Studies in the Theory of International Trade

Chapter I

ENGLISH THEORIES OF FOREIGN TRADE,

BEFORE ADAM SMITH: I

I. INTRODUCTION

A study of the theories of foreign trade before Adam Smith must of necessity consist of an examination of the mercantilist doctrines with respect to foreign trade and of the contemporary criticisms thereof. It is a common impression that they have already been sufficiently studied, but the economic historians and the economists of the German historical school have been almost alone in studying the mercantilists, and they have generally been more interested in the facts than in the ideas of the mercantilist period, have often based sweeping generalizations as to the character of mercantilist doctrine on what they found in a handful of the mercantilist writings, have displayed neither interest in, nor acquaintance with, modern economic theorizing with respect to monetary and trade process, and have almost without exception shown a tendency to defend the mercantilist doctrines by reasoning itself of decidedly mercantilist flavor. The severe critics of mercantilist doctrine have generally been economic theorists of the
English classical-school tradition, and they have usually relied on Adam Smith’s account plus the vague mass of nineteenth-century tradition for their information as to the contents of mercantilist doctrine.

No attempt will be made to compare in detail the results of this investigation with the findings of other modern commentators on English mercantilism, but those who are sufficiently interested to make such comparisons for themselves will find, I believe, that the differences as to fact and interpretation are numerous and of some importance, and that new information is presented on a number of points.
*1 To keep the study within manageable proportions, the doctrines of the period with respect to the fisheries,
population, and colonies will be ignored even when they are closely related to the general foreign-trade theories.

II. “MERCANTILISM” AND “BULLIONISM”

In the English economic literature prior to Adam Smith, the most pervasive and the most emphasized doctrine is the importance of having an excess of exports over imports. To this doctrine and the trade regulations which it inspired, Adam Smith, following the usage of some of the Physiocrats,
*2 gave the name of the “commercial” or “mercantile” system, which later became, with the aid of the Germans, the now familiar “mercantilism.”
*3 Many writers, however, assign “mercantilism” only to the period after about 1620, and distinguish with varying degrees of emphasis between the “bullionist” doctrines of the earlier period and the “balance-of-trade” doctrines of the later period. The grounds most commonly given for distinguishing between the two periods are as follows: (1) that, before 1620, stress was put on the importance of a favorable balance in each transaction of each merchant, whereas in the later period the emphasis was on the aggregate or national balance of trade; (2) that, before 1620, concern about the state of the individual balances was due to anxiety that the country’s stock of bullion be
not reduced, whereas in the later period there was anxiety that it be
increased; (3) that, before 1620, the chief economic objective of trade policy was to protect the national currency against exchange depreciation, whereas after 1620 this was a minor objective, if a matter of concern at all; (4) that, in the early period, the means advocated and employed to carry out the objectives of the prevailing trade
policy were close regulation of the transactions of particular individuals in the exchange market and in coin and bullion, while in the later period the policy recommended and put into practice was to seek the objective of a greater stock of bullion indirectly by means of regulation of trade rather than directly through restrictions on exchange transactions and on the export of coin and bullion.

The actual course of official policy seems to give no strong support to this chronological contrast between the bullionist and the balance-of-trade doctrines. In the earlier period, it is true, regulation of the foreign trade and exchange transactions of the merchants had been stricter and more detailed than it subsequently became. But the outstanding changes in legislation and in administrative practice extended over a long period, and all of any importance occurred long before 1620 or did not occur until long after. The institution of the Staple, which served as an instrument of regulation of individual transactions, finally expired with the loss of Calais in 1558, although it had already been moribund. The Statutes of Employment, requiring foreign merchants to pay for the English commodities which they bought, in part at least, in coin or bullion, had become inoperative long before the end of the sixteenth century. The Royal Exchanger, with his control over exchange transactions, went out of existence practically, if not legally, when Burleigh, in the reign of Elizabeth, refrained from exercising his prerogative of nominating the holder of the office, although Charles I attempted unsuccessfully to revive the institution as late as 1628. The restrictions on the export of coin and bullion had been relaxed during the reign of Elizabeth. They were more strictly enforced, as far as gold was concerned, in the reign of James I, in accordance with a proclamation of 1603, but even stricter regulations were laid down by Charles I in 1628, and it was not until 1663 that gold and silver bullion and
foreign coin could be freely exported, and not until 1819 that
English coin or bullion derived therefrom could be legally exported. In other words, the “bullionist” regulations were either repealed or had become obsolete long before 1620, or persisted and even were strengthened long after 1620. Prohibitions and customs duties on imports and exports imposed for trade regulative purposes originated centuries before 1620, and although the customs system was revised during the reign of
James I, and again by Walpole in the 1720’s, in order that it might more effectively serve the purpose of procuring a favorable balance of trade, it continued until late in the nineteenth century to be a medley of provisions of miscellaneous character serving in unascertainable proportions the largely contradictory purposes of fiscal needs, trade regulation, special privileges to favored individuals or groups, and foreign diplomacy.

If, however, the dividing line be set at about 1560, instead of about 1620, the contrast may be made with respect to actual trade regulation that such devices as the Staple, the Royal Exchanger, and the Statutes of Employment had been important in the first period, and were repealed or permitted to become inoperative in the later stage. For the earlier period also, it can be said that there was much more concern about the menace to the national stock of bullion from the operations of brokers and merchants in paper exchange than there was in the later period, and on this question 1620 serves fairly well as the approximate date at which doctrinal controversy cleared away many of the older illusions about the consequences of unregulated exchange transactions. No attempt will be made here to examine the bullionist reasoning with respect to the exchanges, of which an excellent summary has been given by Tawney.
*4 In the controversy over the exchanges at the beginning of the seventeenth century, the new views which were expounded chiefly by Misselden and Mun won a definitive victory over the old views as presented by Malynes and Milles, and in the later literature a spokesman for the older views is only rarely to be encountered. Perhaps for the first time, a matter of economic policy was made the occasion for a war of tracts, and the tracts seem, moreover, to have exerted an immediate and traceable influence on government policy. But commentators who have not explored the earlier literature nor examined carefully the later literature have applied to the entire contents of these tracts what was true only, if at all, of their arguments with respect to paper exchanges, and have attributed to Misselden and Mun priority with respect to doctrines which were already old and established and to Malynes and Milles final utterance of doctrines which still had a long life to live.

III. THE BALANCE-OF-TRADE DOCTRINE

The Concept and Its Application.
*5

The most pervasive feature of the English mercantilist literature was the doctrine that it was vitally important for England that it should have an excess of exports over imports, usually because that was for a country with no gold or silver mines the only way to increase its stock of the precious metals. The doctrine is of early origin, and some of the mercantilists, in the earlier period when it was still customary to scatter miscellaneous tags of classical wisdom through one’s discourse, succeeded in finding Latin quotations which seemed to expound it. It was clearly enough stated as far back as 1381 by Richard Leicester, a mint official, in answer to an official inquiry as to the cause of, and remedy for, the supposed drain of gold out of England:

First, as to this that no gold or silver comes into England, but that which is in England is carried beyond the sea, I maintain that it is because the land spends too much in merchandise, as in grocery, mercery and peltry, or wines, red, white and sweet, and also in exchanges made to the Court of Rome in divers ways. Wherefore the remedy seems to me to be that each merchant bringing merchandise into England take out of the commodities of the land as much as his merchandise aforesaid shall amount to; and that none carry gold or silver beyond the sea, as it is ordained by statute…. And so me-seems that the money that is in England will remain, and great quantity of money and bullion will come from the parts beyond the sea.
*6

The following citations from sixteenth-century sources show that the doctrine was current throughout that century:

The whole wealth of the realm is for all our rich commodities to get out of all other realms therefor ready money; and after the money is brought in to the whole realm, so shall all people in the realm be made rich therewith.
*7

But it is an infallible argument that if we send yearly into beyond the seas one hundred thousand pounds worth of wares more than we receive yearly again, then must there needs be brought into this realm for the said hundred thousand pounds worth of wares so much in value either of gold or silver…. The only means to cause much bullion to be brought out of other realms unto the king’s mints is to provide that a great quantity of our wares may be carried yearly into beyond the seas and less quantity of their wares be brought hither again.
*8

…for if England would spend less of foreign commodities, than the same [i.e., English] commodities will pay for, then the remain must of necessity be returned of silver or gold; but if otherwise, then it will fare in England in short time, as it doth with a man of great yearly living that spendeth more yearly than his own revenue and spendeth of the stock besides.
*9

If we keep within us much of our commodities, [because of heavy duty on wool exports] we must spare many other things that we have now from beyond the seas; for we must always take heed that we buy no more of strangers than we sell them; for so we should impoverish ourselves and enrich them.
*10

And another [object of policy] is that the things which we carry out do surmount in price the things which we bring in; else shall we soon make a poor land and a poor people.
*11

Although the concept of a national balance of trade was already common in the sixteenth century, the exact term itself seems to have first been coined in 1615, when it almost immediately passed into common usage.
*12 In that year two customs officials, Wolstenholme and Cranfield, were instructed to compute the exports and imports for the two preceding years, in order to ascertain the effect on foreign trade of “Alderman Cockayne’s Project” restricting the export of undyed or undressed woolens. The results of their computations are still extant in manuscript, indorsed as follows: “A computation of all merchandises exported and imported into England one year by Mr. Wolstenholme 21 May 1615” and “Sir Lionell Cranfield his balance of trade 21 May 1615.”
*13 In the next year, Sir Francis Bacon, who was acquainted in his official capacity with these computations, in his “Advice to Sir George Villiers” wrote as follows:

