Kabanata Kabanata 46 · The Mercantile System

HOW THE NEWLY FOUNDED NATIONAL OR DYNASTIC STATES OF EUROPE TRIED

TO MAKE THEMSELVES RICH AND WHAT WAS MEANT BY THE MERCANTILE SYSTEM

We have seen how, during the sixteenth and the seventeenth centuries,

the states of our modern world began to take shape. Their origins

were different in almost every case. Some had been the result of the

deliberate effort of a single king. Others had happened by chance.

Still others had been the result of favourable natural geographic

boundaries. But once they had been founded, they had all of them tried

to strengthen their internal administration and to exert the greatest

possible influence upon foreign affairs. All this of course had cost a

great deal of money. The mediæval state with its lack of centralised

power did not depend upon a rich treasury. The king got his revenues

from the crown domains and his civil service paid for itself. The

modern centralised state was a more complicated affair. The old knights

disappeared and hired government officials or bureaucrats took their

place. Army, navy, and internal administration demanded millions. The

question then became—where was this money to be found?

[Illustration: THE VOYAGE OF THE PILGRIMS]

Gold and silver had been a rare commodity in the middle ages. The

average man, as I have told you, never saw a gold piece as long as he

lived. Only the inhabitants of the large cities were familiar with

silver coin. The discovery of America and the exploitation of the

Peruvian mines changed all this. The centre of trade was transferred

from the Mediterranean to the Atlantic seaboard. The old “commercial

cities” of Italy lost their financial importance. New “commercial

nations” took their place and gold and silver were no longer a

curiosity.

Through Spain and Portugal and Holland and England, precious metals

began to find their way to Europe. The sixteenth century had its own

writers on the subject of political economy and they evolved a theory

of national wealth which seemed to them entirely sound and of the

greatest possible benefit to their respective countries. They reasoned

that both gold and silver were actual wealth. Therefore they believed

that the country with the largest supply of actual cash in the vaults

of its treasury and its banks was at the same time the richest country.

And since money meant armies, it followed that the richest country was

also the most powerful and could rule the rest of the world.

We call this system the “mercantile system,” and it was accepted with

the same unquestioning faith with which the early Christians believed

in Miracles and many of the present-day American business men believe

in the Tariff. In practice, the Mercantile system worked out as

follows: To get the largest surplus of precious metals a country must

have a favourable balance of export trade. If you can export more to

your neighbour than he exports to your own country, he will owe you

money and will be obliged to send you some of his gold. Hence you gain

and he loses. As a result of this creed, the economic program of almost

every seventeenth century state was as follows:

1. Try to get possession of as many precious metals as you can.

2. Encourage foreign trade in preference to domestic trade.

3. Encourage those industries which change raw materials into

exportable finished products.

4. Encourage a large population, for you will need workmen for

your factories and an agricultural community does not raise enough

workmen.

5. Let the State watch this process and interfere whenever it is

necessary to do so.

Instead of regarding International Trade as something akin to a force

of nature which would always obey certain natural laws regardless

of man’s interference, the people of the sixteenth and seventeenth

centuries tried to regulate their commerce by the help of official

decrees and royal laws and financial help on the part of the government.

In the sixteenth century Charles V adopted this Mercantile System

(which was then something entirely new) and introduced it into his many

possessions. Elizabeth of England flattered him by her imitation. The

Bourbons, especially King Louis XIV, were fanatical adherents of this

doctrine and Colbert, his great minister of finance, became the prophet

of Mercantilism to whom all Europe looked for guidance.

The entire foreign policy of Cromwell was a practical application

of the Mercantile System. It was invariably directed against the

rich rival Republic of Holland. For the Dutch shippers, as the

common-carriers of the merchandise of Europe, had certain leanings

towards free-trade and therefore had to be destroyed at all cost.

It will be easily understood how such a system must affect the

colonies. A colony under the Mercantile System became merely a

reservoir of gold and silver and spices, which was to be tapped for the

benefit of the home country. The Asiatic, American and African supply

of precious metals and the raw materials of these tropical countries

became a monopoly of the state which happened to own that particular

colony. No outsider was ever allowed within the precincts and no native

was permitted to trade with a merchant whose ship flew a foreign flag.

Undoubtedly the Mercantile System encouraged the development of

young industries in certain countries where there never had been any

manufacturing before. It built roads and dug canals and made for

better means of transportation. It demanded greater skill among the

workmen and gave the merchant a better social position, while it

weakened the power of the landed aristocracy.

[Illustration: HOW EUROPE CONQUERED THE WORLD]

On the other hand, it caused very great misery. It made the natives in

the colonies the victims of a most shameless exploitation. It exposed

the citizens of the home country to an even more terrible fate. It

helped in a great measure to turn every land into an armed camp and

divided the world into little bits of territory, each working for its

own direct benefit, while striving at all times to destroy the power

of its neighbours and get hold of their treasures. It laid so much

stress upon the importance of owning wealth that “being rich” came to

be regarded as the sole virtue of the average citizen. Economic systems

come and go like the fashions in surgery and in the clothes of women,

and during the nineteenth century the Mercantile System was discarded

in favor of a system of free and open competition. At least, so I have

been told.

[Illustration: SEA POWER]