The National System of Political Economy
THE spirit of industry, commerce, and liberty having attained full influence in Italy, crossed the Alps, permeated Germany, and erected for itself a new throne on the shores of the northern seas, the Emperor Henry I., the father of the liberator of the Italian municipalities, promoted the founding of new cities and the enlargement of older ones which were already partly established on the sites of the ancient Roman colonies and partly in the Imperial domains.
Like the kings of France and England at a later period, he and his successors regarded the cities as the strongest counterpoise to the aristocracy, as the richest source of revenue to the State, as a new basis for national defence. By means of their commercial relations with the cities of Italy, their competition with Italian industry, and their free institutions, these cities soon attained to a high degree of prosperity and civilisation. Life in common fellow citizenship created a spirit of progress in the arts and in manufacture, as well as zeal to achieve distinction by wealth and by enterprise; while, on the other hand, the acquisition of material wealth stimulated exertions to acquire culture and improvement in their political condition.
Strong through the power of youthful freedom and of flourishing industry, but exposed to the attacks of robbers by land and sea, the maritime towns of Northern Germany soon felt the necessity of a closer mutual union for protection and defence. With this object Hamburg and Lubeck formed a league in 1241, which before the close of that century embraced all the cities of any importance on the coasts of the Baltic and North Seas, or on the banks of the Oder, the Elbe, the Weser, and the Rhine (eighty-five in all). This confederation adopted the title of the 'Hansa,' which in the Low German dialect signifies a league.
Promptly comprehending what advantages the industry of individuals might derive from a union of their forces, the Hansa lost no time in developing and establishing a commercial policy which resulted in a degree of commercial prosperity previously unexampled. Perceiving that whatever power desires to create and maintain an extensive maritime commerce, must possess the means of defending it, they created a powerful navy; being further convinced that the naval power of any country is strong or weak in proportion to the extent of its mercantile marine and its sea fisheries, they enacted a law that Hanseatic goods should be conveyed only on board Hanseatic vessels, and established extensive sea fisheries. The English navigation laws were copied from those of the Hanseatic League, just as the latter were an imitation of those of Venice.*14
England in that respect only followed the example of those who were her forerunners in acquiring supremacy at sea. Yet the proposal to enact a navigation Act in the time of the Long Parliament was then treated as a novel one. Adam Smith appears in his comment on this Act*15 not to have known, or to have refrained from stating, that already for centuries before that time and on various occasions the attempt had been made to introduce similar restrictions. A proposal to that effect made by Parliament in 1461 was rejected by Henry VI., and a similar one made by James I. rejected by Parliament;*16 indeed, long before these two proposals (viz. in 1381) such restrictions had been actually imposed by Richard II., though they soon proved inoperative and passed into oblivion. The nation was evidently not then ripe for such legislation. Navigation laws, like other measures for protecting native industry, are so rooted in the very nature of those nations who feel themselves fitted for future industrial and commercial greatness, that the United States of North America before they had fully won their independence had already at the instance of James Madison introduced restrictions on foreign shipping, and undoubtedly with not less great results (as will be seen in a future chapter) than England had derived from them a hundred and fifty years before.
The northern princes, impressed with the benefits which trade with the Hansards promised to yield to them—inasmuch as it gave them the means not only of disposing of the surplus products of their own territories, and of obtaining in exchange much better manufactured articles than were produced at home, but also of enriching their treasuries by means of import and export duties,*17 and of diverting to habits of industry their subjects who were addicted to idleness, turbulence, and riot—considered it as a piece of good fortune whenever the Hansards established factories on their territory, and endeavoured to induce them to do so by granting them privileges and favours of every kind. The kings of England were conspicuous above all other sovereigns in this respect.
