History of Economic Analysis part 36 pot

lowest Rate it bears in other Countreys. The opposite view is well stated in a pamphlet entitled, Interest of Money Mistaken, Or, a Treatise, proving that the Abatement of Interest is the Effect and not the Cause of the Riches of a Nation that appeared in the same year and in Thomas Manley’s Usury at Six per Cent Examined…(1669). To this Culpeper junior replied with The Necessity of Abating Usury Re-asserted… (1670). Petty, North, Locke, and Pollexfen, with varying degrees of emphasis, are the principal names associated with the victory over the Culpeper-Child position. In fact, neither Locke nor A.Smith went so far as this. But in the end this view prevailed. 2 On the other hand, scholastic doctrine also provided the theoretical (explanatory) ideas about interest from which the analysis of the seventeenth and eighteenth centuries started. Neglecting minor points, we shall concentrate upon these two: the monetary conception of interest and the proposition en-shrined in Molina’s pithy saying that ‘money is the tool of the merchant’s trade.’ The scholastics did not indeed restrict the concept of interest to interest on loans of money, but the latter naturally commanded their attention more than anything else; they never agreed on or developed the idea that prospective profits are the source of the demand for business loans, but some of the most eminent of them adumbrated it with unmistakable clearness. During the seventeenth century and far into the eighteenth, the large majority of economists looked upon interest—as many of us do again now—as a monetary phenomenon. In particular, this is true of the Culpepers, Manley, Child, Petty, Locke, and Pollexfen, not to mention any continental writers. In the case of Petty, direct scholastic influence is not inconceivable, since he had received part of his education at a Jesuit college. Looking, quite in the spirit of the scholastic fathers, for a special reason independent of, and additional to, the mere act of transferring money to the borrower, that would explain a premium, he hit upon, or rather resuscitated, the ‘inconvenience’ (a damnum) suffered by the lender who bound himself not to call for his money during a stated time. In any case—and in spite of the fact that he related this inconvenience to the rent of so much land as the same sum would buy—it is always money he is thinking of, and it is the quantity of money which is held to determine the rate of interest without there being any indication of the ceteris-paribus provisoes that would be required in order to make this true. Locke goes somewhat deeper than this. Owing to his clumsy way of expressing himself, it is extremely difficult to do him justice, but if I have caught his meaning, he may be credited with having introduced explicitly and having developed the second of the two ideas mentioned above. Again interest is a price for money lent. But the ‘supply’ on the money market must be seen in relation to the debt situation and the state of trade—high profits raising, low profits reducing, the rate. Though we cannot stay to prove it, still less to consider objections, I think that, at a push, this may be interpreted as an embryonic form of what is now known as the Swedish loanable-funds theory: interest is explained and determined by a demand proceeding from expected profits and meeting a supply of ‘loanable funds.’ 2 The first economist of real authority who held that view was Petty. The next to go even further was Turgot. The one to make it prevail definitively, Bentham. But it was held also by Justi, at least in principle. History of economic analysis 312 [(b) Barbon: ‘Interest is the Rent of Stock.’] But further development did not take this line. There is no bridge between Locke and the monetary interest theories of today. Instead, there was a new departure, which was to be so successful that even now we find it difficult to be as surprised at it as we ought to be. There are, so far as I know, only the most elusive indications of it before 1690, when Barbon (Discourse of Trade) wrote the momentous statement: ‘Interest is commonly reckoned for Money…but this is a mistake; for the Interest is paid for Stock,’ it is ‘the Rent of Stock, and is the same as the Rent of Land; the First is the Rent of the Wrought or Artificial Stock; the Latter, of the Unwrought or Natural Stock.’ 