History of Economic Analysis part 39 pdf

being stronge against thinvasion of eneymies [that this comes first is interesting to us from another standpoint, J.A.S.], not molested with cyvile warres, the people being wealthie [author’s italics] and not oppressid with famyn nor penury of victualles,’ the last words being clearly intended to illustrate the ‘wealthie.’ Yet he wants an export surplus in order to get an import of bullion. Of seventeenth-century authors, Serra, Misselden, Mun (‘riches consisteth in the possession of those things which are needful for a civil life’), Child (‘many tools or materials’), Cary, Coke, Yarranton, and of course, Barbon, Davenant, and Petty, not to mention the advocates of paper money and of bank schemes, can all be cited in support of the thesis that, whatever their shortcomings may have been and however much they may have overstressed the importance of an increase in ‘treasure,’ wealth was defined—explicitly or by implication—much as we define it ourselves. A locus classicus occurs in a tract signed by Papillon: 26 ‘It is true that usually the measure of Stock or Riches is accounted by Money, but that is rather in imagination than in reality: A man is said to be worth Ten thousand pounds, when possibly he hath not One hundred pounds in ready Money; but his Estate, if he be a Farmer, consists in Land, Corn, or Cattle, and Husbandry Implements…’ Yet turns of phrase like Wealth is Money do occur frequently. 27 Sometimes they can be easily disposed of as façons de parler. Why, Milles even says that ‘Though money were the beames and exchange the very light, yet bullion is the sonne’ (quoted by Seligman in his article, ‘Bullionists’). Shall we infer that he thought bullion and the sun were the same thing? In other cases, it may be necessary to remember that, while we are dealing with pieces of analysis or attempts at analysis, we are dealing with primitive analysis, the methods of which differ but little from, and on the lower levels readily shade off into, those of the popular mind that still harbored vestiges of the cult of hoards of gold and silver, though the British navy had already ousted the protecting dragon from the place he used to hold. But this is all. 26 Thomas Papillon, The East-India Trade a Most Profitable Trade to This Kingdom (1677), quoted from Heckscher, op. cit. II, p. 191. I have not read the book. Professor Viner (op. cit. pp. 17–18) offers a list of quotations to establish his contention that confusion actually existed ‘between quantity of money, on the one hand, and degree of wealth, riches, prosperity, gain, profit, poverty, loss, on the other.’ In justice both to the writers whom he quoted and to Professor Viner himself, it must be pointed out that he aims at a wider target. Nevertheless it is significant that, as the reader can easily satisfy himself, not a single one of the quotations establishes confusion (or identification) of wealth with money or bullion, though some of them suggest the presence of other errors such as we have embodied in our three statements. 27 The reader who wishes for instances can find a little collection in Heckscher, op. cit. II, pp. 186 et seq., which even includes Bodin. Of particular interest is his discussion of Britannia Languens (1680), quoted before, because the case of its author differs from the usual case in which such turns of phrase appear occasionally and which we can leave out without changing anything in the argument. He insists again and again that wealth is not goods but only treasure and that poverty is nothing but lack of treasure. Even in the face of this, however, it is necessary to insist (a) that his arguments, or some of them, make sense independently of it; (b) that the book is a poor performance not up to the standard of Mun’s or Child’s; (c) that, though I defer to Professor Heckscher’s authority, my own experience of the literature would not justify me in considering it as ‘entirely typical’ (Professor Heckscher qualifies this, it is true, by adding: ‘of a large part of mercantilist literature’ and therefore may mean what I should not deny); (d) that allowance must be made for the tendency of prevailing schemes of thought to produce freaks—for which thesis the economic literature of the last ten years provides ample verification. History of economic analysis 342 [5. ANALYTIC PROGRESS FROM THE LAST QUARTER OF THE SEVENTEENTH CENTURY: JOSIAH CHILD TO ADAM SMITH] Let us return to the main road which, as we already know, rose sharply in the second half, especially the last quarter, of the seventeenth century. Bearing in mind what has been said before about other aspects of the analytic work of those decades, we shall now add what remains to be said about the specifically ‘mercantilist’ aspect. The work that remains to be noticed under this heading is much more important than that of the preceding decades and consisted largely in a critical revision of the latter—a revision which constitutes the main analytic effort of the mercantilist writers. It seems to me that credit for having given the lead must go to Child. 