state of the nation, 1725, p. 37; John London, Some considerations on the importance of the woollen manufactures, 1740, preface: “It requires no deep knowledge in trade to comprehend, that the riches of a nation must arise from the labor of its inhabitants in working up such goods as it can vend to other nations for specie.”
E.g., Thomas Manley, Usury at six per cent. examined, 1669, p. 8; [William Petyt] Britannia languens , McCulloch ed., Early English tracts on commerce, pp. 455–56.
Utopia [2d ed., 1556], A.W. Reed ed., 1929, p.44.
“How to reform the realme” [ca. 1535], in Pauli, Drei volkswirthschaftliche Denkschriften, p. 61.
England's treasure by forraign trade , Ashley ed., chaps. xvii, xviii.
[John Hales] A discourse of the common weal , Elizabeth Lamond ed., p. 113; Petty, A treatise of taxes , Economic writings, I, 36; [Henry Lloyd] An essay on the theory of money, 1771, p. 14 (where it is condemned as hoarding and therefore injurious to industry and trade).
John Houghton, A collection of letters, 1681–83, II, 115.
Henry Home, Lord Kames, Sketches of the history of man, 1774, I, 82 ff.
Such is explicitly the argument in “Polices to reduce this realme” ,T.E.D., III, 324; [J.Briscoe] A discourse of money, 1696, pp. 27–29; and Henry Home, loc cit.
As representative passages, the following may be cited ... it is his [the king of Spain's] Indian gold that endangereth and disturbeth all the nations of Europe; it purchaseth intelligence, creepeth into counsels, and setteth bound loyalty at liberty in the greatest monarchies of Europe—Sir Walter Raleigh, A Voyage for the discovery of Guiana , in Works, 1751, II, 149 [Restriction of the export of bullion] concerns the safety and well-being of the army, the keeping of treasure within the nation, for they and the army are like a ship at sea, which must be well-provided with anchors and cables, and victuals; money is to them all this, nay, everything—Thomas Violet, Mysteries and secrets of trade and mint-affairs, 1653, p. 35 ... since the wealth of the Indies came to be discovered and dispersed more and more, wars are managed by much treasure and little fighting, and therefore with little hazard to the richer nation—William Petyt, Britannia languens , in McCulloch ed., Early English tracts on commerce, p 293. For, since the introduction of the new artillery of powder guns, &c., and the discovery of the wealth of the Indies, &c, war is become rather an expense of money than men, and success attends those that can most and longest spend money: whence it is that princes' armies in Europe are become more proportionable to their purses than to the number of their people, so that it uncontrollably follows that a foreign trade managed to the best advantage will make our nation so strong and rich, that we may command the trade of the world, the riches of it, and consequently the world itself ... —James Whiston. A discourse of the decay of trade, 1693, pp. 2–3.
Observations upon the United Provinces of the Netherlands , Works, 1754, I, 131.
Political Arithmetick , Economic writings, I, 254. The etymological affinity of “superlucration,” which means, of course, saving, to the piling-up of money, has bearing on the argument which I make here that for many of the mercantilists that was what saving meant. The etymological relationships between the terms connected with saving and those signifying money are much closer in French than in English. See Charles Rist, “Quelques définitions de l'épargne,” Revue d'économie politique, XXXV (1921), 734 ff.
[Thomas Sheridan] A discourse on the rise and power of parliaments , reprint by Saxe Bannister, in Some revelations in Irish history, 1870, pp. 182–83.
Richard Lawrence, The interest of Ireland in its trade and wealth stated, 1682, Part I, p. 28.
Davenant, “An essay on the East-India trade” , Works, I, 102.
The libelle of Englyshe polyce [ms. 1436] Sir George Warner ed., 1926, p. 21. “Waffore” =predatory wasp; “minceth our commodity” =diminishes our resources. This passage is cited here as apparently an instance of the identification of thrift with the accumulation of the precious metals.
Thomas Houghton, The alteration of the coyn, with a feasible method to do it, 1695, pp. 5, 15.
Petty, Political arithmetick , in Economic writings, I, 259–60. In a recently published Petty manuscript, accumulation of gold, silver, and precious stones is stated to be the best mode of saving, because they are durable and are not dependent on time and place for their value, but are “morally speaking perpetual and universal wealth.” —The Petty papers, Marquis of Lansdowne ed., 1927, I, 214.
Hugh Chamberlain, A collection of some papers, 1696, p. 9. The store of wealth and the circulation functions of money are here brought into combination. Chamberlain remarked that money was more than tenfold as important as other commodities, presumably of the same exchange value. (Ibid.)
Joseph Harris, An essay upon money and coins, Part I (1757), 99.
An inquiry concerning the trade, commerce, and policy of Jamaica, 1759, pp. 2–3.
