Bulletin VIII : simplebooklet.com

5 Introduction by Hywel Williams The battle between free trade and protectionism has shaped the history of advanced economies in the past two centuries and is rarely absent from discussion of the relations between those commanding heights and the developing world. Quotas, tariffs and subsidies constitute the three pillars of protectionism, and it was the second of these that attracted the ire of the Anti-Corn Law League. The campaigning organisation led by Richard Cobden and John Bright established Britain as the home of free trade following the repeal of the Corn Laws in 1846. Their brilliance as both orators and organisers, together with the mid-century dramas of Conservative division following the repeal, turned free trade into a distinctively high Victorian, British, cause. Moral zeal fused with statistical detail made for a compelling argument: import duties/ tariffs ( of which the Corn Laws were a prime example) favoured producers at the expense of consumers ( especially the poor); producers ( then as now) knew how to combine and their cartels exploited links with the politically powerful; monopolistic endeavour ( ancestor perhaps to the ‘rent- seeking’ opportunism of later generations) secured high prices- a form of exploitation that undermined the probity of the public weal. Presented in this fashion it is difficult to see why anyone (apart from the ‘agrarian interest’) could ever have fallen for protectionism in any of its forms. Removal of agricultural tariffs was the prelude to a more comprehensive liberalisation. The Cobden-Chevalier treaty (1860) signed between Britain and France, removed tariffs on the main items of trade between the two countries. Cobden and Bright’s mid to late nineteenth successors, including Gladstone, John Stuart Mill and Alfred Marshall, persuaded millions that free trade was not just a governmental ‘policy’- one among many. It was truth itself, obvious, once explained, and ‘natural’ – a revelation of how human beings and nations related to each in a well organised world. Protectionist impulses resurfaced as a result of competition from the United States and Germany in the 1870s and ‘80s. The consensus view seemed neither obvious nor natural from that point onwards. ‘Free Trade Britain’ had lasted barely forty years. Joseph Chamberlain’s demagogic campaign for Tariff Reform and ‘Imperial Preference’ split the Tory party in 1903- 6. Although the Liberal party, returned to office in the 1906 election, retained its historic free trading allegiance protectionist temptations were never far from the surface in early twentieth century British politics.

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6 The authors of these essays belong to the free trade camp in the battle of economic ideas. Free trade truths supply our focus of enquiry with a special attention being paid to the history of the U.S. and Britain, countries that have embraced trade liberalisation with conspicuous, if intermittent, conviction. We also wish to account for the frequent difficulties encountered by these truths both intellectually and practically. Protectionism’s fallacies having been exposed, why did the doctrine recur? Were there weaknesses in free trading ideology and practice- vulnerabilities that left it exposed to a protectionist resurgence? How might these have been corrected? Where do we find ourselves today, within the ‘Anglosphere’ and beyond, in this battle of competing doctrines? Answers to these questions are to be found in that nexus of economics, politics and history best described as ‘political economy’. PRECURSORS The ‘discovery’ of free trade did not come out of the blue. British and American economic policies in the first half of the nineteenth century were more liberal than is often supposed. Critiques of monopolistic practices and arguments favouring the free exchange of goods however came up against the influence of ‘Mercantilism’, a doctrine that seemed for at least two centuries quite as natural and complete an explanation as the free trade truths that supplanted it. Mercantilist thought, dominant across Europe, was determined by one big idea: gains from international trade arose solely from exporting and at the expense of other countries. From this flowed every other feature of the system: monopoly trading companies chartered by the State; extensive governmental regulation of trade; the selection, training and licensing of artisans by guilds; the obsession with specie/bullion as a measurement of national wealth; dislike of imported luxury goods ( “ foreign frippery”); countries’ emulation of methods used against them leading to retaliation, trade wars and military conflict. Trade quarrels caused three Anglo-Dutch wars in the seventeenth century. So much for the international brotherhood of Protestant super-powers. Pamphleteers from the late seventeenth century onwards published anti-mercantilist tracts. John Law’s espousal of a note issuing bank in Money and Trade Considered with a Proposal for Supplying the Nation with Money (1705) was audacious, original and almost entirely ignored. It was Adam Smith who coined the term ‘mercantilism’. Provision of a label helped to clarify matters. Self-identifying advocates and adherents split into their separate camps. Smith had identified a system and much of The Wealth of Nations (1776) is an expose of how ‘combination’ (monopoly and lobbying) greased the wheels of mercantilism. Smith, a farouche and solitary bachelor, was a terrible advocate of his own views. During a brief period spent (1775) in London he joined ‘ The Club’ a famous institution of its day and which counted Samuel Johnson, Edmund Burke and David Garrick among its members. In this competitive atmosphere he did not shine and Johnson called him “ an arse” to his face. The Wealth of Nations was a publishing success, in the sense that many copies were sold. How widely read, and understood, the book was during Smith’s lifetime is another question. It was only in the decades immediately following his death in 1790 that Free Trade took off as a popular cause. He wrote as a moral philosopher and the political economy of The Wealth of Nations amplifies the view of ‘benevolence’ and humane sociality which is basic to his earlier Theory of Moral Sentiments (1759). Free Trade popularised ( but not bowdlerised) by early

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7 nineteenth century radicals exemplified Smith’s view that ‘ all for ourselves, and nothing for other people ‘ was a ‘vile maxim’. Clubman geniality may not have been Smith’s leading characteristic. Nonetheless, what he meant by ‘benevolence’ became a leading feature of free trade argumentation and a reason for its popularity. Cobden thought that free trade, universally adopted, would lead to world peace. There was an utopian side to Cobden but at the height of its popularity free trade was seen by many as a way of promoting mutual understanding through the exchange of knowledge as well as manufactures. AN AUDIT I: The effect of Corn Law repeal and other free trade measures on British economic performance. The repeal was a major political event. But its economic consequences have been little studied. This seems odd. Accounting sources are both substantial and reliable. One quantitative survey suggests that in 1840 Britain exported 37% of world textile products. It accounted for some 55% of world cotton consumption and, of the total world production of manufactured goods, 29% were British. This was a commanding position. We propose a detailed quantitative measurement of the changes in British economic performance during the two decades after the 1845 repeal. The Anti Corn Law league and other free traders made large claims: lifting of tariffs would incentivise previously sheltered domestic producers and diversification of goods produced would lead to a boom in British manufacturing exports. Can we test these claims against the statistical evidence? Landowners’ incomes did take a hit- but by how much? We know that job-seeking agricultural labourers left the land for the town. Can this ‘internal migration’ be measured and what were its effects on household expenditure? II: Free trading experiments in other countries can be shown to have led to greater investment in the production process, including the adoption of new technologies and the training of the work force. Productivity gains ensued. But did this happen to the same extent in the British economy? Evidence drawn from the 1870s and ‘80s is especially important since this was the time when we can see the start of a comparative economic decline. Britain remained a world economic power but its industrial transformation, a process that had lasted a century and a half, was coming to a close. Advocacy of the need to ‘protect’ the domestic economy was the panicky response. THE UNITED STATES’ TRADE POLICY I: U.S. economic history started with a reaction against Britain’s version of mercantilism ( the Navigation Acts ). How should we interpret the recurrence of protectionist episodes in American history? Were they deviations from the norm, and therefore opportunistic and short term? Restraints on trade were introduced to help meet the new government’s start-up costs. These were temporary and limited. Trade restrictions- introduced in the post-Civil War period- were meant to provide a short-term boost to small manufacturing plants. They proved to be ineffective and were soon abandoned. U.S. exports rose from 25% to 50% of globally traded goods between 1880 and 1914. Was this really the result of protectionism? Successive governments certainly flirted with protectionist policies during this great era of American economic expansion. But if we consider the impact of those policies in different sectors- and

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8 in isolation from other contributory causes- protectionism seems to have made only a marginal difference to the rate of expansion. The labour supply (produced by mass immigration) and abundant natural sources were surely the real drivers of economic progress. Inter-war protectionism was real enough and an economic parallel to America’s post-Versailles withdrawal from European engagement. The Hawley-Smoot Tariff Act (1930)- with its 3,300 tariffs- was a terrible idea. But its more important effect may have been constitutional rather than economic. Congress, exhausted by legislative debate, conceded that in future trade policy would be determined by the Executive branch. The idea though that the Act was a direct cause of the Great Depression is in urgent need of a revisionist scrutiny. II: Protectionist impulses recurred in the 1970s and ‘80s when tariffs were imposed on Japanese and European products. Much of the contemporary rhetoric about ‘American protectionism’ owes its origin to memories of this period. A more considered historical perspective suggests that these measures were part of a consistent pattern: deviations from the norm, adopted as a short-term response in specific sectors of economic activity, do not deflect American policy from its longer term, free trading, goals. Should we therefore care about America’s recent abandonment of the Trans Pacific Trade Partnership ( T.P.T.P.) and the Trans -Atlantic Trade and Investment Partnership ( T.T.I.P)? These demarches may harm the job security of trade negotiators, that specialised form of bureaucratic, acronymic, engagement. Predictions of a new dark age of protectionism however are surely wide of the mark, especially when accompanied by the implausibly precise statistical percentages beloved of economic forecasters. Challenges to free trade arguments remain real in both the U.S. and other parts of the developed, and developing, world. The economies of East Asia for example have grown rich despite having no commitment to free trade. Global supply chains changed the terms of international trade in the 1990s but the need to maintain internationally open markets should be reasserted in an age grown wary of ‘globalisation’. The idea that higher tariffs might revitalize manufacturing has, especially in the U.S., a rhetorical, and nostalgic, appeal. It was however automation that led to manufacturing job losses. Our final area of investigation under this heading is prompted by the need for a ‘free trade update’. Free trade carries with it a very long historical association with goods. But the U. S economy, like Britain’s, is now dominated by services and although some services may be tradeable the amount of their trade depends less on tariffs than on I.P. regimes and regulatory standards. This makes for an important addition to the catalogue of ‘free trade truths’. CONCESSIONS, EXCEPTIONS AND SURVIVAL Many, perhaps most, free traders concede the need for a limited degree of ‘protection’ at certain times and in certain places. Manufacturing companies and occasionally industries too, especially in ‘third world’ circumstances, come up against the pressure exerted by well- established competitors in the advanced economies. The newcomers need time to establish themselves in the local economy and protection, often in the form of tariffs but also as quotas and subsidies, gives them what they need. The moment at which they can be deemed able to stand on their own two feet is usually a difficult judgement call. Free traders typically justify the measures on anti-monopoly grounds. This is nonetheless a chink in their collective armour.

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9 Concession that a particular initiative deserves protection is not supposed to diminish the purity of free trade truths. This is nonetheless the stage at which ‘free trade’ runs the danger of slipping into ‘fair trade’. Of all the concessions made in the history of European economic policy during the post-war era few have been as consequential (and costly) as the European Union’s Common Agricultural Policy launched in 1962. This extensive programme of subsidies has always been controversial, and we propose to place it in a longer-term context, that of the divergence between the French and British economies from the mid-nineteenth century onwards. Much is made of the virtues of the E.U.’s internal market but we would argue that the establishment of a ‘free trade area’ internally has proved to be quite compatible with the external establishment of a protectionist barrier. This enquiry would include an examination of the Agriculture Act (1947) which established a system of guaranteed prices for British farmers- an astonishing piece of legislation whose ancestor was surely the Corn Laws. Policy history and long memories matter here too, especially so the Conservative Party’s early twentieth century lurch towards protectionism. Baldwin, in 1923, presented an avowedly protectionist budget and although he lost the subsequent general election protectionist tariffs retained their allure for Tory politicians during the inter-war era. Free Trade yielded to autarky during the Second World War and barely raised its head above the fortifications erected during the post-war decades of collectivist minded nationalisation, corporatism, industrial councils, economic development zones, interventions by the Prices and Incomes Board, runs on the pound and balance of payment crises. Free trade’s re-emergence in the Britain of the 1980s was a remarkable story. Past and present have combined to demonstrate its truth as, we trust, these essays will demonstrate. Hywel Williams Director, Erasmus Forum Editor, Erasmus Forum Bulletin February 2024

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11 The general weakness characteristic of the earlier treatment of mercantilism was the same as that prevailing in other fields of economic history, namely, the exclusively national outlook of scholars and their lack of theoretical analysis. The first defect places an undue emphasis upon dissimilarities between countries and even gives the impression that purely national factors were much more influential than they really were; the second is, in my opinion, even more damaging, as it frequently prevents scholars from seeing what the problems are and how they should be solved. When all is said, economic developments have followed similar lines all over the western world; and all economic developments, in whatever civilization they are found, must raise problems akin to those of present-day economic life, though they give the historian the important advantage that he is able to see their outcome - which is far from being the case with contemporary conditions and occurrences. * * * The ends of statesmen in the economic field between, say, the beginning of the sixteenth and the middle of the eighteenth centuries were, of course, diversified; but I think it may be said that at least two tendencies played a very great part, i.e. that towards the unification of the territory of the state economically and the use of the resources of their countries in the interests of the political power of the state - more of this below. But important as this was in itself, it does not constitute the most characteristic contrast to what came later. An illustration may be found in the fact that the foremost, and by far the most intelligent, among German mercantilists, Johann Joachim Becher, gave his principal work a title which differed only very slightly from that of the Wealth of Nations. Consequently, the most important difference did not lie in the choice of ends but in opinions as to the best way of achieving those ends, i.e. in the choice of means. Through this, mercantilism became not only a specific type of economic policy but, even more, a characteristic body of economic ideas; for the views as to what constituted the best means were rooted in conscious or un- conscious interpretations of the tendencies of economic life. Through this, mercantilism came to mean a discussion of the relations between causes and effects of economic factors; it paved the way to a theory of economics, in spite of having started from purely practical Portrait of Johann Joachim Becher (1635-1682) by W. P. Killan aer an anonymous drawing Iconographic. Source: The Wellcome Collecon

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12 considerations. It is not, in this case, a question of a choice between theory and practice but of practice leading unintentionally to theory. * * * The unifying work of mercantilism fell into two rather distinct categories. The one was concerned with 'feudalism', i.e. the disintegration caused by more or less anarchical measures undertaken by the lawless or self- willed territorial lords and provincial nobles in their own interests. Briefly stated, there was little need for any activity against this tendency in England and Sweden. In Germany, on the other hand, the need for it was greater than almost anywhere else; but the efforts to overcome this anarchy came to very little. The country where both the need was great and something was done to satisfy it was France; the French monarchy was able to achieve some remarkable results in this field, though much of the old disorder was allowed to survive until the great revolution. Even more important than 'feudalism' was that particular type of disintegration which resulted from the independence of the towns; and in spite of some dissimilarities, most European countries presented the same fundamental features in this respect. The author who has done most to elucidate this part of the subject is Georg von Below; and though his studies were almost entirely confined to Germany, and therefore left aside the most important countries in the mercantilist era, his conclusions appear to me to be generally unassailable, even when extended to other continental countries. The medieval towns had created the most consistent, vigorous, and long-lived system of economic policy that has ever existed, the most important parts of which were the gild system and the internal regulation of industry in general, and the organization of foreign trade and commerce. The fight against medieval municipal policy was most successful in the country in which it was least constructive - that is, England. There, after an attempt at a really constructive policy under the earlier Stuarts, the gild system was allowed to fall to pieces under the impact of new economic forces. When Cunningham gave the name of 'Parliamentary Colbertism' to the policy pursued in the period after 1689 he should have added that it was Colbert-ism not only without Colbert but also, which is even more important, without the vast administrative machinery created by Colbert that it was, in fact, a system almost without any administrative machinery at all. On this point I think the views of Unwin were almost entirely correct. How far this explains the fact that what is usually called the Industrial Revolution came to England first, instead of beginning in continental countries - which were probably less backward than England before that time is, of course, impossible to decide with certainty. * * * In this respect France was the opposite of England; and continental developments were mostly of the French type, though much less advanced. French policy, like that of the rest of the continental countries, consisted in a sustained and very painstaking attempt at regulation; but it resulted in upholding, and greatly enlarging the sphere of, medieval methods, not in adapting them to a changing world. The great administrative power of the French monarchy enabled it to perpetuate the gild system and to spread it over a far greater area than it had regulated during the Middle Ages. Throughout the Continent the result was the same. Mercantilism made itself responsible for what bears the imprint of the Middle Ages, and carried the medieval system, especially in Germany, far

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13 down into the nineteenth century. Even the enlargement of the local organizations into national units - an important part of the policy of unification - remained for the most part on paper. This policy was not altogether ineffective; and least of all in France. If European industry had continued on the lines of its earlier development, catering for the needs of the upper classes or the Church, France would have remained the leading industrial country in Europe. When, on the contrary, industry came to mean mass production for mass consumption the old system of regulation had to disappear. * * * The real executor of mercantilism was laissez-faire, which' did almost without effort what mercantilism had set out but failed to achieve. The most spectacular change in this respect was effected by the French Constituante in 1789-91; but English results were perhaps in the long run even more important, and in this case very little of what disappeared has so far come to life again. All countries in the nineteenth century made the creation of wealth their lode-star, with small regard to its effects upon the power of the state, while the opposite had been the case previously. I think Cunningham was right in stressing the famous saying of Bacon about Henry VII: 'bowing the ancient policy of this Estate from consideration of plenty to consideration of power'. The most important consequence of the dominating interest in power, combined with the static view of economic life as a whole, was the incessant commercial rivalries of the seventeenth and eighteenth centuries, which degenerated easily into military conflict. One of the most serious mistakes of Sombart in his treatment of mercantilism has been his iterated statements of the 'dynamic' character of mercantilism, as contrasted with the 'static' one of laissez-faire. It is true that mercantilists believed in their almost unlimited ability to develop the economic resources of their own country (a belief that was even more strongly held by nineteenth-century writers and politicians), but they only hoped to do so at the expense of their neighbours. That the wealth of the world as a whole could increase was an idea wholly alien to them, and in this they were 'static' to a degree. * * * But all that has now been said of the aims of mercantilist policy is less significant to economists than the mercantilist attitude to means. With regard to commodities, it is necessary to stress the fact that they can be, and actually have been, viewed from at least three mutually exclusive angles. In the eyes of the merchant goods are neither welcome nor unwelcome; they form the basis of his transactions, to be both bought and sold; he does not want to exclude them, but neither does he want to keep them. The consumer, however, is a partisan of 'plenty'; he is bent upon ensuring a large supply, while sales interest him much less. Lastly, to the producer under a system of exchange sales are everything; in his eyes an over-supply is the ever- present danger, while he sees nothing objectionable in keeping the market understocked.