1 Of other names it will suffice to mention Barbon, Cary, Coke, Davenant, Petty, Pollexfen, 2 Yarranton, and one which I expect some readers will be shocked to find in this list—North, the free trader! 3 The main points to note are these. First, Child—and others about the same time but mainly after him (chief instance, Pollexfen)—drew the consequence of his theory of money, that money, being a commodity like ‘wine, oil, tobacco, cloth or stuff’ may often be exported as much to the national advantage as any other commodity. 4 This, if properly developed, knocks the bottom out of any position that attaches primary importance to the balance of trade per se. Child did not however proceed to frontal attack, which was, so far as I know, left to Barbon. But he made it inevitable. Similarly, he led up to the two corollaries of his proposition, but failed to state them. The one, that if exportation of gold and silver is nothing to worry about, their importation (the increase in the supply of money) is nothing to exult about, was also developed by Barbon. The other, that the importation of bullion does not add any more to the wealth of a nation than does the importation of raw 1 Sir Josiah Child (1630–99) was no systematic writer. His contributions are so scattered over a great many topics that it is easy to miss their combined import. In fact, it has been missed. The additional misfortune of having been a prominent businessman and very rich seems to have sealed his fate as an economist. More than anyone else he has been voted ‘a special pleader’ whose views may be interesting as ‘evidence of contemporary business life and opinion,’ but have no place in a history of scientific economics. This appraisal may be found in a most typical form in the article ‘Child,’ in the Encyclopaedia of the Social Sciences. The author, Henry Higgs, should really have known better. 2 John Pollexfen, A Discourse of Trade, Coyn, and Paper Credit, and of Ways and Means to Gain and Retain Riches (1697) and England and East India Inconsistent in their Manufactures (also 1697). The titles of the relevant publications of the others have all been given before. 3 Sir Dudley North (1641–91), Discourses upon Trade (1691), ed. J.H.Hollander (1907). It is interesting to note how acutely he was conscious of the difference between results of analysis and ‘ordinary and vulgar conceits, being meer Husk and Rubbish’ (preface); but he was a merchant and, later on, a public servant—no professor. 4 This must not be confused with the apparently similar argument of Mun’s that has been mentioned before. Child’s proposition not only went further, but it meant something entirely different. It was not, as it was in the case of Mun’s, exclusively motivated by the possibility that such exportation would eventually result in still larger importation. On the other hand, we must guard against a possible misinterpretation: one might read into that passage an anticipation of the principle of gold movements that was sponsored by Ricardo—gold will flow if it is the relatively cheapest commodity. But Child does not envisage the element of commercial advantageousness of gold or silver exports, but only states that the national interest will not suffer if gold and silver are exported. (On Child’s monetary theory, see above, ch. 6, sec. 2b and sec. 7a.) The ‘mercantilist’ literature 343 was developed, though somewhat post festum (1696) by Cary. The process of analysis that these instances illustrate also did away with the errors discussed before. This may be said to have been accomplished by the end of the seventeenth century. It is true that they were shaken off rather than explicitly renounced, which accounts for the fact that turns of phrase suggestive of them continue to occur even with such writers as Cary, Davenant, Petty, Yarranton, and later ones, such as Harris, who in substance were quite free from those errors. 5 It is also true that, on what has been referred to as the lower levels, all this lived until it was replaced by ‘liberal’ slogans—which, on those levels, were of no better grain intellectually. 6 5 It is amusing to note that the ‘mercantilist’ writers became so alive to the dangers of overemphasis on money that they began themselves to use the slogan about the identification of wealth and money. Thus, in a pamphlet that has been ascribed to Davenant, Pollexfen was attacked on this ground, although in the Discourse he clearly defines wealth in terms of goods and although in England and East India he condemns the import trade of the company merely on the ground of the frivolous nature of those imports, which he does not believe were re-exported to a degree to justify Davenant’s (and others’) argument for that trade. This, whether good or bad economics, has nothing to do with that identification. The same Pollexfen was arraigned by Professor Viner (op. cit. p. 18) for having said that ‘gold and silver is the only or most useful treasure of a nation.’ But why should this mean more than that gold and silver are ‘stores of value,’ and best fitted for that role, a statement one can read in the majority of nineteenth-century textbooks on money? This interpretation is entirely adequate to take care of the meaning of his text: of course, as far as that store of value goes, only bullion can make up for loss of bullion. Pollexfen, serving as he does as one of the standard instances for the views expounded in the text, should be cleared of what I conceive to be unjustified aspersions. We may refer to another point in which he was so unfortunate as to give umbrage to free-trade critics. He ‘still’ held that it is meaningful to balance trade with each individual country, a standpoint that, to the relief of those critics, Child and Barbon and even Mun had at last abandoned. But provided one does want to regulate and plan—the rationale of wishing to do so is another matter—Pollexfen’s opinion is, as has been pointed out in our discussion of Malynes, perfectly sensible as is also his recommendation to set an upper limit to the export of money to India. There is hence no reason whatever to wonder at the survival of this or cognate ideas: anon., Short Notes and Observations in Point of Trade (1662) was, from the planner’s standpoint, perfectly justified in denouncing the importation of vain and unnecessary commodities; and so was Ralph Maddison (Englands Looking In and Out, 1640) in holding that control should be extended to ‘every particular trade.’ 6 By way of illustration, both of the statement made in the text and of the rationale of our method of appraising and ‘placing’ mercantilist (and also other) writers, let me give a late example of the occurrence of what most people will consider typically mercantilist errors. L.A.Muratori, in his Della pubblica felicità (1749), ch. XVI, lays it down as the principal maxim that ought to govern economic policy that as little money as possible be let out of the state (fare, che esca dallo Stato il men Danaro, che si può) and that as much of it as possible be imported (e che ve ne s’introduca il più che si può), a conclusion which was soon (1751) attacked by Galiani. See also A.Graziani, Le Idee economiche degli scrittori emiliani e romagnoli (1893). Now I do not try to palliate this by an ‘understanding’ interpretation. I should agree with every one of Professor Viner’s crisp epithets if they were to apply only to cases like this. But I think it essential for a proper grasp of the history of economics to em phasize their low level (which of course is relative to dates). The case derives additional illustrative value from the fact that Muratori was a very eminent man in other fields. Even as an economic historian he stands high. But he did not know how to wield the kind of analytic apparatus the evolution of which is the subject of this book, and hence he wrote commonplaces or nonsense when he touched subjects that cannot be successfully treated without it. History of economic analysis 344 And this nonsense was not typical of the works of those writers of his time who had command of such analytic apparatus as there was. It would only serve to blur the picture if his views on such subjects were allowed to figure in it. [(a) Concept of the Automatic Mechanism.] Second, we have seen that the conception of the Automatic Mechanism—the mechanism which, if allowed to work and if conditions are not too much disturbed, may be held to guarantee in the long run an equilibrium relation between the money stocks, price levels, incomes, interest rates, et cetera of different nations 7 —was not entirely outside the range of vision of any of the ‘mercantilist’ writers one cares to quote: Serra saw much of it, Misselden and Mun, a little, Malynes, nearly the whole of it. The contributions that have just been discussed above, so one might think in retrospect, should have made the full- fledged theory of that mechanism an easy matter of co-ordinating and amplifying restatement. But—as the history of any science again shows: a particularly good instance is afforded by thermodynamics—such definitive formulation is surprisingly difficult to achieve and the first attempts at it are always likely to be failures. None of the authors mentioned did achieve it. North tried. He saw that there is such a mechanism as a result of which every country will draw to itself a ‘determinate sum’ of money that will just suffice to carry on its economic process (at, and after adjustment to, the appropriate level of prices, a qualification which, however, he does not add). But he went off the rails completely in his attempt to describe it. Locke was more fortunate. He even used the device later on adopted by Hume of trying to describe what will happen, if half of the money in existence in a country be suddenly removed, and realized that this will restrict imports and increase exports, and yet he does not draw the conclusion that to us seems obvious (or seemed so until twenty years ago). But in order to get things into the right historical perspective, it should be realized that this fortress, though it was not completely reduced before the middle of the eighteenth century, was eventually entered, not by means of a new attack from a different side or by a new method of attack, but simply by pressing on through the breach that the ‘mercantilist’ writers had made. This can be easily shown by a brief survey of subsequent developments, which will at the same time serve the purpose of carrying us not only to the Wealth of Nations but beyond it to the threshold of discussion raised by the suspension of specie payments (Bank Restriction, 1797). 