The trade of England (says Hume) was formerly entirely in the hands of foreigners, but especially of the 'Easterlings'*18whom Henry III. constituted a corporation, to whom he granted privileges, and whom he freed from restrictions and import duties to which other foreign merchants were liable. The English at that time were so inexperienced in commerce that from the time of Edward II. the Hansards, under the title of 'Merchants of the Steelyard,' monopolised the entire foreign trade of the kingdom. And as they conducted it exclusively in their own ships, the shipping interest of England was in a very pitiable condition.*19
Some German merchants, viz. those of Cologne, after they had for a long time maintained commercial intercourse with England, at length established in London, in the year 1250, at the invitation of the King, the factory which became so celebrated under the name of 'The Steelyard'—an institution which at first was so influential in promoting culture and industry in England, but afterwards excited so much national jealousy, and which for 375 years, until its ultimate dissolution, was the cause of such warm and long-continued conflicts.
England formerly stood in similar relations with the Hanseatic League to those in which Poland afterwards stood with the Dutch, and Germany with the English; she supplied them with wool, tin, hides, butter, and other mineral and agricultural products, and received manufactured articles in exchange. The Hansards conveyed the raw products which they obtained from England and the northern states to their establishment at Bruges (founded in 1252), and exchanged them there for Belgian cloths and other manufactures, and for Oriental products and manufactures which came from Italy, which latter they carried back to all the countries bordering on the northern seas.
A third factory of theirs, at Novgorod in Russia (established in 1272), supplied them with furs, flax, hemp, and other raw products in exchange for manufactures. A fourth factory, at Bergen in Norway (also founded in 1272), was occupied principally with fisheries and trade in train oil and fish products.*20
The experience of all nations in all times teaches us that nations, so long as they remain in a state of barbarism, derive enormous benefit from free and unrestricted trade, by which they can dispose of the products of the chase and those of their pastures, forests, and agriculture—in short, raw products of every kind; obtaining in exchange better clothing materials, machines, and utensils, as well as the precious metals—the great medium of exchange—and hence that at first they regard free trade with approval. But experience also shows that those very nations, the farther advances that they make for themselves in culture and in industry, regard such a system of trade with a less favourable eye, and that at last they come to regard it as injurious and as a hindrance to their further progress. Such was the case with the trade between England and the Hansards. A century had scarcely elapsed from the foundation of the factory of the 'Steelyard' when Edward III. conceived the opinion that a nation might do something more useful and beneficial than to export raw wool and import woollen cloth. He therefore endeavoured to attract Flemish weavers into England by granting them all kinds of privileges; and as soon as a considerable number of them had got to work, he issued a prohibition against wearing any articles made of foreign cloth.*21
The wise measures of this king were seconded in the most marvellous manner by the foolish policy pursued by the rulers of other countries—a coincidence which has not unfrequently to be noted in commercial history. If the earlier rulers of Flanders and Brabant did everything in their power to raise their native industry to a flourishing condition, the later ones did everything that was calculated to make the commercial and manufacturing classes discontented and to incite them to emigration.*22
In the year 1413 the English woollen industry had already made such progress that Hume could write respecting that period, 'Great jealousy prevailed at this time against foreign merchants, and a number of restrictions were imposed on their trade, as, for instance, that they were required to lay out in the purchase of goods produced in England the whole value which they realised from articles which they imported into it.'*23
Under Edward IV. this jealousy of foreign traders rose to such a pitch that the importation of foreign cloth, and of many other articles, was absolutely prohibited.*24
Notwithstanding that the king was afterwards compelled by the Hansards to remove this prohibition, and to reinstate them in their ancient privileges, the English woollen manufacture appears to have been greatly promoted by it, as is noted by Hume in treating of the reign of Henry VII., who came to the throne half a century later than Edward IV.
'The progress made in industry and the arts imposed limits, in a much more effective way than the rigour of laws could do, to the pernicious habit of the nobility of maintaining a great number of servants. Instead of vying with one another in the number and valour of their retainers, the nobility were animated by another kind of rivalry more in accordance with the spirit of civilisation, inasmuch as they now sought to excel one another in the beauty of their houses, the elegance of their equipages, and the costliness of their furniture. As the people could no longer loiter about in pernicious idleness, in the service of their chieftains and patrons, they became compelled, by learning some kind of handiwork, to make themselves useful to the community. Laws were again enacted to prevent the export of the precious metals, both coined and uncoined; but as these were well known to be inoperative, the obligation was again imposed on foreign merchants to lay out the whole proceeds of goods imported by them, in articles of English manufacture.'*25
In the time of Henry VIII. the prices of all articles of food had considerably risen, owing to the great number of foreign manufacturers in London; a sure sign of the great benefit which the home agricultural industry derived from the development of home manufacturing industry.