This realm is much enriched, of late years, by the trade of merchandise which the English drive in foreign parts; and, if it be wisely managed, it must of necessity very much increase the wealth thereof; care being taken, that the exportation exceed in value the importation; for then the balance of trade must of necessity be returned in coin or bullion.
*14

The first appearance in print of the phrase appears to have been in the title and text of a pamphlet by Misselden published in 1623,
The Circle of Commerce, or the Balance of Trade. It is to be found
ad nauseam in the subsequent literature. The term was, of course, borrowed from the current terminology of bookkeeping,
into which the word “balance” had apparently been incorporated from the Italian about 1600. Prior to 1615, such terms as “overplus,”
*15 “remayne,”
*16 “overvallue”
*17 were used to signify the excess of exports over imports, or vice versa, and Malynes,
*18 in 1601, and Cotton in 1609,
*19 used the term “overballancing” for the same purpose. A memorandum of 1564 spoke of exports sufficient “to answer the foreign commodities” to mean exports adequate to balance the imports,
*20 and John Stow in 1598 used “overplus” and “countervail” for the two meanings of “balance.”
*21 Nothing was invented or discovered in 1615 except the precise term “balance of trade.” There is no evidence that when in that year attempts were made to compute the actual balance any person regarded it as the application of a novel idea. Misselden, in 1623, did write of “this balance of trade, an excellent and politic invention, to shew us the difference of weight in the commerce of one kingdom with another,”
*22 but what he regarded as novel was not the notion of a balance but its actual measurement in the absence of periodic trade statistics such as those with which we are now familiar. Malynes did criticize Misselden’s balance-of-trade argument, but not because the notion of a balance between exports and imports was unfamiliar or objectionable to him, for he had himself stressed the concept years before. What Malynes was criticizing was the overemphasis which Misselden was giving to the mere computation of the actual balance, since “the conceited balance of trade proposed by Misselden, can be but a trial and discovery of the overbalancing of trade, without that it can
produce any other benefit to the commonwealth,”
*23 and in any case was likely to be highly inaccurate.
*24

The term “favorable balance of trade” now so common, and so commonly attributed to the mercantilists, seems first to have been used in 1767 by Sir James Steuart,
*25 although the phrase “balance in our favor” had been used by Cary
*26 in 1695, Pollexfen in 1697,
*27 and Mackworth
*28 in about 1720, and corresponding terms were used by many other writers.
*29

General and Partial Balances.

There is no historical basis for the distinction which some writers have tried to make between a balance-of-individual-bargains stage and a chronologically later general balance-of-trade stage in the evolution of mercantilist doctrine. Richard Jones coined the phrase “balance-of-bargain” in order to distinguish between means and not ends: “To effect their purposes, they [i.e., the early politicians] adopted a very complicated system, which we may call the
balance-of-bargain system; and which, though its object was precisely the same with that of the balance-of-trade system long subsequently established, yet sought to attain that object by very different means.”
*30 An influx of bullion resulting from an excess of exports over imports was the common objective both of the earlier and of the later period. To the extent that the methods advocated or actually applied to attain this end differed, it is more accurate to say that the early bullionist regulations dealt directly with the transactions in coin and bullion and foreign exchange, whereas the later customs
regulations sought the same results indirectly by regulating the commodity imports and exports. No trace is to be found in the early literature of anything even approaching a theory of the importance of the individual balances except as items in a clearly conceived national balance and it is only as inference from the character of the bullionist regulations that the prevalence of the notion that such a theory was once expounded can be explained.

In some of the modern literature on mercantilism there is to be found an exposition of the evolution of the balance-of-trade doctrine in terms of
three chronological stages: first, the individual bargain; then an intermediate stage in which the notion of the balance of trade with particular countries, but not the total balance of trade, had been grasped; and, finally, the emergence of the concept of the national or aggregate balance. This is all the product of vivid imagination. In the seventeenth and eighteenth centuries there was much controversy about the state of the balances with particular countries, but always with reference to their bearing on the aggregate balance. In the seventeenth century the state of the balance in the East India trade was the principal object of controversy in this connection; in the eighteenth century it was the balance with France which gave rise to most misgiving. The East Indian balance was indisputably “unfavorable,” and the East India Company was attacked on this ground. Its spokesmen tried to meet the attack by the contention that, although the balance was immediately unfavorable, the East India trade had indirect effects, such as the reexport at a profit of commodities imported from India and the substitution of imports from India for imports to greater value from other countries, which made its net result, direct and indirect, a favorable instead of an unfavorable contribution to the total national balance.
*31 It
would be difficult to demonstrate such a theory to determined critics, even if it were in accord with the facts, and when this method of argument failed to be effective, the defenders of the company, while still conceding in the abstract that any trade was harmful if it did not contribute, directly or indirectly, to a favorable balance for the country, resorted to questioning the possibility of applying the test with sufficient accuracy to warrant the condemnation of any trade.
*32 When this argument also failed to subdue criticism, the defenders of the company were finally driven to questioning and even to explicitly rejecting the validity of the balance-of-trade test, however qualified, as a measure of the value of trade.
*33 But none of the writers on either side of the controversy claimed that the particular balance of trade was to be judged except in terms of its contribution to the total balance,
and there was certainly none who argued about particular balances without first having conceived of the notion of a total balance. On this question there was no conflict of doctrine, but only disagreement as to the facts and as to the possibility of ascertaining them.

Constituent Items in the Balance.

The mercantilists have sometimes been charged with failure to see that the international balance does not consist only of commodity exports and imports,
*34 and many suppose that the “invisible items” are a recent discovery. But most of the important writers of the seventeenth and eighteenth centuries took care to point out that allowance must be made for non-commodity items in explaining the net balance payable in bullion. Reference to an “invisible” item is to be found as far back as 1381, when both Aylesbury and Lincoln explained the drain of gold as due partly to remittances to Rome.
*35 An early writer argued that if foreign merchants were required to come to England to buy English cloth instead of being permitted to buy it abroad, their living expenses in England would be an item in England’s favor.
*36 Misselden, in 1623, mentioned the profits from the fisheries, reexport trade, and freight earnings as items to be added to the commodity statistics in computing the balance.
*37 Malynes,
*38 in the same year, pointed out that interest payments on foreign loans should be included in the balance. Robinson,
*39 in 1641, included diplomatic expenditures abroad, travelers’ expenses, and freight charges. Mun, writing in about the year 1630, listed almost all the items which would be included today: freight earnings, military expenditures abroad, marine insurance payments, gains from fisheries, losses at sea of outward and inward shipments of goods, Catholic remittances to Rome, travelers’ expenses, gifts, and the excess over their living expenses in the country for which the balance is being computed of payments to foreigners for exchange commissions, interest, and life and commodity
insurance.
*40 Child,
*41 in 1690, added absentee incomes and losses from bad debts. Hugh Chamberlain, in 1606, listed, in addition to commodity trade, the earnings of migratory labor abroad, tourist expenditures (“what foreign travellers spend here to see the country”), diplomatic and military expenditures abroad, and other items.
*42

The mercantilists were most interested in the “balance of payments” in its strict sense of a net balance of immediate obligations payable in specie, and the specie flows inward or outward resulting from the balance of payments were their primary concern. Payments on account of shipping freights or interest payments on foreign indebtedness were therefore recognized as having, value for value, the same significance as payments for commodity imports. But it was long before separate terms were coined to distinguish between the commodity balance of trade and the total balance of payments, and the writers of the period ordinarily used the term “balance of trade” to mean at one time one of these balances, at another time the other. John Pollexfen,
*43 however, referred to the “balance of accompts” as meaning the total balance inclusive of both commodity and non-commodity items, and Justice
*44 and Harris
*45 later used the same term in the same sense. Steuart spoke of “the whole mass of reciprocal payments” and their “balance,”
*46 and at one point used the actual phrase, “balance of payments,” in its modern sense: “We must always carefully avoid confounding the grand balance of payments with the balance between importation and exportation, which I consider as the balance of trade.”
*47 Arthur Young in 1772 used the phrase “temporal balance of remittance” to signify
the immediate balance of payments.
*48 The term “balance of indebtedness” seems not to have been used until the nineteenth century. Adam Smith, however, approached it at one point, where he referred to the “state of debt and credit.”
*49

IV. REASONS FOR WANTING MORE BULLION

The Mercantilist Concept of Wealth.

The mercantilists wanted an export surplus primarily because they wanted more bullion and because they saw that for a country without gold or silver mines a favorable balance of trade was the only means available to procure bullion. The central problem in the interpretation of the mercantilist theories is the discovery of the grounds on which their belief in the desirability of an indefinite accumulation of the precious metals was based. The most common criticism of the mercantilists is that they regarded the precious metals as the sole constituents of the wealth of the nation. Adam Smith made this charge a central feature of his criticism of the mercantilist doctrines, and he has been accused, by modern apologists for mercantilism, of inexcusable misinterpretation of their doctrines.
*50 On behalf of the mercantilists they assert that the doctrine of the identity of wealth and bullion is so absurd as to make it incredible that able men, to whom the fable of Midas must have been familiar, should have adhered to it, and they either refer to passages in writings of the period revealing a broad concept of wealth, or else deny that the words “wealth,” “riches,” or “treasure” had the same meaning then which they have now.
*51 But the
only reference to the Midas fable I have found in the literature prior to 1760 is in a work sharply critical of the mercantilist doctrines,
*52 and, although unobjectionable definitions of wealth are to be found, they are usually offered by moderate or skeptical writers as criticisms of the prevailing views. “Riches,” “wealth,” “treasure” had ambiguous meanings in the seventeenth and eighteenth centuries. They meant money, jewels, and other especially precious commodities at one moment, and all goods useful to man at another moment. Very often this shift of meaning occurred within the limits of a single paragraph or even sentence, and reasoning involving, and obtaining what plausibility it has from, such shifts in the meaning given to terms constitutes a large portion of the mercantilist argument, and especially of the balance-of-trade doctrine.