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14 * * * The dominating feeling throughout the Middle Ages, mostly in towns, which were almost the only repositories of medieval economic policy, was the one natural to consumers; they wanted to hamper or prevent exports, but favoured imports; their tendency was a 'love of goods'; their policy may be called one of provision. It is easy to show, even statistically, how measures directed against exports were pre- dominant throughout the Middle Ages, and how difficult this tendency was to overcome, especially with regard to foodstuffs. But however long-lived the medieval view was, it did not pre- vent an opposite tendency from gaining ground, a 'fear of goods', a policy directed against imports instead of exports in one word: protection. This became the mercantilist policy when concerned with commodities as distinct from money; and I do not think there can be any doubt that it constituted the most original contribution of mercantilism to the development of economic policy. It became more and more all-pervading, carrying at last also the citadel of the 'policy of provision', the encouragement of a great supply of foodstuffs; introducing in its stead import prohibitions or import duties on foodstuffs, as well as bounties on exports of food. Medieval tradesman from the manuscript of Nicole Oresme, translation of Aristotle's Ethics, Politics, and Economics, Rouen (France), Source: Bibliothèque Municipale, Ms. 927, fol. 145

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15 * * * Mercantilism as a system of money led to a more profound discussion of economic ‘theory' than can be found in any other part of its intellectual activity. It is difficult to understand, or at least to explain, the monetary views of mercantilists without distinguishing between their opinion of money or precious metals outside and inside the mechanism of exchange. Outside that mechanism there arose the view that money was more or less identical with capital. John Locke, the philosopher, is perhaps the best exponent of these ideas, as he is able to express himself with much greater clearness than most of the writers, without differing in substance from them. He explicitly said that money has a double function. First, it yields an income by giving interest and is of the same nature as land, which gives rent; here money is considered as a factor of production, as interest- bearing capital. When it was believed that money yields an annual income like that of land nothing was more natural than that it should be coveted to an unlimited extent. That the inflow of precious metals was considered to be of utmost importance likewise followed from theoretical considerations, which are easy to explain without the assistance of a supposition that they had in actual fact some (unknown) specific purpose to fulfil. For, as is still often the case in popular discussion, consumption was considered to be of no value in itself, and a surplus over consumption was considered equivalent to an increase in wealth. This increase was naturally believed to consist in an addition to the stock of money available within the country; and as money, in a country without gold and silver mines and making no use of paper money, could only come from outside, the conclusion necessarily followed that only by an excess of exports of commodities over imports and a consequent influx of money could a country grow rich. Considered inside the mechanism of exchange, i.e. as means of exchange, money had the all-important function of increasing circulation, from which followed innumerable benefits. In the eyes of many mercantilist writers, one of these was rising prices; Samuel Fortrey gave a succinct expression of this view when saying that 'it might be wished, nothing were cheap amongst us but only money'. It is easy to understand that the gospel of high prices went well together with that of scarcity of goods, or with fighting the danger of 'a dead stock, called plenty'. Besides, it was believed that a country which had low prices as compared with neighbouring countries would 'sell cheap and buy dear', i.e. that the prices prevailing in the respective countries of production would determine those at which the commodities would be sold abroad - without considering that if, e.g., English goods sold in France more cheaply than the French goods themselves they would be in great demand and thereby be raised in price. The easily explicable eagerness for an ever-increasing circulation at last gave rise to a particularly interesting variant of the theory, namely, paper-money mercantilism, represented in the first place by the famous John Law. It is easy to see that this tenet would do away with a great deal of the usual theory of mercantilism; for the need for precious metals, and consequently for an excess of exports, would disappear. But before our own times paper money was normally regarded with great suspicion, so that the old type of theory generally prevailed. Lastly, mercantilism had a side which has until now been mostly overlooked. That may be called its general conception of society. The remarkable feature of this conception was its fundamental concord with that of laissez-faire; so that, while mercantilism and laissez-faire were each other's opposites in practical application and economic theory proper, they were largely based upon a

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16 common conception of society. No less remarkable is the character of this common conception, which is one that has usually been considered typical of laissez-faire and appears to be almost the opposite of mercantilism, as usually understood. Especially noticeable is the likeness between writers like Sir William Petty and Thomas Hobbes, on the one hand, and the leaders of English utilitarianism, such as Bentham, Austin, and James Mill, on the other. From other points of view the existence of ideas common to mercantilism and its successor ought to be less surprising, for they were in harmony with the general trend of thought dominating Europe since the Renaissance. Philosophically, their basis was the concept of natural law, and connected with that was a belief in unalterable laws governing social life in general, a growing tendency to stress social causality, and consequently to deprecate interference directed against effects instead of causes. On principle, mercantilist authors and states- men not only believed in but actually harped upon 'freedom', especially 'freedom of trade'; the expression, ‘la liberté est l'âme du commerce’ occurs hundreds of times in the correspondence of Colbert. To some extent this was doubtless due to the influence of the merchant class, though that influence was much weaker in a country like France than in England and Holland; and the fundamental identity of outlook between these three countries shows the existence of other factors besides. The most important of these undoubtedly was the influence of what may be called, by a somewhat hackneyed word, emancipation. Emancipation from belief in traditional political and social institutions, and the contrary belief in social change. Closely allied to this was the emancipation from religious and ethical ideas in the social field, a secularization and an amoralization. Mercantilists came more and more to recommend amoral means to amoral ends; their most typical exponent in that respect was the Dutch-English physician Mandeville, but Sir William Petty belonged to the same category; both, it should be noted, were entirely unconnected with the merchant class. Non-religious and amoral views came to light in every direction, in the treatment of interest-taking, in the recommendation of luxury, in the tolerance of heretics and Jews as favourable to trade, in opposition to celibacy, alms-giving, etc. As I said just now, the remarkable thing is not the existence of these views but the fact that while they were common to both mercantilism and laissez-faire, mercantilist and laissez-faire policies were poles asunder. I think the explanation of this apparent antinomy is to be found in one fundamental difference, namely, in the mercantilists' disbelief and the liberals' belief in the existence of a pre-established harmony. In the eyes of mercantilists the desired results were to be effected 'by the dextrous management of a skilful politician'; they were not expected to follow from the untrammelled forces of economic life. And the result was remarkable. If I may be allowed to quote a previous conclusion of my own: it was precisely this general mercantilist conception of society which led statesmen to even greater ruthlessness than would have been possible without the help of such a conception; for though they had rationalized away the whole social heritage, they had not arrived at a belief in an immanent social rationality. Thus they believed themselves justified in their interference and, in addition, believed in its necessity, without being held back by a respect for such irrational forces as tradition, ethics, and religion. The humanitarian outlook was entirely alien to them, and in this they differed fundamentally from writers and politicians like Adam Smith, Malthus, Bentham, Romilly, and Wilberforce. Lastly, the influence of their social philosophy upon their actions was weaker than that of their other conceptions.

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18 In what measure can the mercantile system and mercantilism bear scrutiny when we approach them in this fashion? The truth seems to be that there was never a living doctrine at all, nothing that can be compared with vital philosophies of action like physiocracy or liberalism or Marxism. Mercantilism never had a creed; nor was there a priesthood dedicated to its service. * * * The discovery of the existence of a body of mercantile beliefs was made in the eighteenth century by men who found security for their own faith in a system of natural law. The bond of mutual sympathy among these observers was created far less by any similarity in their practical recommendations than by their common distrust of the current expedients of statecraft in Western Europe; expedients which seemed designed with an almost cunning premeditation to hinder the maximization of both happiness and productive capacity by setting up barriers to the economic self-expression of the individual citizen. Quesnay and his disciples the économistes in France and Smith in Britain were themselves creators of politico-economic theories claiming universal validity. It was perhaps only natural that they should seek to strengthen the outlines of their own proposals by systematizing the theories which they discerned lurking behind the institutions that came under their fire. The dummy dragon they set up, articulated and endowed with organic functions by its indignant creators, had the fire of life breathed into it by the avenging angels themselves. Of course, economic liberalism already had an interesting history before the American revolt and the birth of the tableau économique. But the critics of state interference had not hitherto stood sufficiently aloof from the regulative attitude of mind to see it as something essentially alien to their ideas. Non- interventionist policies had made their appearance in the works of pamphleteers from the early seventeenth century onwards. And one group of English writers, North, Child, Davenant, and Barbon, supported by an indistinct fringe of even less consistent skirmishers, have been elevated to the position of a Tory school of free traders. Pioneers they unquestionably were, and at times convincing free traders in their enunciation of principle. But Davenant and his fellows could be restrictionists of the extremest kind when it came to discussing specific proposals. Gournay and Hume were both moderate protectionists, and if the former has been endowed by his admirer Turgot with a creed of non-interventionism not improperly recognized by the traditional attribution to him of the incantation Laissez-faire, laissez-passer, the latter had an authoritarian bias, and was content to chastise, certainly with unsurpassed brilliance, a number of current 'fallacies' and 'species of ill-founded jealousy ... prevalent among commercial nations'. Dean Tucker, also, although one of the most devastating critics of unreason in an age dedicated to its con- verse, has one foot in an older camp. He says: 'Abolish every tax and remove all impediments whatever which might pre- vent Self-Love - the Grand Mover - from operating for the public good'; but he would tax the Grand Mover where it threatens to 'decline from the great road of private virtue and public happiness'. His gospel of freedom is qualified by numerous cautionary provisos, and, indeed, he does not rank himself among the evangelists.

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19 Our earliest introduction to the operative words is in 1763, in the Philosophie Rurale of Victor Riquetti, Marquis de Mirabeau, Quesnay's most excitable follower. 'Absurd in- consistency of the mercantile system' (système mercantile), he writes in a marginal note. The passage is an attack on the idea that a nation profits from the importation of money; and on the same page he ridicules the approximation of the commercial policy of great empires to the standards of a counting-house in words that sound strikingly like a prophetic echo of Adam Smith's well-known invective upon 'the sneaking arts of underling tradesmen'. Smith was admittedly not unfamiliar with the Philosophie Rurale- is this where he found the mercantile system patterned in the fashion he himself was to adopt? * * * Smith was not greatly concerned, I believe, to discover whether or not the equation money equals wealth - the popular maxim to which most of his predecessors had paid occasional lip-service was a vital ingredient in the 'system'. It is rather the consequences of the deplorable behaviour of legislators clumsily trying to execute the injunctions of the balance theorists by means of tariffs, prohibitions, drawbacks, bounties, and commercial monopolies that provokes him to the fullest use of his analytical skill and deflating satire. Except in his reflections on the marketing of corn, he is careful to exclude by implication a large range of internal restrictions from the operations of mercantile statecraft. But in almost every field he saw very clearly that public interference was wasteful and corrupt, prodigal above all of administrative effort. This helps to explain his exaggeration of the malignancy and power of gild control in the corporate towns and his distrust of joint-stock enterprise with its tradition of privilege and licensed incompetence. The conclusions which he had previously reached in his Edinburgh lectures by a process of a priori reasoning starting from the principle of Natural Liberty, he now re- established with a great wealth of inductive argument supported by wide historical reading and empirical experience of the problems of administration. The effect was overwhelming. As with the economic writings of Bentham, we are left with a picture of the waste and inefficiency of most forms of public interference as then practised, but not with the sense that the State direction of human affairs is by definition nugatory. Indeed, whoever attempts the instructive task of culling from the works of Adam Smith a list of what Bentham would call the proper agenda of public authority must be surprised by the amplitude of his reservations to any thorough-going notion of a laissez-faire policy, even within the field of overseas trade. * * * Victor de Rique, marquis de Mirabeau 1711-1789 Source : Bibliotheque Naonale Francaise

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20 like the first movement for political reform, the early free-trade campaign was stifled in the dark days of the Revolutionary Wars. The two movements, moreover, came to be inextricably mixed, for the revised corn laws now occupied the foremost place in the schedule of interference measures; and the support of the landlords was still essential to politicians. Nevertheless, when the smoke begins to clear away the initiative in liberal reform seems to be with the statesmen, supported with no great enthusiasm by city merchants and bankers, and with the group of active intellectuals who are to become known to us as the Classical Economists. According to Newmarch, the year 1820 which witnessed the presentation by Alexander Baring of the Merchants' Petition in the Com- mons also saw 'the system of prohibition, protection and fiscal confusion at its height'. At about this point the tide turns. In reality, of system there was none. As we watch reformers at work and listen to the arguments offered by those who defend restrictive laws it becomes evident that the policies now standing their trial are but little concerned with the retention of a favourable balance of trade or any group of related propositions. They are concerned almost entirely with the protection of sheltered trades, the defence of shipping monopolies, and the profits of agriculture - a fine miscellany of vested interests. The administrative chaos in which creative architects like Huskisson and Senior, using simple mechanical formulae, tried to build, or at least remodel, was a combination of survivals inherited from different strata of time and temperament. Some things, like the Navigation Laws and the rules of the Statute of Artificers, were heritages of policy. Others, perhaps the more formidable obstacles, were heritages of expediency, and consisted for the most part of customs schedules and fiscal regulations originally devised by eighteenth-century legislators for nothing more socially significant than security for public loans. Huskisson and Peel and Glad- stone liquidated a commercial system which may be described far less correctly as a protectionist order than as a latter-day revision of a revenue system of unfathomable complexity balanced on the inadequate foundation of a tonnage and pound- age law which had been devised for the traffic conditions of the fifteenth century. It was, in fact, a piecemeal system of which many parts had ceased to pay even for their keep. The exponents of economic liberalism felt called upon to destroy an economic regime; but it was a regime lacking order and a coherent philosophy. In its place they offered a plan of an ordered society, a Planwirtschaft, which must surely possess more of the attributes of an economic and social 'system' than we can discern in the policy fashioned by their predecessors. Far from being satisfied with expedients, they allowed their ideas to play upon a projected social structure exhibited in complete diagrammatic form. The proposed functions of their state fell into an orderly pattern, a scheme of property, inheritance, contractual relationships, and regulated currency, so devised that sellers of goods and services might find unhindered self-expression; they made provision for a rigidly fenced enclosure within which business men, work- people, and the investing public could play at being free. The notion presupposed an organized institutional policy and a political programme: the rule of non-intervention must be established by the creation of a new set of institutions, of which the simplified working model in the mind of Ricardo was the conventional framework of the market in which he gained his experience of man's behaviour, namely the London Stock Exchange. The function of the state was to keep the ring so that production and exchange might operate freely on