The king, however, totally misjudging the causes and the operation of this phenomenon, gave ear to the unjust complaints of the English against the foreign manufacturers, whom the former perceived to have always excelled themselves in skill, industry, and frugality. An order of the Privy Council decreed the expulsion of 15,000 Belgian artificers, 'because they had made all provisions dearer, and had exposed the nation to the risk of a famine.' In order to strike at the root of this evil, laws were enacted to limit personal expenditure, to regulate the style of dress, the prices of provisions, and the rate of wages. This policy naturally was warmly approved by the Hansards, who acted towards this king in the same spirit of good-will which they had previously displayed towards all those former kings of England whose policy had favoured their interests, and which in our days the English display towards the kings of Portugal—they placed their ships of war at his disposition. During this king's whole reign the trade of the Hansards with England was very active. They possessed both ships and capital, and knew, not less cleverly than the English do in our days, how to acquire influence over peoples and governments who did not thoroughly understand their own interests. Only their arguments rested on quite a different basis from those of the trade monopolists of our day. The Hansards based their claim to supply all countries with manufactures on actual treaties and on immemorial possession of the trade, whilst the English in our day base a similar claim on a mere theory, which has for its author one of their own Customhouse officials. The latter demand in the name of a pretended science, what the former claimed in the name of actual treaties and of justice.
In the reign of Edward VI. the Privy Council sought for and found pretexts for abolishing the privileges of the 'Merchants of the Steelyard.' The Hansards made strong protests against this innovation. But the Privy Council persevered in its determination, and the step was soon followed by the most beneficial results to the nation. The English merchants possessed great advantages over the foreign ones, on account of their position as dwellers in the country, in the purchase of cloths, wool, and other articles, advantages which up to that time they had not so clearly perceived as to induce them to venture into competition with such a wealthy company. But from the time when all foreign merchants were subjected to the same commercial restrictions, the English were stimulated to enterprise, and the spirit of enterprise was diffused over the whole kingdom.*26
After the Hansards had continued for some years to be entirely excluded from a market which they had for three centuries previously possessed as exclusively as England in our days possesses the markets of Germany and the United States, they were reinstated by Queen Mary in all their ancient privileges owing to representations made by the German Emperor.*27 But their joy was this time of short duration. Being earnestly desirous not merely of maintaining these privileges, but of increasing them, they made strong complaints at the beginning of the reign of Elizabeth of the treatment to which they had been subjected under Edward VI. and Mary. Elizabeth prudently replied that 'she had no power to alter anything, but she would willingly protect them still in the possession of those privileges and immunities which they then possessed.' This reply, however, did not satisfy them at all. Some time afterwards their trade was further suspended, to the great advantage of the English merchants, who now had an opportunity of showing of what they were capable; they gained control over the entire export trade of their own country, and their efforts were crowned with complete success. They divided themselves into 'staplers and merchant adventurers,' the former carrying on business in some one place, the latter seeking their fortune in foreign cities and states with cloth and other English manufactures. This excited the jealousy of the Hansards so greatly, that they left no means untried to draw down on the English traders the ill opinion of other nations. At length, on August I, 1597, they gained an imperial edict, by which all trade within the German Empire was forbidden to English merchants. The Queen replied (on January 13, 1598) by a proclamation, in consequence of which she sought reprisals by seizing sixty Hanseatic vessels which were engaged in contraband trade with Spain. In taking this step she had at first only intended, by restoring the vessels, to bring about a better understanding with the Hansards. But when she was informed that a general Hanseatic assembly was being held in the city of Lubeck in order to concert measures for harassing the export trade of England, she caused all these vessels with their cargoes to be confiscated, and then released two of them, which she sent to Lubeck with the message that she felt the greatest contempt for the Hanseatic League and all their proceedings and measures.*28
Thus Elizabeth acted towards these merchants, who had lent their ships to her father and to so many English kings to fight their battles; who had been courted by all the potentates of Europe; who had treated the kings of Denmark and Sweden as their vassals for centuries, and invited them into their territories and expelled them as they pleased; who had colonised and civilised all the south-eastern coasts of the Baltic, and freed all seas from piracy; who not very long before had, with sword in hand, compelled a king of England to recognise their privileges; to whom on more than one occasion English kings had given their crowns in pledge for loans; and who had once carried their cruelty and insolence towards England so far as to drown a hundred English fishermen because they had ventured to approach their fishing grounds. The Hansards, indeed, still possessed sufficient power to have avenged this conduct of the Queen of England; but their ancient courage, their mighty spirit of enterprise, the power inspired by freedom and by co-operation, had passed from them. They dwindled gradually into powerlessness until at length, in 1630, their League was formally dissolved, after they had supplicated every court in Europe for import privileges, and had everywhere been repulsed with scorn.