3 If the reader is to under-stand the history of interest theory during the nineteenth century, and some part of it even during the first four decades of the twentieth, it is absolutely necessary to realize fully what this means. At first sight, Barbon’s statement might well sound trivial: of course, the borrower does not normally want the money in order to look at it; what he really wants, if we neglect the purpose of refinancing other obligations, are the goods and services that he actually buys with it. Neither do we want, for its own sake, the knife with which to cut our food, and yet it does not follow that the price we pay for the knife is ‘really’ paid for the food. For certain purposes we may indeed, for instance by means of the theory of imputation (discussed below, Part IV) adopt such a view of the matter. But it would be a most astounding as well as important result if it were permissible to adopt it for all purposes. Granting even that business loans are normally used for purchasing or hiring real capital in the sense of producers’ goods and services, it does not follow that the interest paid for the former is ‘really’ an element of the price of the latter: interest may bear a particular relation to ‘money’ as distinct from the goods that are bought with it, or it may be a price for something else—the sacrifice involved in saving, for instance—that cannot be simply identified with ‘real capital.’ To aver that it is possible to brush aside the monetary element without losing anything essential in the process is therefore an extremely bold step—which neither the scholastics nor Petty nor Locke thought of taking, though the triviality above cannot have been unknown to them; in particular, it was the decisive step toward the ‘real’ analysis of the nineteenth century, according to which money was just a ‘veil’ that it was the business of analysis to lift, which is precisely the center of the analytic difficulties created by Real Analysis. In addition to the service or disservice that Barbon rendered by the impulse he gave in the direction of Real Analysis, there is another aspect to his performance that is hardly less important. If interest is the return on ‘wrought stock’—produced means of production—exactly as rent is the return on ‘unwrought stock’—natural agents of production—then it is goods of some kind or other that the lender ‘really’ possesses. As a matter of fact, it is the manufacturer or trader who possesses such goods, and he gets them either by producing them himself or by buying them from other producers and not from the capitalist or lender. To neglect this and to reason as if the latter lent goods is another stroke of analysis, the boldness of which is hidden to us only by our familiarity with it. But then the return on these goods materializes in the hands of the 3 Locke, also, compared interest to rent but in a quite different sense, which adds nothing to the monetary view of interest and is without deeper meaning: the lender of money, according to him, receives interest as the landlord receives rent. Value and money 313 businessman who uses them and constitutes the main—and theoretically basic—part of his profit, at least if we choose to make light of his ‘trouble and risk.’ Thus we easily slip into a position that may be characterized by the equivalent propositions that the business firm earns interest or that the lender receives profit—not, as would seem more natural to the unprejudiced mind, an income sui generis of which profit is merely the most important source. [(c) Shift of Analytic Task from Interest to Profit.] For the whole of the nineteenth century and beyond, this shifted the analytic task from interest to profit. With the partial exception of abstinence and psychological-discount theories, the phenomenon to be explained was the net surplus of business, which, in turn, was essentially a surplus arising from the use of an assemblage of certain physical goods; that this surplus, cleared of accessories such as compensation for trouble and risk, had to be handed to some other person, if this person and not the business manager was its real (though not legal) owner, hardly required independent explanation. This applies also to Böhm-Bawerk and Wicksell, though the latter made the first step beyond this theory and must even now be kept in mind when we compare such a theory as Keynes’s with other interest theories: the object of analytic endeavor is different. It is not too much to say that this was to be the dominant feature of the theorist’s general picture and even of economic sociology for everyone: the businessman became the ‘capitalist.’ Fundamentally his income was income from ownership of goods, an impersonal return. [The two preceding paragraphs were on a single page with notes (both shorthand and longhand) to indicate how the argument was to be continued. This section on interest was more fragmentary than any other part of this unfinished chapter. It was obviously an outline that would have been filled in and completed, had the author lived.] A.Smith substantially accepted this theory of interest and of the capitalist process. The nineteenth century in turn accepted it from him. However, before considering the precise form which he gave it, we must glance briefly at its development between 1690 and 1776. Barbon’s Discourse, on this point at all events, did not meet with success. The tract seems indeed to have been forgotten very soon. Thus, Barbon’s