[Pollexfen] England and East-India inconsistent in their manufactures, 1697, p. 49.
Ibid., p. 7.
[William Hay] Remarks on the laws relating to the poor , 2d (?) ed., 1751, pp. 20, 21.
Thomas Starkey, England in the reign of King Henry the Eighth [ins. ca. 1538], Early English Text Society print, 1871, pp. 80, 81. Cf. also “Memorandum ... on the exchanges” , T.E.D., III 353; “Memorandum by Cecil on the export trade in cloth and wool” [1564?], T.E.D., II, 45.
See infra, p. 89.
John Gilbert, a mint official, in 1625, quoted by W. A. Shaw, Select tracts ... illustrative of English monetary history, 1896, p. 7.
[William Paterson] A brief account of the intended Bank of England , reprinted in Saxe Bannister, The writings of William Paterson, 2d ed., 1859, III, 85.
John Locke, Some considerations , in Works, 1823 ed., V. 9–10.
[Hales] A discourse of the common weal , Elizabeth Lamond ed., p. 63.
Thomas Mun, England's treasure by forraign trade , Ashley ed., pp. 7–8. For additional instances of the use of this analogy, see “Considerations for the restraynte of transportinge gould out of the realme” [ms. reign of Elizabeth], in Schanz, op. cit., II, 649; “Debate in House of Commons on subsidies” , T.E.D., II, 242; Misselden, Free trade, 2d ed., 1622, pp. 12–13; ibid., The circle of commerce, 1623, p. 130; Samuel Lamb, Seasonal observations , in Somer's tracts, 2d ed., VI, 465; Temple, Observations upon the United Provinces , in Works, I, 130; Locke, Some considerations , in Works, V, 19 ff., 72; Davenant, An essay upon ways and means , in Works, I, 13; [S. Clement] A discourse of the general notions of money, trade and exchanges, 1695, p. 11; Pollexfen, A discourse of trade, coyn, and paper credit, 1697, pp. 80 ff.; Steuart, Principles of political œconomy, 1767, I, 421.
Papillon, A treatise concerning the East India trade , 1696 ed., p. 4.
A discourse of trade , Hollander ed., p. 11. Cf. also, by the same author, A discourse concerning coining the new money lighter, 1696, pp. 47–48.
The fable of the bees , Kaye ed., I, 182.
Political discourses , in Essays, moral, political, and literary, 1875 ed., I, 337.
See infra, pp. 40 ff.
“Polices to reduce this realme of Englande” , T.E.D., III, 315.
Decay of Trade. A treatise against the abating of interest, 1641, p. 9. For further references to high prices as an evil, see “How to reforme the realme” [ca. 1535], in Pauli, op. cit., p. 64; Henry Brinklow, The complaynt of Roderyck Mors [ms. ca. 1542], Early English Text Society, 1874, pp. 49–50; Thomas Wilson, A discourse upon usury , Tawney ed., pp. 258, 284, 312, 356; Thomas Milles, The customers replie, 1604, p. 13; Malynes, The center of the circle of commerce, 1623, preface; Mun, England's treasure by forraign trade , Ashley ed., p. 24; A. V[ickaris], An essay for regulating of the coyn, 1696, pp. 23–24; An essay towards carrying on the present war against France [ca. 1697], in The Harleian miscellany, X (1810), 380; Vanderlint, Money answers all things, Hollander ed., 1914, pp. 16, 95; Steuart, Principles of political œconomy, 1767, I, 423.
E.g., Malynes, A treatise of the canker, , T.E.D., III, 389; Locke, Some considerations , Works, 10th ed., V. 50; Thomas Houghton, The alteration of the coyn, 1695, p. 44.
Fortrey, Englands interest and improvement , Hollander ed., 1907, p. 29: “... for what the price of any thing is amongst our selves, whether dear or cheap it matters not; for as we pay, so we receive, and the country is nothing damnified by it; but the art is when we deal with strangers, to sell dear and to buy cheap; and this will increase our wealth.”
E.g., Robinson, Englands safety; in trades encrease, 1641, pp. 55–56; Samuel Lamb, Seasonal observations , in Somer's tracts, 2d ed., VI, 464; [John Browne] An essay on trade in general, 1728, p. 31; [Mildmay] The laws and policy of England relating to trade, 1765, p. 62.
[Petyt] Britannia languens , McCulloch ed., pp. 283, 290; Thomas Houghton, The alteration of the coyn, 1695, p. 43; Browne, An essay on trade in general, 1728, p. 18; Robert Wallace, Characteristics of the present political state of Great Britain, 1758, p. 35; Arthur Young, Political Arithmetic, 1774, pp. 55 ff.