Many external causes, besides the internal ones which we have to mention hereafter, contributed to their fall. Denmark and Sweden sought to avenge themselves for the position of dependence in which they had been so long held by the League, and placed all possible obstructions in the way of its commerce. The czars of Russia had conferred privileges on an English company. The order of Teutonic knights, who had for centuries been the allies as well as (originally) the children of the League, declined and was dissolved. The Dutch and the English drove them out of all markets, and supplanted them in every court. Finally, the discovery of the route to the East Indies by the Cape of Good Hope, operated most seriously to their disadvantage.
These leaguers, who during the period of their might and prosperity had scarcely deemed an alliance with the German Empire as worthy of consideration, now in their time of need betook themselves to the German Reichstag and represented to that body that the English exported annually 200,000 pieces of cloth, of which a great proportion went to Germany, and that the only means whereby the League could regain its ancient privileges in England, was to prohibit the import of English cloth into Germany. According to Anderson, a decree of the Reichstag to that effect was seriously contemplated, if not actually drawn up, but that author asserts that Gilpin, the English ambassador to the Reichstag, contrived to prevent its being passed. A hundred and fifty years after the formal dissolution of the Hanseatic League, so completely had all memory of its former greatness disappeared in the Hanseatic cities that Justus Möser asserts (in some passage in his works) that when he visited those cities, and narrated to their merchants the power and greatness which their predecessors had enjoyed, they would scarcely believe him. Hamburg, formerly the terror of pirates in every sea, and renowned throughout Christendom for the services which she had rendered to civilisation in suppressing sea-robbers, had sunk so low that she had to purchase safety for her vessels by paying an annual tribute to the pirates of Algiers. Afterwards, when the dominion of the seas had passed into the hands of the Dutch, another policy became prevalent in reference to piracy. When the Hanseatic League were supreme at sea, the pirate was considered as the enemy of the civilised world, and extirpated wherever that was possible. The Dutch, on the contrary, regarded the corsairs of Barbary as useful partisans, by whose means the marine commerce of other nations could be destroyed in times of peace, to the advantage of the Dutch. Anderson avails himself of the quotation of an observation of De Witt in favour of this policy to make the laconic comment, 'Fas est et ab hoste doceri,' a piece of advice which, in spite of its brevity, his countrymen comprehended and followed so well that the English, to the disgrace of Christianity, tolerated even until our days the abominable doings of the sea-robbers on the North African coasts, until the French performed the great service to civilisation of extirpating them.*29
The commerce of these Hanseatic cities was not a national one; it was neither based on the equal preponderance and perfect development of internal powers of production, nor sustained by adequate political power. The bonds which held together the members of the League were too lax, the striving among them for predominant power and for separate interests (or, as the Swiss or the Americans would say, the cantonal spirit, the spirit of separate state right) was too predominant, and superseded Hanseatic patriotism, which alone could have caused the general common weal of the League to be considered before the private interests of individual cities. Hence arose jealousies, and not unfrequently treachery. Thus Cologne turned to her own private advantage the hostility of England towards the League, and Hamburg sought to utilise for her own advantage a quarrel which arose between Denmark and Lübeck.