fundamental idea remained in abeyance until 1750, when it was again expounded—for all we know, independently rediscovered—by Massie, 4 whose analysis not only went further than Barbon’s but also gathered force from its criticism of the views of Petty and Locke. Two years later, in his volume entitled Political Discourses, Hume published two essays (‘Of Interest’ and ‘Of Money’) that do not seem to have received due tribute from recent historians. It is indeed true that, on the surface, we see little more than synthesis and effective re-exposition of ideas that had been put forth before. This impression is 4 Joseph Massie, Essay on the Governing Causes of the Natural Rate of Interest (1750). History of economic analysis 314 particularly strong with authors who attend primarily to certain practical results he drew from his analytic set-up, such as that interest is not simply a function of the quantity of money, that low interest is a consequence and not a cause of wealth, that it cannot be determined by legislation, that it is correlated with profits in a relation of mutual interaction, and that it is a ‘barometer of the state,’ low interest being ‘an almost infallible sign of prosperity’ (which, of course, is not true in every sense of ‘prosperity’)—none of which were novel. But the analytic set-up with which Hume backed all this, though sketchy, can be called synthetic only in the sense in which synthesis may transcend coordination and be creative. It amounts to accepting Locke’s explanation of the demand for loans—definitely loans this time, not ‘money’—by the needs of spendthrift landowners and by the profit expectations of businessmen, and to replacing Locke’s supply of money by the supply of savings. This allows for the close relation between profit and interest without identifying them, and admits the monetary aspect— particularly as regards short-run effects of variations in the quantity of money on the rate of interest that were also recognized by Ricardo—without making it dominant. In short, we have here a schema that need only have been worked out in order to produce a much better and more complete theory of the interest phenomenon than can be found in either Ricardo or Mill. But precisely the most valuable points were lost. [(d) Turgot’s Great Performance.] Turgot’s 5 contribution is not only by far the greatest performance in the field of interest theory the eighteenth century produced but it clearly foreshadowed much of the best thought of the last decades of the nineteenth. Like Hume, Turgot argued that the quantity 5 As in the case of Hume, critical analysis does not seem to have done full justice to the essential point in Turgot’s performance. This applies in particular to by far the most eminent of his critics, Böhm-Bawerk (Capital and Interest, Book I, pp. 61–9 of English trans. of 1932), who pinned him down to a ‘fructification theory’ of interest, an interpretation that does not do justice even to the letter, let alone the spirit, of Turgot’s treatment. Cassel’s analysis (Nature and Necessity of Interest, 1903) is much more satisfactory. This ‘fructification theory’ was, in fact, quite frequently used in the eighteenth century and even before in order to counter the Aristotelian argument about the sterility of money: since it is possible to use money for the purchase of land, which does yield a net return, therefore money will yield—most authors would have said: therefore it is ‘just’ that money should yield—a net return, whatever the purpose for which it is lent. Hutcheson argued like this, and Petty might perhaps be accused of having done so. It is obvious that this reasoning, as an explanation of interest, is, or at least may be, circular, because the value of land itself depends upon the rate of interest. But Turgot, though he stated the equilibrium proposition that a sum of money will be equivalent in value to a piece of land that produces the same net revenue (Réflexions, LIX), was so far from treating this fact as a datum from which to start, in explaining interest, that he made an elaborate attempt to determine the exchange ratio between land and richesses mobilières (LIII et seq.) and to deduce from it the value of lands in terms of money. [The reader’s attention is called to the fact that the numbering of the sections of the Réflexions in the Oeuvres edited by G.Schelle (1913–23) differs from the original numbering in the Éphémérides. For example, XXI, XXII, and XXIII became XXI in the Schelle edition and LXXIII in Schelle had been entirely suppressed in the Éphémérides. Apparently J.A.S. used the original numbering in the Éphémérides (1769–70), which is also the numbering used by Dupont de Nemours in vol. V of his edition of the Oeuvres de M r . Turgot (1808–11).] Value and money 315 of money does not determine the rate of interest, very nicely emphasizing the conceptual independence of the two meanings of the phrase ‘value of money’—its