A. By the more thorough consideration of the balance of trade and the consequent limitation of the traditional supposition, that the excess of exports over imports would be always made up in cash money.[A2-1-11]

B. By the extension of the field of view, so that not only the direct but also the indirect and more remote effects of international trade were taken into consideration.[A2-1-12]

A certain over-estimation of the circulation of goods continued to characterize even the latest adherents of the mercantile system.[A2-1-13] Yet the caricature drawn by the tradition of more recent text-books, of the mercantilists, is true only of the inferior ones among them.[A2-1-14] The most distinguished of them, Botero,[A2-1-15] for instance, approximate more closely to the science of the present day than is usually supposed.

[Footnote A2-1-1: Compare _Roscher_, Geschichte der Nationalokonomik in Deutschland, I, 228 ff.]

[Footnote A2-1-2: Even the remarkable Florentine pamphlet of 1454 (_Jablonowski's_ prize essay of 1878, app. Beilage, 4) complains of the decrease of industry princ.i.p.ally on account of the diminution of money caused thereby. "Wealth is money," says _Ernestine_, essay of 1530, on the coin, and explains the smaller wealth of the silver-country, Saxony, as compared with England, France, Burgundy and Lombardy, by the greater exportation of commodities of these countries, by means of which they draw the silver of Saxony to themselves. (_Roscher_, Geschichte, I, 103.) _Bornitz_, Theorie wie sich der Staat diesen _nervus rerum_ in grosster Menge verschafft: De Nummis (1608), II, 4, 6, 8. _A. Serra_, Sulle Cause, che possono far abbondare un Regno di Monete (1613), places excess of gold and silver and poverty as diametrical opposites, at the head of his work. _Hornigk_, Oesterreich uber Alles, wann es nur will (1684), says that it is "better to give two dollars which remain in the country for a commodity, than only one dollar which goes out of the country" (ch. 9). According to _Schroder_, Furstliche Schatz- und Rentkammer (1686), the export of commodities is a blessing only "when we can turn them into silver through our neighbors." (LXX, 12.) Even _Locke_ held similar views (Considerations of the Consequences of the Lowering of Interest, 1691. Further Considerations concerning Raising the Value of Money, 1698). On _Davenant's_ inconsistency in this respect, compare _Roscher_, Geschichte der Englischen Volkswirthschaftslehre, 110 ff. The quant.i.ty of money remaining the same, a country grows neither richer nor poorer (Christ. Wolff, Vernunftige Gedanken vom gesellschaftlichen Leben, 1721, -- 476). _J. Gee_, Trade and Navigation of Great Britain considered (1730), bewails the folly of those to whom "money is a commodity like other things, and also think themselves never the poorer for what the nation daily exports," (p. 11). _Justi_, von Manufacturen und Fabriken (1759 seq.), considers it the princ.i.p.al object of industry simply to prevent the outflow of money.

Similarly, _Pfeifer_, Polizeiwissenschaft (1779), II, 286.

Even Frederick the Great considered it "true and obvious"

that "a purse out of which money is taken every day, and into which nothing is put in turn, must soon become empty."

(uvres, VI, 77).]

[Footnote A2-1-3: The thirst for gold which, in the sixteenth and seventeenth centuries, drove so many emigrants to the western Eldorado, reminds one, by reason of its enthusiasm, of the crusades to the Holy Land. The striving after the making of gold which the emperors Rudolph II., Ferdinand III., Leopold I., Frederick I. of Prussia, Christian IV. of Denmark, Christian II. and Augustus the Strong of Saxony, Heinrich Julius of Braunschweig, Frederick of Wurtemberg, harbored, and also the Silesian and Brandenburg princes even during the Hussite war (_Riedel_, Cod. Dipl. Brandenb., II, 4, 151), was, to a great extent, misplaced philosophy; men went in search of the _materia universalissima_, the _spiritus universalis_, from which all that is receives its _esse et fieri_, the universal elixir, at once the life-power of man, the universal medicine and maturing principle of natural bodies. (_Roscher's_ Gesch., I, 230.)]