The mercantilists did not have in mind the possibility that a country may make investments abroad or may borrow from abroad, and there is no mercantilist writer who explains his desire for a favorable balance of trade as a desire that his country should export capital abroad rather than borrow abroad.
*53 If indebtedness is disregarded, the one difference between an export surplus and an import surplus is that there is a net exchange of goods for money in the first case, and of money for goods in the second case. It is impossible, therefore, to understand such common mercantilist arguments as that foreign trade was the only path to national wealth, that a country can gain from foreign trade only if it results in a favorable balance payable in bullion, that an export surplus is both the proof and the measure of gain from trade, and that an import surplus is both the proof and the measure of national loss,
*54 unless they believed, momentarily at
least, that all goods other than money were worthless, or were of value only as they served as means of securing money. If it be replied that the mercantilists meant by “wealth,” “treasure,” “riches,” “gain,” “loss,” “poverty,” “prosperity,” “profit,” etc., only money or absence of money, their arguments generally become merely laborious tautologies, and it becomes a mystery: (a) why they should have thought it necessary to present so earnestly and at such great length arguments reducing to the assertion that the only way for a country without gold or silver mines to get more bullion is to obtain it from abroad in return for goods, and (b) what terms they used when they were thinking of what we mean today when we speak of riches, wealth, gain, prosperity.

…the wealth of the realm cannot decrease but three manner of ways, which is by the transportation of ready money or bullion out of the same; by selling our home commodities too good cheap; or by buying the foreign commodities too dear, wherein chiefly consisteth the aforesaid overbalancing….
*55

If the native commodities exported do weigh down and exceed in value the foreign commodities imported, it is a rule that never fails, that then the Kingdom grows rich, and prospers in estate and stock; because the overplus thereof must needs come in, in treasure.
*56

The ordinary means therefore to increase our wealth and treasure is by foreign trade, wherein we must ever observe this rule: to sell more to strangers yearly than we consume of theirs in value.
*57

…the only way to be rich, is to have plenty of that commodity to vent, that is of greatest value abroad….
*58

Foreign trade is the only means to enrich this Kingdom…. Where the consumption of things imported, does exceed in value the things exported, the loss will be as the excess is.
*59

For exportation is gain, but all commodities imported is loss, but ready silver or such commodities, that being carried out again bring in silver from other nations.
*60

…gold and silver is the only or most useful treasure of a nation…nothing but bullion imported, can make amends for bullion exported.
*61

If we export any value of our manufactures for the consumption of a foreign nation, and import thence no goods at all for our own consumption, it is certain the whole price of our own manufactures exported must be paid to us in money, and that all the money paid to us is our clear gain.
*62

…to take the right way of judging of the increase or decrease of the riches of the nation by the trade we drive with foreigners, is to examine whether we receive money from them, or send them ours;…
*63

Mr. Deslandes says his country has a balance in trade of 7,000,000
l. Sterling per annum; which, if true, is infinitely more than Britain can pretend to: It will follow from hence, that the French must be much richer than the English;…
*64

The general measures of the trade of Europe at present are gold and silver, which, though they are sometimes commodities, yet are the ultimate objects of trade; and the more or less of these metals a nation retains, it is denominated rich or poor…. Therefore, if the exports of Britain exceed its imports, foreigners must pay us
the balance in treasure, and the nation grow rich. But if the imports of Britain exceed its exports, we must pay foreigners the balance in treasure, and the nation grow poor.
*65

Adam Smith, however, did exaggerate the extent of the dependence of the mercantilist case on the absolute identification of money and wealth, inasmuch as he failed to make clear that there were some mercantilists who were never guilty of such identification and few mercantilists who were never guiltless of it. Certainly, few writers of any prominence relied solely on this identification in arguing for the desirability of the indefinite accumulation of bullion, even though few failed to fall back on it to ease the course of their argument at critical points and to give it an axiomatic appearance both to themselves and to their readers.

To most of the
moderate mercantilists the distinction between money and wealth was clear enough, if not always at least in moments of enlightenment and when recognition of the distinction would not hamper them and might even help them to make the point at issue at the moment. Thomas More had already, in 1516, tried to destroy the current illusions about the importance of gold and silver and in his ideal commonwealth they were to be relegated to use in the hire of foreign mercenaries and in the making of vessels serving lowly and unromantic purposes indeed, in order to free the Utopians from the tendency to exaggerate their importance: “And these metals, which other nations do as grievously and sorrowfully forego, as in a manner their own lives, if they should altogether at once be taken from the Utopians, no man there would think that he had lost the worth of one farthing.”
*66 The following quotation from another sixteenth-century writer illustrates the use of the word “treasure” to signify more than merely the precious metals:

But he that hath treasure, gold, silver, house and land,

He shall be obeyed as lord with young and old,…
*67

There follow some quotations from writers who had a broad concept of wealth and who used to signify wealth the same terms
which we now use but which the apologists claim then had a different and narrower meaning. It is to be noted, however, that the authors cited were all critics of at least the more extreme monetary doctrines of the mercantilists.

…all men do know, that the riches or sufficiency of every kingdom, state, or commonwealth, consisteth in the possession of those things, which are needful for a civil life.
*68

It is true that usually the measure of stock and riches is accounted by money; but that is rather in imagination than reality…. The stock or riches of the kingdom doth not only consist in our money, but also in our commodities and ships for trade, and in our ships for war, and magazines furnished with all necessary materials.
*69

By riches, is meant all such things as are of great value. By value, is to be understood the price of things; that is, what anything is worth to be sold….
*70

It is a very hard thing to define what may be truly called the riches of a people…. We esteem that to be treasure, which for the use of man has been converted from gold and silver into buildings and improvements of the country; as also other things convertible into those metals, as the fruits of the earth, manufactures, or foreign commodities and stock of shipping. We hold to be riches, what tends to make a people safe at home and considerable abroad, as do fleets and naval stores. We shall yet go farther, and say that maritime knowledge, improvement in all kind of arts, and advancing in military skill, as also wisdom, power and alliances, are to be put into the scale when we weigh the strength and value of a nation.
*71

We commonly count money and bullion riches, whereas they are not riches in themselves, but the instruments and conveyances of them…. The riches therefore of a man consist in the abundance of those things that are in themselves useful to our delight or sustenance…. The riches of a nation consist in the plenty of those commodities which are most useful in human life, whose air is healthy, whose soil is fruitful, whose people are diligent and ingenious, and busied in manufactures, whose ports are open and free for commerce with the nations about it. This nation is rich, tho’ it has not in it an ounce of gold and silver….
*72

The abuse or indefinite use of words, has in no one article of
human reasoning caused greater confusion in ideas, than the calling wealth or riches by the name of money:—Riches, in respect to a nation, are the universal plenty of all necessaries, as food, raiment, houses, and furniture, provision for war, etc. Money, as gold or silver coin, are properly the medium of exchange, but by its quantity may become, and is an article of commerce itself; yet, where it most abounds, as in Portugal, it makes but a small proportion of the riches of that country, though the country itself is extremely poor. And nothing is so erroneous, as to judge of the riches of a country by the quantity of gold and silver in it.
*73

Similar passages can occasionally be found in the works of even the extreme mercantilists, but if they are examined in their context it will generally be found that they justify including other things than gold and silver as wealth only because gold and silver can be obtained in exchange for them;
*74 or defend the inclusion of other things on less than parity with the precious metals, on the ground that it cannot with certainty be assumed that these other things can and will be sold abroad in exchange for bullion.
*75

Identification of wealth with the precious metals, whether explicitly or as a tacit assumption underlying their reasoning, is to be regarded, however, as an extreme phase of mercantilist doctrine, prominent in the literature, and contributing largely, no doubt, to its hold on public opinion, but resorted to somewhat
apologetically by its faint-hearted adherents, and not present at all, and even expressly repudiated, in the writings of a few of the most enlightened mercantilists, whose enlightenment, however, tended to take the form of an abandonment of some of the central propositions of mercantilism. Some of the apparent identification may have been purely terminological, although it must be repeated that the ambiguity of terminology was closely associated, as both cause and effect, with genuine confusion of thought. Much more important in the writings of the abler mercantilists than the absolute identification of wealth with gold and silver was the attribution to the precious metals of functions of such supreme importance to the nation’s welfare as to make it seem proper to attach to them a value to the commonwealth superior to that of other commodities of equal exchange value. These functions, of which different ones or combinations were stressed by different writers, were to serve as state treasure, as private stores of wealth, as capital, and as a circulating medium. In the following sections, the mercantilist theories with respect to these functions of the precious metals will be examined.

State Treasure as an Emergency Reserve.