The Hanseatic cities did not base their commerce on the production and consumption, the agriculture or the manufactures, of the land to which their merchants belonged. They had neglected to favour in any way the agricultural industry of their own fatherland, while that of foreign lands was greatly stimulated by their commerce. They found it more convenient to purchase manufactured goods in Belgium, than to establish manufactories in their own country. They encouraged and promoted the agriculture of Poland, the sheep-farming of England, the iron industry of Sweden, and the manufactures of Belgium. They acted for centuries on the maxim which the theoretical economists of our day commend to all nations for adoption—they 'bought only in the cheapest market.' But when the nations from whom they bought, and those to whom they sold, excluded them from their markets, neither their own native agriculture nor their own manufacturing industry was sufficiently developed to furnish employment for their surplus commercial capital. It consequently flowed over into Holland and England, and thus went to increase the industry, the wealth, and the power of their enemies; a striking proof that mere private industry when left to follow its own course does not always promote the prosperity and the power of nations. In their exclusive efforts to gain material wealth, these cities had utterly neglected the promotion of their political interests. During the period of their power, they appeared no longer to belong at all to the German Empire. It flattered these selfish, proud citizens, within their circumscribed territories, to find themselves courted by emperors, kings, and princes, and to act the part of sovereigns of the seas. How easy would it have been for them during the period of their maritime supremacy, in combination with the cities of North Germany, to have founded a powerful Lower House as a counterpoise to the aristocracy of the empire, and by means of the imperial power to have thus brought about national unity—to have united under one nationality the whole sea-coast from Dunkirk to Riga—and by these means to have won and maintained for the German nation supremacy in manufactures, commerce, and maritime power. But in fact, when the sceptre of the seas fell from their grasp, they had not sufficient influence left to induce the German Reichstag to regard their commerce as a matter of national concern. On the contrary, the German aristocracy did all in their power thoroughly to oppress these humbled citizens. Their inland cities fell gradually under the absolute dominion of the various princes, and hence their maritime ones were deprived of their inland connections.
All these faults had been avoided by England. Her merchant shipping and her foreign commerce rested on the solid basis of her native agriculture and native industry; her internal trade developed itself in just proportion to her foreign trade, and individual freedom grew up without prejudice to national unity or to national power: in her case the interests of the Crown, the aristocracy, and the people became consolidated and united in the happiest manner.
If these historical facts are duly considered, can anyone possibly maintain that the English could ever have so widely extended their manufacturing power, acquired such an immeasurably great commerce, or attained such overwhelming naval power, save by means of the commercial policy which they adopted and pursued? No; the assertion that the English have attained to their present commercial eminence and power, not by means of their commercial policy, but in spite of it, appears to us to be one of the greatest falsehoods promulgated in the present century.
Had the English left everything to itself—'Laissé faire et laissé aller,' as the popular economical school recommends—the merchants of the Steelyard would be still carrying on their trade in London, the Belgians would be still manufacturing cloth for the English, England would have still continued to be the sheepfarm of the Hansards, just as Portugal became the vineyard of England, and has remained so till our days, owing to the stratagem of a cunning diplomatist. Indeed, it is more than probable that without her commercial policy England would never have attained to such a large measure of municipal and individual freedom as she now possesses, for such freedom is the daughter of industry and of wealth.
In view of such historical considerations, how has it happened that Adam Smith has never attempted to follow the history of the industrial and commercial rivalry between the Hanseatic League and England from its origin until its close? Yet some passages in his work show clearly that he was not unacquainted with the causes of the fall of the League and its results. 'A merchant,' he says, 'is not necessarily the citizen of any particular country. It is in a great measure indifferent to him from what place he carries on his trade; and a very trifling disgust will make him remove his capital, and together with it all the industry which it supports, from one country to another. No part of it can be said to belong to any particular country till it has been spread, as it were, over the face of that country, either in buildings or in the lasting improvement of lands. No vestige now remains of the great wealth said to have been possessed by the greater part of the Hanse Towns except in the obscure histories of the thirteenth and fourteenth centuries. It is even uncertain where some of them were situated, or to what towns in Europe the Latin names given to some of them belong.*30
How strange that Adam Smith, having such a clear insight into the secondary causes of the downfall of the Hanseatic League, did not feel himself compelled to examine into its primary causes! For this purpose it would not have been at all necessary to have ascertained the sites where the fallen cities had stood, or to which cities belonged the Latin names in the obscure chronicles. He need not even have consulted those chronicles at all. His own countrymen, Anderson, Macpherson, King, and Hume, could have afforded him the necessary explanation.
