Front Page Titles (by Subject) 4: The Political Ideas - Economic Liberalism, vol. 1 The Beginnings
The Online Library of Liberty
A project of Liberty Fund, Inc.
Search this Title:
4: The Political Ideas - William Dyer Grampp, Economic Liberalism, vol. 1 The Beginnings 
Economic Liberalism (New York: Random House, 1965). vol. 1 The Beginnings.
Part of: Economic Liberalism, 2 vols.
About Liberty Fund:
Liberty Fund, Inc. is a private, educational foundation established to encourage the study of the ideal of a society of free and responsible individuals.
This book is published online with the kind permission of the copyright holder, the author William Grampp.
Fair use statement:
This material is put online to further the educational goals of Liberty Fund, Inc. Unless otherwise stated in the Copyright Information section above, this material may be used freely for educational and academic purposes. It may not be used in any way for profit.
The Political Ideas
The mercantilist conception of free exchange had a political as well as economic aspect, and both anticipated the ideas of the classical economists. Although the mercantilists differed among themselves about the origin of government, they agreed upon the extent of its powers, which, they said, should be limited by law. The limitation would enable men to exercise their economic liberty, which in turn would foster the growth of the economy. Temple said the economy could prosper “under good princes and legal monarchies, as well as under free states,” but that it must decline under a “tyrannical power”—free states here meaning republican governments. The words were used also to mean any form of government whose power was limited, as by Barbon who said trade could flourish only in a “free government,” of which a constitutional monarchy was one form. “Men are most industrious, where they are most free, and secure to enjoy the effects of their labours,” he said. In its economic application, the doctrine of limited power meant that regulation of the market should be minimized and made to apply uniformly to all persons and trades. “All favour to one trade or interest against another, is an abuse, and cuts so much of profit from the public,” North said.34
THE ORIGINS AND FORMS OF GOVERNMENT
As among the classical economists, so among the mercantilists there was considerable disagreement about the foundations or beginnings of government. Some, like Temple, believed the authority of the state was an extension of the authority of the father over the family and they believed the ideal state was like a harmonious family. As the family was ruled by a loving father, so the state was ruled by a benevolent monarch. “Thus a family seems to become a little kingdom, and a kingdom to be but a great family,” he wrote. The father-king, one must remember, was limited in his power and in no sense was an absolute ruler.
Other mercantilists accepted the contract theory of government which then enjoyed its ruling hour. Petty believed the political difficulties of the day were the result of the “warpings of time, from the rectitude of the first Institution,” that the changes were unnatural and hence could be corrected. The greatest exponent of the contract theory among the mercantilists was Defoe. He said that every man had natural rights, that they were beyond the power of the state to abridge, and that the state was the creature, not the maker, of law. He said the deposition of the Stuart dynasty was justified because it had exceeded its legitimate authority and had left the people with only revolution as the means of securing their rights. Barbon and Davenant were forcible in advocating constitutional procedures, asserting that only by these means could the liberty of the individual be protected.35
The differing conceptions of the origin of government did not lead to disagreement over the proper form or structure. The mercantilists were all of them opposed both to absolute rule by an individual and to unlimited rule by the people. Their opposition to both autocracy and democracy came of a profound distrust of power per se. Temple wrote:
Many men are good and esteemed when they are private, ill and hated when they are in office . . . and many men come out, when they come into great and public employments.36
There is a notable agreement between Temple’s ideas of power and those Hume expressed about seventy-five years later. Temple said that authority is the “foundation of all ease, safety, and order in governments” and that “authority arises from the opinion of wisdom, goodness, and valour in the persons who possess it.” He meant that the power of government would be more legitimate and more certain, the more it obtained “the consent of the people, or the greatest and strongest part of them.” It was the “greatest and the strongest” among the people who should exercise power. He was opposed to democracy because, in his view, it was unable to provide stability and security. By offering liberty to all men, it solicited an expression of those natural traits that bring men into conflict and then place them under the absolute rule of the few. He said that democracy was unwise because men were inherently restive, because they had diverse interests, were prone to be contentious, and always were eager to battle over the inevitably few positions of power. The same ideas were at the center of Defoe’s opposition to democracy, and motivated his belief that class distinctions were necessary and therefore natural.37
Their opposition to democratic government did not make the mercantilist writers apologists for an aristocracy, and they did not approve of many of the forms of illiberalism which they saw about them. Most of the mercantilists were opposed to religious intolerance and insisted upon the rightness, as well as expedience, of allowing each person to seek his spiritual salvation in his own way. Defoe was highly critical of the English ruling classes, believing their attitude toward trade was an obstacle to the progress of the economy. The Compleat English Tradesman and parts of The Compleat English Gentleman, together with the parabolical meaning of Robinson Crusoe, can be interpreted as an effort to persuade the aristocracy of the national value of trade and so to secure a higher social position for the tradesman. (One of the small ironies in the history of economics is that Robinson Crusoe has been used repeatedly to illustrate, of all things, rational economic conduct. It is much more an illustration of the tradesman’s mentality. Did Robinson allocate his resources to equalize marginal returns? Hardly; he was much too busy building fences all over the island as if he were preparing it for a suburban development.) Other mercantilists wrote persuasively of the great usefulness of the tradesman and of the wisdom of giving him greater political power and a higher social position.