7 With regard to this mechanism, see the footnote on the balance of payments (above, sec. 4, n. 6). The ‘mercantilist’ literature 345 The next substantive advance was made by Gervaise. 8 He added the propo-sition, never before stated with unmistakable clearness, that an increase in ‘credit’ (say, banknotes) will increase income and consumption, hence decrease exports and increase imports, and thus produce, just as would an increase in the quantity of the monetary metals, an outflow of these metals that will eventually enforce credit restriction—an important contribution, particularly meritorious in its emphasis upon the ‘income approach.’ Of course this proposition implies full understanding of the fundamental mechanism we are talking about, since it merely develops a particular consequence of it. But Gervaise’s actual account of the automatic mechanism, though superior to any that had been published before, is yet far from satisfactory. It would, however, be sufficient to insert a few passages from Malynes in order to make it so. Successive marksmen, however, came nearer and nearer to hitting the bull’s-eye of the old target. Of those who did hit it, the most eminent were Cantillon and Hume. 9 The fact that Hume’s essay 8 I have not mentioned Simon Clement, A Discourse of the General Notions of Money, Trade, and Exchanges…(1695), whose contribution has been strongly commended by Angell (op. cit. pp. 21 et seq.). But there was little merit in describing the specie-point mechanism that had been perfectly well understood more than a hundred years before. There was, however, merit in Clement’s correct description of the sequence of events that devaluation will produce as long as domestic prices do not respond to it: bullion will flow, exports increase, imports decrease. He was not the first to see that, but his is the first compact statement, so far as I know, of the particular piece of mechanism, made with a full sense of its importance. The same claim may perhaps be made for the book as a whole, and if we add it to the contribution of the authors under discussion, it becomes still clearer that all the elements for what was to become a ‘classical’ theory were worked out before 1700. Isaac Gervaise, The System or Theory of the Trade of the World. Treating of the Different Kinds of Value. Of the Ballances of Trade. Of Exchange. Of Manufactures. Of Companies. And Shewing the Pernicious Consequences of Credit, and that it Destroys the Purpose of National Trade (1720). This remarkable little book, the merit of which is only slightly impaired by slips and clumsinesses (for instance, Gervaise lets the precious metals be distributed among countries according to their population, but meets the obvious objection by a fairly satisfactory explanation), has I believe been discovered by the late Professor Foxwell, who called it ‘one of the earliest formal systems of political economy, and stating one of the most forcible practical arguments for free trade.’ It will be Professor Viner’s merit, however, if henceforth these 34 pages take the place in the history of our science that belongs to them (see Viner, op. cit. pp. 79 et seq.). I take the opportunity to call attention to Professor Viner’s section on ‘The Self-regulating Mechanism of Specie Distribution’ (p. 74), which, the best part of an excellent work, is not only much richer in material than my exposition but also one of the most interesting essays ever written on the fascinating theme of how a theory struggles into existence. It is a pity that, in this section as well as in the other parts of his work, he failed to distinguish between progress in analysis and progress toward free-trade opinions, or to put it somewhat differently, between what an author understood of economic processes and what he thought of them. The same common confusion we shall presently encounter again when dealing with the general theory of international trade. 