value in the money market and its value in the markets of commodities—and even going so far as to assert that an increase in the quantity of money that raises commodity prices might conceivably increase the rate of interest. Also like Hume, he substituted supply of savings for supply of money. And there are other points that Hume made before him. But his theory goes much deeper than all that and is quite different in content as well as in background. Canonist influence, as we might expect, is much in evidence—though, of course, scholastic ideas are sometimes made to serve exactly opposite practical conclusions—and one essential feature of Turgot’s scheme, the identification of capital with ‘advances,’ goes back to Quesnay or Cantillon. The hommes industrieux share their profit with capitalists who supply the funds (Réflexions, LXXI). The share that goes to the latter is determined like all other prices (LXXV) by the play of supply and demand among borrowers and lenders (LXXVI), so that the analysis is from the outset firmly planted in the general theory of prices. At first blush and on the surface, interest is the price paid for the use of money (LXXII, LXXIV). But why does the use of money command a price or, to put it differently, why does the mechanism of supply and demand work out in such a way as to produce normally a premium on present as compared with future money? Turgot realized that it is not enough to answer that money lent is money saved. His answer was that the fonds supplied by the capitalist represent richesse mobilière or advances, which are an indispensable prerequisite of production (LIII): capital yields interest because it bridges the temporal gap between the productive effort and the product (LIX, LX). By now, this idea has become as stale as a quotation from Hamlet. Moreover, many of us have ceased to believe in its explanatory value. For both reasons, the reader may find it difficult to admire as he should the brilliance of the stroke by which Turgot, exploiting Cantillon’s or Quesnay’s conception of capital, tied the phenomenon of interest to a most elementary fact about production. The propositions that the rate of interest is the thermomètre of the (relative) abundance or rarity of (real) capital (LXXXVIII)—in other words, that the rate of interest is negatively correlated with the rate of saving—and that it measures the extent to which production can be carried (LXXXIX) also acquire additional meaning in the light of this theory. The first remained practically unchallenged until our own time, the second stands unchallenged even now. As has been stated before, A.Smith stereotyped the doctrinal situation. But in doing so he dropped precisely the most promising suggestions proffered by Hume and (if he knew the Réflexions) by Turgot—still more those that he might have found in Locke—so that his successors started from a formulation that was much more Barbonian than that of any of these writers. In the Wealth, the monetary aspect of the interest problem is definitely reduced to a matter of form or technique. ‘What the lender really supplies…is not the money but…the goods which it can purchase’ (Book II, ch. 4), and there is nothing in the views of ‘Mr. Locke, Mr. Law, and Mr. Montesquieu’ that an increase in the quantity of gold and silver lowers the rate of interest (ibid.). The tendency of interest to fall he explained in exactly the same way as the tendency of profit to fall (Book I, ch. 9, which really deals with the same topics as Book II, ch. 4), both of which A.Smith seems to accept—with a qualification about ‘acquisition of new territory or of new branches of trade’—as unquestionable facts. And this is quite logical for, as should be clear by now, History of economic analysis 316 they are, in A.Smith’s schema, really one and the same thing. A.Smith does distinguish them: profit also includes compensation for ‘trouble’ and ‘risk,’ whereas the lender receives his interest without such trouble and risk. But these are relegated to a secondary position. Essentially, profit is ‘profit of stock,’ and interest which goes to the capitalist employer is received for ‘stock’ (goods) lent. Whether the stock be his own or borrowed from some other person, to supply the workmen with stock is the businessman’s basic function. First and foremost, he is the ‘capitalist’ and as capitalist he is the typical employer of labor, whose basic function it is to supply this stock to the workmen though that capitalist employer need not always do the employing himself, in which case… [This paragraph was written on a yellow sheet still adhering to a pad and was obviously unfinished. The page, which was crowded with notes in Austrian shorthand and in English longhand, is reproduced in the Appendix.] Value and money 317 CHAPTER 7 The ‘Mercantilist’ Literature 1 QUESTIONS OF INTERNATIONAL economic relations loomed so large on the horizons of all the authors of