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21 principles of their own through the instrumentality of human beings whose individual power and influence upon the market were infinitesimally small. Monopolistic and privileged forces should be excluded by public action. * * * To discover another such rule of principle and rules for its adoption we must go back to the school of Aquinas and the canonist lawyers. The stretch of time between these reigns of coherent social policy seems like a vast interim full of uncoordinated specifics. In the works of the masters of the classical period there is little evidence of acquaintance with the principles which might be said to underlie a regulated or mercantile economy. Some of them were too busy focusing attention upon the lack of reason and goodwill displayed by sectional interests St. Thomas Aquinas Confounding Averroës by Giovanni di Paolo (d. 1482) Source: The St Louis Museum of Art

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22 and groups - the landed interest which 'dominated the unreformed Parliament, restricted the mobility of labour by parish settlement and the Speenhamland system, and maintained the Corn Laws for the protection of corn prices and land-rents'; and the unproductive habits of all those who spent but did not produce. * * * And although money moved in the forefront of discussion, its relevance to the fundamental relationships between productive factors (now the main consideration in the theory of wealth creation) became entirely subsidiary. This may be seen most clearly in the attacks launched on the seventeenth- and eighteenth-century arguments which linked up the rate of interest with the supply of money for investment. And it is symptomatic of present-day tendencies that the watchword of Mr Maynard Keynes's latest contribution to the theories of money and employment is Back to the Mercantilists, by way of reaction to Ricardo and his English successors. Believing that statesmen aimed at a high equilibrium level of investment and employment, 'there was wisdom,' Mr Keynes holds, 'in their intense pre- occupation with keeping down the rate of interest by means of usury laws. . ., by maintaining the domestic stock of money and by discouraging rises in the wage- unit; and in their readiness in the last resort to restore the stock of money by devaluation, if it had become plainly deficient through an unavoidable foreign drain, a rise in the wage-unit, or any other cause' (General Theory of Employment, Interest and Money, Chap. 23). Without finding myself in a position to endorse much of Mr Keynes's interpretation of English economic theory of the seventeenth and eighteenth centuries, I do think he succeeds, in passages similar in perspicacity to the quotation above, in illuminating some of the ends of monetary policy in those times, ends which have been persistently misunderstood by critics who found altogether too facile an aid to destructive analysis in J. S. Mill's exposition of the theory of international trade. * * * Malthus, Ricardo, James Mill, and Torrens have no constructive analysis to offer of pre-Smithian thought and policy. But Nassau Senior, in his Oxford lectures in 1827, devoted part of his time to an examination of the mercantile system, 'which at present clogs all our actions and disturbs all our reasonings'. He discussed its monetary aspects at some length in tones of shocked disapproval, summed up the commercial restrictions as having been contrived to produce individual gain at the cost of the common loss, remarking that public opinion noticed only the concentration of gain and seemed un- aware of the diffusion of the loss. Unless I am mistaken, this was the first broadside assault on the 'system' since the Wealth of Nations, and it is important for our purpose because Senior passed from the balance-of-trade policies to some reflections on national jealousies and the manifest aim of mercantile policy to be independent of foreign commodities. This leads to the destruction of the mutual security of nations, to say nothing of privation at home. The half-naked subjects of Caractacus were doubtless independent of foreign supplies, and so is the semi- barbarian who burrows in the ruins of Persepolis, and gathers his dates among the ruins of palaces. Autarky, or self-sufficiency for purposes of defence, had now been brought in to widen the supposed objects of mercantile policy. John Stuart Mill, who constituted himself the rapporteur of

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23 the deliberations of the English classical economists, was more strictly in the orthodox Adam Smith tradition. But he displayed no historical understanding. The mercantile system, with its obsessions about the precious metals, 'looks like one of the crude fancies of childhood.... Once questioned indeed, it was doomed.' Yet the reasoning was not unnatural among minds which 'had not yet become familiar with certain modes of stating and of contemplating economical phenomena'. He marvelled that in Australia 'the exploded fallacies of the mercantile system are revived with a simple ignorance of all that has been written and proved against them' * * * The dissemination of thought about the system was largely, however, the work of the camp-followers and vulgarizers among the economists. J. R. McCulloch appears to have been the writer principally responsible for the spreading of the crude notion that the essential doctrine of the mercantile system was the identification of money with wealth.4 An omnivorous but careless student of early economic works, he declared this to be the core of the old policy of restriction; but it was not all, for the mercantile writers actually secured the ascendancy of their commercial policy by a system of industrial regulation inherited from the medieval towns. This was a point which may have been suggested to him by a discourse by Francesco Mengotti called Il Colbertismo, published in Florence in 1792. In McCulloch's hands the theory had become narrower, the scope of its application somewhat wider. McCulloch edited, and provided an historical introduction for, the most popular edition of the Wealth of Nations that circulated in early Victorian England. Buckle, Macaulay, Lecky, and a not inconsiderable number of less influential writers took their history of political economy from him. Any residual qualifications to a very bald and unhistorical interpretation fell to the ground in the process of transference. * * * The English economists, who never went far beyond the conception for which Adam Smith takes credit as chief inventor, viewed the mercantile system as an agglomeration of commercial interferences fortified by a monetary fallacy which was itself based upon a misunderstanding of the real nature of international exchange. The approach was highly unsympathetic, the treatment limited as to period and range. It was not until Bagehot and Cliffe Leslie protested against the claims of universality which had been advanced for the abstract political economy of a highly capitalized and competitive society that English thought became infected with the idea that 'un- orthodox' policies might have been living necessities for economic communities in their backward days. Cliffe Leslie even suggested that the classical definitions of wealth - mere abstractions as they looked to him- originated in opposition to the doctrines 'erroneously imputed to the mercantile School', and were no more than negative statements. * * * Fichte, the spiritual father of the modern totalitarian state, had reacted against the internationalism of Smith, and desired to safeguard the rule of natural law within a fenced-in territorial enclosure closed against the marauding incursions of flag- waving bagmen. But the full revolt against Manchester liberalism was delayed until List had made out his - journalistic- ally effective - case for the tariff protection of industrial economies in an immature stage of development, and until

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24 Roscher and Knies had demonstrated the necessity for studying economic concepts and rules of action as products of the time and circumstances wherein they arose. Economics in the hands of their followers was no abstract science, but the study of the laws of evolution stage by stage as exhibited in the life of nations. It has sometimes been said that members of the school were not economists at all, but historians or sociologists; and there is just enough truth in this to explain Menger's complaint that 'the historians have stepped upon the territory of our science like foreign conquerors, in order to force upon us their language and their customs, their terminology and their methods'. Intolerance, not to say malignity, was displayed on both sides when the great struggle opened in the seventies between the respective supporters of the inductive and deductive methods. * * * It was left for Gustav Schmoller to create a synthetic picture of mercantilism in rounding off the work of his predecessors. This he accomplished using a remarkably deep intuition of the forces underlying public policy in combination with a strong sense of the transcendence of the human will in a world where systematic laws of economic life were only valid on a superficial reckoning. It is hardly an exaggeration to say that he formed his notion of mercantile policy on the study of the struggle for unification and national self-expression guided by the electors and kings of Prussia. As a process of state-building it was concerned as much to provide for the fluidity of resources and products within the country, by the removal of tolls, local privileges, and currency defects, as to compel the respect of the country's neighbours by a spirited economic policy along and beyond the frontiers. It advocated free-trade or prohibition principles according to the circumstances of the case; and not only according to concrete conditions but according to the goal towards which the country was striving. The state was a formative agent; it gave existence to organized society; and both political and economic life were forces to be regulated by the government. "The mercantilist ideal was not only the legitimate ideal for those centuries but the only proper end. And the ends aimed at have not yet completely lost their legitimacy,' he wrote in 1900. Only a firm and enlightened central authority could co-ordinate the necessary measures for the creation of a national economy (Volkswirtschaft) out of anarchy. Such a conviction led him to the somewhat startling conclusion that the economic decline of the Netherlands was caused by the exclusion from public life of the House of Orange in the Stadtholderless period, 1650-72. * * *

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25 In 1868, at the age of nineteen, William Cunningham went to continue his university studies in Germany. That he chose to go to Tübingen, Schmoller's old university, is no more than a coincidence. That he came home profoundly influenced by German conceptions of the state and German notions of order and discipline is a fact which has a bearing on his intellectual progress. Fourteen years later The Growth of English Industry and Commerce made its first and, one might say, embryonic appearance, in a single volume. The progress of this remarkable book through its successive editions is in a very real sense a measure of the advance of economic history in England in Cunningham's working lifetime. It was obvious from the beginning that the title was a misnomer. The book was a study of the rise of authoritarianism and its decline, and 'the fruitfulness... of this field of study... had to be demon- strated', as Professor Scott has pointed out, 'in the face of the traditions of the Classical School'. When the 1892 edition appeared it was made the object of a vigorous attack by W. A. S. Hewins, who was in a few years to become the first Director of the London School of Economics. Hewins was shocked by Cunningham's indiscriminate praise for regulative measures. To call the Corn Bounty Act of 1689 'a masterly stroke of policy' which proved itself to be the corner-stone of English prosperity in the eighteenth century was, he thought, not so much excessive as wrong-headed. For Cunningham, he suggested, the pursuit of national power performed the same functions as prime mover in the seventeenth century as desire of wealth did in the nineteenth. He paraphrased Cunningham unkindly but not untruly in a pastiche which must have stung his victim: The mercantile system is concerned with man solely as a being who pursues national power, and who is capable of judging of the comparative efficacy of means to that end. It makes entire abstraction of every other human passion or motive, except those which may be regarded as perpetually antagonizing principles to the pursuit of national power viz., neglect of shipping and The University of Tübingen Source: Universitat Tübingen

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26 aversion to a fish diet. Cunningham's rejoinder was not very effective; but he stuck to his belief in the Corn Bounty Act and the fish diet. Already he was interested in projects for the reconstruction of commercial policy. The South African War and Chamberlain's Tariff Reform proposals swept him on to the public platform, as they swept Hewins himself into the Tariff Commission, as an advocate of imperial preference. The third edition of the Modern Times section of the History appeared in 1903 with a startling epilogue. Laissez-faire had been a manifest failure. How could a directed national policy repair the damage? The postscript was in reality a protectionist tract, tricked out with historical parallels. Bismarck's socialism from above, for in- stance, is seen to bear a curious resemblance to the work of the early Stuart Council. The tone of this polemic was modified in subsequent editions; but Cunningham's affection for the alleged mercantilist policy of Burleigh - who 'was wonderfully successful in reducing the waste which had come to be so generally current in the fifteenth century's - his belief that the essential policy of common or 'general interest' in the old Colonial System was right, even his suspicion that the genuine spirit of regulative control had been thwarted by the growth of democratic institutions during the period which he oddly described as the era of Parliamentary Colbertism - these convictions remained until the end. * * * The influence of this great teacher has been such that students of history have experienced no little difficulty in serving appreciation for whatever may be the merits of the restricted view. Sir William Ashley was more cautious than Cunningham, but he was under the spell of Historismus, with its love of stages and time sequences. Even the title of his most important historical work, An Introduction to English Economic History and Theory, displays a challenge. George Unwin, who took a different side in the South African War controversy, brought a mind of tougher fibre than Cunningham's to bear on the history of paternalist regulation, and found it wanting in sincerity and effectiveness. He emphasized 'the tendency to over-estimate the active part which wise forethought and the deliberate pursuit of clear ideas has played in the economic history of nations', at the same time admitting that positive interference measures had shaped the course of events in a very definite and sometimes disastrous fashion. 'It is an undoubted fact, says Voltaire somewhere, that spells and incantations are capable of destroying whole flocks of sheep, if a companied by sufficient quantities of arsenic.' This saying had always appeared to Unwin 'to afford a suggestive introduction to the study of the influence of ideas, of theory, upon economic development' We may approve or disapprove of his scepticism; we may hold that he even exaggerated the influence of thought upon policy; it can hardly be conceded that he gave sharper definition to the idea of the mercantile state. * * * When did mercantilism flourish? Most, though not all, of our authorities allow it an exclusively post-medieval career. It is commonly believed that it passed through several stages, among which 'bullionism' sometimes appears as a sort of curtain-raiser to the 'general-balance' act. Arnold Toynbee (op. cit., p. 56) taught that the mercantile system came to an end at the point in time at which Adam Smith seems to have made it begin. Luigi Cossa, a representative stratifier, distinguished three phases; (a) specie regulation and exchange control; (b) originating 'in the last

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27 centuries of the Middle Ages', a 'balance-of-bargains' calculus; (c) the era of the balance-of-trade proper (Introd. to the Study of Pol. Economy (Engl. transl., 1893), Historical Part, Chap. 4. Sir William Holdsworth (Hist. of Engl. Law, XI, p. 380) restricts the period to the eighteenth century. The notions of the Whigs, triumphing over the commercial liberalism of the Tory peace of Utrecht, 'gave rise to the economic system which is generally known as the mercantile system'. The latest work of neo-Marxist interpretation published by I. S. Plotkinov treats mercantilism as 'the ideology of the monopoly trading companies'. Beginning in the age of colonial expansion, it used state power for the protection of trade, controlling trade in the interest of the state. The plunder of colonies served as the main source of primary accumulation of capital. In the next stage of economic development 'the rise of industrial capitalism destroyed mercantilism', according to Mr Christopher Hill in his summary of Plotkinov's views (Economic History Review, May 1938, p. 167). The plea I wish to advance is that we should now consider ourselves absolved from the necessity of having to reconcile the conclusions derived from detailed researches into the antecedents and effects of edicts, statutes, and municipal by-laws, spread over the whole European and colonial field within a period of more than three centuries, with the canons of an imaginary system conceived by economists for purposes of theoretical exposition and mishandled by historians in the ser- vice of their political ideals. If I have interpreted aright the doctrinal syntheses to which numberless historians have tried to accommodate themselves, it is clear that many of the rationalized ambitions and fears and jealousies which are their subject matter have been active throughout the world, as perhaps never before, since the economic crisis of 1931. * * * In the history of nations the brief episode of economic individualism, reflecting, as Continental observers have never tired of reminding us, the special conditions and requirements of this country, may prove to have been a unique experience. The word neo-mercantilism is already appearing with ominous frequency in serious discussions. Are we threatened with a further extension of the old aspects and stages?