9 R.Cantillon, Essai sur la nature du commerce en général, which, as has been mentioned before, was written (and circulated) about 1730 but did not appear in print until 1755. D.Hume, ‘Of the Balance of Trade’ in Political Discourses (1752), included in Essays, Moral, Political and Literary (ed. 1875, vol. I, pp. 330 et seq.). Comparison with other writers, who may also be said to have hit the bull’s-eye, only serves to make his merit stand out still more clearly. Two may be mentioned: Jacob Vanderlint, who preceded him (Money Answers all Things, 1734, p. 15 of the new ed. in J.H.Hollander’s reprints) and Joseph Harris (Essay upon Money and Coins, I), who followed him, History of economic analysis 346 at least if we go by date of publication, 1757. That these two sound but certainly not first-flight men should have also ‘done the trick’ seems to strengthen the thesis of the text. aroused some opposition testifies to his merit as do the further facts that he added several points which were new, as far as I know, and that, unlike some economists of the nineteenth century, he did not trust the automatic mechanism unconditionally, though he failed to emphasize the frictions and disturbances that may attend its working. Essentially, however, his achievement consisted in shaking off the dust of mistakes from pieces of the ‘mercantilist’ inheritance and in assembling these pieces into a neat and well-rounded theory. 10 And this is all. Nothing of major importance was added during the rest of the century. In the Wealth of Nations, Adam Smith did not advance beyond Hume but rather stayed below him. In fact it is not far from the truth to say that Hume’s theory, including his overemphasis on price movements as the vehicle of adjustments, remained substantially unchallenged until the twenties of this century. [J.A.S. left note: ‘please leave rest of page’ and added in pencil as a reminder the three names Melon, Dutot, Galiani.] [(b) Foundations of a General Theory of International Trade.] A third point remains to be noticed about the work of our group of writers. Just as they paved the way toward the theory of that automatic mechanism of gold and silver movements, so they also paved the way toward the theory of the automatic mechanism of commodity movements. In other words, they pulled out of that prescientific stage in which the protectionist arguments had no theoretical basis, rather than a faulty one, and began to lay the foundations of the general theory of international trade that was to take shape in the last decades of the eighteenth and the first decades of the nineteenth centuries. Logically, though not historically, we may distinguish two steps in their advance. The first step consisted in the qualification and elaboration of the primitive arguments. They perceived the fact that the immediate and visible advantages that protectionist measures aim at securing are never net advantages or, as we may also put it, that there is to every proposition about those advantages a counterproposition about ulterior or invisible effects, many of which are in the nature of costs. Such complementary propositions are implied in Cary’s argument about the importation of raw materials or Coke’s argument about the importation of both raw materials and manufactured goods, or Coke’s and Yarranton’s argument on cheapness and plenty, or Yarranton’s argument about the advantages that accrue to a nation from its neighbors’ prosperity, or Barbon’s 10 No one who knows anything about the history of science in general will suspect me of a wish to underrate the importance of an achievement of this kind. Moreover, the performance may have been quite original ‘subjectively’ in the sense in which, e.g., Menger’s was (see below, Part IV, ch. 5, sec. 1), all the forerunners notwithstanding. All major discoveries have to be repeated again and again. Finally, there is room for fair difference of opinion concerning the question how far the authors of the seventeenth century had really advanced. In any case, there is no justification for Professor Angell’s statement that Hume ‘at a single stroke wrecked the balance-of-trade theory’ (op. cit. p. 26). This only amounts to repeating an old nineteenth-century The ‘mercantilist’ literature 347 argument—it occurs frequently, but it was not, I think, definitely set on its legs before Barbon—that regulations and restrictions always destroy some element of potential wealth. It is, or was, the common practice of critics to say that by introducing such arguments our authors contradicted or partially recanted their ‘mercantilist’ views, or that they became ‘eclectics.’ But whatever may be true from other standpoints, from ours those arguments and the qualifications they implied are simply the inevitable consequence of increasingly successful attempts to see more than one side of the case. Similar conquests were made by continental writers of the same type. It will in particular not surprise us to learn that the Dutch were in the van of advance. The two outstanding examples are Graswinckel and Pieter de la Court. 