this epoch that we have already had to refer more than once to their propositions about these problems. It is nevertheless necessary to return to the charge and to examine some of these propositions more closely in order to introduce another batch of writings and to extract from them what contributions to analytic economics they may contain. I shall group those propositions under the headings of Export Monopolism, Exchange Control, and Balance of Trade. Doctrines concerning the second and third, particularly the third, are usually considered the core of that imaginary organon, the ‘mercantilist system’ of traditional teaching. To many economists, they mean in fact the whole of it. This tradition was established by Adam Smith, whose famous attack upon what he called (following, perhaps, the lead of the physiocrats) the Commercial or Mercantile System (Wealth, Fourth Book) centered in an argument about the balance of trade, although he was not blind to other aspects. [1. INTERPRETATION OF THE ‘MERCANTILIST’ LITERATURE] The reader presumably knows that these specifically ‘mercantilist’ doctrines have given rise to a controversy among historians of thought on which it is worth while to comment before embarking upon our task. This will not only clarify the issues involved but also afford an interesting illustration of the principles of interpretation outlined in Part I. The opinions the ‘mercantilist’ writers held about those topics—so far as they can be said to have held uniform opinions at all 2 —came to be looked upon not only with disapproval but also with contempt by the large majority of the economists of the nineteenth century. They could see nothing but error in them and, in dealing with their predecessors, developed a practice according to which it was all but sufficient for putting a work out of court to attach to it the slightest tinge of ‘mercantilism.’ This can be verified, in an almost amusing way, by consulting the relevant articles in Palgrave’s Dictionary of Political Economy. 3 Next, an opposition to this free-trade view arose; 1 [This chapter, though completed and typed at an early date (June 1943), had only a tentative title and no section titles. In reporting on the progress of the History in 1946 or 1947, J.A.S. told me that this chapter could be published substantially as it stood but that a good deal of work remained to be done on other chapters in Part II.] 2 This is in fact the first issue involved. 3 Let us notice, in passing, that for the same reasons exactly the same thing is happening now to the economists of the liberal epoch. voiced mainly though not exclusively by German writers, it went practically to the other extreme. This opposition also succeeded in establishing a tradition, though a less general one, which of late seems to have elicited a reaction that, joining forces with the surviving elements of the ‘liberal’ tradition, in turn bids fair to overshoot the mark. Professor Jacob Viner’s monograph may perhaps be cited as an instance. 4 Now the first thing to observe about this prolonged campaign is that both the antimercantilists and the promercantilists were primarily interested in mercantilist practice and that the opinions of both hence were and are primarily a matter of political preference. The English critics were out of sympathy with what had been done in the mercantilist age. The German sympathizers were not in favor of all the aspects of mercantilist practice, but they were in favor of some measure of national autarky, of state management, and above all of state building. All this is completely irrelevant to our purpose, and the only thing that needs to be said about it is this: Both critics and sympathizers were victims of the belief, so dear to that rationalist epoch, that their opinions about policy were scientific inferences from premises that had been laid down in a scientific spirit. Especially the English utilitarians, such as John Stuart Mill, looked upon their recommendations concerning policy as an engineer would look upon his recommendation about the construction of an engine. Their present was invariably ‘this enlightened age.’ Hence practical and theoretical ‘error’ was for them equally definite and indeed the same thing. This standpoint, which partly accounts for their pontifical attitude, is of course wholly untenable as we need not stay to prove once more. Second, the promercantilists held what the antimercantilists by implication denied, namely that mercantilist policies were not only understandable in the sense in which everything is, crime and folly included, but also in the much more significant sense that, taking account of the circumstances and opportunities of the times, they constituted adequate means for securing what with the same proviso were rationally defensible ends. Here, as previous argument suffices to show, the promercantilists score, though not to the extent they themselves believed. 