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29 The evidence which Heckscher presents that the mercantilists considered power as an end in itself, and as an important end, and that they considered wealth to be a means of power need not be examined here, since there is no ground for disputing these propositions and, as far as I know, no one has ever disputed them. That the mercantilists overemphasized these propositions I would also not question. Nor will I enter here into extended discussion of the rationality of these concepts beyond stating a few points. In the seventeenth and eighteenth centuries colonial and other overseas markets, the fisheries, the carrying trade, the slave trade, and open trade routes over the high seas were all regarded, and rightly, as important sources of national wealth, but were available, or at least assuredly avail- able, only to countries with the ability to acquire or retain them by means of the possession and readiness to use military strength. In the seventeenth and eighteenth centuries also, 'power' meant not only power to conquer and attack, and the prestige and influence which its possession gave, but also power to maintain national security against external attack. 'Power as an end in itself' must therefore be interpreted to include considerations of national security against external aggression on the nation's territory and its political and religious freedom. Given the nature of human nature, recognition of power as an end in itself was therefore then neither peculiar nor obviously irrational unless there is rational ground for holding that the promotion of economic welfare is the sole sensible objective of national policy to which every other consideration must be completely subordinated. * * * Despite his wide knowledge of the mercantilist literature, Heckscher fails to cite a single passage in which it is asserted that power is or should be the sole end of national policy, or that wealth matters only as it serves power. I doubt whether any such passage can be cited or that anyone ever held such views. The nearest thing to such statements which Heckscher does cite are statements maintaining that wealth is a means of power and is important as such, unaccompanied by express acknowledgement that wealth is also important for its own sake. In almost every case he cites it is possible to cite from the same writer passages which show that wealth was regarded as valuable also for its own sake. * * * Of all the mercantilists Colbert is the most vulnerable, since he carried all the major errors of economic analysis of which they were guilty to their most absurd extremes both in verbal exposition and in practical execution, and since, either as expressing his own sentiments or catering to those of his. master, Louis XIV, he developed more elaborately than any other author the serviceability to power of economic warfare, the possibilities of using military power to achieve immediate economic ends, and the possibilities of substituting economic warfare for military warfare to attain national ends. Even in his case, however, it is not possible to demonstrate that he ever rejected or regarded as unimportant the desirability for its own sake of a prosperous French people or the desirability of guiding French foreign policy, military and economic, so as to augment this prosperity. In many of his official papers he is obviously catering to Louis XIV's obsession with power and prestige, or perhaps to a conventional fashion of pretending that a great monarch would be so obsessed, so that there is no reason to reject as unrepresentative of his genuinely held views such passages as the following:

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30 ‘comme toutes les alliances entre les grands rois ont toujours deux fins principales, l'une leur gloire particulière et quelquefois la jonction de leurs intérests, soit pour conserver soit pour acquérir . . . et l'autre les avantages de leurs sujets, ... Et quoyque dans l'ordre de le division, celuy de l'avant- age de leurs sujets soit le dernier, il est néanmoins toujours le premier dans les esprits de bons princes .. Les avantages de leurs sujets consistent à les maintenir en repos au dedans et à leur procurer par le moyen du commerce, soit plus de facilités de vivre aux nécessiteux, soit plus d'abondance aux riches.’ Certain peculiar features of mercantilist economic analysis - features incidentally which modern apologists for mercantilist economics, such as Lipson, seem strangely to avoid discussing do seem to imply a disregard on the part of mercantilists for economic welfare. What was apparently a phase of scholastic economics, that what is one man's gain is necessarily another man's loss, was taken over by the mercantilists and applied to countries as a whole. They incorporated this with their tendency to identify wealth with money, and with their doctrine that, as far as money was concerned, what mattered was not the absolute quantity but the relative quantity as compared with other countries. Since the quantity of money in the world could be taken as constant, the quantity of wealth in the world was also a constant, and a country could gain only at the expense of other countries. By sheer analogy with the logic of military power, which is in truth a relative matter, and with the aid of the assumption of a close relationship between 'balance of power' and 'balance of trade,' which, however, they failed intelligently to analyse, the mercantilists were easily led to the conclusion that wealth, like power, also was only a relative matter, a matter of proportions between countries, so that a loss inflicted on a rival country was as good as an absolute gain for one's own country. At least one mercantilist carried this doctrine to its logical conclusion that plague, war, famine, harvest failure, in a neighbouring country was of economic advantage to your own country. Colbert Presenng the Members of the Royal Academy of Sciences to Louis XIV in 1667 by Henri Testelin (1616-1695) Source: Palace of Versaille via the Web Gallery of Art

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31 On such doctrine, Adam Smith's trenchant comment is deserved, although he exaggerates its role in mercantilist thought and practice: By such maxims as these, however, nations have been taught that their interest consisted in beggaring all their neighbours. Each nation has been made to look with an invidious eye upon the prosperity of all the nations with which it trades, and to consider their gain as its own loss. Commerce, which ought naturally to be, among nations, as among individuals, a bond of union and friendship, has become the most fertile source of discord and animosity. The capricious ambition of kings and ministers has not, during the present and the preceding century, been more fatal to the repose of Europe, than the impertinent jealousy of merchants and manufacturers. The violence and injustice of the rulers of mankind is an ancient evil, for which, I am afraid, the nature of human affairs can scarce admit of a remedy. But the mean rapacity, the monopolizing spirit of merchants and manufacturers, who neither are, nor ought to be, the rulers of mankind, though it cannot perhaps be corrected, may very easily be prevented from disturbing the tranquillity of anybody but themselves. * * * What, then, is the correct interpretation of mercantilist doc- trine and practice with respect to the roles of power and plenty as ends of national policy? I believe that practically all mercantilists, whatever the period, country, or status of the particular individual, would have subscribed to all of the following propositions: (1) wealth is an absolutely essential means to power, whether for security or for aggression; (2) power is essential or valuable as a means to the acquisition or retention of wealth; (3) wealth and power are each proper ultimate ends of national policy; (4) there is long-run harmony between these ends, although in particular circumstances it may be necessary for a time to make economic sacrifices in the interest of military security and therefore also of long-run prosperity. * * * That plenty and power were universally regarded as each valuable for its own sake there is overwhelming evidence, in the contemporary writings of all kinds, and what follows is more or less a random sampling of the available evidence. In the text accompanying and interpreting the Frontispiece of Michael Drayton's poem, Polyolbion, 1622, there is the following passage: Through a Triumphant Arch see Albion plac'd, In Happy site, in Neptune's arms embrac’d, In Power and Plenty, on her Cleevy Throne In Barbier d'Aucour's Au Roy sur le Commerce, Ode, 1665, an early French equivalent of Rule Britannia, appear the following lines: Vos vaisseaux fendant tous les airs, Et cinglant sur toutes les Mers, Y porteront vostre puissance;

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32 Et ce Commerce plein d'honneur, Fera naistre dans vostre France, Un flus et reflus de bon-heur. Montchrétien opens his book with this passage: 'Ceux qui sont appellez au gouvernement des Estats doyvent en avoir la gloire, l'augmentation et l'enrichissement pour leur principal but." Another Frenchman, writing in 1650 says: Deux choses sont principalement necessaires pour rendre un Estat florissant; c'est assavoir le Gouvernement, & le Commerce; & comme sans celuy-là il est impossible qu'il puisse longtemps subsister; de mesme sans celuy-cy on le voit manquer de mille sortes de choses importantes à la vie, & il est impossible que les peuples acquierent de grandes richesses. John Graunt, in 1662, states that 'the art of governing, and the true politiques, is how to preserve the subject in peace, and plenty'. An anonymous English writer, in 1677, declares that: "The four main interests of a nation are, religion, reputation, peace, and trade. . .’ William III, in his declaration of war against France in 1689, gives as one of the reasons that Louis XIV's 'forbidding the importation of a great part of the product and manufactures of our Kingdom, and imposing exorbitant customs upon the rest, are sufficient evidence of his design to destroy the trade on which the wealth and safety of this nation so much depends'. In the preamble of 3 and 4 Anne, cap. 10, are the following words: "The Royal Navy, and the navigation of England, wherein, under God, the wealth, safety, and strength of this Kingdom is so much concerned, depends on the due supply of stores for the same.' An English pamphlet of 1716 on the relations with Russia, after describing the Tsar as 'a great and enterprising spirit, and of a genius thoroughly politic' attributes to him and his people ‘an insati- able desire of opulency, and a boundless thirst for dominion'. William Wood, a noted mercantilist writer, refers to the English as a people . . . who seek no other advantages than such only as may enlarge and secure that, whereby their strength, power, riches and reputation, equally encrease and are preserved...'" Bernard Mandeville discusses how 'politicians can make a people potent, renown'd and flourishing'." An anonymous English writer states in 1771 that: 'Nature, reason and obser- vation all plainly point out to us our true object of national policy, which is commerce; the inexhaustible source of wealth and power to a people.' In an undated memoir of Maurepas to Louis XVI, on the commerce of France, occur the following passages: 'Le commerce est la source de la félicité, de la force et de la richesse d'un état . . . La richesse et la puissance sont les vrais intérêts d'une nation, et il n'y a que le commerce qui puisse procurer l'une et l'autre.' Such evidence as the foregoing that in the age of mercantilism wealth and power were both sought for their own sakes could easily be multiplied many fold. In English literature of the period of all kinds, from poetry to official documents, the phrases 'power and plenty', 'wealth and strength', 'profit and power', 'profit and security', 'peace and plenty', or their equivalents, recur as a constant refrain. Nor is there any obvious reason, given the economic and political conditions and views of the seventeenth and eighteenth centuries, why power and plenty should not have been the joint objectives of the patriotic citizen of the time, even if he had freed himself from the mercantilist philosophy. Adam Smith, though not a mercantilist, was speaking for mercantilists as well as for

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33 himself when he said that 'the great object of the political economy of every country, is to increase the riches and power of that country'. * * * Statesmen frequently found it necessary to warn against endangering political ends by unwise pursuit of temporary or petty commercial gains in response to pressure from business interests. This was especially true in connection with the relations between England and France during the Seven Years' War, which to many contemporaries seemed to be conducted with too much attention to economic considerations of minor importance. Just before the outbreak of the conflict, when it was still being debated whether the issue between the two countries should be settled by economic or military means, Lord Granville was reported as 'absolutely against meddling with trade he called it, vexing your neighbours for a little muck'. And in the face of the struggle itself, Mirepoix, the French Ambassador to England, is said to have commented 'that it was a great pity to cut off so many heads for the sake of a few hats'. In the course of controversy over the Newfoundland fisheries after the ending of hostilities, in 1763, Choiseul appealed to Halifax: 'mais pour l'amour de Dieu, ne laissons pas des querrelles de pêcheurs dégénérer en querelles de nations'. * * * The Four Days Bale between English and Dutch eets in the Second-Anglo Dutch War by Abraham Storck (1644-1708) Source: The Royal Museums, Greenwich

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34 It was the common belief in France, however, that commercial objectives and particular commercial interests played a much greater role in the formulation and administration of British than of French foreign policy, and some Englishmen would have agreed. There was universal agreement, also, that in 'Holland' (i.e. the 'United Provinces'), where the merchants to a large extent shared directly in government, major political considerations, including the very safety of the country or its success in wars in which it was actually participating, had repeatedly to give way to the cupidity of the merchants and their reluctance to contribute adequately to military finance. * * * Allies or potential allies of England sometimes were troubled by England's supposed obsession with commercial objectives as making her an unreliable ally where other interests were involved. The history of British policy and practice with respect to enemy and trade with the enemy during war provides abundant and occasionally startling evidence that considerations of plenty did not always automatically give way to considerations of power. There is much in British history, as in the history of Holland, of France, and of Spain, to support the statement of Carl Brinkmann that: "The history of war trade and trade war is a rich mine of interest to the economic and social historian just for the peculiar ways in which the autonomy of business connections and traditions is seen cutting across even the sternest decrees and tendencies of political ultima ratio.' That in Holland commercial interests predominated was taken for granted in both France and England when foreign policy was formulated. Thurloe commented, in 1656, that all proposals of alliances of common and mutual defence, wherein provision was to be made for the good of the Protestant religion' failed 'in respect the United Provinces always found it necessary for them to mingle therewith the consideration of trade... The Hollanders had rather His Highness [Oliver Cromwell] be alone in it than that they should lose a tun of sack or a frail of raisins." A French naval officer, writing to Colbert with reference to the failure of the Dutch to provide the fleet which they had promised for the Levant, said that he was not at all surprised: 'les Hollandais n'agissent en cette occasion que par leur propre intérêt; et comme ils ont peu ou point de bâtiments en Levant, et qu'en leur pays ils ne regardent qu'au compte des marchands, ils n'ont garde d'envoyer et de faire la dépense d'une escadre de ce côté-là.’ In the summary given in Cobbett's Parliamentary History of the principal arguments made in Parliament in favour of moderating the peace settlement to be made with France to end the Seven Years' War, a contrast was made as to the policy proper for England and that for a country like Holland. The economic value of the British conquests of French colonies in America was great. Nevertheless it was to be remembered: ... that the value of our conquests thereby ought not to be estimated by the present produce, but by their probable increase. Neither ought the value of any country to be solely tried on its commercial advantages; that extent of territory and a number of subjects, are matters of as much consideration to a state attentive to the sources of real grandeur, as the mere advantages of traffic; that such ideas are rather suitable to a limited and petty commonwealth, like Holland, than to a great, powerful, and warlike nation. That on these principles, having made very large demands in North America, it was necessary to relax in other parts.

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35 * * * Frenchmen in the period occasionally professed readiness to yield to Britain predominance in maritime trade if Britain would give France a free hand on the Continent, but it would be a mistake to conclude that this reflected a readiness to concentrate on political objectives alone. Even on the Continent there were economic prizes to be won, though less glittering ones than those naval power could win overseas. Historians, moreover, may have been too ready to find sharp differences in kind between the role of economic considerations in the making of foreign policy in England and France, respectively, in the age of mercantilism. The differences, though probably substantial, seem in the matters here relevant to have been differences in degree rather than in kind. In particular, the extent of the influence which commercial interests in France could in one way or another exercise on policy has been seriously underestimated by many historians, and both in theory and in practice absolutist government was not as absolute in power nor as non-commercial in motivation as the school text- books have taught us. French records have been misleading in this regard because the older generation of historians were not interested in economic issues and tended to leave out of their compilations of documents matter of a markedly economic character, and French historians seem for some time to have been moving towards a reconsideration of the role of economic factors in the formulation of foreign policy under the Ancien Régime. * * * Karl Marx studied the British diplomacy of this period, even making use of the unpublished records in the British Foreign Office, and discussed the role played by commercial objectives in British foreign policy. The ruling oligarchy needed political allies at home, and found them in some section or other of the haute bourgeoisie. As to their foreign policy, they wanted to give it the appearance at least of being altogether regulated by the mercantile interest, an appearance the more easily to be produced, as the exclusive interest of one or the other small fraction of that class would, of course, be always identified with this or that Ministerial measure. The interested fraction then raised the commerce and navigation cry, which the nation stupidly re-echoed. Eighteenth-century practice thus 'developed on the Cabinet, at least, the onus of inventing mercantile pretexts, however futile, for their measures of foreign policy'. Writing in the 1850s, Marx found that procedure had changed. Palmerston did not bother to find commercial pretexts for his foreign policy measures. In our own epoch, British ministers have thrown this burden on foreign nations, leaving to the French, the Ger- mans, etc., the irksome task of discovering the secret and hidden mercantile springs of their actions. Lord Palmerston, for instance, takes a step apparently the most damaging to the material interests of Great Britain. Up starts a State philosopher, on the other side of the Atlantic, or of the Channel, or in the heart of Germany, who puts his head to the rack to dig out the mysteries of the mercantile Machiavelism of 'perfide Albion', of which Palmerston is supposed the unscrupulous and unflinching executor. Marx, in rejecting the economic explanation of British friend- ship for Russia, fell back upon an explanation of both a sentimental pro-Russianism in high circles in Britain and an unjustified fear

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38 Adam Smith saw political economy as having two distinct objects: to provide revenue or subsistence for the people or to enable them to provide these for themselves; and to supply the state with revenue for the public services. There were two different systems by which these ends were achieved: the commercial or mercantile system and the system of agriculture. The former was 'the modern system'. He spent the whole of Book IV of the Wealth of Nations constructing it, examining it, and denouncing it. In reality, the 'system' was the reverse of systematic: a jumble of devices, assembled over the course of a century or more to meet the demands of state finance, sectional interests and power politics. But there was enough theoretical similarity in its constituent parts for Smith, superb systematizer that he was, to be able to present it as a systematic absurdity. But Smith's presentation of the mercantile system was limited in scope. It assumed, he said, that wealth consisted in gold and silver; and that, for a country not possessing gold and silver mines, the favourable balance of trade was the only way of securing this wealth. Therefore it became the object of political economy to discourage imports and encourage exports. And this was done by the following means: two sorts of restraints upon imports - high duties and prohibitions; and four sorts of encouragement for exports - bounties, drawbacks, treaties, and colonies. Smith saw the system thus defined as prevailing from the end of the seventeenth century, presumably supposing that economic life was previously unencumbered by it, for he admitted that he thought it improbable that 'freedom of trade should ever be entirely restored in Great Britain' (my italics). Though exempting from his condemnation the Navigation Act of Charles II, on the grounds of political expediency, he damned this apparatus of government action comprehensively and vigorously. He damned it in order to construct, on the wreckage of its absurdities, his own theoretical structure of economic laissez-faire. Though he wrote the following words in particular relation to English colonial rule, they summarize adequately his particular blend of economic and moral fervour: To prohibit a great people . . . from making all that they can of every part of their own produce or from employing their stock and industry in the way that they judge most advantageous to themselves is a manifest violation of the most sacred rights of mankind. Prole of Adam Smith (1723-1790) The original depicon of Smith was created in 1787 by James Tassie (1735-1799) Source: Harvard University