POLITICS, THE PRICE MECHANISM, AND POLICY
The ideas of politics and of the price mechanism stand in a paradoxical relationship to the economic policy which the mercantilists advanced. If one reads only their expressions about economic and political liberty, one easily could believe their policy must be laisser faire. If, on the other hand, one looked only at the measures of control they proposed, one could conclude they thought very little of freedom. The paradox is that the mercantilists anticipated many of the positive and some of the normative elements in classical economics but came to much different conclusions about policy. They were reluctant to follow the principle of freedom to all of the practical results they thought it would bring, and, what is equally clear, they were reluctant to modify their ideas of liberty in order to achieve the practical results they wanted.
It is instructive to compare the ideas of Hales and Smith on the normative aspects of free exchange. When Smith observed that each individual always tries to discover “the most advantageous employment for whatever capital he can command,” he concluded that the “study of his advantage naturally, or necessarily, leads him to prefer that employment which is most advantageous to society.” Hales did not think this always would be so. Another colloquy examines the question:
Knight: Every man is a member of the commonweal, and that that is profitable to one may be profitable to another, if he would exercise the same feat. Therefore that is profitable to one, and so to another, may be profitable to all, and so to the commonwealth. . . .
Dr.. That reason is good (adding so much and more of it). True it is that thing which is profitable to each man by himself, (so it be not prejudicial to any other) is profitable to the whole commonwealth, and not otherwise; or else robbing and stealing, which perchance is profitable to some men, were profitable to the whole commonweal, which no man will admit.38
Malynes, too, was unable to endorse free exchange completely. He said it might conflict with the “good of the commonwealth, which is the cause that princes and governors are to set at the stern of the course of trade and commerce.” He said that to allow merchants to set the course of trade would be as imprudent as to consult vintners about laws against drunkenness. A similar qualification was made by Child:
. . . the profit of the merchant, and the gain of the kingdom . . . are so far from being always parallels, that frequently they run counter one to the other, although most men . . . do usually confound these two.
Although he was in favor of competition, Postlethwayt hesitated to endorse it wholly. “Exchange of merchandise for merchandise is advantageous in general; but not in cases where it is contrary to the foregoing maxims,” he wrote, the maxims being that trade should be directed to increasing the money supply and employment. Even the enlightened North was dubious about the universal harmony of self-interest operating on the market, although he viewed the possible disharmony oppositely from the usual way. He was less troubled with occasions on which the individual could gain at the expense of the nation than with the possibility of the nation gaining at the expense of the individual (as when an unwise investment reduced the income of the investor even though it led to greater employment of others). Some mercantilists believed the economy could prosper at the expense of individuals, if they engaged in extravagant expenditure, which although it might damage them was nevertheless beneficial to trade. The idea was set forth by Mun in a chapter entitled “Of some Excesses and Evils in the Commonwealth, which not withstanding decay not our Trade nor Treasure.” The idea was made popular by Mandeville in his fable of the bees whose private vices were public benefits. It was not, however, as widely accepted as the notoriety of Mandeville’s verse suggests. Davenant, although he admitted the possibility, denied that private extravagance was the only way to wealth and submitted that a wise levying of excises would give the lie to the notion that “riot and expense, in private persons, is advantageous to the public.”39
These passages indicate that the mercantilists not only proposed controls which would have abridged economic freedom but also that they were quite aware of the effect of their measures. They also were aware of why freedom should be limited.
One reason was that unlimited freedom would prevent the economy from achieving its major purpose, which was an increase in the nation’s wealth. In order to achieve this, they believed the market had to be controlled in some important ways. The other reason was less significant, and the limitation which it implied was in no way inconsistent with classical economic policy. When, for example, Hales denied that self-interest always produced universal harmony, he cited the act of theft in proof of his view (actually, he had more than this on his mind, and the example was not well chosen). The prohibiting of crime is not, of course, a denial of freedom. Nor was there a denial of freedom in the similar proposals of other mercantilists. Many of them said that the unlimited freedom of the tradesman would lead eventually to monopoly. This, again, was not a denial of the principle of free exchange, which assumes competitive behavior. Indeed, the opposition to monopoly is an affirmation of liberal doctrine, and many mercantilists anticipated the doctrine in their opposition to monopoly and in their defense of competition. Tucker excoriated the regulated companies (which had certain monopolistic powers) in language which suggests Smith at the height of indignation:
This is the greatest and most intolerable of all the evils of monopolies. It is a prostitution of the trade and welfare of the public, to the merciless ravages of greedy individuals.