5 At all events, this must be admitted by all those who are not willing to condemn modern commercial policies of a similar type, which in 4 Jacob Viner, ‘English Theories of Foreign Trade before Adam Smith,’ republished, in revised form, as chs. 1 and 2 of his Studies in the Theory of International Trade (1937). I wish to acknowledge my indebtedness to this excellent piece of work. In perusing it I have sometimes wondered, however, whether Professor Viner is prepared to pass the same peremptory judgments on certain measures and arguments of our own time that are exactly similar to those of the mercantilist age. Another book that must be mentioned here is The Theory of International Prices by James W.Angell (1926; chs. 2 and 8). See also Viner’s review of this book in The Journal of Political Economy, October 1926. 5 In the thicket of ‘mercantilist’ measures it is easy to find many that did not serve the ends their promoters had in view or that produced other effects besides those that were desired, which would have prevented their being taken if they had been foreseen. Adam Smith’s common sense revelled in instances of this (Book IV, ch. 8), which might easily be multiplied. It is however possible to separate off ‘mistakes’ and to carry the discussion up to a plane of principle on which they may be assumed away, though it must not be forgotten that any system of management is prone to produce a goodly crop of them. This in fact would have been Smith’s defense if somebody had accused him of unfairly using ‘mistakes’ in a discussion of ‘principles.’ The ‘mercantilist’ literature 319 fact enjoy the support of many who know all about their Smith, their Ricardo, and their Marshall. For the sake of future reference, let us call this the Practical Argument. 6 But, third, this does not prove anything for the analysis, the results of which have been used in order to defend those policies. A man may do what, from his standpoint and in his circumstances, is for him the right thing and yet do it for reasons that are complete nonsense. 7 The promercantilists, in particular the German ones who cared little and knew less about economic theory, were therefore wrong in thinking that they had proved anything for what they conceived to be mercantilist doctrine when they had succeeded in making out, in the sense defined above, a partial case for mercantilist practice. Moreover, it should be borne in mind that it is not enough to show that a proposition we find in a mercantilist pamphlet makes sense to us, that is to say, that we can prove it to be correct. For many modern propositions bear a striking surface resemblance—let us hope that the resemblance does not go below the surface—to quite primitive ones which can be easily disproved. To read our meaning uncritically into old texts amounts to betrayal of the historian’s duty as much as does overemphasis on every mistake in formulation. This class of considerations we shall, for purposes of reference, call the Theoretical Argument. Armed with these distinctions we now proceed with our task. 6 At this point, a sideline branches off which we see immediately if we reflect that both the ends to be served by a policy and the means to be considered rational, in other words, the questions concerning the wisdom or unwisdom of a policy, are relative to schemes of value that are themselves relative not only to the national situation, but also to the kind of men who face it and thus, among other things, to the class structure and to group interests. The statement in the text that, to some extent, mercantilist policies admit of rational defense (which, mind, never amounts to ‘justification’ in any absolute sense) must be understood to imply this. Many policies of the mercantilist age may in fact be traced to the interests of, or to the pressure exerted by, groups that can be definitely identified and from whose standpoints they may acquire a character of rationality that would otherwise be lacking. Adam Smith had an eye for this as he showed in Book IV, ch. 8. I will emphasize again that this has nothing to do with the truth or value of any given proposition or line of reasoning. The most stubborn class interest may induce true and valuable analysis, the most disinterested motive may lead to nothing but error and triviality. I hope I have made this quite clear in Part I. Also, I want to repeat that considerations of the class now envisaged do not per se entitle us to attribute conscious or even subconscious interested motive to any individual. Apart from the fact just mentioned, viz. that motive has nothing to do with the objective nature of a proposition, it is unsafe to talk about individuals’ motives. The only mind accessible to us is our own. In talking about motives of individuals we may be revealing nothing but our own propensities. Wheeler was secretary to the Merchants Adventurers. Mun and Child were connected with the East India