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LECTURE II.: MERCANTILE THEORY OF WEALTH. - Nassau William Senior, Three Lectures on the Transmission of Precious Metals from Country to Country and The Mercantile Theory of Wealth 
Three Lectures on the Transmission of Precious Metals from Country to Country and The Mercantile Theory of Wealth. Delivered before the University of Oxford, in June 1827 (London: John Murray, 1828).
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MERCANTILE THEORY OF WEALTH.
An eminent writer,* perhaps the only man whose acquirements and virtues do honour both to a Spanish and an English University, while commenting on that extraordinary passage in the History of Human Knowledge, the inattention of the ancients to the philosophy of wealth, has compared their state of mind to that of children in the house of an opulent trader, who, finding the necessaries and comforts of life supplied to them with mechanical regularity, never inquire into the machinery by which these effects are produced, or, if they ever do think about it, suppose that breakfast, dinner, and supper, succeed one another by the spontaneous bounty of nature, like spring, summer, and autumn.
If I might venture to carry a little farther the parallel which has been begun by so masterly a hand, I should say, that when first the children turned their attention to the sources of their comforts, finding that their father often talked of the difficulty of getting money, and seldom of the difficulty of spending it, that he generally spoke of his fortune as consisting of the money he was worth, and that the motive which he generally assigned for refusing them any luxury was, that he had not money enough to afford it, they concluded that their enjoyments depended rather on the money which their father received, than on that which he spent; that their abundance depended on the amount of money for the time being, in his strong box, and would be increased indefinitely, provided that amount could be indefinitely augmented and retained. The obvious mode of effecting this wise object seemed to be to cause as much money as possible to come in, and as little as possible to go out; to encourage every exchange in which their father received money, and to discourage every one in which he parted with it: to favour his trade with his own customers, and to restrain every trade in which he was a customer himself: to forbid his parting with a single shilling that he received, and to put an end to the unfavourable commerce which he carried on with his green-grocer and his shoeblack, by turning his manufactories into a potatoe garden, making his weavers dig, and requesting him to employ, in blacking his own shoes, some of the time which he formerly devoted to his shop.
I fear that the absurdity of my supposition may appear almost farcical. So true it is that the follies of real life are too gross not merely for fiction, but almost for hypothesis, and that whole nations may for centuries act, or endeavour to act, upon principles which it seems a mere burlesque to attribute to an individual. For in what does the mercantile system, with its prohibition of the exportation of the precious metals, its commercial treaties with those nations which are supposed most likely to supply gold and silver, its prohibition and restriction of the importation of those commodities which are supposed to occasion an unfavourable balance of trade, or, in other words, a trade in which the precious metals are exported, and its bounties on the exportation of those commodities which are supposed to be paid for in gold and silver, and its attempts to render us independent, as it is termed, of foreign nations, by forcing us to produce at home what could be obtained better or more abundantly from abroad; in which of these attempts, and they constitute its essence, does the mercantile system differ from the conduct of my supposed children? If nothing should occur to check the world in its present state of improvement, and 1000 years hence, when all traces of the mercantile system which at present clogs all our actions, and disturbs all our reasonings, shall have vanished, when the rulers of every nation shall permit their subjects to use to the utmost their own advantages, and profit to the utmost of the advantages possessed by their neighbours; if, in that millenium of good sense, a copy of these lectures shall be discovered, I shall be considered probably a recluse academic, totally unacquainted with the real business of the world, and declaiming from my cloister against opinions and conduct too monstrous to have had any but a visionary existence in my own imagination.