[Footnote A2-1-4: _Schroder_ justifies the little estimation in which he holds internal commerce by saying that "a country may indeed grow and become powerful by its means, but cannot gain in wealth;" just as a dress embroidered with pearls is not made more costly by taking the pearls from the cuffs and putting them upon the cape. (F. Schatz- und Rentkammer, XXIX, 3.) According to the Fredrickian theorizer, _Philippi_, "internal trade scarcely deserves the name of commerce." (Vergross. Staat, 1759, ch. 6.) _Sir J.

Steuart_ still teaches that an isolated state may, indeed, be happy, but that it can grow rich only through foreign trade and mining. (Principles, II, ch, 13.) The same fundamental thought finds expression in the t.i.tle of _Th.

Mun's_ celebrated book: England's Treasure by Forraign Trade, or the Balance of our Forraign Trade is the Rule of our Treasure (1664).]

[Footnote A2-1-5: _Il est claire qu'un pays ne peut gagner, sans qu'un autre perde, et qu'il ne peut vaincre sans faire des malheureux_ (_Voltaire_, Dict. phil., art. Patrie). Even _Verri_ was, in his earlier period, of the opinion: _ogni vantaggio di una n.a.z.ione net commercio porta un danno ad un altra n.a.z.ione; lo studio del commercio e una vera guerra_ (Opuscoli, 335).]

[Footnote A2-1-6: Even in 1761, the learned _Mably_ could say: _la defense de transporter les especes d'or et d'argent est generale dans tous les etats de l'Europe ... il n'y a point de voie moins sensee_ (Droit public, II, 365).]

[Footnote A2-1-7: The obstacles placed in the way of importation by governments originated, in great part, from views entertained on sumptuary legislation; in that of exportation, from a desire to prevent a scarcity of certain articles, as may be clearly seen in _Patricius_ (De Inst.

Reipublic., V, 10, I, 8), and even in _Sully_ (Memoires, XI, XII, XIII, but especially XII), _Bornitz_, _Besold_, _Klock_ and _v. Seckendorf_. (Compare _Roscher_, Gesch., I, 191, 202, 215, 247.) But the mercantilistic germs show themselves even in _Hutten_ and _Luther_. (_Roscher_, I, 44, 63.) The advance made between the police ordinance of the empire of 1530 and that of 1548, is very remarkable in this respect.

The mercantile theory of duties appears very systematically elaborated even in _J. Bodinus_, De Republica, 1577, VI, 2; in Germany in _Hornigk_, Oesterreich uber Alles, ch. 9.]

[Footnote A2-1-8: The English jealousy of Holland is represented especially by _Sir W. Raleigh_ (?), Observations touching Trade and Commerce with the Hollander and other nations, 1603, Works, III, 31 ff.; _Sir J. Child_, A new Discourse of Trade (1690), and _Sir W. Temple_, Observations upon the U. Provinces (1672). Compare _Roscher_, Z. Gesch.

der englischen V. W. Lehre, p. 31 ff., 125 ff. The English jealousy of France: _Sam. Fortrey_, England's Interest and Improvement (1663). _R. c.o.ke_, A Treatise, wherein is demonstrated that the Church and State of England are in equal Danger with its Trade (1671), and the anonymous, Britannia languens (1680). _Per contra_, especially the work: England's Greatest Happiness, wherein it is demonstrated that a great Part of our Complaints is causeless (1677). Here we find chapters with the t.i.tle: To export Money our great Advantage; the French Trade a profitable Trade; Mult.i.tudes of Traders a great Advantage.

_Petty_ gave the best solution to the question in dispute, in his posthumous Political Arithmetic concerning the Value of Lands, etc. _Hornigk_ would enlist his service in the cause of the jealousy against France, immediately after the disgraceful defeats which Germany in 1680 ff. suffered in the midst of peace, by Louis XIV. Concerning smaller works of the same period and in the same direction, see _Roscher's_ Gesch., I, 299 seq.]

[Footnote A2-1-9: Even _Peter Martyr_ considered the colonization of countries which yielded the same products as the mother country of no advantage (Ocean, Dec., VIII, 10).