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39 The Wealth of Nations preached doctrines allegedly of universal validity and in practice peculiarly apt for the expanding, industrializing Britain of the time. It became the Bible of a new politico-economic era. For nearly a century after its publication little was heard in Britain of the outdated 'mercantile system', save for occasional shouts by some of the popularizers of classical economics, deriding the evident fatuity of its supposed principles. In the later decades of the nineteenth century, how- ever, it reappeared on the stage, refurbished by the opponents of laissez-faire, and inflated by them into a gigantic theoretical balloon. Its reappearance was a reflection of the changing economic relationships of the time; the rising power and wealth of Germany was being developed with substantial government protection; and the challenge to British economic supremacy, both from Europe and from across the Atlantic, brought a challenge to the creed of laissez-faire - a notion taken over from a Frenchman, developed by a Scotsman, and put into practice by the English. Although there were writers outside the German historical school who had earlier questioned the classical economists' denigration of the economics of an earlier era, Gustav Schmoller in Germany and William Cunningham in England may be taken as the outstanding actors in the revival of the idea of 'the mercantile system'. Archdeacon Cunningham's Growth of English Industry and Commerce was first published in 1882. Cunningham had studied in Germany and, like certain other English historians and economists of the time, had come under the influence of German thought, which had remained unenthusiastic about the merits of Smithianism. To the volume of his work, which covered the period from the sixteenth to the eighteenth centuries, in the 1892 edition, Cunningham gave the title, "The Mercantile System'. This he came to describe, in the 1903 edition, as 'a national system of economic policy'.1 The pursuit of power was his Leitmotiv; and the apparatus of government economic action developed from Tudor to Hanoverian England was the way in which power was secured. "The rationale of the whole,' he wrote, 'was the deliberate pursuit of national power; the means of attaining this end had been made the object of repeated experiment and now they were organized by statute.' He saw the flexibility of the Statute of Artificers as serving to maintain it as an effective system of 'industrial regulation' until the advent of machine production made it inapplicable. And the shifting, sectional conflicts of eighteenth-century English economic politics were dressed up as 'Parliamentary Colbert- ism'. Schmoller, concerned with the history of Brandenburg from the fifteenth to the seventeenth centuries, came to believe that 'the creation of the German territorial state was not merely a political but also an economic necessity'. And in this process of state-making, the mercantile system - now blown up into Merkantilismus - had a vital part to play. Indeed, mercantilism was state-making, shaped in the conflict between the growing state policy and that of the town, the district or the various estates. It was the making of 'real political economies as unified organisms' which was at stake. And those who won were the governments which succeeded in putting political power at the service of the economic interests of the nation and state. * * *

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40 Thus to Smith's relatively limited concept of commercial policy were added the new ingredients of national power and state-building. The notion of mercantilism was being expanded. With the growing vigour of national rivalries in the twentieth century and the abandonment, largely under economic and social pressures, of laissez-faire policies, it was not long before a mirror was held up to the past and the increasingly important part played by governments in economic and social matters labelled as 'neo-mercantilistic'. Sundry books and learned articles examined and developed the ideas and policies of the 'mercantilists'. As a textbook label for three centuries of European, or at least English, history, 'the age of Mercantilism' proved tenacious: thus did E. Lipson label the second and third volumes of his Economic History of England when they were published in 1931, treating mercantilism here as 'the pursuit of economic power in the sense of economic self-sufficiency'.2 The broad synthesis of the whole notion was evidently due, and it came in the form of Heckscher's great work. Heckscher treated mercantilism under five main heads: as a system of unification (covering attempts to unify tolls, weights, and measures, and the like; various other elements in the transference of municipal to national policies; industrial regulation; the establishment of national trading companies and other business organizations); as a system of power; as a system of protection; as a monetary system; and as a conception of society. The approach was at once sceptical and humane. Mercantilism's continuity with medieval ideas was stressed; its alleged achievements analysed and found wanting; its theoretical content compared unfavourably with laissez-faire; and its moral attitude towards humanity castigated. In this process the notion became still bigger. This was the apogee of the idea of mercantilism. * * * The questioning came predominantly from the historians rather than from the economists. The theorists or those whose interest lay in the history of economic thought beamed upon this superbly systematic presentation of the idea of mercantilism. Though Viner raised an important objection to Heckscher's treatment of mercantilism as a system of power, for the most part criticism from economists was confined to comment on certain limitations in the scope of the book, and these were over-shadowed by the very justifiable praise for the scholarship, erudition, and skill of the work. But if the idea of mercantilism thus remained intact for the economists it was given a nasty jolt by the historians, though they, too, expressed admiration for the obvious qualities of Heckscher's work. Marc Bloch cast a doubtful eye upon Heckscher's indiscriminate use alike of economic tracts and of legislative enactments; and on more than one count reproached him for failing to pay adequate heed to historical context, or to 'les grands phénomènes de masse de l'économie et l'influence exercée par les intérêts et les passions des groupes humains'. Professor T. H. Marshall wrote of Heckscher's inability to 'establish a complete synthesis between the three elements, the situation, the ideas and the action, and demonstrate in this synthesis the presence of the unique character which he claims for his subject'. Did mercantilism have historical significance? 'In spite... of his enormously illuminating analysis, Professor Heckscher has not established beyond dispute the validity and utility of the term which is the title of his work." By his very expansion of the notion of mercantilism Heckscher was thus helping to create doubt as to its very existence.

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41 * * * A question which readily comes to mind when examining the idea of mercantilism is simply: Is this about economic thought in the past or is it about economic policy? The curiously hybrid parentage of the notion provides an important source of this confusion. It was, as Judges put it, 'conceived by economists for purposes of theoretical exposition and mishandled by historians in the service of their political ideals'. One might add, moreover, that it was first mishandled by historians who were primarily political historians and then developed by an economist-cum-economic historian whose economic ideals had much in common with those of Adam Smith himself. This is one reason, perhaps, not only for the seeming unreality of the idea to the economic historian of today but also for its meaninglessness or irrelevance to the political historian. So the notion of mercantilism, as developed, is yet another of the wedges helping to keep open the gap between political and economic history. * * * Cunningham's emphasis fell upon the pre-eminence of politics; he believed in protectionism in his own time and in the merits of political action in other times: 'our national policy is not the direct outcome of our economic conditions . . . politics are more important than economics in English history'. Schmoller's political orientation was even more striking. So engrossed was he with the idea of political achievement that he believed that the conception of national economic life, of national agriculture, industry, shipping, fisheries, of national currency and banking systems, of national division of labour and trade must have arisen before 'the need was felt of transforming old municipal and territorial institutions into national and state ones'. To English history, this is largely irrelevant. Whatever its relevance elsewhere, it was in truth all part of the distasteful business by which history is pressed into the service of aggressive nationalism. His words in the 1880s found a sinister echo in the 1930s: The ideals of Mercantilism . . . meant, practically, nothing but the energetic struggle for the creation of a sound state and a sound national economy... they meant the belief of Germany in its own future, the shaking off of a commercial dependence on foreigners which was continually becoming more oppressive, and the education of the country in the direction of economic autarky. Heckscher's approach resuscitated the Smithian ideas, though without Smith's concession to political realities, but also took over Cunningham's insistence on the secondary importance of economic conditions and Schmoller's interest in state-building. Consequently, mercantilism in Heckscher's hands is not, as he claims, a phase in the history of economic policy’ but is rather an explanatory term for the phase in economic thought which was roughly coincident with the early growth of state power in Europe. The price paid for the extension in range of the term and for the brilliant explanatory synthesis achieved was the severe damage done to its relationship with historical reality. One of the bases of this divorce between ideas and reality was Heckscher's use of sources. Though he spoke of policy, in fact as already noted, he pressed into service all forms of economic pronouncement: statutes, edicts, pamphlets, tracts for the times. All sources thus become equal.

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42 And this leads to the key assumption of Heckscher's whole approach - the insistence that economic policy is not to be seen as 'the outcome and result of the actual economic situation',4 but that what matters is the power and continuity of economic ideas. This is not simply a viewpoint set out in the course of introductory remarks; it is reiterated insistently, hammered home in regard to all aspects of the subject. It will suffice to quote a few examples: if economic realities sometimes made themselves felt, this did not divert the general tendency of economic policy. (I, 268) As used in this book [protectionism] does not refer to the presence or absence of governmental measures as such. . . . Protectionism is taken to be the outcome of a definite attitude towards goods. . . . (II, 58) ... Our concern here is not with economic realities but with the world of economic ideas. (II, 151) We need no longer suppose that some peculiar state of affairs existed, corresponding to the mercantilists' theoretical outlook. (II, 199) Liberal Party Poster of 1906. Featuring then Conservave Party Leader, Joseph Chamberlain (1836-1914) Source: The Library of the LSE

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43 This attitude secures its most extreme expression in the new chapter on 'Keynes and Mercantilism': There are no grounds whatsoever for supposing that the mercantilist writers constructed their system - with its frequent and marked theoretical orientation - out of any knowledge of reality however derived. (II, 347) In practice, it was impossible for Heckscher consistently to maintain this position. Sporadically, he makes concessions to that real world in which meditation upon the complexity of economic forces is sometimes distressingly absent or often pursued in an atmosphere polluted by the baneful winds of interest and expediency. The result is a curiously capricious appeal to reality. Governmental need for revenue is the practical problem to which Heckscher is most willing to make concessions. It is hardly possible to avoid it. But Heckscher's approach means that his treatment of financial policy sits most awkwardly within the general framework which he constructed. Thus, as Heaton pointed out, he goes through forty-two pages of description and discussion of French gild monopolies before admitting that financial needs were of paramount importance. Though Colbert's efforts to create national trading companies in France may perhaps be made to fit into mercantilism under 'unification', the formation of similar English companies in the late sixteenth century fits very oddly into that category; and the rider that in fact these companies 'served as milch cows to the government in its perpetual financial straits', whatever its degree of truth, hardly makes their situation in Heckscher's work more convincing. And the treatment of English protectionism from the late seventeenth century onwards largely in terms of theoretical ideas and without significant reference to war finance and Anglo-French politico-economic relations further emphasizes the fact that this is really a work about economic thought and not about policy. * * * Having correlated the rise of a money economy with protectionism and dated it from thirteenth-century Italy, extending to France and England in the fifteenth century, when he comes to deal with monetary questions he asserts that it was the sixteenth and seventeenth centuries which formed, 'at least in many countries ... the period of transition from a predominantly natural to a predominantly money economy and at the same time from an insignificant to an extremely abundant silver production'. It is perhaps scarcely surprising that he was later moved to observe that 'the transition to a money economy never occurs at once and can hardly be assigned to any definite period whatsoever'. He demonstrated instead that the 'mercantilists' wanted bullion for a set of theoretical reasons, the exposition of which by contemporary writers was substantially later than the supposed transition from natural to money economy and the influx of precious metals from the West. And so, again, 'the circum- stances of the time were not decisive'. If the continued concern with natural economy makes the new edition of Mercantilism seem rather old-fashioned, so also does its invocation of 'medieval universalism'. The latter still has a tight hold on history, but its grip is slowly being loos- ened. To Heckscher, however, it was real enough: the medieval combination of universalism and particularism. ... (I, 22) the fundamental unity of medieval culture. . . . (I, 327) those universalist factors such as the Church and the empire which had fashioned medieval society. . . . (II, 13)

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44 the Middle Ages with their universal static ideal. . . . (II, 26) As for the general conception of society, a sharp division obtains between the Middle Ages and the following period. (II, 271) * * * Heckscher emphasized the need to distinguish between economic conditions or economic reality and the attempts made by governments to influence or alter those conditions. This distinction is made briefly in Mercantilism and more clearly in the Sveriges ekonomiska historia, where he further stresses the dangers of using information about policy as a means of getting to know about economic reality. Acts of economic policy are statements of intention and not descriptions of reality. They will be a reflection of what is not to be found in the economy rather than what is. This is important and salutary advice when considering the development or structure of a country's economy, but it does leave policy as an entity in itself, exogenous, a determinant rather than in any way determinate. Heckscher admitted that the policy and conditions were 'inextricably bound up', but his approach is most clearly stated thus: 'economic policy is determined not so much by the economic facts as by people's conception of those facts'. Now Heckscher had a low opinion of the economic perception of those who lived in the 'mercantilist' era. Consequently, because of his reluctance to concede that the ideas and policies of the time might owe something to contemporary awareness of economic reality, however crude or empirical, Heckscher did not bring out at all clearly certain fundamental distinctions both in ideas and in circumstances in the so-called 'mercantilist' period. He stressed the importance, for example, of the static conception of economic life, of economic resources and activity so evident at that time; he emphasized that this provided one reason for the many commercial wars; implicit in the 'tragedy of mercantilism' was the belief that what was one man's or country's gain was another's loss. Yet, vital as this is, as he himself says, to an understanding of the attitudes of the time, he nowhere asks why men should have believed it to be true. But is it in fact a surprising notion in the pre-industrialized economy? It was, after all, a world in which population remained remarkably static; in which trade and production usually grew only very gradually; in which the limits of the known world were expanded slowly and with great difficulty; in which economic horizons were narrowly limited; and in which man approximated more closely than today to Hobbes' vision of his natural state: for most men most of the time, life was 'poor, nasty, brutish, and short'. The pervasive conception of a prevailingly inelastic demand, not readily capable of expansion, changeable not so much by economic forces as by the dictates of authority, is not unreasonable in a political world of absolute monarchs and an economic world in which population and trade did not move rapidly and in which the purchasing power of the overwhelming majority of men and women remained very low and changed very little. Nor were informed contemporaries unaware of such matters. When Botero commented on static population, when Gustav Vasa or John Wheeler defended the merits of 'passive trade', or when Colbert observed that the trade and shipping of Europe could not be increased 'since the number of people in all the states remains the same and consumption likewise remains the same' - is it not reasonable to suppose that their conceptions of economic reality may have approximately coincided with the facts? Conversely, when Heckscher simply assumed that the demand for English cloth was necessarily elastic and chided the mercantilists for not being 'alive to the consequences of this

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45 elementary fact of everyday life' - does this suggest a necessarily appropriate conception of economic reality? These characteristics of the pre-industrialized economy, as well as others too numerous and complex to be considered here, were true not simply of the 'mercantilist' times but of earlier centuries. The continuity of ideas which Heckscher was eager to stress was paralleled by a continuity of basic conditions which he ignored. It is upon these substrata of economic life that are built the general conceptions of economic life which men hold. These conceptions are not necessarily the same as what is commonly distinguished as the 'economic thought' of the age. They are the latent assumptions of belief and action, counterparts in the economic sphere to those which underlie philosophy or religion or art. Contemporaries often did not bother to note them because they were too obvious to need noting. The historian has to dig for them. Sometimes, on the other hand, contemporaries did write down such things, and then the problem is to distinguish this from attempts at systematic, rational analysis of economic phenomena. Colbert was an administrator of genius, but he had the ordinary man's view of economic life. Is his vision of reality the same as that of Petty or North or Davenant? This was a distinction which Heckscher did not make. And it is an important one, for he viewed the economic thought and policy of an age in which no systematized body of economic analysis existed through the spectacles of an age in which it does. Consequently, apart from his unwilling- ness to take into account the special circumstances in which tracts were written or enactments made, he also failed to distinguish between: (a) limited descriptions of observed phenomena (e.g. descriptions by contemporaries of exchange movements); (b) accounts or explanations drawing upon the long-held, deeply embedded economic preconceptions of the day (e.g. notions embodying the static view of economic activity, or the labour theory of value); and (c) attempts at rationalized analysis or calculation (e.g. some of the work of the 'Political Arithmetic' writers). By his methods all were implicitly given the same weight and influence. Implicitly he identified a 'conception of economic reality' with the classical or neo-classical economists' conception. And he did not con- sider why they might be different. At the same time as certain basic characteristics of economic life remained the same during these centuries so also were forces of change gradually making themselves felt. Two main channels through which they made themselves felt were the great expansion of trade, to the East, to Africa, and, above all, to the New World; and the growth of industry in many nations of Europe. As the economic implications of these new developments gradually became apparent the old ideas of fixity and limited horizons became intolerable. In the course of the seventeenth century, for instance, imports from American sugar and tobacco plantations grew at rates unprecedented in the economic development of the era; by the end of the century imports of Indian textiles were creating severe problems for existing European textile industries. Is it unreasonable to suppose that such developments left a mark on thought and policy? Much of the policy of the later seventeenth century is an attempt to deal with the new developments in terms of old conceptions; the so-called 'Old Colonial System' is one example. And the anticipation of 'Free Trade' ideas in late seventeenth-century England was partly a product of Indian textile imports. But just as the old lingered with the new in economic circumstances, so it did in ideas. Faced with the decay of Dutch trade, the Amsterdam merchants, who in 1751 drew up proposals for its rejuvenation, still built on old and familiar conceptions: 'by these general amendments, we shall put ourselves in a condition to reduce the trade of Hamburgh, Bremen, Lübeck, Denmark, and other places; at least to prevent