I need not give myself much trouble about the opinion of posterity, but my present hearers have a right to require from me some account of the causes that enabled a set of opinions which do not even admit of being plausibly stated, to prevail so universally, and to remain for so many centuries unquestioned. I am inclined to ascribe their immediate origin more to the use of money as a measure of value than to its use as a medium of exchange. A man possessed of an extraordinary number of valuable things is rich; but the clearest mode of stating his comparative wealth is to state the aggregate of the sums of money for which all his possessions would sell. We say, perhaps, that he has 100,000 pounds; meaning that such is the aggregate amount of the sums of money for which all his property might be sold. When applied to an individual this language leads to no misapprehension. We know that the person whom we have described as possessing 100,000 pounds does not in fact possess twenty; that he does not habitually keep with him as much money as a petty shopkeeper of not one tenth or one hundredth of his fortune. And we are quite aware that if we could force him to increase the money in his custody to ten times its usual amount, we should impoverish rather than enrich him. But when men reason upon national wealth, they seem to forget that it is merely the aggregate of the wealth possessed by individuals. Their minds are confused by its magnitude and complexity; because the wealth of a nation, like the separate masses of which it is composed, may be computed in money, they suppose that it consists of money;—a mistake as gross, and perhaps as natural, as that of a child who, hearing that a given merchant had 100,000 pounds, should suppose that he had a box containing that sum in gold and silver.
When this strange misapprehension of the nature of wealth had prevailed, I have no doubt that it was indebted for its continuance principally to the impossibility of reducing its principles to practice. We have seen that to sell without buying, or even to continue selling more than you buy, that is, to effect the object proposed by the mercantile system, the forcing a constantly favourable balance of trade, is impracticable. But if it had been practicable to a given extent and for a given time; if by force of prohibitions, restrictions and bounties, we had been able for twenty years together to make our exports exceed in value our imports, to the amount, we will say, of five millions sterling, and to receive and retain the balance, we should have found ourselves in time possessed of a hundred millions sterling in gold and silver, in addition to our money previously in circulation, which has never probably exceeded forty millions. It is difficult to say to what extent such an addition to our currency, uncalled for by any previous deficiency, would have raised the prices of all English commodities, and how low its abstraction from the currencies of the rest of the world would have sunk the prices of all foreign commodities. It is evident, however, that the rise here and the fall abroad, must have been such as to be inconsistent with the continuance of foreign commerce. When we found ourselves deprived not only of foreign luxuries and comforts, of wine, tea and sugar, but of the materials of our most essential arts, of cotton, deals and hemp, and repaid only by the pleasure of using five sovereigns to make a purchase which might have been previously effected by one, such a reductio ad absurdum would have been irresistible. We should have instantly seen the necessity of rather allowing our superfluous money to be exported, than of remaining like Midas, abundantly provided with gold, but in want of food, raiment and shelter. It is precisely because the object of the mercantile system is unattainable, because a balance of trade universally favourable cannot be created under ordinary circumstances, or, if created, could not, under ordinary circumstances, be retained for a month, that the absurdity of this system remained so long undetected, and is still generally unacknowledged. It follows a will-o’-the-wisp, which can remain an object of pursuit only so long as its real nature is unknown.
But, it may be said, granting the delusion as to the practicability and the utility of the end proposed by the mercantile system to have been universal, and universal it certainly was, and almost continues to be, yet as the means are so clearly productive of immediate injury, how came they to be so readily acceded to? How comes it that any departure from them is submitted to with such reluctance? How comes it that people are so anxious, in this instance alone, to sacrifice immediate to the hope of future benefit; to submit eagerly to general and immediate privation in the hope of a national benefit hereafter?
The answer is, that though restrictions and prohibitions of importation, and bounties on exportation, always occasion public loss, they produce, or are supposed to produce, individual gain. And the preponderance in amount of the loss over the gain is more than compensated so far as either acts on public opinion, by the concentration of the gain, and the diffusion of the loss. A restriction or prohibition of the importation of any foreign commodity occasions a loss to those persons who would have produced the English commodity with which the excluded foreign commodity would have been purchased; but these are unascertained persons. No man feels that he is one of the persons peculiarly entitled to complain. It occasions also a loss to all those who are forced to purchase the dearer or the inferior English commodity. But though the sum of these inconveniences is most oppressive, the evil in each particular instance is generally trifling. On the other hand the producer of the English commodity, for which the foreign one might be a substitute, is an ascertained person fully estimating, and generally over estimating, the loss to which the admission of a rival would subject him, and if possible exaggerating his own terrors in his expression of them.