On Spanish maps the most flourishing portions of America at present are designated as _tierras de ningun provecho_. And the English for a long time, ascribed value to their New England possessions, so far as the mother country was concerned, only to the extent it was possible to provide the West Indies from that quarter with corn, meat and wood.

(_Roscher_, Kolonien, p. 262.)]

[Footnote A2-1-10: Compare _Botero_, Ragion di Stato (1591); _Law_, Money and Trade (1705), p. 19 ff.; and _Verri_, Opuscoli, pp. 325, 333. Meditazioni (1771), cap. 19.]

[Footnote A2-1-11: Thus _Child_, spite of all his esteem for the discoverers of the balance-problem, calls attention to cases in which exports suffer so much waste (_Abgang_), or imports are sold so advantageously, that an apparently favorable balance made a people poorer, and an apparently unfavorable one, richer. From the value of the imported commodities the self-earned freight has to be deducted.

Countries like Ireland, many colonies, etc., have a preponderance of exportations, because they, by means of the same, pay a rent to absent capitalists or to landowners. (p.

312 ff.)]

[Footnote A2-1-12: _Mun_ admits that, for instance, the East Indian trade makes England richer, although it causes the exportation of much English money. But the exporter of money who, in exchange for it, brings back reexportable commodities, should be compared to the sower. (Ch. 4.) Similarly, _C. Roberts_, The Treasure of Trafficke (1641), and even _A. Serra_, III, 2. According to _Child_, the loss in the East Indian trade is compensated for chiefly by this, that England obtains there the saltpeter it needs to satisfy its demand, and that the ships engaged in that trade are peculiarly well fitted for war. (l. c.) _Saavedra Faxardo_, for similar reasons, declared the discovery of America to be a misfortune. (Idea Principis Christiani politici, 1649, Symb., 68 seq.)]

[Footnote A2-1-13: Thus _Law_, _Dutot_, _Darjes_ and _Busch_. Even the violent opponent of the mercantile system, _Boisguillebert_, could not entirely escape this view.

Compare vol. I, -- 96.]

[Footnote A2-1-14: This is true, especially of the protectionist weekly paper: British Merchant or Commerce preserved (1713 ff.), in the contest with the weekly Tory paper edited by _Defoe_: Mercator or Commerce retrieved, which Charles King systematized and published anew in 1721.

Later _Ulloa_: Noticias Americanas (1772), cap. 12. _Adam Smith_ also concedes that many of the best writers on commerce, at the beginning of their books, allow that the wealth of a country consists not only in gold and silver, but also in goods of every description; but that further on they tend more and more to forget this qualification of the meaning of wealth. (W. of N., IV, ch. 1.) Hence it is that, in recent text-books, so many are now called adherents and now opponents of the mercantile system.]

[Footnote A2-1-15: Even _Colbert_ says: nothing is more precious in a state than the labor of men (Lettres, Instructions et Memoires de C. publies par P. Clement, 1861 ff., II, 105). The great trade with foreign countries and the small trade in the interior contribute equally to the welfare of nations. (II, 548.) I would not hesitate to do away with all privileges, the moment I found that greater or as great advantages attended their abolition. (II, 694.) His duty-system of 1664 was a simplification, but also an important diminution of his earlier chaotic tariff. (II, 787 ff.)]

SECTION II.

REACTION AGAINST THE MERCANTILE SYSTEM.

The reaction against the mercantile theory of the balance of trade, which reached its height in Adam Smith, was based princ.i.p.ally upon the following considerations:

A. Precious-metal-money is a commodity like all other commodities, and therefore useful only for certain purposes. It is as little to the wealth-interest of a people, by means of a continually favorable balance, to import infinite quant.i.ties of the precious metals, as it is to its power-interest, by means of its commercial policy, to acc.u.mulate infinite stores of powder. The person who possesses other exchangeable goods will be as well able, in case of need, to obtain gold and silver therewith as to obtain powder.[A2-2-1] We part with no capital when we export the precious metals and import other commodities instead; we simply exchange thereby one form of capital for another.[A2-2-2] The notion that the gain in trade is coincident with the balance of account paid in cash, is just as palpably false in the trade among nations as in trade among private persons.[A2-2-3] It would be a decided hardship to most men, if they were to receive payment at once in money for all that they possessed: and the nation is made up of individuals.[A2-2-4] And even the reasons which make payments in cash more uniformly desirable, in the case of private persons not engaged in mercantile pursuits, cease in the case of whole nations.[A2-2-5]

B. But a continual over-balance (_Ueberbilanz_) is not at all possible.

Every relative increase of the amount of money must enhance the price of commodities, lower the value of money, and thus produce an exportation of money until a restoration of the level with other countries.[A2-2-6]

The prohibitions of the exportation of money, so often resorted to, can avail nothing, because the precious metals are among the specifically most valuable goods; and because it is easier yet to smuggle them out of a country than to smuggle them into it.[A2-2-7]

C. The signs by which the mercantile system supposed it could estimate the favorableness of the balance of trade are essentially deceptive.[A2-2-8] We cannot, for instance, from the course of exchange, determine whether the payments made by us to foreign countries have been made for purchases, to absentees, etc., or as loans; and yet, according to the mercantilists, the latter are as useful to us as the former are injurious.[A2-2-9] And even the most accurate tariff-record (_Zollregister_) of the exportation and importation of commodities affords no guaranty[A2-2-10] that, in many instances, the rendering of the counter-value may not remain absent, by reason of bankruptcy, shipwreck, or the emigration of property.[A2-2-11]

D. Every act of exchange is advantageous only because through it a greater value is received than the one parted with was. (?) Fortunately, in normal trade, where both parties satisfy a real want, and neither party is deceived, this is actually the case on both sides.[A2-2-12] In accordance with all this,[A2-2-13] Baudrillart is of opinion that the whole theory of the balance of trade no longer exists.

[Footnote A2-2-1: Even _Petty_ and _North_, with their deep insight into the nature and functions of money, could not possibly entertain the mercantile theory of the balance of trade. _Petty_ considers the exportation of money useful, even when commodities are brought back in exchange for it, and which are of greater value in the interior than the exported money. (Quantulumcunque concerning Money, 1682.) According to _North_, no one is richer simply because he has his property in the form of gold and silver plate, etc.; he is even poorer, because he allows his goods to lie in that shape unproductive. Hence the importation of money is, in itself, not more advantageous than the importation of logs of wood; at most, the difference that, in case of excess, it would be easier to get rid of the money than of the wood, is of importance. Therefore, a state need never care very anxiously for its supplies of money. A rich nation will never suffer from a want of money. (Discourses upon Trade, 1691, pp. 11, 17.) According to _Berkeley_ (Querist, 1735, pp. 566 ff.), there is no greater error than to measure the wealth of a nation by its gold and silver. It is to the interest of a people to keep their money or to send it off according as its industry is thereby promoted. _Quesnay_ declares it to be impossible that the exports of a country should be permanently greater than its imports: _tout achat est vente et toute vente est achat_.

_Adam Smith_ (W. of N., IV, 1) compares the Spanish discoverers who inquired on every island, first of all, for gold, to the Mongolians, whom _Rubruquis_ (c. 32) was obliged to give information to concerning the cattle of France: "of the two, perhaps the Tartar nation was the nearest to the truth." Precious-metal-money may be even more easily dispensed with than most other commodities, since, in case of necessity, it can, by reason of its greater transportability be readily obtained from without, and can also be supplied by exchange and by credit. "Money makes but a small part of the national capital and always the most unprofitable part of it.... Money necessarily runs after goods, but goods do not always or necessarily run after money." _J. B. Say_ calls the exportation of money more advantageous than that of other commodities, because the former is of use, not through its physical qualities, but only through its value, and the value of the money which remains behind correspondingly rises by reason of the exportation. (Traite, I, ch. 17.) Compare especially _Bastiat_, Maudit Argent, 1849.]