The mercantilist argument for the importance of accumulating precious metals which is logically most easily defended is that resting on the value to the state of having a financial reserve on hand in liquid form immediately available in case of emergency. When monetary transactions had become the normal state of affairs, but before public borrowing could be relied upon as a quick and dependable source of funds, and before taxation had become a regular source of revenue quickly responsive to changed fiscal needs, there was much to be said for the accumulation of a state treasure consisting of a stock of the precious metals. This was a common practice in the medieval period, and it has had survivals into modern times, notably in Prussia. It is an important element in present-day monetary policy. The maintenance intact of a state treasure required, however, the exercise by the monarch of a certain degree of restraint in his expenditures, and the profligacy of Henry VIII resulted in the dissipation of the treasure which he had inherited from his predecessor, and the disappearance of the institution as a phase of English state finance. Later monarchs, without exception, relied upon borrowing and special taxation to finance their wars. Even if a state treasure were maintained,
moreover, it would call, not for an indefinite accumulation of the precious metals, but only for an amount sufficient for the probable needs. The requirements for the upbuilding of a state treasure could not logically have served, therefore, as a sufficient basis for the mercantilist insistence upon the urgent need of an indefinite augmentation of the national stock of the precious metals No state treasure, moreover, was in existence or projected during the seventeenth century, and even the most loyal adherent of the Stuarts could have had no great confidence in their ability to restrain themselves from encroaching for current purposes upon any state treasure which they might inherit or have bestowed upon them. In fact there is little mention of state treasure in the mercantilist literature, and its use as an argument for the importance of a favorable balance of trade is extremely rare. The common impression that it played an important part in English mercantilist doctrine has no historical basis.

Even the few references to state treasure which do occur in the literature of the period are not enthusiastic in tone. Sir Thomas More refers to state treasure only to urge the need of subjecting it to a maximum limit, to keep the king from becoming avaricious, and so that “his people should not lack money, wherewith to maintain their daily occupying and chaffer.”
*76 Another early sixteenth century writer also recommends that the king should limit his accumulation of treasure in due proportion to the amount of gold and silver that was in the country or could be procured from abroad in return for English commodities, as otherwise there would be scarcity of money for the people and impairment of their capacity to produce.
*77 Mun discusses the desirability of a state treasure more fully than any other mercantilist writer. He defends the institution against unnamed critics, but seems to urge it more as an inducement to frugality on the part of princes in dealing with their ordinary revenues in times of plenty than as an emergency reserve deliberately built up by special exactions or taxes. He advises, very much along the same lines as the sixteenth century writers referred to above, that the prince should not add to his treasure annually, in the form of gold and silver, more than the amount of the year’s excess of exports over imports,
even if his revenues exceed his expenditures by more than that amount, since otherwise he would draw into the treasure all the money needed for trade and industry. He states that it is not necessary, or even desirable, for all the state reserve to be accumulated in the form of a stock of the precious metals, for it can better and more profitably be used to build ships of war, to store up grain against periods of dearth, and to accumulate war supplies, or lent to citizens for productive use. He writes:

…although treasure is said to be the sinews of the war, yet this is so because it doth provide, unite and move the power of men, victuals, and munition where and when the cause doth require; but if these things be wanting in due time, what shall we then do with our money?
*78

Except for minor references to state treasure,
*79 the only other discussions of it that I have found in the literature of the period are by John Houghton and Henry Home. Houghton, in the course of a plea that Parliament vote Charles II whatever funds he should ask for, deals with the possible objection that the king might hoard the money. He argues that such a hoard would lend prestige and power to the king in his dealings with foreign countries. He claims that Henry VII was the only English king who accumulated a great hoard, and that no ill resulted to the country in that case. He argues that by making money dear in England, hoarding would lead to the import of further supplies of bullion from abroad. But he concedes that hoarding would be the worst use to which the king could put his revenue, except expenditure on sinful purposes.
*80 Home supports the maintenance of a state treasure, but contingent upon the existence of wise and good government: “In the hands of a rapacious ministry, the greatest treasure would not be long-lived: under the management of a British ministry, it would vanish in the twinkling of an eye; and do more mischief by augmenting money in circulation above what is salutary, than formerly it did good by confining it within moderate bounds.” His chief reason for supporting a state treasure,
moreover, would have seemed paradoxical to the ordinary mercantilist. Its virtue was that it could absorb a redundancy of currency, which otherwise would get into circulation, raise prices, and thus hamper trade. Where there was no redundancy of currency, the accumulation of treasure, he held, would be prejudicial to commerce. Its availability as a reserve in emergencies was apparently a minor factor to him
*81

There are other passages in the mercantilist literature which may have state treasure in mind, even though they do not explicity refer to it. Such perhaps are the frequent references to money as the “sinews of war,” and especially to its importance in diplomacy and in conducting war in foreign territory with mercenary troops. But money procured through current taxation or borrowing would serve as well, and the emphasis may therefore be intended to be rather on the importance of plenty of gold and silver within the country thán specifically in the state treasure.
*82 Many of these passages, moreover, seem to identify money with the things which money can buy, and financial power with the size of the stock of the precious metals.
*83

The Precious Metals as a Store of Wealth.

The disparagement of consumption and the exaltation of frugality and thrift were common doctrines of the period, not wholly dependent upon economic reasoning but deriving much of their vitality from moral and religious principles and class prejudices. The Puritans disapproved of luxury and regarded thrift and saving as one of the major virtues on moral and theological, as well as on economic, grounds. The landed gentry, on the other hand, were typically not Puritans themselves either in their religion or in their mode of life, but they tended to regard extravagance and expensive display as the exclusive prerogatives of the hereditary aristocracy, and thrift and frugality as the appropriate virtues of the middle and lower classes. Eulogy of frugality and thrift and condemnation of luxury are common throughout the mercantilist literature, and only a few instances need be cited. Sir William Temple praises the Dutch and, following a custom which seems already to have become established at the beginning of the seventeenth century and to have persisted until late in the eighteenth, sets them up as a model to be followed by the English in economic matters, because, among other virtues, “they furnish infinite luxury, which they never practice, and traffic in pleasures, which they never taste.”
*84 Petty stresses saving above all other means of acquiring wealth:

But above all the particulars hitherto considered, that of superlucration
ought chiefly to be taken in; for if a prince have never so many subjects, and his country be never so good, yet if either through sloth, or extravagant expenses, or oppression and injustice, whatever is gained shall be spent as fast as gotten, that state must be accounted poor;…
*85

The emphasis on saving is shown also by the frequent exclusion of consumable goods, or goods destined for consumption instead of for accumulation, from “riches,” the latter term being confined to saved or accumulated goods. The following passages are representative of such verbal usage:

The two great principles of riches are land and labor;… whatever they [i.e., the people] save of the effects of their labor, over and above their consumption, is called riches….
*86

And this increase of wages is the greatest tax on the nation, though the receiver is made no richer, only sprucer and lazier.
*87

… By what is consumed at home, one loseth only what another gets, and the nation in general is not at all the richer;…
*88

The notion that saving consisted of the piling-up of valuable goods led naturally to an identification of saved wealth or “riches” with stored-up goods of a special kind suitable for accumulation and not capable of, or destined for, current consumption. Commodities of high value and of great durability and not liable to loss of value through change of fashion would be specially suitable as the constituent items of stored-up wealth. The exaltation of saving led in turn to the attachment of superior importance to such commodities than to more perishable commodities and those destined for current consumption. The precious metals met these tests of suitability as stores of wealth better than any other commodities. Here is an important element in the explanation of the
importance attributed to gold and silver by the mercantilists. There follow a few quotations, illustrating the attachment of superior importance to the precious metals than to other commodities because of their greater suitability as stores of wealth:

Also they [i.e., foreign merchants] bear the gold out of this land

And soak the thrift away out of our hand;

As the waffore sucketh honey from the bee,

So minceth our commodity.
*89

…gold and silver are…the most necessary and lasting instruments to procure all things that are, or shall be found useful, or any ways serviceable to mankind, being portable and durable, when most other goods are burthensome, subject to perish and decay…. Silver and gold being preferable to house and land, and the only instruments that have increased and improved trade.
*90

The great and ultimate effect of trade is not wealth at large, but particularly abundance of silver, gold, and jewels, which are not perishable, nor so mutable as other commodities, but are wealth at all times, and all places: whereas abundance of wine, corn, fowls, flesh, etc., are riches but
hic & nunc, so as the raising of such commodities, and the following of such trade, which does store the country with gold, silver, jewels, etc., is profitable before others.
*91

All other commodities end with the consumer, but money still lives, and the more hands it runs through the better; so that in a sense the use doth not destroy it, as it doth other commodities, but leaves it as it were immortal.
*92

Gold and silver, for many reasons, are the fittest metals hitherto known for hoarding: they are durable; convertible without damage into any form ; of great value in proportion to their bulk ; and being
the money of the world, they are the readiest exchange for all things, and what most readily and surely command all kinds of services.
*93

As gold is a treasure, because it decays not in keeping… no other metals are a treasure, because they either decay in keeping, or are in too great plenty.
*94

If the only possible or practicable means of saving is by the accumulation of a hoard of the precious metals, it becomes obvious that the accumulated wealth of a country is limited to its stock of the precious metals and can increase only through an increase in the latter. If that country is without gold or silver mines, it can therefore add to its saved wealth only through a favorable balance of trade payable in bullion. Reasoning such as this explains—and exposes—the balance-of-trade theories of an important and numerous group of the English mercantilist writers. There follow several representative passages in which the ideas of riches as saved wealth, of saving as the piling-up of the precious metals, and therefore of a favorable balance of trade as necessary for an increase of riches, are stated or clearly implied:

…no trades carried on by the exportation of [our] own products and manufactures, or those from our plantations, though what brought back in return be all perishable commodities, can diminish our riches, for all such goods of ours (unless some objection be made as to tin and lead) would have perished by time, if had been kept here; but a great distinction ought to be made, between trades carried on by the exportation of our products, and trades carried on by the exportation of our bullion, to purchase perishable commodities, because in such case we exchange what is durable, and most useful, for what cannot long do us any service.
*95