Nothing but inquiry into the details of our commercial law will convince those among my hearers to whom the subject is not familiar, how trifling may be the individual gain that is offered and admitted as an effectual counterpoise to a public loss. We submit to a loss, exceeding probably a million sterling every year, occasioned by the restriction on the importation of Baltic timber; and voluntarily inoculate our houses with dry rot, lest sawmills in Canada, and ships in the North American timber trade, the aggregate value of which does not amount to a million sterling, should become less productive to their owners. We prohibit sugar refined in the colonies, and consequently import it in a state more bulky and more perishable, lest the profits of a few sugar refiners should be lessened. Other selfishness may be as intense, but none is so unblushing, because none is so tolerated, as that of a monopolist claiming a vested interest in a public injury.
The subject is still further obscured by that powerful instrument of confusion, national jealousy. Free trade is not only to deprive us of our money, it is also to carry it to our neighbours; it is to do worse than impoverish ourselves, it is to enrich them. The trade with a country is likely to be advantageous in proportion to its extent, productiveness and proximity. The trade between Middlesex and Kent is more advantageous to both parties than that between Middlesex and Caithness. But those very circumstances are the causes of national jealousy. The trade between Great Britain and France would be the most beneficial that either country could carry on: they are countries of great extent and powers of production; their respective wants and supplies are happily adapted to each other, and the short sea, which, for commercial purposes, rather unites than separates them, reduces the expense of carriage almost to nothing. The wines of the Garronne would naturally be cheaper in London than in Paris. The mineral treasures of Wales and Cornwall would find their way as easily to the Loire as to the Thames. For these very reasons each nation has always exercised her perverse ingenuity to exclude the commodities of her neighbour. And so well have they succeeded that the imports of Great Britain from France, instead of forming, as they naturally would do, a third or fourth of all our imports, do not exceed a fiftieth. The mercantile system seems to have proclaimed, and national jealousy to have re-echoed,
Another most efficient fallacy consists in a use of the word “independent.” To be independent of foreign supply, in consequence of the abundance of our own, is unquestionably a benefit. If we could give to our soil and climate the productive powers of the richest plains in Mexico, and instead of eight or ten, obtain a return of ninety or one hundred, for every grain of wheat committed to the earth, we should be independent of foreign grain; but the benefit would consist not in the independence, but in the abundance. The independence of the mercantile system is accompanied not by abundance, but by privation; it arises not from the extent, but from the mismanagement of our resources; not from our riches, but from our self-inflicted poverty. It is the independence of Swift, who deprived himself, during the last years of his sanity, of the power of reading, by an obstinate resolution never to use glasses. It is the independence of my supposed trader in blacking his own shoes. It is to be independent of the footpath, by walking in the kennel.
Independence of our neighbours has, however, sometimes been recommended, not as a means of wealth, but of security. This view of the subject is not within the scope of Political Economy. If I might venture to travel somewhat beyond my sphere, I should reply that it seems forgotten that dependence, as well as independence, must be mutual; that we cannot be habitually dependent on another nation for a large portion of our annual supplies without that nation’s being equally dependent upon us. That if such a mutual dependence should increase the inconveniences of war to the one, it would equally increase them to the other. That if the supposed intercourse were one in which England received raw produce in return for her manufactures, or even her gold, (and such are the cases in which this argument is chiefly used,) such an intercourse would bind to her the foreign country in question by the strongest of all possible ties, the immediate interest of the owners of the soil, the most powerful class in every community, and the only class possessing power in a poor country. I should illustrate the argument by our relations with the Baltic states. I should observe that our dependence on them for the principal materials of our navy,—a dependence carrying a peculiar appearance of insecurity, never seemed to diminish our strength during war, while the dependence on England of the Russian landholders for their rents, made peace with us absolutely essential to them; and actually enforced it by means of the unpunished murder of one sovereign, and unresisted menaces to another. And I should infer from all this, that an attempt at commercial independence must infinitely increase the chances of a war to a nation, by diminishing the motives in other nations to remain at peace with her, and, by impoverishing her, must make her less able to support the wars to which it inevitably leads. To the mercantile system, besides its own peculiar follies, we may in general attribute the greatest of all human follies, the existence of war between civilized nations.