Free trade, 1622, pp. 106–07. Misselden advocated that landlords and creditors should be protected from loss by a provision that contracts made before the raising of the currency should be paid at the value of the money current when the contracts were made. (Ibid.) Thomas Manley (Usury at six per cent., 1669, p. 67) borrows some of the above, without acknowledgment. Heckscher (Mercantilism, 1935, II, 224 ff.) finds a much wider prevalence of the desire for higher prices among the English mercantilists than I have found. The specific evidence which he presents is not sufficient to convince me that I am wrong, but does weaken my conviction that I am right.
“By the means of which measures [i.e., the reduction, by “concoction” of all commodities which are not immediately consumed, to money], all commodities, moveable and immoveable, are made to accompany a man, to all places of his resort, within and without the place of his ordinary residence; and the same passeth from man to man, within the commonwealth; and goes round about, nourishing (as it passeth) every part thereof; in so much as this concoction is as it were the sanguification of the commonwealth; for natural 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.” —Thomas Hobbes, Leviathan , Everyman's Library ed., p. 133.
Cf. Sir Thomas More, Utopia , A. W. Reed ed., 1929, p. 44.
The key of wealth, 1650.
Money and trade considered , 1750.
Cf. Berkeley, The querist, Works, III, 395: “Whether the public is not more benefited by a shilling that circulates than a pound that lies dead?”; John Smith, Chronicon rusticum-commerciale, or memoirs of wool, 1747, I, 414: “And money itself is not properly riches, i.e., it is not serviceable to a community, but as it is circulated.”
Key of wealth, pp. 1–20.
Ibid., p. 7. Potter later makes his proposition even stronger: increase money and “both trading and riches will increase amongst them, much more than proportionable to such increase of money, and that without increasing the price of commodity, as I shall prove in place convenient” (ibid., p. 10, incorrectly paged 6). This, he explains, is due to the fact that when men have little money they tend to keep it, but when they have much, they make it “revolve” much more rapidly (ibid., p. 11).
Money and trade considered , 1750, pp. 20 ff.
William Potter, Key of wealth, p. 69.
Englands interest or the great benefit to trade by banks or offices of credit, 1682, pp. 1–2.
Several objections sometimes made against the office of credit, fully answered, ca. 1682, p. 9.
[William Paterson] A brief account of the intended bank of England , Bannister ed., The writings of William Paterson, III, 85.
Robert Wallace, Characteristics of the present political state of Great Britain, 1758, p. 37. Wallace, however, relapses at times into concern about the state of the national stock of bullion.
E.g., Samuel Lamb, Seasonal observations , Somers' tracts, 2d ed., VI, 455; Edward Forde, Experimented proposals , in The Harlsion miscellany, VII, 343; M. Lewis, Proposals to the King and Parliament, or a large model of a bank, 1678, p. 20; Richard Lawrence, The interest of Ireland, 1682, Part II, p. 11; An essay towards carrying on the present war against France [ca. 1697], in The Harleian miscellany, X, 380; Proposals for restoring credit: for making the Bank of England more useful and profitable, 1721, p. 17; Robert Wallace, Characteristics of the present political state of Great Britain, 1758, p. 30. See also pp. 44–45, infra, with respect to the views of Potter and Law.
See also the discussion of the theory of the “self-regulating mechanism,” pp. 74 ff., infra.
J.W. Angell, The theory of international prices, 1926, pp. 13, 15, 18, etc., denies specifically to Malynes and Mun, and generally to all the English mercantilists before Locke (1691) possession of any form of the quantity theory. A. E. Monroe, Monetory theory before Adam Smith, 1923, gives the same impression. For purposes of the theory of international trade, differences in the mode of formulation of the quantity theory have as a rule little qualitative significance, but as is shown in the text, several variants of the quantity theory were presented by English writers prior to Locke.
Malynes, A treatise of the canker , T.E.D., III, 387.
Malynes, The center of the circle of commerce, 1623, p. 14.
Mun, England's treasure [1664—written about 1630], Ashley ed., p. 28. See also p. 24.
Sir Robert Cotton, “A speech touching the alteration of coyne” , in Cottoni posthuma, 1672, p. 303.
Henry Robinson, Englands safety; in trades encrease, 1641, p. 60. If interpreted literally, this appears to be the quantity theory reversed, but the context shows it is not intended to be so interpreted.
Decay of trade, 1641, p. 2. See also, A discourse ... for the enlargement and freedome of trade, 1645, p. 23. For the period after 1650 the following may be cited, in addition to the writers discussed in the text: Ralph Maddison, Great Britains remembrancer , 1655, p. 7; [William Paterson] A brief account of the intended Bank of England , in Bannister ed., Writings of William Paterson, III, 85; John Briscoe, A discourse of money, 1696, pp. 47–58:
Cf. however, Angell, op. cit., p. 211: “In England no effort was ever made to reconcile the two conflicting doctrines.”
