The National System of Political Economy

Book III, Chapter XXIX
THE INDUSTRIAL SYSTEM (FALSELY TERMED BY THE SCHOOL 'THE MERCANTILE SYSTEM').

AT the period when great nationalities arose, owing to the union of entire peoples brought about by hereditary monarchy and by the centralisation of public power, commerce and navigation, and hence wealth and naval power, existed for the most part (as we have before shown) in republics of cities, or in leagues of such republics. The more, however, that the institutions of these great nationalities became developed, the more evident became the necessity of establishing on their own territories these main sources of power and of wealth.

Under the conviction that they could only take root and flourish under municipal liberty, the royal power favoured municipal freedom and the establishment of guilds, both which it regarded as counterpoises against the feudal aristocracy, who were continually striving for independence, and always hostile to national unity. But this expedient appeared insufficient, for one reason, because the total of the advantages which individuals enjoyed in the free cities and republics was much greater than the total of those advantages which the monarchical governments were able to offer, or chose to offer, in their own municipal cities; in the second place, because it is very difficult, indeed impossible, for a country which has always been principally engaged in agriculture, successfully to displace in free competition those countries which for centuries have acquired supremacy in manufactures, commerce, and navigation; lastly, because in the great monarchies the feudal institutions acted as hindrances to the development of their internal agriculture, and consequently to the growth of their internal manufactures. Hence, the nature of things led the great monarchies to adopt such political measures as tended to restrict the importation of foreign manufactured goods, and foreign commerce and navigation, and to favour the progress of their own manufactures, and their own commerce and navigation.

Instead of raising revenue as they had previously done by duties on the raw materials which they exported, they were henceforth principally levied on the imported manufactured goods. The benefits offered by the latter policy stimulated the merchants, seamen, and manufacturers of more highly civilised cities and countries to immigrate with their capital into the great monarchies, and stimulated the spirit of enterprise of the subjects of the latter. The growth of the national industry was followed by the growth of the national freedom. The feudal aristocracy found it necessary in their own interest to make concessions to the industrial and commercial population, as well as to those engaged in agriculture; hence resulted progress in agriculture as well as in native industry and native commerce, which had a reciprocally favourable influence on those two other factors of national wealth. We have shown how England, in consequence of this system, and favoured by the Reformation, made forward progress from century to century in the development of her productive power, freedom, and might. We have stated how in France this system was followed for some time with success, but how it came to grief there, because the institutions of feudalism, of the priesthood, and of the absolute monarchy, had not yet been reformed. We have also shown how the Polish nationality succumbed, because the elective system of monarchy did not possess influence and steadiness enough to bring into existence powerful municipal institutions, and to reform the feudal aristocracy. As a result of this policy, there was created in the place of the commercial and manufacturing city, and of the agricultural province which chiefly existed outside the political influence of that city, the agricultural-manufacturing-commercial State; a nation complete in itself, an harmonious and compact whole, in which, on the one hand, the formerly prevailing differences between monarchy, feudal aristocracy, and citizenhood gave place to one harmonious accord, and, on the other hand, the closest union and reciprocally beneficial action took place between agriculture, manufactures, and commerce. This was an immeasurably more perfect commonwealth than the previously existing one, because the manufacturing power, which in the municipal republic had been confined to a narrow range, now could extend itself over a wider sphere; because now all existing resources were placed at its disposition; because the division of labour and the confederation of the productive powers in the different branches of manufactures, as well as in agriculture, were made effectual in an infinitely greater degree; because the numerous classes of agriculturists became politically and commercially united with the manufacturers and merchants, and hence perpetual concord was maintained between them; the reciprocal action between manufacturing and commercial power was perpetuated and secured for ever; and finally, the agriculturists were made partakers of all the advantages of civilisation arising from manufactures and commerce. The agricultural-manufacturing-commercial State is like a city which spreads over a whole kingdom, or a country district raised up to be a city. In the same proportion in which material production was promoted by this union, the mental powers must necessarily have been developed, the political institutions perfected, the State revenues, the national military power, and the population, increased. Hence we see at this day, that nation which first of all perfectly developed the agricultural, manufacturing, and commercial State, standing in these respects at the head of all other nations.

