The Online Library of Liberty

A project of Liberty Fund, Inc.

• Foreword
• Economic Liberalism the Beginnings
• 1: The Stoic Origins of Liberalism
• 1: The Consequences of Stoicism
• 2: Zeno and the Moral Sage
• 3: The Modifications In Stoicism
• 4: Epictetus
• 5: Cicero
• 6: The Stoic Legacy
• 2: The Mercantilists As Liberals
• 1: National Power and Full Employment
• 2: The Means to Full Employment
• 3: The Market
• 4: The Political Ideas
• 5: The Economic Setting of Mercantilist Policy
• 6: Comment On the Commentaries On Mercantilism
• 3: The Origins of American Liberalism
• 1: The Constitutional Convention
• 2: The Ideology of the Federalists
• 3: Economic Policy of the Federalist Party
• 4: Republican Economic Policy

6

Comment on the Commentaries on Mercantilism

The interpretation of this chapter makes English mercantilist doctrine a predecessor of economic liberalism. In order that the meaning be clear, it may be compared with other interpretations of mercantilism. Works on the history of economic thought usually abide by the judgment of Smith and Mill—that the mercantilists believed money was wealth and therefore that the nation became richer as it acquired more monetary metal. That the mercantilists should be judged in this way is understandable. If their goal of full employment is neglected, there is no way to explain their preoccupation with the money supply other than to suppose they thought money was wealth. The exposition here of their monetary theory should demonstrate that few of them made the simple error of which they so often have been accused.

Another interpretation looks on mercantilist doctrine as a collection of mistaken ideas, not only in the area of monetary theory but in others as well. The mercantilists in this view are regarded as rudimentary economists who sensed the importance of the problems they faced but were defeated by them. The mercantilists did express certain ideas crudely and did make mistakes (what economists have not?). But there was nothing primitive about their central ideas. The most important aspects of the price mechanism, for example, were understood as long ago as 1549 when Hales’s Discourse was published, and the way he wrote of them suggests they were known even before his time. Modern economics has expressed these principles in more rigorous form but has not altered them. We still believe that unequal rates of profit can cause a reallocation of resources. Indeed only in this century has economics tried to reintegrate monetary and price theory in order to bring together the money and the real sides of the economy—a theoretical achievement sought by the mercantilists.

By a third interpretation, the mercantilists were apologists for the economy of their time. To look upon social thought as a rationalization of prevailing institutions is now commonplace. One is told, for example, that Aquinas was justifying the ways of God to man, that The Leviathan of Hobbes was a defense of the absolute monarchy of the Stuarts, that Adam Smith rationalized the behavior of the burgeoning middle classes, and that the mercantilists justified commercial capitalism. This view makes the motivations of the writer inseparable from what he said. Two conclusions usually are drawn about the mercantilists. One is that their doctrine was meant to explain the circumstances of their time. If this means the mercantilists were interested only in the present, it is wholly correct. Economists always are interested in the problems of the time, some of which are transitory and others nearly everlasting. The other conclusion is that the mercantilists sought to advance private interests by disguising them in a tissue of abstraction. When they wrote in favor of the principle of the free market they really were opposing only those kinds of control which injured particular interests, and when they proposed certain controls they wished to advance these interests. I do not know how such an interpretation could be upheld (in addition to contrary statements in their works, there is the awkward difficulty of uncovering the private thoughts of men who have been dead 200 years and more), nor do I see just what significance the proof would have. Perhaps John Hales was trying to increase the income of corn growers and Thomas Mun wanted greater dividends for the East India Company. Nevertheless, they had something of lasting interest to say.