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46 them doing us a further prejudice's (my italics). Though they put forward the idea of a free port, the idea of mutual benefit from general expansion was not present; one port's loss was another's gain. And this in the country 'less affected by mercantilist ideas'. Here, then, is another sort of distinction which Heckscher's treatment tends to obscure: the counterpoint of old and new conceptions. It developed particularly in the century from approximately 1650 to 1750, as the implications of European expansion made themselves felt. To compare the prolific 'mercantilist' writings of this period with their far fewer counterparts a century or more earlier can be dangerous if it leads one to believe that because men in the earlier period were not attempting formal analysis of economic life they did not know what was going on in the economic world. Colbert thought it 'in the natural order of things' that each nation should have its share of ships and commerce in proportion to its power, population, and sea-coasts. But the course of economic change was to show that this was an untenable concept, just as the birth of modern scientific ideas was to put an end to that other 'natural order' which was the inheritance of the natural philosophy of Aristotle. The converse of Heckscher's unwillingness to grant much weight to current economic conditions in the formulation of policy was his insistence upon the importance of economic ideas, and their continuity in informing the actions of policy. How realistic is this for 'mercantilist' Europe? * * * It would be absurd to suggest that the ideas which men held about economic life had no influence on policy. But they are only one element in policy formulation, and their relative importance varies from place to place and time to time. The great value of Heckscher's work lies in its broad and searching presentation of the nature and complexity of those ideas, in spite of the fact that it is less successful in fitting them into the historical context of practical policy. George Unwin's dictum on policy in action, although going too far in the opposite direction, offers a useful antidote: Policy, as actually found in history, is a set of devices into which a government drifts under the pressure of practical problems, and which gradually acquire the conscious uniformity of a type, and begin, at last, to defend themselves as such. * * * Sydics of the Drapers’ Guild, Amsterdam by Rembrandt van Rijn (1606-1669) Source: The Rijksmuseum, Amsterdam

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47 In the preface to the first edition, Heckscher voiced his disapproval of 'the method of treating all sorts of disconnected tendencies... under the name of "modern capitalism": he tended to put 'capitalism' in quotation marks; he spoke of it as a 'Protean conception'. However true these strictures may be, they are equally applicable to his own treatment of mercantilism, though in truth there is little meaning in any com- parison between 'mercantilism' and 'capitalism'. Capitalism has been written of and fought about in its own time, rightly or wrongly. It has come near to being a religion; Communism has come far nearer. But no man recognized and defended the cause of mercantilism during its supposed reign; no war was fought under its banner. Mercantilism was not a 'new religion'. So again we come back to asking what was this 'mercantilism'. Did it exist? As a description of a trend of economic thought, the term may well be useful, and worth retaining. As a label for economic policy, it is not simply misleading but actively confusing, a red-herring of historiography. It serves to give a false unity to disparate events, to conceal the close-up reality of particular times and particular circumstances, to blot out the vital intermixture of ideas and preconceptions, of interests and influences, political and economic, and of the personalities of men, which it is the historian's job to examine. * * * In real life, policy is carried out by governments and governments are composed of men who, whatever their preconceived ideas and whatever their ultimate aims, deal in particular contexts with particular problems. In Mercantilism, Heckscher shunned particular contexts and particular problems: he ignored the composition of governments; and with the significant exception of Colbert, most of those mentioned in his pages were concerned less with governing than with writing economic tracts or with trading.

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49 'In England,' Sir John Seeley once wrote, 'it is our custom to alter things but to leave their names unaltered.'1 Anyone who wished to test the truth of the dictum historiographically might examine the history of the word 'mercantilism'. It has borne many, sometimes oddly conflicting, meanings, but they have had at any rate one thing in common: they have all been in some degree unpalatable to those reared in the traditions of English liberal thought. It was as the conspiracy of a mercantile minority out to line its pockets at the expense of the rest of the community that the system was first depicted by the classical economists.2 The interpretation of the German school of historical economists a century later was certainly no less dis- tasteful to the liberal mind. To Bismarckian Germans it might appear seemly to condone the pursuit of aggression and covet its rewards. But even Chamberlainites - like W. A. S. Hewins - among English historians had their doubts, and to George Unwin state 'policy' was simply a sham - the supreme illustration of the evils of bigness. The economic actions of the political body were not even the early thrustings of a lusty infant, but the morbid twitchings of disease. And Unwin, who believed that historians should be concerned with the life of communities, not with the actions of states, found more sympathizers in his profession (one suspects) than Cunningham, who was nearer to the German tradition. Others, misliking what they took to be the moral and intellectual confusion of mercantilists and their works, agreed to deny any title of coherence to folly so diverse and deplorable.3 Thus the history of national policy was persuasively represented as a series of contests from which greed and stupidity emerged monotonously victorious. No period or society came out of the inquiry with fewer honours than that of Restoration England and the century that followed: the years when (according to Adam Smith) the principles of the mercantile system were devised and applied in legislative form. When the inquiring beam lighted and focused on the ruling classes it found them treating the wage-earners I am quoting from Professor Tawney's Religion and the Rise of Capitalism - in the same way as coloured labour was treated by the less reputable colonists, consigned to 'collective perdition'. This, Professor Tawney explained, was 'partly the result of the greatly increased influence on thought and public affairs acquired at the Restoration by the commercial classes, whose temper was a ruthless materialism, determined at all costs to conquer world markets from France and Holland and prepared to sacrifice every other consideration to their economic ambitions'.4 Professor Tawney's verdict was echoed by Mr Beloff when he came to write his study of Public Order and Popular Disturbance 1660-1714 in 1938. Again, ruthless mercantile ambition is linked in guilt with the destruction of the central machinery of welfare: the Privy Council. The Civil War brought social laissez-faire, and the Restoration failed to restore an independent social policy. 'Rarely indeed,' writes Mr Beloff, 'can 1 Sir J. Seeley, Science of Polics (1896), p. 298. 2 A. Smith, The Wealth of Naons, Book IV. 3 See A. V. Judges, "The Idea of a Mercanle State', Trans. Roy. Hist. Soc., 4th series, XXI (1939). 4 R. H. Tawney, op. cit. (London, 1926), p. 268.

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50 national wealth, as opposed to welfare, have predominated to such an extent as it did in the minds of the ruling class of the period.'5 The picture that has been created is that of a ruthlessly materialistic ruling class which did not merely neglect but actively exploited the poor. 'Mercantilists,' an authority on economic thought writes, "if they held any wage theory at all, believed in an economy of low wages.'6 For Miss Margaret James the social legislators of the Restoration 'aimed at nothing less than making the poor a source of profit to the state by forcing them to work for reduced wages'.7 The presence of a few nobly philanthropic exceptions to this general rule was not enough to soften the indictment. Firmin, the London mercer of Socinian leanings, who experimented in social reform or the Quaker, Bellers, whose Proposals for a College of Industry (1695) showed deep concern for social welfare, emerge as entirely exceptional figures, quite untypical of their age. How far is all this a just and representative account of the aims and attitudes of the governing classes of Britain in the years that followed the Restoration? There is no reason to question the belief that the wealth and power of the state represented the twin objectives of much of the thought and policy of the time, inseparably joined in the contemporary mind. It was deemed by most writers the function of government to intervene in the operation of the economy to secure economical ends that could, they thought, be secured in no other way, and the great majority of those who have made a study of 5 M. Belo, op. cit., p. 18. 6 E. Roll, A History of Economic Thought (London, 1939), p. 99. 7 M. James, Social Policy during the Puritan Revoluon (London, 1930), pp. 344-5. Illustraon of the component parts of the Restoraon Parliament of 1660 Source: Readings in English Social History. From Pre-Roman Days to AD 1887. ed RB Morgan, Cambridge University Press, London, 1923, p.392

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51 mercantilism would, I think, agree with Adam Smith that the apparatus of legislative intervention consisted of those 'two great engines', the manipulation of exports and imports according to certain principles which would nourish native manufactures. The motive principle of both 'engines' was the same: the balance of trade. The efficacy of the entire system was to be measured by the condition of the 'balance' Recent over-elaboration of the concept of mercantilism has/reawakened old scepticism, raising afresh the question whether it is not merely an arabesque woven by the imagination of historians upon the facts of history. It seems to me as dangerous to deny that certain principles informed both thought and policy in this period as it is to apostrophize those principles and exaggerate their effects. It is equally fallacious to suppose that thought and policy were distinct activities that can and should be treated separately. No body of economic literature was ever more closely related to interest and policy than the writings of the mercantilists. Much (though not all) of it represents the skirmishings of interested parties round the political lobbies; and of all the writers mentioned in this paper I can think of only two of whom it could be said that they did not in their own persons exercise some practical influence on economic policy or institutions. The mercantilist writers were neither scribblers nor idealists. They were not sophisticated or labyrinthine. Even their Utopias were earthy ones, and it was not accidental that they frequently spelt the word as Eutopia. meaning a place where all was well.8 They felt no call to dis- guise the material character of their aims. They have little. relevance to any times but those in which they lived. Unlike the Diggers, the Levellers, and the other social revolutionaries, they have not attracted the devotional attentions of those historians whose preoccupations are really political rather than historical. If they sin, it is not in being heartless or materialist, but in being a bit dull. In the early formulations of policy the virtue of a favourable balance was held, quite uncomplicatedly, to reside in the net influx of bullion, which was assumed to be its necessary consequence. This doctrine was still powerful in the period of which we are speaking. Indeed, Mun's classical statement of it, though written perhaps forty years earlier, was published for the first time in 1664. It was in the following year - the year of the Plague that there was sketched out the first draft of an economic tract which, in its various revisions, was to exercise a powerful influence on thought and policy, not only in Eng- land but in many European states also, especially in Italy, France, Germany, and Austria. This was Josiah Child's New Discourse of Trade as it became known in later editions. When it first appeared in print, in 1668, it was as a very short affair under the appropriate title of Brief Observations, and it dealt principally with problems of interest rates and usury. Attached to it by way of appendix was a note by Culpeper on the problem of usury which contained a section on the relief of the poor. Its general theme will be evident from this text: 'He that is weary of his life fears neither axe nor gibbet: and to prosecute such by the methods of Justice I will not say it is like the Excommunication of Rats but I am sure it resembles the Outlawing of Tories.' Child's work, which is not mentioned by Professor Tawney, went into five editions between 1668 and his death in 1699. As edition succeeded edition, two themes grew in importance: the relief and 8 Harold Child, 'Some English Utopias', Transacons of the Royal Society of Literature, III (1933).

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52 employment of the poor, and the relationship of employment to the national welfare as reflected in the balance of trade. From Culpeper's text, Child develops the theme that it is man's 'Duty to God and Nature to provide for and employ the poor, whose condition is sad and wretched, diseased, impotent, useless'. In the later editions this crystallizes into his famous proposal for an assembly of 'Fathers of the Poor', endowed with powers to buy land, build workhouses and hospitals, and to set the poor on work, with a special non obstante to overcome obstructive patents. Simultaneously, Child modified the existing conception of the balance of trade. Sharing the doubts of that considerable body of persons who despaired of ever measuring accurately the volume of imports and exports, Child came to the conclusion that the balance might be judged better by measuring the general volume of trade with reference to the 'number of hands' employed. The juxtaposition of ideas might well begin to look suspicious: on the one hand, proposals for organized charity; on the other, a theory that comes near to equating national prosperity with the effective value of its labour. Add that Child was a City merchant with a reputation for tough and none-too-scrupulous bargaining, who hated competition, Dutch or English, and did not conceal his contempt for the booby squires who muffed the nation's affairs at Westminster, and the liberal mind is prepared for the worst. What emerges, somewhat surprisingly, is an impeccable exposition of the virtues of high wages on the Dutch model. 'Wherever wages are high, universally through- out the whole world, it is an infallible evidence of the riches of that country; and wherever wages for labour run low it is proof of the poverty of that place.' That the views of Child and his followers did not by any means extinguish the older view of the trade balance or the hopes of those who believed it could be calculated is seen from the contemporary debates on the establishment of the Board of Trade and the Inspector-General of Customs, and from the title of Brewster's Fifth Essay of 1702: That the full employment of All Hands in the Nation is the Surest Way and Means to bring Bullion into the Kingdom - a theoretical umbrella under which all shades of opinion might happily sit. But Child's proposals proved to be a matrix of opinions and policy on both of his two main counts. Over the wisdom of providing workhouses and similar institutions, many took issue sharply with him. The great debate on the poor raged for over half a century, between those who believed in workhouses and those who did not; and under interrogation by the liberal historians, neither side could escape the fate of the witness who is asked whether he has stopped beating his wife. To believe in workhouses was to invite suspicions of exploitation; to disbelieve in them is to invite the charge of callous indifference to suffering. Consider, for example, Daniel Defoe, spokesman for what he himself called 'the Middle State or - the Upper Station of Low Life', the author of Giving Alms no Charity (1704) and the stoutest opponent of organized charity, often condemned as the arch exponent of selfish, middle-class prejudice. Defoe was too passionate, too inquisitive an observer of the human scene to be guilty of much consistent theorizing. Yet if he had a theory to solve the contemporary and social problem it was a theory of a large population and high wages. To this extent he followed Child: 'All the wealth of the nation and all the trade is produced by numbers of people,' he wrote. His observations of the habits of workmen might be thought to point to the dangers of conspicuous consumption by the poor: he describes how he saw workmen take their wages to the ale-house, 'lie there till Monday, spend it every penny and run in debt to boot and not give a farthing of it to their families, tho' all of

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53 them had wives and children'.9 Yet he did not draw the conclusion that the remedy lay either in lower wages or in poorhouses. Defoe wobbled on many things: on one he was rigidly consistent - that England's commercial prosperity depended on the quality of her export goods. To lower wages would reduce 'the value and goodness of the manufacture' and make them less competitive. 'If you expect the poor should work cheaper and not perform their work slighter and more overly (as we call it) and superficially, you expect what is not in the nature of the Thing - This therefore is beginning at the wrong end of trade. .'10 He objected to workhouses for the same reason: their subsidized inferior products would damage that reputation for quality on which English prosperity rested. Logically, he raised no objection to welfare schemes that provided for destitute women or half-wit children. It would, of course, be as false to suggest that everything that was said in the debate of the poor can be regarded as pointing to the Welfare State of the mid-twentieth century as it would to condemn the speakers for consigning the poor wilfully to universal pauperdom and Gin Lane. The 'hard tone' presaging the dismal science at its most arid, which even Cunningham detected in the opponents of charity in these years, is not wholly imaginary. 'When a man is perfectly content with the state he is in,' said Locke, 'what action, what industry, what will is there left but to continue in it?' One of Mandeville's works bore the title Content the Bane of Industry, while his Essay on Charity (1723) made a bitter attack on those tradesmen, like Firmin, who sponsored charitable institutions out of the hope of gain and that satisfaction 'which delights mean people in governing others'. It will be noticed, all the same, that it is not the merchant writers but the philosophers who speak in the sharpest tones. Here, as not uncommonly, it was logic - the logic of clerks who believed that they had discovered the spiritus movens of economic action in human egoism - that put the acid into contemporary social thought. When Pope celebrated the new principles of domestic policy and human conduct in the Essay on Man he learnt them not from his father, a devoutly Roman Catholic linen draper, but from Bolingbroke and Christchurch. Yet it would be as presumptuous to withhold from the poet and philosopher his claim to sincerity as it would be uncharitable to exonerate the merchant ex officio from the charge of compassion. While the spiritual fathers of laissez-faire were busily proving the mischief of supposing that anything should or could be done, the trades- men - Child the Grand Cham of the India Company, Firmin the London mercer, Cary the Bristol sugar merchant, Bellers the Quaker clothier, Nelson the heir to a Levant Company fortune - were pressing on with their schemes for institutions, and helping to foot the bill. And if some, like Mandeville, impugned their motives, there were others, like Davenant, who remarked contrariwise on the 'malignant temper in some who will not let a public work go on, if private persons are to be the gainers by it..."11 Not all private vices, it appeared, conferred public benefits. Historians have underestimated the gravity and oversimplified the complexity of the great debate of the poor. Faced by the difficulty of analysing the relation between states of mind and private interests, between thoughts and actions, they have too often been satisfied with what are fundamentally a priori conclusions. It is now apparent that between the Restoration and (say) the 9 Quoted in J. Sutherland, Defoe (1950), p. 130. 10 Defoe, Plan of the English Commerce (1728 edn.), p. 60. 11 C. Davenant, An Essay upon the Probable Methods of Making a People Gainers in the Balance of Trade. Collected Works, II, 214.