The Industrial System was not defined in writing, nor was it a theory devised by authors, it was simply acted upon in practice, until the time of Stewart, who deduced it for the most part from the actual English practice, just as Antonio Serra deduced his system from a consideration of the circumstances of Venice. Stewart's treatise, however, cannot be considered a scientific work. The greater part of it is devoted to money, banking, the paper circulation—commercial crises—the balance of trade, and the doctrine of population;—discussions from which even in our day much may be learned, but which are carried on in a very illogical and unintelligible way, and in which one and the same idea is ten times repeated. The other branches of political economy are either superficially treated, or passed over altogether. Neither the productive powers, nor the elements of price, are thoroughly discussed. Everywhere the author appears to have in view only the experiences and circumstances of England. In a word, his book possesses all the merits and demerits of the practice of England, and of that of Colbert. The merits of the Industrial System as compared with later ones, are:

1. That it clearly recognises the value of native manufactures and their influence on native agriculture, commerce, and navigation, and on the civilisation and power of the nation; and expresses itself unreservedly to that effect.

2. That it indicates what is in general the right means whereby a nation which is qualified for establishing a manufacturing power, may attain a national industry.*94

3. That it is based on the idea of 'the nation,' and regarding the nations as individual entities, everywhere takes into account the national interests and national conditions.

On the other hand, this system is chargeable with the following chief faults:

1. That it does not generally recognise the fundamental principle of the industrial development of the nation and the conditions under which it can be brought into operation.

2. That it consequently would mislead peoples who live in a climate unsuited for manufacturing, and small and uncivilised states and peoples, into the adoption of the protective system.

3. That it always seeks to apply protection to agriculture, and especially to the production of raw materials—to the injury of agriculture—whereas agricultural industry is sufficiently protected against foreign competition by the nature of things.*95

4. That it seeks to favour manufactures unjustly by imposing restrictions on the export of raw materials, to the detriment of agriculture.

5. That it does not teach the nation which has already attained manufacturing and commercial supremacy to preserve her own manufacturers and merchants from indolence, by permitting free competition in her own markets.

6. That in the exclusive pursuit of the political object, it ignores the cosmopolitical relations of all nations, the objects of the whole human race; and hence would mislead governments into a prohibitory system, where a protective one would amply suffice, or imposing duties which are practically prohibitory, when moderate protective duties would better answer the purpose. Finally:

7. That chiefly owing to his utterly ignoring the principle of cosmopolitanism, it does not recognise the future union of all nations, the establishment of perpetual peace, and of universal freedom of trade, as the goal towards which all nations have to strive, and more and more to approach.

The subsequent schools have, however, falsely reproached this system for considering the precious metals as the sole constituents of wealth, whereas they are merely merchandise like all other articles of value; and that hence it would follow that we ought to sell as much as possible to other nations and to buy from them as little as possible.

As respects the former objection, it cannot be truly alleged of either Colbert's administration or of that of the English since George I. that they have attached an unreasonable degree of importance to the importation of the precious metals.

To raise their own native manufactures, their own navigation, their foreign trade, was the aim of their commercial policy; which indeed was chargeable with many mistakes, but which on the whole produced important results. We have observed that since the Methuen Treaty (1703) the English have annually exported great quantities of the precious metals to the East Indies, without considering these exports as prejudicial.

The Ministers of George I. when they prohibited (in 1721) the importation of the cotton and silk fabrics of India did not assign as a reason for that measure that a nation ought to sell as much as possible to the foreigner, and buy as little as possible from him; that absurd idea was grafted on to the industrial system by a subsequent school; what they asserted was, that it is evident that a nation can only attain to wealth and power by the export of its own manufactured goods, and by the import from abroad of raw materials and the necessaries of life. England has followed this maxim of State policy to the present day, and by following it has become rich and mighty; this maxim is the only true one for a nation which has been long civilised, and which has already brought its own agriculture to a high degree of development.