How, therefore, and for what reason could such a profound inquirer permit himself to abstain from an investigation at once so interesting and so fruitful in results? We can see no other reason than this—that it would have led to conclusions which would have tended but little to support his principle of absolute free trade. He would infallibly have been confronted with the fact that after free commercial intercourse with the Hansards had raised English agriculture from a state of barbarism, the protective commercial policy adopted by the English nation at the expense of the Hansards, the Belgians, and the Dutch helped England to attain to manufacturing supremacy, and that from the latter, aided by her Navigation Acts, arose her commercial supremacy.
These facts, it would appear, Adam Smith was not willing to know or to acknowledge; for indeed they belong to the category of those inconvenient facts of which J. B. Say observes that they would have proved very adverse to his system.
Notes for this chapter
Anderson, Origin of Commerce, Pt. I. p. 46.
Wealth of Nations, Book IV. ch. ii.
Hume, History of England, Part IV. ch. xxi.
The revenues of the kings of England were derived at that time more from export duties than from import duties. Freedom of export and duties on imports (viz. of manufactures) betoken at once an advanced state of industry and an enlightened State administration. The governments and countries of the North stood at about the same stage of culture and statesmanship as the Sublime Porte does in our day. The Sultan has, notably, only recently concluded commercial treaties, by which he engages not to tax exports of raw materials and manufactures higher than fourteen per cent. but imports not higher than five per cent. And there accordingly that system of finance which professes to regard revenue as its chief object continues in full operation. Those statesmen and public writers who follow or advocate that system ought to betake themselves to Turkey; there they might really stand at the head of the times.
The Hansards were formerly termed 'Easterlings'or Eastern merchants, in England, in contradistinction to those of the West, or the Belgians and Dutch. From this term is derived 'sterling' or 'pound sterling,' an abbreviation of the word 'Easterling,' because formerly all the coin in circulation in England was that of the Hanseatic League.
Hume, History of England, ch. xxxv.
M. I. Sartorius, Geschichte der Hansa.
II Edward III. cap. 5.
Rymer's Fœdera, p. 496. De Witte, Interest of Holland, p.45.
Hume,History of England, chap. xxv.
Edward IV. cap. iv. The preamble to this Act is so characteristic that we cannot refrain from quoting it verbatim.
'Whereas to the said Parliament, by the artificers men and women inhabitant and resident in the city of London and in other cities, towns, boroughs and villages within this realm and Wales, it has been piteously shewed and complained, how that all they in general and every of them be greatly impoverished and much injured and prejudiced of their worldly increase and living, by the great multitude of divers chaffers and wares pertaining to their mysteries and occupations, being fully wrought and ready made to sale, as well by the hand of strangers being the king's enemies as others, brought into this realm and Wales from beyond the sea, as well by merchant strangers as denizens or other persons, whereof the greatest part is deceitful and nothing worth in regard of any man's occupation or profits, by occasion where of the said artificers cannot live by their mysteries and occupations, as they used to do in times past, but divers of them—as well householders as hirelings and other servants and apprentices—in great number be at this day unoccupied, and do hardly live, in great idleness, poverty, and ruin, whereby many inconveniences have grown before this time, and hereafter more are like to come (which God defend), if due remedy be not in their behalf provided.'
Hume, chap. xxvi.
Hume, chap. xxxv.; also Sir J. Hayward, Life and Reign of Edward VI.
Hume, chap. xxxvii.; Heylyn.
Campbell's Lives of the Admirals, vol. i. p. 386.
Our author would appear to have forgotten, or else unfairly ignored, the exploits of the British fleet under Lord Exmouth.
Smith, Wealth of Nations, Book III. ch. iv.
End of Notes
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