11 Thus, additional and less obvious aspects were gradually revealed, though in a wholly unsystematic manner. But among the disjointed pieces of economic reality that were being unearthed, there was one of sufficient power to coordinate all the others and to support the structure of a comprehensive theory of international trade or even trade in general. Child seems to have been the first to arrive (1668–70) at a clear idea of the explanatory value of the simple fact that commodities tend to seek the most advantageous market. To use the phrase of Davenant, who worked out the idea in the nineties, there are definite ‘channels’ which, under the stimulus of profit expectations, trade finds of itself; or, to put it still differently, the profit motive supplies a regulatory principle for ‘unregulated’ business activity, international and national, and produces results which we may like or not but which are determined and not chaotic. Propositions that imply this discovery or even expressly refer to that principle in particular cases occur in the sixteenth century and earlier. It was of course quite familiar to the scholastics. On the other hand, it was not fully developed until Léon Walras. But the mercantilist writers helped to place it in its key position in the theory of international trade. Neither Child nor Davenant proceeded very far with it. Barbon, however, understood the mechanism sufficiently well to adumbrate the theory of equilibrium in international commodity trade, at least in the form of the proposition—stated without the necessary qualifications—that restrictions on imports will restrict exports to a corresponding amount. Much more than this I cannot find in any seventeenth-century author. In particular very little was made of the argument about territorial division of labor. In its most primitive form it cannot, of course, have ever been unknown to anyone. Armstrong 11 Dirck Graswinckel, Placaetbook op het stuk van de Leeftocht (Compilation of regulations concerning foodstuffs, 1651), the second part of which contains a critical analysis of the policies represented by the legislative material compiled in the first. Graswinckel’s views on the harm done by prohibiting the exportation of grains, a practice which had become practically universal in the eighteenth century, were not new in 1651—we have encountered similar views in the Discourse of the Common Weal, and they cannot have been strikingly novel even then. But Graswinckel had a keener sense of the price mechanisms involved, especially of the function of forestalling. Pieter de la Court, Interest van Holland…(1662; 2nd ed. under the title: Aanwysing der heilsame politike Gronden en Maximen van de Republike van Holland en West-Vriesland, 1669; English trans., Political Maxims…falsely attributing the work to John de Witt, 1743; I know only the latter), presents mainly an argument for industrial freedom plus moderate duties—comparable and in some respects superior to Coke’s of 1670 and 1675—the merit of which consists chiefly in its freedom from errors of reasoning. Both authors would have to be ranked very high in a history of economic thought or policy. Concerning their contributions to analysis, however, it is hardly possible to say more than this. History of economic analysis 348 and Hales in the sixteenth century based international trade on the fact that different nations, living under different conditions, produce different commodities, the superfluous parts of which may be exchanged with advantage to all parties concerned. Even North thought of international trade in quite the same spirit as the ‘exchange of superfluities,’ much as had Grotius (1625). Recognition of the much more interesting fact that this exchange will alter the economic organisms of the trading nations is, to be sure, implied in many practical suggestions, especially on the economic relations between England and Ireland and also in more general considerations of Davenant’s (e.g., in his Essay on the East-India Trade, 1696), but nobody seems to have realized fully its significance as a starting point of analysis or to have had any inkling of the principle of comparative costs. North in particular did nothing but sum up, incompletely but effectively, the contribution of the ‘mercantilist’ writings to 1691. But none of the others were thoroughgoing free traders. North alone was. And to interpreters of the history of economic analysis who were interested in nothing but free trade and knew of no canon of criticism except the distance that separates an author from free trade, this was of course the all-important fact. For them, there is, on the one side, the darkness of ‘mercantilist’ error and, on the other side, the eternal light of ‘liberalism’; the light rose against the darkness and dispelled it so thoroughly that there was nothing left of it except the pious wonder of liberals how anyone could ever have been so benighted. Now this way of looking at the history of that time under the aspect of a sharp antithesis is totally wrong. And it is so essential for a proper understanding of the evolution of our science to grasp this that we must stay for a moment, even at the risk of some repetition, in order to clarify the nature of the confusion from which that view arose. Even if we were studying the history of political doctrines, it would be necessary to point out that free-trade forces did not simply assemble outside of the mercantilist citadel and storm it—this is only true of the agrarian Tory component, which at that time was strongly