Neither Dubois, Précis de l'histoire des doctrines économiques, 1903, I, 258 ff., who of all the commentators on mercantilism deals most acutely with the difficulties created for the doctrine by the development of the quantity theory of money, nor Angell (op. cit.) who follows Dubois, mentions Potter. Dubois attaches great importance in this connection to Law and Verri, who were anticipated on the points relevant here by Potter.
Supra, pp. 37–38.
Key of wealth, 1650, p. 13.
Ibid., p. 13. Cf. also p. 15.
Ibid., pp. 17–20
Several assertions proved  Hollander ed., p. 20. This is, of course, an unusually clear instance of the confusion between loanable capital and money.
Money and trade considered  (Glasgow, 1750), pp. 141–42. Cf. also, Englands interest or the great benefit to trade by banks, 1682, p. 7: if a bank were established, “All sorts of wares will be afforded at cheaper rates, without prejudice to those that make and sell them, because trading will be greater and quicker.”
John Law, op. cit., pp. 166–73, 221. This argument is an anticipation of the doctrine of the nineteenth-century “banking school,” which applied it, however, only to convertible, and denied its applicability to inconvertible paper money.
Ibid., pp. 142–43. Law's reasoning is reproduced at length and largely verbatim, without any acknowledgment, by Sir Humphrey Mackworth, A proposal for payment of the publick debts, 2d ed. (ca. 1720), pp. 9–16. The quantity theory is also attacked, in an obscure and ineffective way, by B.I.M.D. [William Temple of Trowbridge], A vindication of commerce and the arts , McCulloch ed., Select collection of scarce and valuable tracts on commerce, 1859, pp. 517 ff.
The present state of England, 1697, pp. 27 ff., 122 ff., 230 ff., 333.
Key of wealth, p. 12.
Ibid., pp. 68 ff.
Money and trade considered , 1750, p. 217.
Ibid., pp. 23–24. Sir Humphrey Mackworth plagiarized Law here as else where.—A proposal for payment of the publick debts, ca. 1720, p. 9.
Cf. A discourse of the nature, use and advantages of trade, 1693, p. 20:
Rice Vaughan, A discourse of coin and coinage, 1675, p. 66.
Omnia comesta a bello, 1667, p. 10.
Et á dracone: Or, some reflections upon a discourse called Omnia á belo comesta, 1668, pp. 5 ff. Cf. Taxes no charge, 1690, pp. 13 ff.
Thomas Manley, Usury at six per cent, examined, 1669, p. 53. Manley borrowed the analogy from Francis Bacon: “Money is like muck, not good except it be spread.” —“Of seditions and troubles” , in works, 1852, I, 23. But the context shows that Bacon meant more equal distribution of wealth and not monetary circulation.
Taxes no charge, 1690, p. 17.
Some considerations , Works, 1623 ed., V, 12.
Political arithmetick , Economic writings, I, 243.
A collection of some papers, 1696, p. 4.
Supra, p. 44.
The circumstances of Scotland consider'd, 1705, p. 25.
The vindication and advancement of our national constitution and credit, 1710, p. 84.
Malachy Postlethwayt, Great-Britain's true system, 1757, pp. 337–42.
A discourse about trade, 1690, author's preface. Cf. also: Reasons offer'd against the continuance of the Bank, 1707; A short view of the apparent dangers and mischiefs from the Bank of England. 1707, p. 12; Some queries, humbly offer'd ... relating to the Bank of England, 1707, p. 1; An enquiry into the melancholy circumstances of Great Britain (n.d., ca. 1730), p.36.
The universal dictionary of trade and commerce, 4th ed. 1774, Art. “Banking.” What some of the critics of the Bank really had in mind was the danger that a great bank controlling a substantial proportion of the available loan funds would be able to exercise a monopolistic control over credit, to charge excessive interest rates, and to discriminate between borrowers. Cf. Remarks upon the Bank of England, with regard more especially to our trade and government, 1705; A short view of the apparent dangers, 1707, pp. 10 ff.
England's treasure , Ashley ed., p.28.
Free trade, 2d ed., 1622, p. 11.
“Policies to reduce this realme” ,T.E.D., III, 323–24.
J. Briscoe, A discourse of money, 1696, pp. 27–29. Cf. also Henry Robinson, Englands safety; in trades encrease, 1641, p. 9.
A collection of letters, 1681–83, II, 115.
The political anatomy of Ireland , Economic writings, I, 193.
The circumstances of Scotland consider'd, 1705, p.9.
Money answers all things , Hollander ed., pp. 94 ff.
Joseph Harris, An essay upon money and coins, Part I (1757), 89.
Ibid., pp. 99–100.
Political discourses , in Essays, moral, political, and literary, 1875, I, 340.
Sketches of the history of man, 1774, I, 82. See also Postlethwayt, Great-Britain's true system, 1757, p. 357.