[Footnote A2-2-2: Against _Ganilh_, Theorie de l'Economie politique, II, 200.]

[Footnote A2-2-3: Even _Mun_ had, in every balance of trade, distinguished three persons who partic.i.p.ated in it; the merchant might lose when the nation in general gained, and _vice versa_; the king, with his duties, always gained. (Ch.

7.) The British Merchant (p. 23) maintained even, that when the merchant himself gains nothing and takes his back-freight (_Ruckfracht_) in money, his country gains the whole amount thereof.]

[Footnote A2-2-4: "Every individual is continually exerting himself to find out the most advantageous employment for whatever capital he can command. It is his own advantage, indeed, and not that of the society, which he has in view.

But the study of his own advantage, naturally, or rather necessarily, leads him to prefer that employment which is most advantageous to the society." (_Ad. Smith_, W. of N., IV, ch. 2.)]

[Footnote A2-2-5: For the reason that money, in international trade, for the most part, loses its character as money, and appears more as a commodity. Exhaustively in _Adam Smith_ and _J. B. Say_, l. c. The English state paid, during the French war of the Revolution, in subsidies to foreign countries, 44,800,000; and yet, up to the end of 1797, imperial loans and the payments of private individuals included, not as much as one million in cash went out of the country. (_Rose_, Brief Examination into the Increase of the Revenue of Great Britain, 1799.) When France paid the five milliards to Germany, the plus value of English exportation to Germany above the English importation thence rose from 274,000,000 (1869) to 478,000,000 (1872), and the increase in the amount of French from 39,400,000 (1869) to 131,700,000 (1873). The entire German under-balance (_Unterbilanz_), _Soetbeer_ (loc. cit.) estimates at 878,000,000 of marks.]

[Footnote A2-2-6: Emphasized especially by _David Hume_ who calls attention to the seeking of its level by water.

(Discourses: On the Balance of Trade.) _J. B. Say_ speaks of carriages, the increase of which over and above the need of them must infallibly produce a reexportation of them.

(Traite, I, ch. 17.)]

[Footnote A2-2-7: With all the severity of its export prohibitions, Spain, for centuries, served as a medium to conduct the streams of American silver to the other parts of Europe. As to how Spain, during the last third of the 18th century, was overflowed by copper money, see _Campomanes_, Educacion popular, IV, 272.]

[Footnote A2-2-8: _von. Schroder_, F. Schatz- und Rentkammer, XXVII, has a very ingenuous faith in the rate of exchange and a tariff-record (_Zollregister_); while _Child_ had a much better insight into the defects of these two criteria. (Disc. of Trade, p. 312 ff.) Compare _Steuart_, Principles, III, 2, ch. 2.]

[Footnote A2-2-9: Compare -- 199. It was a discovery of _Locke's_, that borrowing from foreign countries was advantageous in all those instances in which the inland borrower earned more than the amount of his interest by means of the loan. (Considerations, p. 9.)]

[Footnote A2-2-10: _Segur_, Memoires, II, 298, tells how the Russian officers of custom were bribed by English merchants to represent the Russian imports from England _under_, and the exports to England _above_ the true value. In addition to this, smuggling was carried on!]

[Footnote A2-2-11: _J. B. Say_ calculates from the English tariff-record (_Zollregister_), from the beginning of the 18th century to 1798, an excess of exports over imports of 347,000,000; and yet the highest estimates of the amount of money actually in England, according to _Pitt_ and _Price_, gave only 47,000,000. (Traite, I, IV, 17.) The Russian lists of exports and imports from 1742 to 1797, show a favorable balance of 250,000,000 rubles; to which must be added 88,000,000 rubles taken from the mines during the same time. But it is notorious that the stores of money diminished. _Storch_, Gemalde des russischen Reiches, XI, 12.]

[Footnote A2-2-12: Manuel, 310. _F. B. W. Herrmann_ (Munch.

gelehrte Anz. XXV, 540) also declares the whole theory of the balance of trade wrong. According to _Brauner_, Was sind Maut und Zollanstalten (1816), 51, it is "a mere fancy."]