That silks, woolen goods, wines, etc., may be esteemed riches between man and man, because may be converted into gold and silver, yet do not deserve to be esteemed the riches of the nation, till by exportation to foreign countries are converted into gold and silver, and that brought hither, because are subject to corruption, and in a short course of years will consume to nothing, and then of no value.
*96

Now it falls out in the natural course of things, that whilst men
are employed in searching after the necessaries of life, they find riches: for the earth is grateful, and repays their labor, not only with enough, but with abundance; and out of the plenty of these materials, plenty of things are formed to supply the wants of mankind. Now the more of these things any nation has, the more comfortably the people live; and whatever they have of them more than they consume, the surplus is the riches of that nation, I mean, the intrinsic riches of it. This surplus is sent to other nations… and is there exchanged or sold; and this is the trade of a nation. If the nation, to which it is sent, cannot give goods in exchange to the same value, they must pay for the remainder in money, which is the balance of trade; and the nation that hath that balance in their favor, must increase in wealth; for this is the only way to bring money into any nation, that has no natural fund of it in mines in its own bowels; and the only way to keep it in any nation that has.
*97

The doctrine of thrift also led to emphasis on the importance of a favorable balance of trade through another chain of reasoning. Throughout the mercantilist period, the imports into England consisted largely of expensive luxuries and conveniences which contributed more to the pleasures and comforts of life than to the dull but virtuous process of enrichment through thrift. Also if Englishmen were sparing in their consumption of even domestic goods, there would result, it was claimed, either unemployment or the piling-up of unsold and perishable commodities, unless the surplus stocks of domestic goods were exported abroad. Small imports and large exports were therefore a necessary adjunct of thrift and enrichment. These views were widely prevalent, and they are sufficiently illustrated by passages cited in other connections.

Protests against the importation of “apes and peacocks,” “toys and baubles” recur throughout the mercantilist period and were already common in the sixteenth century. Thus Starkey makes one of the participants in his dialogue reproach as “ill-occupied” “all such merchants which…bring in…vain trifles and conceits, only for the foolish pastime and pleasure of man,” although his adversary does say something in defense of the joys of life.
*98

Money as Invested Capital.

With only a few exceptions, the mercantilists either identified or failed clearly to distinguish between money, on the one hand, and capital or “stock” employed by its owner or lent out at interest, on the other. They always wrote of direct employment of capital and of loans at interest in monetary terms, and as a rule they showed no signs that they had penetrated in their analysis beneath the monetary surface. Verbally, at least, they identified money with capital; much of their argument can be explained only if they regarded money and capital as identical in fact as well as in name. This is most clearly brought out in the important doctrines of the period: that interest was paid for the use of money, that the rate of interest depended on the quantity of money, and that high interest rates were proof of the scarcity of money, doctrines which were questioned by very few writers before Hume.
*99 Several passages illustrating the common confusion of money with capital follow:

That by the plenty of money [resulting from raising the nominal value of English coin and thus keeping it from being exported] the price of usury may of course decrease and the price of lands be improved.
*100

It is an infallible sign that money abounds, and is plentiful, when the interest thereof is low, for interest or forbearance is the price of money….
*101

Now, I think, the natural interest of money is raised two ways: first, when the money of a country is but little, in proportion to the debts of the inhabitants, one amongst another…. Secondly, that, which constantly raises the natural interest of money, is, when money is little, in proportion to the trade of a country. For in trade everybody calls for money, according as he wants it, and this disproportion is always felt. For, if Englishmen owed in all but one million, and there were a million of money in England, the money would be well enough proportioned to the debts: but, if two millions were necessary to carry on the trade, there would be a million wanting, and the price of money would be raised, as it is of any other commodity
in a market, where the merchandise will not serve half the customers, and there are two buyers for one seller.
*102

This confusion of money with capital contributed directly to the attachment of great importance to the size of the national stock of money, and indirectly to emphasis on the importance of a favorable balance of trade as the only way in which that stock could be increased.

The Analogy from Personal Finance.

…we must always take heed that we buy no more of strangers than we sell them; (for so we should empoverish ourselves and enrich them). For he were no good husband that hath no other yearly revenues but of husbandry to live on, that will buy more in the market than he selleth again.
*103

The ordinary means therefore to increase our wealth and treasure is by foreign trade, wherein we must ever observe this rule; to sell more to strangers yearly than we consume of theirs in value…. By this order duly kept in our trading, we may rest assured that the kingdom shall be enriched yearly two hundred thousand pounds, which must be brought to us in so much treasure; because that part of our stock which is not returned to us in wares must necessarily be brought home in treasure.

For in this case it cometh to pass in the stock of a kingdom, as in the estate of a private man; who is supposed to have one thousand pounds yearly revenue and two thousand pounds of ready money in
his chest. If such a man through excess shall spend one thousand five hundred pounds per annum, all his ready money will be gone in four years; and in the like time his said money will be doubled if he take a frugal course to spend but five hundred pounds per annum, which rule never faileth likewise in the Commonwealth….
*104

There was little contemporary criticism of this analogy, obvious though its shortcomings seem to be both as an analogy and as an interpretation of personal finance. Papillon pointed out that it was foolish for a person managing a farm to buy less than he sells in order to accumulate a stock of
money.*105 Barbon tried to meet it by the argument that although the “stock” of a person is finite, and therefore exhaustible, that of a country is infinite, and “what is infinite can neither receive addition by parsimony nor suffer diminution by prodigality.”
*106 Mandeville conceded that frugality or “saving” was the most certain method to increase an estate, but he denied, on “make-work” grounds, that this also held true for a nation.
*107 Hume pointed out, on quantity theory of money grounds, that while an individual would be richer if he had more money, the same would not hold for a country.
*108

More Money in Order to Have Higher Prices.

In the modern literature on mercantilism, the desire of the mercantilists for more money is sometimes explained as largely due to a prevailing desire for higher prices, and the apologists find economic justification for such a desire in the circumstances which they
allege then prevailed, for example, the necessity for increase in the national stock of money if the period of transition from a barter to a money economy were not to be accompanied by the evils of falling prices. But even in the literature of the early seventeenth century, barter is already referred to as a system characteristic of a primitive economy from which England had long since emerged. From early in the sixteenth century to late in the eighteenth, the general trend of English commodity prices was decidedly upward rather than downward, although the economic historians do seem to be agreed that there were intervals of some length during which prices were falling. But throughout the period the complaints of scarcity of money were unintermittent. I can find in any case very few mercantilists who wanted higher prices and wanted more money as a means of obtaining a higher price level. For such to have been the case, recognition of the dependence of prices on the quantity of money would have been necessary, and many mercantilists showed no trace of such recognition, while others denied the existence of any such relationship between the quantity of money and the price level.
*109 Some mercantilists, moreover, who shared in the general desire for more money, complained of high prices and wanted lower instead of higher prices. To them high prices were an evil which they did not associate with the quantity of money, or which they thought could be remedied by more money, or which created a need for more money if trade was to be carried on and the poor were to be able to buy the necessaries of life. Two typical complaints that prices were too high, made by writers who nevertheless were anxious that England have a favorable balance of trade in order that bullion should flow in, are cited below:

…the high price of all things is not only the greatest matter that the people grudge at; and one of the principal occasions of poverty and famine; but also the chiefest cause that the king’s majesty cannot without expense of wonderful great sums of money maintain his wars against his enemies….
*110

…cheap wares do increase trade, and dear wares do not only cause their less consumption, but also decline the merchant’s trade, impoverish the Kingdom of treasure, lessen his Majesty’s customs
and imposts, and abate the manufactures and employments of the poor in shipping, clothing, and the like….
*111

There were very few
price inflationists among the English mercantilists, and even the advocates of paper money did not want higher prices. Many mercantilists claimed that if their projects were adopted land values would rise, but such claims were made in order to win the support or weaken the opposition of the landed classes to their proposals. In any case, they were usually based on the argument that more money meant lower interest rates, and lower interest rates meant higher land values, or on the argument that more money meant more trade and therefore a readier sale for agricultural products, or more production and therefore greater exports, and rarely made specific reference to higher commodity prices. Some mercantilists argued, on what would now be called “terms-of-trade” considerations, that it was desirable that export prices should be high and import prices low.
*112 But one of these writers said that it did not matter what domestic prices were,
*113 and others argued that even with respect to exports low
prices were desirable if, or because, high prices would mean a small volume of sales.
*114 I have found very few mercantilist writers who unambiguously expressed a desire for higher prices in general,
*115 although there were probably many mercantilists who would not have regarded higher prices as an evil if accompanied by at least an equal increase in money, stocks or incomes. Such seems to have been Misselden’s position in his answer to the possible objection, against his proposal to raise the denomination of English coin, that it would result in an increase in commodity prices:

And for the dearness of things, which the raising of money bringeth with it, that will be abundantly recompensed unto all in the plenty of money, and quickening of trade in every man’s hand. And that which is equal to all, when he that buys dear shall sell dear, cannot be said to be injurious unto any. And it is much better for the kingdom, to have things dear with plenty of money, whereby men may live in their several callings, than to have things cheap with want of money, which now makes every man complain.
*116

More Money in Circulation Means More Trade.