It will be observed that I have considered all interference with the natural channels of commerce, all prohibitions and restrictions on importation, and all bounties on exportation, as founded on the mercantile system; or, in other words, on the belief that wealth consists of gold and silver, and that the amount of the gold and silver in a country is to be increased by securing to her a favourable balance of trade; that is, a trade in which her exports shall always be of greater value than her imports, and the balance be paid to her in money. I have done so, because, with three exceptions, which I shall mention hereafter, no plausible defence of any interference with commerce can be made on any other principle. I say no plausible defence, because I should not consider a wish to favour one class of the community at the expense of another, or at the expense of the whole community, a plausible defence. I do not consider the monopolies which Elizabeth, in the ignorance of her times, thought, or pretended to think, cheap rewards to her favourites, defensible. Nor do I think a monopoly in favour of a class more defensible than one in favour of an individual.
I know, indeed, that there are many honest maintainers of the opinion that the prosperity of a country is best promoted by protecting her industry from foreign competition, and rendering her independent of foreign supply, who do not formally admit the truth of the mercantile theory, or, more frequently, are ignorant that such a theory exists. Such persons, in general, are mere repeaters by rote of prejudices caught up in conversation, and if they ever search for a reason, are satisfied with finding one in the sounds “protection” and “independence;”—sounds, they think, entitling them to the countenance of what they call common sense. When it is possible, however, to drive or to seduce them into argument, their first or second move leads them inevitably, as I remarked in my last lecture, to the mercantile theory. They cannot deny that the commodities which they would exclude must be given to us gratuitously, or in exchange for our own produce, or for money. The first supposition, granting that we could be sufferers by it, is too absurd even for the reasoners whom I am describing. If they adopt the second, they must admit that the loss to the producers, whose exports we indirectly prohibit, balances the gain to those whom we forcibly encourage, leaving the loss to the public uncompensated: they are driven, therefore, to maintain that the payment would be made in money; and to suppose that such a payment could continue, and would be an evil, is the mercantile theory.
I have observed, however, that there are three cases in which an interference with the natural course of trade may be defended, without recourse to the mercantile theory. The first is, where the defence rests on the grounds of security. This argument I have already disposed of.
The second case is, where a long persistance in the system of exclusion has occasioned the formation of expensive domestic establishments, and the education of numerous artificers, to whom the admission of the foreign commodity would be injurious. The answer to this argument, on the mere principles of Political Economy, is obvious. The only purpose of the supposed establishments and skill is, the producing the commodity in question. If that commodity, or a substitute which is preferred to it, can be obtained without their assistance, they are as useless as a machine which has been superseded by a better invention; as useless as a ferry after the erection of a bridge. In one of the debates on the silk trade, in the beginning of the last session,* the Member for Coventry “stated that there were in that city 9700 looms, 7500 of which were in the hands of operative weavers, who applied their manual labour, as well as their machinery, to the manufacture of ribands. These looms were for the most part of the worst possible construction; and it would scarcely be believed that the improved loom in France would, in a given time, produce five times as much riband as the common loom in England, with the same degree of manual labour. He could also state that there existed an improved manufacture in Germany, by which one man could make forty-eight times as much velvet as could be made in an equal time by an English machine. What chance was there that the English manufacturer could maintain such a competition?”