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54 end of the Seven Years' War England faced a chronic problem of poverty which affected severely somewhere between a quarter and a half of the whole population. It was not only the large number of real paupers but the high proportion of casual part-time workers in the nation's leading industry, clothmaking, that constituted the problem.12 Gregory King's Tables included a figure of over a million and a quarter for 'cottagers, paupers, vagrants, gypsies, thieves, beggars? out of a total of five and a half million in 1688. Population growth and industrial change had faced seventeenth-century England with a social problem that the Middle Ages had never known: an army of workers partly or wholly dependent on a great but unstable manufacturing export industry. One of the motives behind the mercantilist urge to diversify the nation's industries had been the consciousness that fluctuations in the demand for cloth might (as Mun put it) 'suddenly cause much poverty and dangerous uproars, specially by our poor people'. Politics and Nature had combined to endorse his warning. At home and abroad wars had continually disrupted markets, and it is at least arguable that at two points - 1652 and 1655 - the decision to fight the Dutch may have been influenced by the belief that the trade depression might thereby be relieved. Vigorous industries in Holland and France were now competing for Europe's shrunken cloth markets, and Colbert had placed the forces of the state in the balance. By the end of the century the structure of the industry was adjusting itself to the stresses of the times. The less competitive areas of the West Country were yielding ground to East Anglia, as both these areas were in the eighteenth century to yield to the Yorkshire industry. On an industrial pattern already distorted by human violence must be superimposed the effects of the disastrous harvests which supervened from time to time. 1649, for example, a year of regicide, mutiny, disorder, and upheaval, was also visited by an appalling harvest that drove up grain prices to famine heights and added to the grievous trade depression.13 On top of the French wars of the nineties came especially bad harvests in 1692, 1693, 1695, 1698, 1708, and 1709. The severity of the hardship created by these conjunctions of normal and exceptional stresses undoubtedly helped to deflect the course of economic thought. The very confusion of 1649 made it an annus mirabilis for the literature of social criticism and reform, much of it pivoting upon the problems of poverty. The only one to have achieved any kind of notoriety is Winstanley's Declaration from the Poor Oppressed People of England denouncing 'particular property'. For Winstanley, the rebel against reality, there was no question of compromise; to that extent he is less important in this inquiry than others less intransigent - Hartlib, Rice Bush, Chamberlen, or Goffe, for example. Theirs was not the pure milk of utopianism. They were, on the contrary, anxious to come to terms with social reality. Hartlib, the friend of Milton and many of the revolutionary leaders, educationally the disciple of Comenius, had already published in 1641 his Description of the Kingdom of Macaria, shewing its excellent government, wherein the Inhabitants 12 D. C. Coleman, 'Labour in the English Economy of the 17th Century', Economic History Review, 2nd series, VIII (1956). 13 For an account of the depression of 1649 see evidence of Thomas Violet given before Parliamentary Commiee of enquiry, State Papers Dom., 1650, p. 178, No. 61. The evidence of depression is discussed in C. Wilson, Prot and Power (1957), pp. 147-9. For the depression of the late seventeenth and early eighteenth centuries see Belo, op. cit., Ch. III, esp. pp. 56-8. For a general discussion of the intellectual ferment of 1649 see Gooch and Laski, English Democrac Ideas in the 17th Century (Cambridge, 1927), esp. Ch. VII.

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55 live in great Prosperity, Health and Happiness.14 This remarkable work, which followed in the footsteps (as Hartlib said) of More and Bacon and foreshadowed Mandeville and the Physiocrats, was followed in 1649 by London's Charitie stilling the Poor Orphan's Cry and in 1650 by London's Charity Inlarged. Here he outlines a scheme of Parliamentary provision of workhouses to employ poor people and educate poor children. This in turn reflected the influence of a pamphlet by Rice Bush called The Poor Man's Friend, which described the efforts of the 'many worthy citizens of London' to provide for the poor and was dedicated to a group of 'eleven gentlemen' (including Hartlib) who were said to have been active in this work.15 Peter Chamberlen, the author of The Poor Man's Advocate, or England's Samaritan, which appeared in the same year, was, like Samuel Hartlib, of immigrant stock. Here again were proposals, mercantilist in character, for a general increase in wealth which would also provide for the poor and narrow the socially dangerous gap that divided them from the rest of society. It is more difficult to put a certain date to William Goffe's How to Advance the Trade of the Nation and employ the Poor, but internal evidence suggests that it appeared at about the same time as Chamberlen's work. Like Chamberlen, Goffe proposes measures by the state of a kind a Keynesian generation was to describe as 'priming the pump'. The principal object was to re-employ the poor, whose numbers he estimates at half a million. "The poor,' wrote Goffe, 'ought to 14 Harleian Miscellany (London, 1744), I, 567. I am much indebted to Dr Leon Fuz for allowing me to see the text of his doctoral thesis submied at the 15 See G. H. Turnbull, Hartlib, Drury and Comenius (Liverpool, 1947), pp. 65-6. The Union House of the Gressenhall Workhouse, Norfolk, United Kingdom Source: Wikimedia Commons

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56 be encouraged and mercifully dealt with and kindly used, until their slow hands be brought to ready working and ought at first to have the highest price the commodity will bear to themselves.'16 Most of the reformers were strongly influ- enced in this, as in so many other matters, by the example of the Dutch, whose provision for the poor offered an obvious model for others.17 The profusion of welfare economics of 1649 seems to me to form the basis of almost all later economic thought for more than a century. The recognition that the problems, of poverty, employment, and national welfare are all linked together was never subsequently lost sight of. It was to appear again when- ever bad times provoked men to brood on social remedies. 1659, a bad year, brought forth Cornelius Plockhoy's A Way Propounded to Make the Poor in This and Other Nations Happy.18 Between then and the crisis of the nineties writers like Child, Matthew Hale, Robert Harford, Firmin, Davenant, Yarranton, Locke, and others developed the theme.19 The debate was resumed at full length between 1692 and 1709 with the new editions of Child's Discourse. John Bellers published his Proposals for a College of Industry in 1695, and two years later his Epistle to Friends Concerning the Education of Children. There is a strong general resemblance between these and other writings of the nineties - Dudley North's Discourses (1691), Britannia Languens (1696), and John Cary's Essay (1696). Some might support and others oppose the idea of parish factories, as Defoe opposed Sir Humphrey Mackworth's Bill for those institutions in 1724, but one idea had come to be firmly established in the popular mind: the potential value of the labour represented by the nation's poor. Nor can the general approach to the problem be dismissed as merely cynical or self-interested. It had become too plain that poverty was the dominant social problem. Post-Restoration mercantilists were no longer so absorbedly preoccupied as their predecessors had been with state welfare measured in the narrow terms of the net amount of bullion gained or lost via the balance of trade. This traditional obsession was now blended with a concern for the social needs of the community, which had its roots in the ideas of 1649. The obstinate core of mercantilist thought can nevertheless be seen in the belief that some activities were beneficial and some harmful to the community and that it was the state's task to discern and separate the two.20 At this point I can imagine the critics moving to their second line of defence. 'We may' (they might well say) 'have omitted to count one or two heads, neglected one or two principles. But does this affect the argument? Does not the story remain one of neglect and harshness? Even granting that their motives were less blameworthy than has sometimes been supposed, did not deeds lag a long way behind intentions?' Certainly there is no lack of evidence to substantiate the gloomiest view of society in the hundred years under review. The originals of Tom Nero, Mother Needham, Tom Idle, and the rest may all be discovered in the fearful annals of St Giles, Shoreditch, Drury Lane, and 16 Harleian Miscellany, IV, 366-70. Quoted by T. E. Gregory in "The Economics of Employment in England, 1660-1713', Economica, I (1921-2). The pamphlet is, as stated above, of an earlier date than the Restoraon. 17 See, for example, The Dutch Drawn to the Life (1664), Ch. IV, esp. pp. 55-6. 18 Plockhoy is oen referred to as Peter Cornelius (see Gooch and Laski, op. cit., pp. 117-8); Schenk (op. cit., p. 153) describes him as Peter Corneliez Plockboy. 19 E.g. Sir Mahew Hale, Discourse Touching Provision for the Poor (1683). R. Harford, Proposals for Building in every Country a Working Almshouse or Hospital as the Best Expedient to perfect the Trade and Manufactory of Linen Cloth, etc. (1677). 20 See John Cary, Essay in the State of England, etc.

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57 Alsatia. This last century before the Industrial Revolution is near enough the present to invite comparison of its social and moral standards with those of a later day. Even now that it is a commonplace to say that the civilization of the Augustan Age was but a veneer, it comes as something of a shock to read the Report of the Commons Committee on the Care of the Poor in the Parish of St Martin-in-the-Fields in 1715. Three-quarters out of the twelve hundred babies born every year in the parish died, many being exposed or overlaid by 'nurses'. Money was stolen, accounts were falsified, paupers were starved and in some cases murdered. Consider the later inquiries of Jonas Hanway, Russia merchant and social reformer, founder of the Marine Society, the Magdalen House, and the Foundling Hospital, and one of the most indefatigable and splendid bores of English history. His seventy-four separate works on charitable problems seem, again, to underline the failure of private enterprise to find any solution to the social problem. In the fourteen parishes investigated by him he calculated that the death-rate among infants entering or being born in the workhouses that had sprung up since 1720 was 88 per cent. Some parishes (it was said) acknowledged that 'no infant had lived to be apprenticed from their workhouses'.21 Under the system by which the poor were hired out to a contractor, the workhouse had become a place of vice, a catchall for the infant and the infirm, the able-bodied idle and the criminal alike. Some of this may have been exaggerated, but much was undoubtedly true. Is the true explanation to be found (as some historians have suggested) in a decline of charity, in a harsher and more censorious attitude towards poverty and misfortune? The title of Professor Tawney's chapter on this period - 'The New Medicine for Poverty' - gives a suitably sinister twist to the theme. Statistical comparisons of virtue, whether of individuals or societies, are not a promising branch of historical inquiry. But there exists one source of information as to the extent, if not the quality, of charity in England which has not (so far as I am aware) been analysed. Under the provisions of Gilbert's Act of 1782 the Ministers and Churchwardens of the parishes of England and Wales were required to make a return of all the Charitable Trusts then existing, with the date of creation, the name of the donor, the object, the capital and annual income, and the title of the Trustees responsible for administering the charity.22 In all, some sixty or seventy thousand separate donations, mainly of seventeenth- and eighteenth-century origin, were recorded. They yielded a total annual income of £258,700 spread over all the counties of England and Wales. All but £6,236 came from English returns - a capital value all told of some £5 million in the ratio of £5 worth of land for every £1 of other types of investment. The majority of the benefactors defined their intentions only in general terms: food and clothing or fuel for the A few were more specific. These poor were to have poor. beef, those herrings; some got linen, others woollens. Poor men were to have coats, or shirts and shifts, poor women to have gowns. There was to be provision 'to marry poor maidens'. The poor here were to have Bibles, the poor children there to have books. This village was to have an almshouse, another a charity school. Mr Tomkins of Abingdon would relieve 'poor Dissenters (but not Papists)'. And so on. Obscurities abound. Many charities have no date. Many no doubt were omitted. There are hints at 21 See J. H. Hutchins, Jonas Hanway 1712-86 (London, 1940), pp. 47-75. 22 Abstract of Returns made by Ministers and Churchwardens of the Several Parishes and Townships of England and Wales. Ordered, by the House of Commons, to be printed, 1816.

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58 misappropriation. Of many a benefaction the authorities could only observe: 'but we do not apprehend that it was ever received'. To interpret reliably the enormous volume of information contained in the return calls for an intimate knowledge of local economic and social history. But by a combination of random sampling and parochial analysis some pretty reliable impressions can, I believe, be obtained. The incidence of charities is related broadly to the size and character of the geographical areas, the density of the population, and the general prosperity of the town or parish. As one might expect, the City of London, the Home Counties, and Midlands were relatively generously endowed. Large areas like the West Riding and rich counties like Kent come top of the income-by-county analysis. To prepare any definitive analysis would require far more study than I have been able to give for the purpose of this paper. The brief survey that has been undertaken does not, however, provide any warrant for supposing that the well-to-do were left any less charitably disposed by the social, economic, and religious changes in the half-century that followed the Restoration. There was undoubtedly some gradual decline - perhaps 10-20 per cent - between the average number of trusts created in the half-century before, and the half-century after, 1660. A similar fall occurred in the following fifty years. Josiah Child has himself remarked that 'formerly in the days of our pious ancestors the work was done but now charity is decreased'; but he goes on to explain that this did not proceed from any decline in charitableness, so much as from doubts whether it was proper that private gifts by the benevolent should reduce the poor rate levied on those with less tender consciences.23 It could indeed hardly be expected in a period when the yield from the poor rate was raised from £665,000 to £900,000 in fifteen years (1685-1701) that private donations should not in general be affected. We have seen the same phenomenon in our own day as the welfare state has extended its functions. But even this trend was not universal. Suffolk, which comes after the West Riding in the volume of charity endowment, was not among the largest shires, and was if anything less densely populated than a number of surrounding areas.24 Is it unreasonable to suggest that its position was probably related to the presence of those entrepreneurs of the local draperies, Old and New, of whom Unwin himself wrote so eloquently? And what of Bristol with its noble record of over six hundred charities? A high proportion - almost a third- date from the half- century after the Restoration. It was no accident that Cary was a Bristol man: Bristol was surely the most benevolent place in England. The City of London had well over a thousand trusts, of which about one-third were created between the Restoration and the Peace of Utrecht. At Norwich, too, nearly a third of the 160-odd trusts likewise dated from this period. The collective charge that a whole class was through several generations guilty of social irresponsibility must, I think, be rejected as non- proven. The social conscience of the trading classes seems to me to have been no less tender than that of their feudal predcessors in office, and may in some respects have been more sensitive. For the merchant did not move in society with the unselfconscious ease of the landed magnate nor speak with the confident voice of the learned clerk. He was in general a little more anxious than they to stand well with his fellow men, and for this, less fortunate members of society had cause to be 23 Child, New Discourse (1694), p. 84. Figures from Belo, op. cit., passim. 24 H. C. Darby, Historical Geography of England before 1800 (Cambridge, 1936), p. 524, g. 83.