Many of the mercantilists, some of whom also used the arguments already discussed, wanted more money because they regarded money, not merely as a passive medium of exchange, but as a force acting through its circulation from hand to hand as an active stimulus to trade. An increased amount of money in circulation, they believed, meant (or caused) an increased volume
of trade, and since men would produce only what they could sell a quickening of trade meant an increase of production and therefore a wealthier country. Here, it should be noted, money is valued as an instrument or stimulus of trade rather than for its own sake. The writers who stressed “circulation” as the valuable service of money often shifted, however, from the concept of money circulating as a medium of exchange to money passing from the hands of a lender to those of a borrower, and rarely distinguished clearly between them. The underlying reasoning is often presented in the form of analogies, especially with the circulation of the blood, which William Harvey had discovered not long before.
*117

Stress on the importance of an abundance of money in circulation if trade was to flourish is already to be found in very early writers.
*118 The most elaborate expositions of the “circulation” argument were made by William Potter
*119 and John Law.
*120 Potter’s argument seems to reduce to this: The wealth of a country is equal to the value of the goods of all sorts therein, money being valuable only as it serves to bring about the production of more goods.
*121 The more money men have, the more they spend and the
faster they spend it. If men acquire more money and spend it as fast as they receive it, the sales of merchants and manufacturers will increase proportionately. If they sell five times as much in money value, they will produce five times as much, and even more, in physical quantities, since they can afford to charge lower prices on the greater volume of sales.
*122

…in reference to a commonwealth, or any society of men, the greater quantity there is amongst them, of money, credit, or that which is taken by them for commodities, the more commodity they sell, that is, the greater is their trade. For whatsoever is taken amongst men for commodity, though it were ten times more than now it is, yet if it be one way or other laid out by each man, as fast as he receives it, it must needs come to pass, that (resting nowhere) it doth occasion a quickness in the revolution of commodity from hand to hand, that is trade, proportionable to the greatness of its quantity.
*123

John Law’s argument is essentially the same, although stated more conservatively.
*124 The most enthusiastic advocates of the circulation argument, Potter and Law included, were advocates of paper money. But if paper money were accepted as of equal value to metallic money, the great reason for desiring a favorable balance of trade, that it results in an inflow of bullion, should lose its force. Such in fact was the case with some of them, as the following extracts show:

…for whether a nation have any silver amongst them or no, yet if they can trade as well without it, what need they care? for their estates in vendible commodities (and consequently their credit) is of as real value as if it were in money.
*125

Whatsoever quantity of credit shall be raised in this office, will be as good, and of as much use, as if there were so much money
in specie added to the present stock of the nation…’tis more prudent and advantageous to a nation, to have the common standard or medium of their trade within their power, and to arise from their native product, than to be at the mercy of a foreign prince for his gold and silver, which he may at pleasure behold…. Credit can neither be hoarded up, nor transported to the nation’s disadvantage; which consequently frees us from the care and necessity of making laws to prevent exportation of bullion or coin, being always able to command a credit of our own,…as useful, and as much as shall be necessary.
*126

The only necessity of a foreign trade for England is because we make a foreign commodity (gold and silver) the standard of all ours, and the only medium of commerce, which (as long as it continues so) if we want, all trades must cease; but if we can find out another and safer medium of exchange (as this credit) appropriated to the place where we live and not subject to such obstruction as the other, why should we not readily embrace it?
*127

And if the proprietors of the bank can circulate their fundation of twelve hundred thousand pounds, without having more than two or three hundred thousand pounds lying dead at one time with another, this bank will be in effect, as nine hundred thousand pounds, or a million of fresh money, brought into the nation….
*128

Whether in any one year half a million is brought into a commercial country by trade, or issued out by banks, in notes, upon good security, it will serve for the same purposes.
*129

Some advocates of paper money made little or no reference to the balance of trade or to trade policy in their tracts. This freedom from the prevailing obsession with the state of the balance of trade may have been due to a loss of interest in a policy of securing laboriously through the complicated regulation of trade the increase of money which could be secured more quickly, with greater certainty, and with less effort, by means of the printing press. But some of the advocates of paper money displayed loyalty to the current belief in the importance of a favorable balance of
trade, either because of blind acceptance of traditional doctrine, or on the basis of the store of wealth argument or the analogy from personal finance that one should buy less than one sells, and these writers claimed that an increase of paper money would not drive bullion out of the country, but on the contrary would make the balance of trade more favorable through its beneficial effect on production and trade.
*130

The Quantity Theory of Money.

Those mercantilists who sought an increase in the supply of money because they wanted more circulation or more invested capital clearly wanted genuine physical increases in trade or capital and not merely nominal increases in terms of a depreciated monetary unit. Their doctrines, therefore, would seem to come into sharp conflict with any theory of the value of money which makes it vary inversely with its quantity, whether proportionately or not.
*131 Only for those mercantilists who wanted an increase of money for use as hoards or stores of wealth would acceptance of a quantity theory of money involve no problem of reconciliation. Many of the mercantilist writers gave no evidence of recognition of the dependence of the value of money upon its quantity. A few of them, in fact, wanted more money as a cure for the evils resulting from high prices. But, although Locke is sometimes credited with the first clear English formulation of the quantity theory, many of the mercantilists, from the beginning of the seventeenth century on, did present, in one connection or another, some simple version of the quantity
theory,
*132 although in most cases they failed to incorporate it as an integral part of their foreign-trade doctrine and failed also to show any concern about its consistency with the rest of their doctrine. There follow quotations from writings antedating Locke by some forty to ninety years which present some form of quantity theory of the value of money:

…plenty of money maketh generally things dear, and scarcity of money maketh likewise generally things good cheap. Whereas things particularly are also dear or good cheap according to plenty or scarcity of the things themselves, or the use of them.
*133

…even as plenty of money maketh things dear, and scarcity of money maketh things good cheap: even so plenty or scarcity of commodities maketh the price thereof to rise and fall according to their use more or less.
*134

It is a common saying, that plenty or scarcity of money makes all things dear or good or cheap…
*135

Gold and silver…in the intrinsic…are commodities, valuing each other according to the plenty or scarcity; and so all other commodities by them; and that is the sole power of trade.
*136

…money through want or plenty raises or diminishes the price of all things…
*137

…in those countries where monies are scarce, there the lands and native wares are cheap, so likewise where money doth abound, there the lands and wares are dear;…
*138

Several mercantilists faced squarely the apparent conflict between the quantity theory of money and their doctrines and attempted to meet the issue either by arguing that they could be reconciled or by denying the truth of the quantity theory.
*139 Apparently the first of these was William Potter, who has not received the attention which he deserves in this connection.
*140 Potter, as has been shown,
*141 claimed that an increase of money
in circulation would result in an even more than proportionate increase in trade and production, or in goods in circulation. In order to refute it, he states a quantity theory of money in its simplest one-sided form:

If then, in opposition to what is thus undertaken to be proved, it should be objected, that an increase of money would occasion an increase in the price of commodities, proportionable to such increase of money, (that is, if the money were twice as much, commodity would be twice as dear) consequently (going never the further in commodity by the increase thereof) would not occasion any increase in the sale of commodity: therefore not any increase of trade; and yet (by causing the price of commodities to rise) incur an inconvenience, contrary to what is before affirmed.
*142

His answer is elaborate and not always intelligible. He assumes the basis of the theory of money he is attacking to be that an increase of money increases prices by increasing the (physical?) volume of sales (by increasing the demand for commodities?).
He replies that if, when money is doubled, the prices of commodities are also doubled, there will be no increase in the (physical?) amount of sales. The theory therefore involves a contradiction.
*143 He then attempts to meet it by another line of reasoning. Quick trade permits of a small profit, and therefore a lower price. Quick sales enable artisans and others to produce more quickly, and if they sell more they can afford to charge a lower price. The increase in the amount of commodities resulting from the stimulus to trade of an increase in money, instead of raising prices, will therefore lower them. Prices will rise only if the increase in commodities is proportionately less than the increase in money, which is not likely to be the case. But even if prices should rise somewhat, it is better to have an abundance of comforts, though dear, than a smaller amount thereof, though never so cheap.
*144

Another advocate of paper money, John Asgill, denied the truth of the quantity theory of money on different and exceedingly slender grounds: an increase in money would lower the rate of interest and therefore raise land values, but not the prices of commodities in general, because “the price of corn and cattle don’t rise and fall with the interest of money.”
*145 John Law attacked it, partly by arguments closely resembling those of Potter, partly on reasoning peculiarly his own. The stimulus to trade and industry resulting from an increase in money would result in an increase in commodities. Because money would be easier to borrow, merchants would be able to increase the extent of their operations and to sell at lower rates of profit, and therefore the value of the money would not fall, i.e., prices would not rise.
*146 Money falls in value only when given to a people in greater quantity than there is demand for; if the money is issued only as there is demand for it, its value will not depreciate, “the
quantity and demand increasing and decreasing together.”
*147 Law concedes that if the quantity of money in any particular country “should increase beyond the proportion that country bears to Europe,” prices would rise there, but the rise of prices would spread elsewhere, so that the value of money would become the same, or about the same, everywhere. The country which had acquired the increase of money would profit greatly thereby, “for that country would have the whole benefit of the greater quantity, and only bear a share of the lesser value, according to the proportion its money had to the money of Europe.”
*148 What would make the prices rise elsewhere, he does not explain.