As a mere question of wealth, the answer is, what object is there in such a competition? To perpetuate the old system, because, whenever it is abandoned particular interests must suffer, is a principle which, if fairly applied, would lead to the suppression of every improvement whatever. No improvement can possibly be made which shall not be immediately injurious to somebody. Printing ruined the copyists; and the Turks, to protect their interests, prohibited it. Vaccination was deeply injurious to medical men. Steam-boats interfere with our coasters and packets. And if the vacuum engine should be perfected, it will in their turn deteriorate the value of the existing steam-boats. But would not any legislator have been hooted from his post who should, on these grounds, have prohibited or restricted printing, vaccination, or steam-boats? Will the proprietors of coal mines be heard if they pray that Mr. Perkins be restricted from making any improvements in the steam-engine which shall diminish the consumption of coal? And in what does the substitution of a foreign for a domestic commodity differ from the substitution of one domestic commodity for another? If the powers of the French and German looms had been such as they were stated to be by the Member for Coventry, we should certainly, on the removal of the existing impediments, have procured from France and Germany all our ribands and velvets. We should have procured them by extending some branches of our domestic manufactures, in order to produce commodities to be sent either to France and Germany in exchange for the ribands and velvets, or to some other country to purchase money, with which the ribands and velvets would have been purchased. The diminution in the price of ribands and velvets would have enabled the consumers of those commodities to devote to other purposes a larger portion of their incomes, which would have afforded means of further extending the whole industry of the country. Without doubt these changes could not have taken place without peculiar suffering as well as peculiar benefit. The English manufacturers of ribands and velvets must have been injured, just as the English producers of those articles, for which the demand was increased, must have been benefited. So, if Mr. Perkins’s improvements take place, we shall perhaps cease to raise the same quantity of coal. We shall also devote more of our labour to the production of steam-engines, and to those manufactures in which they can be serviceable. And to do this, we shall probably be obliged to discontinue or curtail some other branches of industry. In this case, as in the last, there will be partial individual suffering, as well as partial individual benefit. In both cases, besides the partial suffering and the partial benefit, is the general benefit to the whole community considered as consumers. A benefit which will be permanent, while both the gain and the loss to peculiar classes of producers will pass away. If we should think it madness to prohibit, or to tax, the use of an improved steam-engine, because it must be injurious to those employed in raising coal, what pretence is there for prohibiting or taxing foreign ribands or velvets because their importation would be injurious to the English silk-weaver? On what pretence can the man who throws the shuttle claim a protection which we should deny to him who works in the mine, or navigates the collier?
I should grieve to be supposed indifferent to the partial evil which must accompany any change in the channels of commerce, however generally beneficial. I am far even from thinking that the peculiar evils sustained by those who are injured are balanced by the advantages obtained by those classes of producers who are peculiarly benefited by the change. I well know that when loss and gain appear equal, the loss is a greater evil than the gain is a good. I resist the interposition of government against the most beneficial direction of our industry, or, in other words, I defend free trade, solely on public grounds. Solely because to prohibit every change which is accompanied by individual injury would be to prohibit every improvement whatever. Because the effect of such a barbarous policy would be at best to keep us at the point at which we stood when it was introduced;—to sacrifice, in fact, the very end of government. For what is the end of government but to promote the happiness of the whole by forcing the interests of individuals to bend to those of the community?—the few to submit to the many?
I am aware, however, that in the existing state of knowledge and feeling in this country, any attempt to apply at once to foreign commerce the principles on which we act, and that as a matter of course, in our internal trade, would be unsuccessful. We have been accustomed in our internal trade to see every improvement accompanied by individual suffering, but we have also been accustomed to consider the general benefit as overbalancing the partial injury, and at once to stifle complaints by replying, “these are the ordinary chances of trade; when your manufacture was introduced you injured somebody else, and if we were to prohibit or restrict whatever interferes with existing interests, we must remain stationary for ever.”
Unfortunately the prejudices of the mercantile theory have prevented the application of this reasoning to foreign commerce. They have done more; they have turned against improvement the very argument which ought to be decisive in its favour. They have enabled those who fear that they may suffer individual injury from foreign competition, instead of merely deprecating that injury, or praying that the sacrifice of their interests to those of the public may be as much softened to them as possible, to found their opposition on public grounds; to proclaim that every departure from our system of exclusion will make us dependent on foreigners, and deprive us of our money, and in short to call in aid of what they suppose to be their own immediate advantage all the absurdities of that monstrous theory.