The most cogent of all interpretations of mercantilism is that which makes it a continuation of the ideas of medieval society. This is the view of Schmoller and of Heckscher.44 Schmoller stated the principal tenet of mercantilism was the identity between political and economic institutions, such that the economic conduct of the individual was made to conform to the objectives of the state. Mercantilism was thus a system of national power and one of a number of forms which idealism as a political philosophy can take. Prior to the twentieth-century dictatorships, the most notable expression of idealism was medieval society. In their remarks on economic conduct, the Schoolmen stated that free individual behavior was inimical to the welfare of society. They accepted the Aristotelean notion that exchange was “unnatural” because it caused men to lose sight of the proper use of commodities, which was consumption, and to make an improper use of them, which was unlimited accumulation.45 In the Aristotelean and medieval conception, exchange is condemned if its purpose is anything more than the satisfaction of limited wants. It is wrong if it becomes a means of expressing acquisitive desires because they are improper in themselves. In its practical aspect, the conception condemns exchange as a useless act and proposes it be controlled. This was the prevailing medieval view after about the twelfth century. There were exceptions to it. And as time passed the doctrine gradually altered from an explicit condemnation of exchange to the prescribing of rules under which exchange was permissible, and at last to a justification of exchange. One of the writers of the transition period was the Italian, Francesco Patrizi, who stated about 1480 that “they which trade in merchandise with modesty and do take no usury . . . and they which do not lie . . . I deem them worthy to be enriched with the benefits of a commonwealth.”46 In the next century, the Spanish Jesuit Molina (whose work now is attracting attention) expressed liberal ideas of exchange.

In English mercantilist writings I have found only one statement that in any way suggests the prevailing medieval idea about exchange. It is Cary’s assertion that buying and selling “whereby one man lives by the profit of another, brings no advantage to the public.” However, one cannot be certain that Cary endorsed the medieval idea. His observations of the price mechanism were anything but medieval. Admittedly, the mercantilists stated that self-interest was inimical to the public good, but the statement is, I believe, of no significance. The kind of economy they proposed could not possibly have operated without the expression of self-interest, just as the economy proposed by the classicists could not have operated without it. They too condemned self-interest, but neither they nor the mercantilists believed it wholly bad or even mainly so, and they did not want it suppressed. Both wanted the power it gave to men to be used in the national interest. Hales wrote about enclosures:

To exploit the selfishness in men, to reward them for it, to see in it a power for good as well as harm—there were ideas as remote from the ruling thought of the middle ages as ideas could be. One cannot discover the roots of English mercantilist doctrine there. They took hold after the power of medievalism in England was spent. The direction of the doctrine was not to the past but to the future—to the ideas of classical economics, however much it disdained its predecessors.

3

THE ORIGINS OF AMERICAN LIBERALISM

In the history of liberalism, the men who made the American Constitution are important in two ways. They were political craftsmen of the highest order, a fact which is well known and a little commonplace. What is not so well known and just as important is their theoretical achievement, not simply in the history of liberalism in America but in the Western world. The achievement consisted in bringing together two elements in liberal doctrine which never before had been integrated and which are in fact quite difficult even to reconcile. One was the idea that the individual in order to be free must have power. The other was that the state in order to maintain its independence and to protect individual freedom also must have power, some of which must be taken from the power of the individual and hence from his freedom.

The Americans of the constitutional period therefore are important for their ideas about power. That, as one thinks of it, is to be expected from political theorists who become politicians (a word that need not be pejorative). The way they related the two kinds of power was the distinctive feature of their liberalism. In it the political and economic aspects were closely connected. They are explained separately here only for analytical reasons. My emphasis on the economic aspect does not mean it was the more important or received the greater attention, but that I have emphasized that which is the subject of this book.

The American doctrine was an interpretation of British liberalism according to the needs of a new nation. The men who developed it wanted to do two things—to establish a government that would provide more individual liberty than any other had yet done and at the same time to establish a government that quickly would become powerful in the world. There is no necessary conflict between individual liberty and government power once that power has been asserted and has been accepted by those whom it rules and by other nations. The compatibility is suggested in many ways by the history of England. But a conflict is possible, and indeed probable, while national power is coming into being and has not been entirely asserted and accepted. This was the condition in the period covered in this study, from about 1787 to 1815.