Another writer, James Hodges, who complained of scarcity of money, wanted plate called in and coined and the monetary value of the English standard coin raised as a remedy for this scarcity. He claimed that these measures would result in higher prices
only after they resulted in an increase in the number of coins in circulation. The effect on prices would therefore be gradual, and meanwhile there would be a stimulus to trade. After a short time the value of the coin could be gradually lowered, and the surplus bullion returned to be made into plate again if its owners so desired. His argument is interesting as an anticipation of Hume’s doctrine that
rising prices are a stimulus to trade, and for its endeavor to find a method of obtaining this stimulus without involving a permanent increase in the price level. The difficulty with the scheme, granting its logic, is, of course, that the period of stimulus would be followed by a period of at least corresponding depression.
*149

Both Potter and Law claimed that an increase of (paper) money would make the balance of trade more favorable and would lead to an inflow of bullion. Potter argued that the beneficial effects of an increased quantity of money would enable
England to outsell other countries, for “the greater trade of one country hath a capacity of undermining and eating out the lesser trade of other countries.”
*150 For reasons not explained, unless it be the fall in English prices alleged to result from an increase in the quantity of money, both foreign and English commodities would fall in price in England, but not abroad. Exports would therefore be paid for with bullion (and presumably imports would be paid for with English commodity exports), and the bullion could be coined into English money without loss. But with unusual consistency Potter admits that when paper money or credit is available as a substitute, metallic money would be of little importance to England.
*151 Law showed more concern than did Potter about the state of the balance of trade, but he also claimed that an increased amount of money through the issue of paper money would make the balance favorable: “Most people think scarcity of money is only the consequence of a balance due; but ’tis the cause as well as the consequence, and the effectual way to bring the balance to our side, is to add to the money.”
*152 More money, by employing more people, would make a surplus of goods available for export, and if sufficient money was issued production would reach a level at which more would be exported than imported. Conversely, if the amount of money was reduced, some of the laborers would be rendered idle, the domestic output would shrink, exports would fall, and an unfavorable balance would result.
*153 These results of a change in the quantity of money he would apparently expect not to be transitory but to persist as long as the new quantity of money persisted.

The Mercantilists on Hoards and Plate.

Because the mercantilists differed among themselves as to the character of the benefit which resulted from an increase in the amount of bullion in a country, they also differed in their attitudes toward the miser, the collector of gold or silver plate, the usurer, and the spendthrift. Those mercantilists for whom the chief virtue in an increased supply of bullion lay in its stimulus to circulation condemned private hoards as an evil, and also regarded other practices
which kept bullion from circulating as money, such as its use in the manufacture of plate, as objectionable.
*154 Vaughan condemned hoarding and the use of plate as contributing factors to the scarcity of money, and recommended sumptuary legislation to check the melting of money and its manufacture into plate.
*155 An anonymous writer criticized the Established church on the ground that it hoarded riches which should circulate, so that “the money that before ran current in trading, is dammed up in their coffers.”
*156 Another pamphlet, written as an answer to this one, condemned the excess of silver plate for the same reason, but claimed that there was no occasion for alarm about hoarding, as there was not much of it, and urged in the defense of the church that it could be charged with responsibility for the prevailing scarcity of money only if the clerics kept “banks of money dead by them,” which was not the case. Complaint against the usurer as a hoarder of money was likewise without basis, since “his money walks, though upon other legs, either serving the tradesman or the gentleman, for preparing commodities to export, or to buy what is imported for his expenses.”
*157 Manley found fault with the miser, because “money locked up in the miser’s coffers is like dung in a heap, it does no good, but being dispersed, and orderly disposed abroad, enricheth the land.”
*158 An anonymous writer wanted misers’ hoards taxed, in order to draw some of their money into circulation, especially in time of war when trade was slack. “I know no difference,” he wrote, “betwixt bringing treasure out of an iron chest by a good law, and
plowing the seas by long and dangerous voyages” in order to secure bullion through foreign trade.
*159 One of Locke’s objections to the reduction of the interest rate by law was that it would result in men keeping their money “dead” by them, instead of lending it, with resultant loss to trade.
*160 Petty expressed a preference for money over plate, because it served trade better,
*161 as did also Hugh Chamberlain: “Money is living riches, plate but dead; that being capable of turning and improving trade, when this is not.”
*162

Hodges’s scheme for a forced three-year surrender of plate in return for “raised” money, with prohibition of ownership of plate in the interval, in order for a time to secure relief from the prevailing scarcity of money, and to obtain the stimulus to trade of slowly rising prices, has already been referred to.
*163 Another writer urged a similar scheme for raising money 5 per cent, in order to draw hoards of the old, and therefore undervalued, coins into circulation.
*164 One writer made the same sort of contrast between hoarded and circulating money, hoarded credit being the exchequer bills which, because of the high rate of interest they carried, were held instead of being used as money: “…in the frequent passing of credit from hand to hand, consists its great usefulness in trade; for when either money or credit is hoarded up, it may more properly be said to stagnate, than to circulate.”
*165 Postlethwayt, in a curious argument, claimed that lending of money at interest involved hoarding and therefore on circulation grounds was to be condemned. If some money is hoarded, the volume of trade will fall. In order to bring the hoarded money back into trade, those in great need of it will offer interest (“profit”) for its loan. The result will be that other moneyed men, instead of “circulating their money” in trade, will “lock it up,” while awaiting the opportunity to lend it, preferring to get their income by usury instead of by trade. Eventually the
money so withdrawn from trade would be lent and would thus return to trade, but bearing an interest charge which would act as a restraint on trade.
*166

Some writers objected, on similar grounds, to the establishment of banks, holding that they monopolized money, and kept it from circulating. Child, for example, maintained that “principally this seeming scarcity of money proceeds from the trade of bankering, which obstructs circulation.”
*167 Strangely enough, considering his views on the effect of lending at interest on monetary circulation referred to above, Postlethwayt made the most effective rejoinder to this argument which I have found:

It may be here requisite to take notice of that erroneous notion entertained by some, that banks and bankers engross the money, hoard it up, and hinder its circulation in trade; but, if such will consider this matter in its true light, they will easily be convinced, that the money lodged in banks, and in the hands of bankers, is the most constantly employed of any; for, though the specie should lie still till called for, yet the notes given out for its value, are continually circulating; whereby is done abundantly more service to trade, than if the same lay dormant in private hands; and yet the necessities of the depositors are effectually answered.
*168

Once hoarding and the use of coin or bullion in the making of plate were attacked, there were few to come to their defense, and the use of gold and silver in the making of thread or in gilding met with almost general condemnation. Mun, however, opposed restrictions on the melting-down of coin into plate on the ground that gold and silver were more apt to be carried out of the kingdom in payment of purchases of foreign goods if in
the form of coin than if kept in the form of plate,
*169 and Misselden before him, while conceding that too much plate in the kingdom would cause scarcity of money, nevertheless held that it was better to have bullion kept in the form of plate than to turn it into coin and thus turn it out of the kingdom because of the undervaluation of coin which he alleged then prevailed in England.
*170 A sixteenth-century writer condoned the use of bullion for plate, because it resulted in the formation of a sort of secondary national reserve for emergencies, upon which the king, in case of a great war, could draw “without any grouching of the Commons.”
*171 The same argument is to be found occasionally in the later literature, and is made by Briscoe to serve as a defense of private hoards. Hoarded treasure, bullion and coin, is part of the “capital stock of national treasure” and can be drawn upon in a national emergency. Private hoarding is as good as having treasure stored by the king.
*172

Toward the end of the seventeenth century there appeared a new doctrine of the existence of a “due proportion” between money and goods, and therefore of the possibility of excess of money as far as trade needs were concerned. The quantity theory of money also tended to lead to the conclusion that an increase in the amount of money by increasing prices would reduce exports and thus eventually be lost to the country. Writers who on “due proportions of money to trade” or on quantity-theory grounds conceded that there was under any given set of circumstances a maximum amount of money which could be kept in circulation, and who still attached special importance to the precious metals, were likely to approve of turning the money into plate or of its hoarding as a means either of stimulating the further import of bullion or of, checking an outflow. It was doubtless such reasoning which led John Houghton to the conclusion that “if the King should hoard up much money, it would for the present make it dearer, that dearness would make it be brought in more plentifully, and that would make it more plentiful than it was before.”
*173 Petty wrote: “For there may be as well too much money
in a country, as too little. I mean, as to the best advantage of its trade; only the remedy is very easy, it may be soon turned into the magnificence of gold and silver vessels.”
*174

On similar grounds another writer would tolerate the increased use of plate if there was more money than was necessary to carry on trade and “defray the expense of living,”
*175 and Vanderlint, who accepted the quantity theory and wanted low prices but at the same time wanted a favorable balance of trade payable in specie, recommended as a means of attaining these apparently conflicting objectives that the private hoarding of gold and silver and their use in plate, and even in gold and silver cloth and gilding, be encouraged. He cited with approval the practice of the East Indians of hoarding the silver they receive, with the result that prices remained low there, exports continued to exceed imports, and the balance was paid in still more silver.
*176 Harris presents a similar solution of the same dilemma. If the inflow of bullion resulting from a favorable balance of trade is kept:

as a dead stock, either by turning it into plate or by any other method, so as to prevent its getting into trade as money; it may continue to go on increasing in more bullion, which in this case will be a real increase of wealth…. Let an increased stock of bullion get out again into trade, and it will soon turn the balance the other way.
*177

But gold and silver can be best stored up in the form of plate:

But people in general will not hoard up cash; all like to display their wealth, and to lay out their superfluities in some costly things. There seems then no method so effectual for the securing of a dead stock of treasure in any country, as the encouraging the use of plate, by making it fashionable, preferable to more brittle or more perishable commodities. Plate would be a national resource in case of emergency, and not the less so, because the precious metals had not as yet received the shape of coins.
*178

Hume in 1752 claimed that state hoarding was the only expedient by which a country could raise its supply of the precious metals above the equilibrium level, but commented that this was
“a practice which we should all exclaim against as destructive, namely, the gathering of large sums into a public treasure, locking them up, and absolutely preventing their circulation.”
*179