Company. Milles was a disgruntled bureaucrat. Perhaps none of them has a claim to be included among the Consultant Administrators. But little more than triviality results from stressing this. 7 The reverse is also true—particularly in economics—in the sense that it is possible to reason correctly on a model constructed in an unexceptionable way and yet to arrive at wrong diagnoses concerning a reality that fails to conform to the model. We shall encounter instances of this. To top it all, scientifically interesting theories may be associated with quite uninteresting practice, interesting practice with uninteresting theories. History of economic analysis 320 [2. EXPORT MONOPOLISM] To begin with, the practical argument is strongly in favor of those writers of that age who held that monopoly and quasi-monopolistic co-operation, no matter what their effects may have been on domestic industry and trade, filled an essential function in foreign commerce. This is what I mean by export monopolism. At all times people have judged differently monopolistic practice that was directed against foreigners. Thus, the American Congress, otherwise so hostile to anything that may be made to look like monopoly, was easily persuaded to relax antimonopolist legislation for the benefit of export trade by the Webb-Pomerene Act. The proposition involved is as simple as it is—so far as it goes and if only immediate effects are considered—correct: monopoly gains from foreign trade are net gains to a nation because the items that would have to be subtracted if these gains were made in the domestic market are equated to zero. Moreover, until the middle of the eighteenth century and in many parts of the world until much later, trading was only possible within protective ad hoc arrangements that the traders had largely to provide themselves. This did not necessarily involve monopolistic action. But it spelled organization and co-operation that could easily extend to price and general business policy, not only to facilitate exploitation but also to regulate it and to defend standard practice against substandard connationals. Of this, the Society of Merchants Adventurers affords a telling example. 1 Finally, it seems too obvious to require explicit statement but is surprisingly often left out of account by critics of ‘mercantilist theories’ that that age was the age of buccaneering imperialism and that trade was associated with colonization, with uninhibited exploitation of the colonies founded, 2 with private warfare for which the governments, especially the English, frequently declined responsibility, and with conditions permanently verging on war. The classic example of all this is the East Indian; the only modern instance, the Rhodesian case. This explains many things perfectly rationally that were bound to vanish under the influence of different conditions, even if there had not been any progress at all in the grasp of the logic of economic phenomena: in fact this progresss presumably had very little to do with the change in practice. The two main sources of the large stream of literature on the subject of export monopolism—including colonization—flowed from the one fact that the policies of the 1 It is hardly possible to understand the circumstances that conditioned the economic thought of that period and in particular to appreciate the points made—and to be made—in the text without a pretty extensive command of the relevant chapters of economic history. Let me therefore again recommend a study of Professor Eli F. Heckscher’s volumes: Mercantilism (first publ. in Swedish, 1931; German ed., 1932; English trans. by Mendel Shapiro, 2 vols., 1935). 2 The lack of inhibition displayed by Spaniards, Frenchmen, and Englishmen alike is a very important element of the case. The economic reasoning about colonies runs on completely different lines and may, without involving contradiction, lead to completely different results according to the practice visualized by different men. Warren Hastings’ practice—to wit: shameless robbery—is one thing. William Bentinck’s practice—to wit: benevolent administration—is another thing. And the economic advantages differ accordingly. A rough dividing line can be discerned by studying the evolution of the attitude toward the slave trade. The ‘mercantilist’ literature 321 . re-exposition of ideas that had been put forth before. This impression is 4 Joseph Massie, Essay on the Governing Causes of the Natural Rate of Interest (1750). History of economic analysis 314 particularly. ‘acquisition of new territory or of new branches of trade’—as unquestionable facts. And this is quite logical for, as should be clear by now, History of economic analysis 316 they are, in A.Smith’s. sympathizers were not in favor of all the aspects of mercantilist practice, but they were in favor of some measure of national autarky, of state management, and above all of state building. All this