antagonistic to big business and protection—but to a much greater extent formed up inside it. This should appeal to Marxists, for the decisive support of English free trade came after all from the same bourgeois class that had previously supported protection. But the ad-vance of analysis that alone interests us here was not a matter of free trade and nascent liberalism at all. It could have occurred without anyone’s being converted to free trade and liberalism, and free trade and liberalism could have gained their political victory without any help from that advance. Of this we can satisfy ourselves by the reflection that, for example, none of the old protectionist arguments listed above is affected by the later analysis that, in the hands of liberals, was made to serve free-trade policy. That analysis only established the existence of an ‘automatic mechanism.’ Knowledge of this mechanism is indeed not irrelevant for practice. When fully developed, it will prevent people from embracing protectionism or free trade for erroneous reasons. But beyond this it is not the master but the servant of the decisions we arrive at It can serve—and rationalize—protectionist decisions just as well as free-trade decisions, but it does not in itself suffice to enforce either. It is easy to apply this to the particular case of North. His allegiance to the Tory party had probably much more to do with his free-trade opinions than had his analysis. So far as the latter is concerned, in order to realize that he might have arrived at ‘mercantilist’ conclusions without any error or inconsistency, we need only suppose that he adopted The ‘mercantilist’ literature 349 one of those protectionist arguments or simply that he saw that an individual nation may gain by a well-devised system of protective duties. Therefore, we can discard his free- trade convictions as irrelevant in an appraisal of his analytic apparatus. But if we look at the latter, we have no difficulty in recognizing, first, its affinity to Barbon’s 12 and, second, the fact that for the rest it is made up of quite old elements: wealth consists of whatever satisfies wants; money is a commodity of which there may be too much as well as too little; there is no sense in prohibiting its exportation or in taking any measures in order to secure an adequate supply of it; sumptuary laws blunt the spurs to trade; and so on. Clearly it is more correct to say that his analytic work grew out of that of the ‘mercantilist’ than to say that the relation was one of head-on clash. [(c) General Tendency toward Freer Trade.] Let us again follow developments to the publication of the Wealth of Nations. It will be convenient to distinguish sharply the development of free-trade policies and free-trade doctrines from the development of analysis that was associated with both. If due account be taken of all the obstacles that stood in the way, a general tendency toward freer trade is, I think, discernible. In England this tendency had already asserted itself in the growing opposition to the Navigation Acts and other ‘mercantilist’ measures, for example, in the Committee on Trade of 1668. Much more significant was the assault on the system that the Tories, under Harley and St. John, made in 1713: the eighth and ninth clauses of the peace treaty of Utrecht went a long way toward free trade with France. The assault ended in defeat. The Tories failed to carry those clauses and the subsequent Whig regime (Walpole first, the Pelhams after) kept strictly on the protectionist tack. The governments from Bute’s to North’s had other worries, but Shelburne and especially the younger Pitt led the way toward fewer and lower duties— the latter’s crowning achievement being the commercial treaty with France, 1786. Further progress was checked for nearly thirty years by the revolutionary and Napoleonic wars, after which Pitt’s policy was resumed in the twenties of the nineteenth century (by Huskisson). As we can see from this, France moved substantially in step. Only, there were two additional problems: even internal free trade was not achieved until the Revolution, though successive administrations tried to establish it, and the agrarian situation brought to the fore the particular question of free trade in grains, especially free exportation of grains. 13 In the German and Italian states we see at first glance nothing except further development of the ‘mercantilist’ system. But its rationalization led in many instances to a reduction of the burdens on inter-territorial trade, especially in raw materials and semifinished products. In the Netherlands, as we should expect, a much more definite tendency toward freer trade already had asserted itself in the seventeenth century. 