Henry Home accepted so whole-heartedly the lesson of the quantity theory of money that he looked upon an export surplus alike with an import surplus as dangerous to the country. The latter meant an outward drain of money, with a consequent fall of prices and stoppage of industry. The former meant an influx of specie, extravagance, rise in prices, and finally a fall in exports, rise in imports, an unfavorable balance again, and a recurrence of the drain of specie. What was to be desired was an even balance. Therefore, “let the registers of foreign mints be carefully watched, in order that our current coin may not exceed that of our industrious neighbors.” But it was not the quantity of gold and silver in a country that determined the price level, but the quantity of money in circulation. Still retaining some traces of the mercantilist attachment for the precious metals, he therefore advocated the conversion of money into plate and even, under favorable circumstances, the formation of a state treasure.
*180

V. EMPLOYMENT AND THE BALANCE OF TRADE

The mercantilist arguments for a favorable balance of trade so far considered all rest upon the desirability of more bullion. But there was one mercantilist argument which was not dependent upon the attachment of superior economic importance to the precious metals than to other commodities of equal exchange value, namely the “employment” argument. Exports were the product of English labor whereas imports, especially if they consisted of finished products and of commodities competitive with home products, displaced English labor. The greater, the exports, and the smaller the imports, the greater, therefore, was the employment of English labor. This argument was not, as is sometimes supposed, of late seventeenth-century origin. It is to be found in the very earliest mercantilist writings,
*181 and it persists
without break throughout the literature of the seventeenth and eighteenth centuries. It is not even clear that it was more emphasized in the eighteenth- than in the seventeenth-century mercantilist literature, and it could even be argued that the sixteenth-century writers stressed it most of all. Of all the mercantilist reasoning, it withstood criticism most successfully, and persisted into the nineteenth and twentieth centuries as an important element in the protectionist doctrine.

The stress on employment led to an appraisal of exports not merely in terms of their value, or of their value relative to imports, but in terms of the amount of labor they represented. Exports of manufactured articles were rated more highly than exports to the same value of raw materials, because the former embodied a larger proportion of labor. The stress on employment sometimes took the form of measuring the gain from trade by the exports alone, and in a few cases the argument even went to the extreme of recommending production of goods simply to employ labor, even though the product of their labor were burnt upon their completion.
*182 In the case of a few later writers, the employment argument gave rise to a new balance-of-trade concept, in which the amounts weighed against each other were not the values respectively of the exports and the imports, but the respective amounts of labor or employment they represented, i.e., the “balance of labor” or the “balance of employment.” Barbon seems to have been the first to come close to this concept. The measure of benefit from different exports is the amount of employment they had given to English labor, and, similarly, the measure of benefit from imports is the amount of employment to which they will give rise in their further manufacture. His employment test leads him at times to liberal conclusions. Imports of
raw silk are more profitable than imports of gold and silver, because more hands are employed in the manufacture of the first than in working the latter. If woolen goods are exported for Westphalian bacon and then the import of the latter is prohibited, England would lose even if the consumption of English bacon increased, because woolen cloth employs more hands in its production than does bacon.
*183

Tucker stated the argument somewhat differently. The balance of trade for country A is the excess of the number of laborers working up manufactures for country B in A as compared to the number of laborers working up manufactures for A in B :

…when two countries are exchanging their produce or manufactures with each other, that nation which has the greatest number employed in this reciprocal trade, is said to receive a balance from the other; because the price of the overplus labor must be paid in gold and silver…. This is the clearest and justest method of determining the balance between nation and nation: for though a difference in the value of the respective commodities may make some difference in the sum actually paid to balance accounts, yet the general principle, that labor (not money) is the riches of a people, will always prove, that the advantage is on the side of that nation which has most hands employed in labor.
*184

A closely similar doctrine is presented also by Harris, Steuart, and Arthur Young:

…a nation that pays ultimately upon its trade a balance in bullion, is a loser of so much of its dead stock; and a loser also, if its exports maintained fewer of its own inhabitants, than its imports did of those foreign nations.
*185

In all trade two things are to be considered in the commodity sold. The first is the matter; the second is the labor employed to render this matter useful. The matter exported from a country is what the country loses; the price of the labor exported is what it
gains. If the value of the matter imported be greater than the value of what is exported the country gains. If a greater value of labor be imported, than exported, the country loses. Why? Because in the first case, strangers must have paid,
in matter, the surplus of labor exported; and in the second case, because the country must have paid to strangers,
in matter, the surplus of labor imported. It is therefore a general maxim, to discourage the importation of work, and to encourage the exportation of it.
*186

A balance in our favor is a proof that foreigners take more products and fabrics from us than we do from them, which is an advantage of the highest consequence, because it suggests at least a strong probability that they employ more of our poor than we do of theirs.
*187

These writers apparently would compare the amount of English labor embodied in the exports with the amount of foreign labor represented by the imports in computing the English “balance of labor.” On this basis, a given trade balance measured in money would have to be regarded as more favorable the lower the prices at which English exports were sold and the lower the wages earned by English labor engaged in their production, although it is not evident that these writers saw this implication of their doctrine. The objective they had in mind, to the exclusion of other considerations, was employment of English labor, and in the case of Young the assumption is fairly clear that the labor engaged in the production of exported goods would in the absence of such exports remain idle. He states that “whatever is paid to other countries in bullion, as a balance upon the year’s trade, is just so much loss to any nation that has unemployed poor or unpurchased commodities,” but he concedes to Hume that the loss of the bullion is important only as it is a sign “that we do not export a due quantity of products and labor.”
*188

The balance-of-labor doctrine is of course absurd and probably even more absurd than the earlier and at the time still dominant balance-of-trade doctrine. It nevertheless can be regarded as a stage of some importance in the evolution toward more sensible doctrine. In the first case, any criticism of or substitution for the dominant balance-of-trade doctrine helped to promote the disintegration of the mercantilist errors, and thus was a service even if it proposed an even less satisfactory alternative doctrine, provided the criticism survived and the proposed substitute did not survive. Secondly, the balance-of-labor doctrine reversed the roles of employment and foreign trade as compared to the conventional balance-of-trade doctrine. In conventional mercantilism increased population, increased employment, improvement in the arts, in roads, canals, in the energy and skill of labor, were all welcomed because they would make possible increased production of goods for export or in lieu of imports from abroad, and would thus promote a favorable balance of trade. In the balance-of-labor doctrine the end was employment, and the favorable balance was the means, and even if its exponents did not themselves see clearly that income and consumption were in turn the rational ends of employment, and of economic activity in general, they at least made it easy for Adam Smith and later writers to take the next step and thus to bring about a revolutionary change in the orientation of economic thought.

All of which should prove that the ultimate concern of the mercantilists was the creation of effective factors of production. Not ten per cent of English mercantilist literature is devoted to the ill-fated doctrine of the balance of trade. [Let anyone who doubts this assertion turn through the pages of the English mercantilist literature and be convinced!] Their ardent passion for productive efficiency is shown by their advocacy of improvement of lands, mines and fisheries,
and by their encouragement of inland communication and canal building. Industry was to be encouraged, idleness to be repressed….
*189

But evidence that the mercantilists desired efficient production, be it piled up mountain high, of itself proves nothing as to their “ultimate concern.” They may have desired, and did desire, increased production, because they thought that it would promote a favorable balance of trade, even though they also desired it for other reasons. Such quantitative propositions have an unearned air of precision, but on the basis of my turning of the pages of English mercantilist literature I venture the conclusion that not ten per cent of it was free from concern, expressed or clearly implied, in the state of the balance of trade and in the means whereby it could be improved.

The labor doctrines of the English mercantilists need not be examined at length here, since they have been ably dealt with by other writers.
*190 On only one point, it seems to me, is critical comment on their exposition called for. The mercantilists, as they point out, were led by their obsession with the balance of trade and also, perhaps, by unconscious class sympathies, to deal with questions affecting labor as if laborers were a set of somewhat troublesome tools rather than human beings whose own comfort and happiness were a proper and primary object of concern for statesmen. The dominant doctrine, in consequence, advocated low wages, as a means of stimulating the worker to greater effort and of increasing England’s competitive strength in foreign trade by lowering the money costs of English products. Sir James Steuart was merely expressing in blunter fashion than was common the position implicit in much of the mercantilist treatment of the labor question when he stated that “the lowest classes of a people, in a country of trade, must be restrained to their physical-necessary.”
*191 But Furniss and Gregory fail to do full
justice to the size and importance of the dissenting group, who on grounds either of economic analysis or humanitarian sentiment opposed the dominant doctrine that low wages were desirable. Such important writers as Cary, Coke, Davenant, and Defoe belonged to this group, and in the latter part of the eighteenth century the growth of humanitarianism operated to give even stronger challenge to the prevailing views.
*192 Representative of the opposition on humanitarian grounds was the complaint of an anonymous writer: “it is a great pity the laboring poor have not better encouragement, the cries of those unskillful men, who made a clamor of labor being too high, is a doctrine propagated more by theory than practice.”
*193 Hume conceded that high wages resulted in some disadvantage in foreign trade, but insisted that “as foreign trade is not the most material circumstance, it is not to be put in competition with the happiness of so many millions.”
*194 Since Hume was an enlightened critic of mercantilism, this is not of great significance, but Wallace, who was a mercantilist, agreed with Hume’s doctrine, as “a maxim…suitable to a humane disposition. Agreeably to such a benevolent sentiment, we ought to extend our notions of trade, and consider not only how much money it gains to a nation, but how far it is conducive to the happiness of the people.”
*195