In a representative government, where each individual may proclaim in their utmost exaggeration his sufferings and his fears, where the power arbitrarily to do good is chained by the same fetters which restrain the power arbitrarily to do evil, where, in short, public opinion is omnipotent, and is, on these subjects, so ill-informed, and therefore so easily misdirected, there appears, at first sight, no limit to the extent to which individual interest, popular prejudice, and national jealousy, might not carry the system of exclusion. There appears at first sight no reason why the dread of foreign competition, felt in turn by each class of producers, should not have led us at last to the perfect non-intercourse of Japan. In fact, as far as legislation could effect this object, it seems nearly to have been attained by the statute passed in the third year of the reign of Edward IV. Mr. Daines Barrington’s abstract of this statute is in the following words:—
“The fourth chapter is intitled, ‘certain merchandizes not lawful to be brought ready wrought into the kingdom.’ It enumerates almost every kind of goods which can be imported, and may now be looked upon as the fundamental law of the customs; founded upon the best principles of commerce.”
Such were our principles of commercial legislation in the fifteenth century: and so little were they improved in the eighteenth, that a man of Mr. Barrington’s high station, public spirit, and general knowledge, believed that a prohibition of “almost every kind of wrought goods that can be imported,” was “founded upon the best principles of commerce.” And so slow has been the subsequent diffusion of knowledge, that for repealing that statute in our own times Mr. Huskisson has been called “a hard-hearted theorist, exceeding the devil himself in malignity, and in contempt for the happiness of mankind.”
Happily, however, there is in the political, as in the human, body, a vis medicatrix, which for extraordinary evils produces extraordinary remedies. The absurdities of the English laws respecting landed property produced uses and trusts: the violence of the feudal times gave rise to knight-errantry: when exclusion became the fundamental law of the customs, it was necessarily followed by smuggling. The smuggler is a radical and judicious reformer. His labours are unhappily confined to the least bulky articles, but as far as this field extends they are always directed to that part of the prohibitive system, which may be broken through with the greatest advantage, because it is maintained at the greatest loss. In those countries which have carried the prohibitive system to the extent which Mr. Daines Barrington thought the perfection of commerce, in Spain, for instance, at this instant, and in her colonies, before that system had deprived her of them, the smuggler is essential to the well-being of the whole nation. All external commerce depends on him. But in this country, and at present, I am far from thinking that the direct effect of his exertions in giving us a free trade in those commodities which, from their bulk and value, fall within his province, are any compensation for the crime, the misery, and the public expense, of which he is the occasion and the victim. His merit is that of having supplied the only argument which could have enabled the improvement of our commercial code. If Mr. Huskisson had had no better arguments than those which I have addressed to you, he would have applied in vain to the House of Commons and the country. They have been before the public, unanswered and unsubmitted to, from the time of Adam Smith until now. Mr. Huskisson’s argument was, were prohibitions right or wrong, wise or foolish,—were they attempts to protect and foster the industry of our own country, or to sacrifice the permanent interest of the whole community to the temporary advantage of a portion of its members,—they were inoperative. They might annihilate the calling of the lawful trader, but it was only to convert him into a smuggler; to exchange for legitimate commerce the crime and lawlessness of contraband. “What,” he asked, “was the consequence of such a system? A number of families, that would otherwise be valuable and industrious members of society, existed and trained up their children in a state of perpetual warfare with the law, till they insensibly acquired the habits and feelings of outlaws, standing to the rest of the community rather in the relation of pirates than of fellow-subjects. And was this abominable system to be tolerated, not to uphold the revenue, but to its injury, merely because in a few secondary branches of manufacture, we did not possess the same natural advantages, or the same degree of skill as our neighbours?”
Happily these arguments were to a certain extent successful, and it is to their force, and to the smuggler who gave them that force, that we are indebted for the relaxation which we have yet obtained of the fetters which, under the mask of protection, have so long cramped the energies of this country.
In my next lecture I shall consider the third ground on which commercial restrictions may be defended, without having recourse to the mercantile theory; and I shall conclude the subject by some remarks on the influence which that theory is still able to exert, and the calamities to be apprehended if that influence should continue.
[* ] The Rev. Blanco White.
[* ] 1 Parl. Hist. 1826, p. 389.