12 The only point in which North definitely goes beyond Barbon is the proposition already mentioned on another occasion (see above, ch. 6, sec. 7) viz. that low interest is not the cause but the consequence of increasing wealth. Perhaps his rudimentary theory of gluts should also be mentioned. But it is so very primitive that there is no point in insisting on it. 13 In England, an export bounty had been introduced in 1689 which naturally played a role in contemporaneous discussion. Otherwise English agrarian policy did not clash much with the general tendency described above until 1815. History of economic analysis 350 Doctrine moved more quickly. Free-trade conviction began to spread as part of a general laissez-faire code. With the bourgeois public, the operative impulse was simply surfeit with bureaucratic overadministration, which became so strong that even direct self-interest failed occasionally to counteract it. With the writers, or some of them, a similar impulse took on a philosophic flavor: free trade was increasingly considered as a part of the autonomy of the individual, which was held to imply a ‘natural right’ to trade as he pleased. This argument, which had been used already by Hugo Grotius and can be followed through the various natural-law groups, including the physiocrats and even the English utilitarians, is of course perfectly devoid of scientific meaning. 14 But it is relevant for us, first, because it was practically always associated with positive statements about economic effects, which do have scientific meaning and must be considered independently of it; second, because we have here (scientifically speaking) an illegitimate influence which blunted the edge of the critical faculty and imparted a bias to the economic reasoning of the best writers. As we shall see more clearly later on, weaknesses that are not easy to explain in any other way may be traced to this influence, which understandably allied itself with the doctrine of the Invisible Hand, even in the cases of Quesnay and Smith. It counted of course still more in the popular opinions favoring laissez-faire that conquered coffeehouses and salons and foreshadowed the free-trade dogmatism of nineteenth- century liberals, which has not much more to do with scientific insight than had any of the popular dogmas of mercantilism. Analytic progress, however, was slow. The controversies that arose about political issues, which happened to attract public attention, proved surprisingly sterile in this respect. The one raised by the French grain policy, 15 for instance, though it engaged the interest of some 14 I hope I have made it quite clear before that my defense of the natural-law concept as an instrument of analysis does not cover its use as a means of deriving imperatives of the type of the droits de l’homme. 15 We may notice another. When the freer-trade clauses of the peace treaty of Utrecht became known, the protectionists flew to arms. Among other things, a short-lived periodical was founded, The British Merchant (republ. 1743), the contributors to which throw an interesting light on the state of protectionist opinion. Among them, Joshua Gee should be mentioned in particular. He also wrote other protectionist tracts, e.g. The Trade and Navigation of Great Britain considered (1729), and his protectionism mainly turns upon the employment argument. On the whole, the performances of Gee and of the other contributors were by no means discreditable and, intended as they were for popular consumption on an issue of the day, may well be offered in refutation of the common belief that eighteenth-century ‘mercantilism’ was just a heap of nonsense. But as far as I can see, there was nothing in them to interest us here. The Tory counterblast was Mercator, or Commerce Retrieved, which appeared three times a week from May 1713 to July 1714 and was more of a one-man show. That man was Daniel Defoe of Robinson Crusoe fame, a most brilliant and prolific writer. But even his most ambitious efforts in our field remained in the sphere of economic journalism. In particular, his case for those clauses of the Treaty of Utrecht did not contribute anything new to economic analysis, though they rank high in the history of free- or freer- trade opinion. The reader who takes the trouble to peruse some of his writings (e.g. his General History of Trade, 1713) may well think that I am being unjust to him, especially if he recalls my comments upon Yarranton. But merit in such matters is to a large extent a matter of dates. I take this opportunity to mention a somewhat later writer, Malachy Postlethwayt, but only to give an instance of the interesting phenomenon of the survival of names associated with substandard The ‘mercantilist’ literature 351 . Theory of the Trade of the World. Treating of the Different Kinds of Value. Of the Ballances of Trade. Of Exchange. Of Manufactures. Of Companies. And Shewing the Pernicious Consequences of Credit,. successfully treated without it. History of economic analysis 344 And this nonsense was not typical of the works of those writers of his time who had command of such analytic apparatus as there. interpreters of the history of economic analysis who were interested in nothing but free trade and knew of no canon of criticism except the distance that separates an author from free trade, this was of