Postlethwayt anticipated the classical conception of the advantages of competition. He wrote:
Domestic rivalship in trade produces plenty; and plenty cheapness of provisions, of the first materials, of labour, and of money. Rivalship is one of the most important principles of trade, and a considerable part of its liberty. Whatever cramps or hurts it in these four points is ruinous to the state, and diametrically contrary to its intent, which is the happiness and comfortable subsistence of the greatest number possible of men.
North warned of the devious forms which monopoly could assume:
For whenever men consult for the public good, as for the advancement of trade, wherein all are concerned, they usually esteem the immediate interest of their own to be the common measure of good and evil.
In the next century Smith said dryly: “I have never known much good done by those who affected to trade for the public good.”40
When the mercantilists wrote that economic freedom had to be qualified because it led to abuse, they really were not taking exception to the principle but were amplifying it to state that the individual is not free to deprive others of their freedom.
There was, however, another kind of qualification, and it directed the mercantilists to propose substantial restrictions on free exchange. In order that the nation increase its wealth, or income, all resources had to be fully employed. The mercantilists did not believe that the market alone could assure this. If the market were left to itself, spending would not always be sufficient, income would be distributed improperly, the money supply would not always be adequate, specie would be lost through excessive imports, the rate of interest would become too high, and the labor force would be too small and insufficiently productive. The result would be a waste of resources and a national wealth and income smaller than England was capable of.
FULL EMPLOYMENT VERSUS LAISSER FAIRE
Hence the mercantilists could not propose a policy of laisser faire, or of complete reliance on the market, because they did not believe the policy could assure full employment and, failing in this important respect, the policy would not serve the national interest. The proper policy was that collection of measures which secured full employment by utilizing the price mechanism. The price mechanism, or free market, was not regarded as an end in itself but as a very useful means of assisting economic growth. The mercantilists looked upon the market in an instrumental way. The classical economists regarded it in the same way. The latter however believed that economic growth required using the market in a different way. They believed the market should be made competitive and used to secure an efficient allocation of resources; and they gave so much attention to establishing a competitive price mechanism that it often has been thought they made the mechanism an end in itself.
The apparent distinction, then, between mercantilist and classical policy was between the goals of full and efficient employment. Yet when the distinction is made in this way, it distorts the intent, if not the letter, of the two policies. Very probably neither the mercantilists nor the classicists would have acknowledged the correctness of such a distinction. The former, I suspect, would have insisted that their policy achieved a greater output, and therefore was more efficient, than a policy which ignored the problem of full employment. The implicit assumption of the mercantilists was that a nation was not free to choose between using all of its resources in one way or another, in order to maximize output, but that the nation had to choose between a policy that would produce full employment and one that would not. The classicists probably would have insisted that once the market had been made competitive and the conditions established for an efficient use of resources there would be no problem of full employment. They would have granted, probably insisted, that unwise interference with the market could create underemployment but they would not have expected underemployment to be a problem once the market was properly organized.
In brief, the mercantilists believed the way to greater output was by increasing the total employment of resources, and the classicists believed the way was by improving the allocation of resources either already employed or likely to be. Who was right? If the two were contemporaries and the debates were held today, the verdict of many economists would be that both were wrong. But in fact each of them addressed themselves to the economic problems of quite different periods and did so with the knowledge of economics that was available in their respective periods. The question of who was right is not a useful question.
 Temple, op. cit., I, 120. Barbon, op. cit., pp. 27-28.
North, op. cit., p. 14.
Cf., however, Philip W. Buck, The Politics of Mercantilism (New York, 1942).
 Temple, op. cit., II, 41, 42. Petty, op. cit., I, 301.
Defoe, The Compleat English Gentleman, ed. Karl D. Bulbring (London, 1890), p. 147.
Barbon, op. cit., p. 20. Davenant, op. cit., passim.
 Temple, op. cit., II, 366.
Ibid., II, 35, 46, 51.
Cf. David Hume, “Of the First Principles of Government,” Essays Moral, Political, and Literary in Philosophical Works (Edinburgh, 1826), III.
Daniel Defoe, The Compleat English Gentleman, passim.
 Hales, op. cit., pp. 50-51; italics added.
 Malynes, The Maintenance of Free Trade, pp. 3-4, 5.
Child, op. cit., pp. xxvi-xxvii.
Postlethwayt, Great Britain’s Commercial Interest, etc., II, 371.
North, op. cit., pp. 27-28. Mun, op. cit., ch. xv.
Davenant, An Essay on Ways and Means of Supplying the War, p. 139.
 Tucker, op. cit., p. 74.
Postlethwayt, Great Britain’s Commercial Interest, etc., II, 377.
North, op. cit., p. 12. Smith, op. cit., p. 423.