There were many areas in which the interests of the individual could conflict with those of the Federal government, and the conflict presented issues like these: Should the individual trade freely with foreigners, thereby keeping agriculture in its ruling position and retarding the development of manufacturing which in turn would reduce the potential military power of the United States? Or, conversely, should the government intervene in order to hasten the development of manufacturing and military power, thereby turning the economic development of the United States away from the course to which it would be directed by a free market? Again: Should the Federal government establish its financial reliability by guaranteeing the entire debt of the Confederation and of the state governments, an act which alone would make the government the major power in the economy? Or, conversely, should its financial power be limited in order to increase the power of the individual, thereby weakening its ability to act when either domestic or foreign affairs made action desirable? The conflict between individual and national power also was manifested in such measures of policy as the Bank of the United States, the chartering of corporations by the Federal government, the direction of internal improvements, the control of monopoly, and the distribution of land.

These issues and the double objective of individual and national power are the subject of this chapter. So much has been written about the founding fathers that the reader may wonder if there is anything left to say about them. There is, because there in fact has not been much written about their economic ideas, and what has been written has been from the viewpoint of the period of the writer more than that of the period of those written about. Each generation likes to rewrite its history to confirm its presuppositions, as Henry Adams once suggested, and in America the generations have been especially fond of discovering they want to do just what the founding fathers would have done in the same circumstances. I do not belittle the earnest effort in such writing; I am impressed by its ingenuity. But I do not think it is intellectual history. To interpret the ideas of the past according to the problems and longings of the present is not history—it is rhetoric or argumentation. In the period between the world wars of this century, most American intellectuals believed the Federal government should exercise more economic power, and there were many historians who discovered that the men who wrote the Constitution intended the Federal government to have just that power. In the same period there was unrest and some longing for radical changes. Jefferson was then discovered to have been a revolutionist. After World War II such ideas became unpopular and were replaced by some quite conservative beliefs. Hamilton then was discovered. In writing this chapter I have tried to keep in the front of my mind the question, What were the founders of America trying to do? My conclusions are derived from what they themselves wrote and said, and have been very little influenced by what others have written about them.1

Most of the ideas described here were expressed between 1787, when the constitutional convention met, and 1815 when the second war with Britain ended. They were in letters, speeches, state papers, books, and tracts by the men who were the leaders of thought and usually of government as well—men like Franklin, Hamilton, Jefferson, Madison, Paine, Barlow, Taylor, Gallatin and a few others. Their political and economic ideas usually were put forward together, and hence a description of their political theory usually helps to understand their ideas about economic policy. The theories were not always consistent in themselves nor with each other and they changed as those who held them grew older. I have therefore noted the inconsistencies and changes of belief that were substantial. Except for the general division between the Federalists and the Republicans, the order of explanation is chronological. The first important event in the intellectual—and general—history of the period was the constitutional convention in 1787.

[44] Gustav Schmoller, The Mercantile System and Its Historical Significance (New York, 1896), p. 7.

Heckscher, op. cit., II, 324.

[45] Aristotle, Politics, i, 9.

[46] Francesco Patrizi, A Moral Methode of Civile Policie. Etc., trans. Rycharde Robinson (London, 1576), pp. 9-10.

[47] Cary, op. cit., p. 4. Hales, op. cit., pp. 121-122.

[1] Some of the commentaries that present an interpretation different from mine are: W. W. Crosskey, Politics and the Constitution in the History of the United States (Chicago, 1953), I, Pt. II, Joseph Dorfman, The Economic Mind in American Civilization, 1606-1865 (New York, 1946), I, Bk. 2, Pt. I; the papers by Frederick K. Henrich, Oscar Handlin, Louis Hartz, and Milton S. Heath on “The Development of American Laissez Faire,” in “The Tasks of Economic History,” Journal of Economic History, Supplemental Issue, Dec., 1943, 51-100; and Daniel J. Boorstin, The Lost World of Thomas Jefferson (New York, 1948).