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59 thankful. Charity might go on breaking in. His habit of discriminating between deserving and less deserving beneficiaries may register a spiritual decline when compared with that medieval almsgiving that aimed only at the moral betterment of the donor; but it is by no means certain that the change brought any one material loss. Among the many uncertainties in the returns of charities one trend emerges clearly: the growing proportion of donors who felt moved to endow some form of active apprenticeship or instruction for the juvenile poor, as distinct from the passive forms of relief common in earlier periods. It is a reminder that these were the early years of that remarkable movement for charity schools which was co-ordinated from 1699 by the S.P.C.K. Hundreds of thousands of children, for whom no other means of education existed, received in the thousands of such schools the rudiments of education, religion, and practical training that gave them a chance to earn a living.25 At the peak of the movement the boys went as apprentices into every kind of trade, the girls became sempstresses or domestic servants. Again, it is easy to put a cynical motive to the work, to point to the drift away from literary and religious studies to technical training and utility. Some falling away of standards there may have been. Yet the Charity Schools remain a notable instance of that principle of voluntary association which historians like Unwin and Tawney have rightly enjoined on us to behold and admire as a vital element in social development. No previous age had faced such a formidable social problem, and none certainly had attempted to relieve, employ, or educate an army of poor already alarmingly enlarged by natural increase. These improvisations in social service failed or fell short of their object not because of a shortage of good intentions or of money but because the supply of 25 M. G. Jones, The Charity School Movement: A Study of 18th Century Puritanism in Acon (Cambridge, 1938), passim. Title page of the rst edion of Lile Dorrit by Charles Dickens (1812-1870) Source: University of California Libraries

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60 those capable of organizing and administering them with reasonable efficiency, honesty, and compassionate understanding was totally inadequate. To read the replies made by parish governors to Hanway is to realize how appalling were the difficulties encountered in the organization of poor relief, how rarely a parish could find a treasure like the splendid Nurse Howe of St Mary Whitechapel, how few were the Humphrey Clinkers, how numerous the Tom Neros. To endure the continual proximity of the poor a man needed to be either especially saintly or especially imper- vious to human suffering, cruelty, filth, and corruption. In such a situation it was not unnatural that men should lose faith in the efficacy of high principles and take refuge in the reflection that 'whate'er is best administered is best'. Yet the art of administration was equally elusive. Administration, as the modern world understands it, is a Victorian invention resting on Victorian values: it ran counter to much that was character- istic of eighteenth-century society. Enough of the bad old days remained in 1857 to provide Charles Dickens with material for his classic satire on bureaucracy: the Circumlocution Office in Little Dorrit.26 He would not have been entirely at a loss for material a century later. The apathy, indifference, and chaos of the eighteenth- century poor law was the product not of a new capitalist ethic, but of the frustration, failure, and occasional panic of a genera- tion faced by a problem beyond its power to control. The heart of the matter was contained in the title of Defoe's famous pamphlet: Everybody's Business is Nobody's Business (1728). This applied not only to the condition of the institutions but to the Settlement Laws themselves. Few historians today accept Adam Smith's famous strictures on the Laws at their face value, but it was a fact that they gave local authorities powers of ejectment that at first might appear ruthless. Yet here again, the preamble to the Act which explains why the powers were deemed necessary puts the problem in a different light.27 The provision of relief for the unemployed differed greatly between one parish and another and those parishes 'which endeavoured to do their duty in this respect were inundated by distressed paupers'. In short, what came to be regarded by later critics as a system of calculated brutality and repression arose in the first place not from unconcern or harshness, but out of a desire to protect the efforts of those local authorities who were trying hardest to improvise remedies. Those who do not trust interventionism are apt to inveigh alternately against its wickedness and its futility. It cannot have been both. The influence of 'policy' on the labour situation in the seventeenth century may have been exaggerated;28 certainly 'policy' was to an important extent a reflection of social facts. Yet it seems an oddly misplaced modesty in scholars to disown the historical importance of ideas. The great Debate of the Poor conducted in Press, pamphlet, and Parliament had helped to elucidate the importance of labour - skilled labour in par- ticular to the community. The facts of unemployment and poverty had joined with the ideas of educational reform that stemmed originally from Comenius and Milton, and the junction stimulated a new emphasis on apprenticeship, training, and skill. Later theories of labour value have their roots in these years. Yet though the debaters had broadened and socialized their criteria of the nation's economic welfare, they remained mercantilists to a man. Hartlib, for all his precocious concern with technology, 26 See Leo Silberman's introducon (1957) to The Statesman, by Henry Taylor, especially pp. xx to xxv. The original tle of Lile Dorrit was to have been Nobody's Fault. 27 E.g. E. M. Hampson, The Treatment of Poverty in Cambridgeshire (Cambridge, 1934), pp. 125-6. 28 Coleman, 'Labour in the English Economy of the 17th Century', Economic History Review, VIII (1956).

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61 monetary substitutes, and the like, was not free from the orthodox preoccupation with shipping and 'dominion on the sea and thereby the strength and renown and flourishing estate of the nation'.29 Defoe has sometimes been credited with precociously free-trade views on the strength of the part he played in Harley's Mercator, but in fact his views remained conventionally mercantilist and protectionist.30 Firmin was among the stoutest opponents of the import of French textiles. Mandeville, for all his scorn of bullionism, remained firmly anchored to the old principles, enjoining upon politicians that 'above all, they'll keep a watchful Eye over the Balance of Trade in general and never suffer that all the Foreign Commodities together, that are imported in one year, shall exceed in value what of their own growth or manufacture is in the same exported to others'.31 The principles of Machtpolitik had no more single-minded disciple than Jonas Hanway, who dedicated one of his principal works to Anson, the victor of Finisterre. John Cary, the great Bristol merchant and philanthropist, exemplified perfectly the union of mercantilist principles with ideals of social reform. The theme of his famous Essay of 1695 was that some trades were profitable to the nation and should be encouraged; others were harmful and should be discouraged. In making its decisions between the two, government should be guided not so much by the net effects on the bullion flow as by the results in terms of manufacture and employment. As an economist, Cary was heir to the ideas of Child - balance-of-trade mercantilism modified by considerations of employment. His influence was exercised equally on trade policy and on social reform. But it was not only in England where his writings were widely distributed and read down to the mid-eighteenth century. This type of mercantilism - what might not unfairly be called 'social mercantilism'- was the most powerful formative influence on continental mercantilism in the eighteenth century. Two of the founding Fathers of German Kameralwissenschaft - Becher and von Schroeder - were resident in England in these years (J. J. Becher fled to England in 1680 and remained here till his death in 1685; von Schroeder lived in London from about 1663 to 1674 when he returned to Germany), and the resemblance between the 'equilibrium of occupation' of Schroeder's Fürstliche Schatz und Rentkammer (1686) and the ideas of Child and Cary is too close to be accidental. From this, three-quarters of a century later, came Sonnenfels's theory of the two trade balances by which economic health must be judged: the 'monetary' and the 'employment' balance. The genealogy of mercantilism in Italy is equally clear. When Genovesi came to establish a flourishing school of economics at Naples in the 1750s he began by translating John Cary's Essay for his pupils' benefit, while relegating Mun's earlier work to an appendix. His own doctrine that distinguished between the 'useful commerce' which exported manufactures and the 'harmful' which brought in foreign manufactures was the word precisely as Cary had preached it. There can be little doubt that the social and economic policy of Enlightened Despotism in Eastern Europe owed most of its theoretical foundations to English 'social mercantilism'. Even in France, the new synthesis was not without influence. De Gournay, then an intendant for commerce, who stood between the extremes of mercantilist and physiocratic dogma, 29 Samuel Hartlib, Legacy of Husbandry (London, 1655), p. 292. 30 See especially An Humble Proposal to the People of England in the Works (Oxford, 1841), XVIII, 27, 41, 45. 31 B. Mandeville, The Fable of the Bees, ed. F. B. Kaye, 2 vols. (Oxford, 1924), I, 116. Historical Account of the Brish Trade over the Caspian Sea (London, 1754), I, 421.

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62 published in 1754 a French edition of the works of Child and Culpeper.32 In some sense, England was only paying back an intellectual debt owed to Europe. For it is a remarkable fact that not a little of the 'welfare' element in that doctrine may be traced to thinkers of European origin. Hartlib was a Pole, something of a cosmopolitan who spoke several languages including Dutch.33 Comenius, the source of much of the educational controversy of these years, was a Czech. Chamberlen was by origin French; Plockhoy, a Zeelander. Mandeville came from Rotterdam. That the debate which had begun round the theme of wealth and conquest had broadened into a debate on social ends was not a little due to their intervention. It was not only English economic and technological organization that was leavened by immigrant influence but English social ideas, too.34 At their weakest, the criticisms of the social arrangements in the post-Restoration age to which I have referred imply that at the time human nature among the ruling classes took a distinct turn for the worse. More charitably, we might take the theory to be that in the social situation of that time the worst side of human nature found more opportunities to exhibit itself. The evidence of the creation of charitable trusts seems to me to dispose of any sweeping allegations of this kind. It is rather evident that, on the contrary, local experiments and experiences grew into something like a social philosophy which grafted new social ends on to the older strategic and monetary objectives of mercantilist thought. There was no unanimity about the means to be employed: there was indeed a bitter and protracted debate between those who believed, with Child, that the problem of poverty demanded direct treatment - the work- house and the spinning school - and those who believed, with Mandeville and Defoe, that this was a problem which could be dispersed only through an accelerated rate of economic activity in general. The alignment of supporters, it is plain, can in no way be explained in terms of economic interest; and the ranks of those who took what has often been regarded as the tough line included many (like Dr Johnson) who qualify neither as Capitalists nor as Puritans and who can hardly be accused of inhumanity. Both sides recognized that the employment of the poor - and especially their skilled employment - was an objective to be pursued as a means to the prosperity of individuals and of society; but many recognized that it was, besides, a social and religious duty. Here was, in fact, not the monotone of repression but the antiphony of a genuine debate in which the claims of material interest and social welfare were mixed in proportions not discreditable to the age. To administrators and thinkers in the less fortunate, more backward states of Middle and South Europe such arguments seemed to be the talisman of English progress. Writing later in the eighteenth century, Hannah More described the period we have been examining as 'an age of benevolence'. Perhaps the Bas Bleu was predisposed in favour of the paternalism for which her native Bristol was famous. But her verdict is entitled to respect, especially as it seems that the opposite conclusion has been reached by the device of peopling the post-Restoration scene with selected cartoon figures more appropriate to the comedy of Congreve or Wycherley than to serious historical study. As historians we might do well to ponder what an eminent critic has written of this 32 A. Oncken, Die Maxime Laissez Faire et Laissez Passer (Berne, 1886), pp. 87-9. 33 Turnbull, op. cit. See the same author's Samuel Hartlib. A Sketch of His Life and Relaons to J. A. Comenius (Oxford, 1920); also Brit. Mus., Sloane MSS. 654, fos. 345-8. 34 For the inuence of immigrants on technology, etc., see, e.g., W. Cunning- ham, Alien Immigrants (Cambridge, 1897).

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63 technique of caricature as it was employed by the dramatists of the Restoration: 'It is in a sense prig-drama. It flatters the vanity of the spectator for whose amusement the weaknesses of his friends are held up."35 It is true that there is weighty authority for the view that it is the historian's task to sit in judgement. 'Morality,' said Sir Thomas Browne, 'is not ambulatory', and Acton invoked his support for the view that the historian should err on the side of severity rather than risk the moral perils of leniency.36 But Acton also saw the dangers that arise from haste and prejudice. The 'weighing of testimony' was for him the vital part of the historian's task.37 There is not, after all, much fundamental difference between that and Professor Butterfield's injunction: 'to surround the man with all that can be gathered in the way of historical explanation'.38 When Acton spoke, the impact of the social sciences on the study of history in England was but recent. When historians spoke of moral judgements they still thought of the actions of individuals, and principally of rulers and statesmen who were conceived to have shaped the course of events. It is different with the sociologized history of our own day, which is less concerned with individuals and more with men as members of social groups. It is curious that the socially scientific historians began by glibly ordering men's characters according to their occupations and ended by dispatching to collective perdition whole classes of men throughout several generations on the strength of evidence which the late Judge Lynch might have hesitated to regard as adequate. So far from reducing the need to weigh the testimony, this new sociological trend in historical technique makes it all the more imperative, lest history should sink to the rough justice and intellectual shallowness of a standardized political conflict. 35 Bonamy Dobrée, Restoraon Comedy 1660-1720 (Oxford, 1924), p. II. 36 Lectures on Modern History (1930 edn.), p. 28. 37 Ibid., p. 16. 38 History and Human Relaons (1951), p. 119. 5 June 1895.

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65 Fiscalism, mercantilism and corruption were neither with equal impact nor with equal inevitability part of the ancien régime. Corruption existed in classical times and in the Middle Ages. The 'honest administration', historically exceptional phenomenon as it is, emerged as part of the modern state only from the French Revolution or, at any rate, as a result of the insights due to the Enlightenment. A chronological limit for that subject therefore possesses significance mainly for the most recent era. The phenomenon of fiscalism, on the other hand, may be regarded as virtually timeless. As here defined it is the endeavour of the state to increase government revenues regard- less of the objectives of economic or social policy. It is artificial to restrict it, as has been done here, to the ancien régime: even today economic and social policies which have been well publicized may be sacrificed in the name of national objectives of greater importance than the economy. Fiscalism, however, is concerned only with the revenue of the public treasury and has nothing definite to say about its expenditure. Sometimes its purpose is nothing more than the accumulation of treasure to augment princely power. Equally well it can be aimed at specific expenses for political, dynastic or other purposes. Fiscalism may indeed benefit the economy, even if unintentionally. Mercantilism apparently fits more naturally into the period of the ancien régime than either corruption or fiscalism. The bounds of mercantilism are most easily determined if it is taken to refer to the accumulation of writings on economic doctrine which became numerous in the seventeenth and eighteenth centuries. The novelty of their expositions, however, consists less in the economic policies they recommended than in their attempt to investigate relationships in the economy as a whole. Undoubtedly they initiated important steps towards the formulation of an economic theory at this time, though these have been properly acknowledged only since John Maynard Keynes. During the whole of the nineteenth century they were over- shadowed by classical theory because the doctrines had not been developed into a properly integrated structure. Nevertheless, the precepts of the mercantilists were never forgotten altogether. Indeed, they much influenced politicians and businessmen, especially in France and in the United States, where they left their imprint on the tariff policies of these countries. This holds true rather more for the customs tariffs than for the orders and prohibitions of mercantilism. In the Middle Ages, on the contrary, it was generally not the customs duties but the orders and prohibitions which corresponded to those of the so-called age of mercantilism. The objective is always the development, from an agrarian base, of an industrial, commercial, and maritime superstructure coupled with the attempt to secure a bigger share in the profits of inter- national commerce for one's own citizens. The chronological limits of mercantilism are therefore especially difficult if the criterion is to be concrete economic policy, since this is decided not by doctrines and laws alone but by their effective execution. Both corruption and fiscalism could obstruct such execution. The present article will therefore show that the attempt to find a period during the ancien régime which can be characterized as 'mercantilism' is somewhat one-sided. The main emphasis of this paper will be upon connections of mercantilism with corruption rather than with fiscalism. I will deal with fiscalism first. Fiscalism may be defined as the endeavour to maximize the public revenues at all times for other than economic purposes. As a rule, therefore, it is obviously incompatible with mercantilism. For the development of national productive potential, mercantilism sometimes requires recourse to foreign exports at the expense of the public treasury; they may have to be exempted from taxation at first and might even have to be assisted with subsidies. In the long run this may produce a higher

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66 yield from taxation, but fiscalism, in the proper meaning of the word, cannot, by definition, exercise foresight of this kind. There may often also be a background of national emergency. Such times frequently lead to the violation of mercantilist customs duties, for instance by the imposition of tariffs on the export of manufactured goods. France took such a turning after Colbert's death when export duties were placed on linen, hats, and paper to finance Louvois's war policies. True, there were discussions as to how much duty the foreigners could be made to bear without producing too great a reduction in exports. These, however, underestimated foreign competition. As a result of the Sun King's Wars, the exports of French industry declined because of the fiscal increases in duties, although the English embargoes on trade also contributed. * * * Disregarding corruption for the moment, discriminatory duties act fiscally in backward countries, mercantilistically in advanced countries though with a transitory fiscal effect. In special conditions a general increase in customs duties could be mercantilist as well as fiscal. This requires, first, that the foreign commodities imported and the domestic commodities exported are both of a kind which allows the payment of the duties to be shifted abroad; and, second, that the volume of trade does not decline in proportion to the increase in duties. This produces an improvement in the balance of trade because either the deficit will be decreased or the surplus increased. Thus it will augment the quantity of money circulating inside the country and also promote the expansion of domestic production. But states were then small and more divided than today: it was probably the exception for an increase in customs to produce a wholly favourable effect while manufactures were being exported or raw materials and semi-finished goods imported. II Fiscalism and Corruption Exceptionally and briefly, fiscalism and mercantilism may be conceived as compatible: as defined, fiscalism and corruption cannot be so. Corruption aims at the maximization of the officials' own incomes, which must necessarily prevent the maximization of government revenues. Regarded thus, the connections are quite clear and simple. Reality, though, is more complex, because hybrid Le Peuple sous L’Ancien Regime, anonymous print, Paris 1815 Source: Library of Congress

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67 forms of both may often be found in the ancien régime. It is easy to imagine a renunciation of maximal government income, but a corresponding renunciation by individual officials does not occur. Rather there occur complex and pugnaciously contested shifts within the body of the civil service. Such internal conflicts occur within the authorities, even when the interests of the public treasury are not involved. In that case their subject is simply the distribution of the spoils of corruption either among the civil service hierarchy or between the members of a 'collegiate' authority. When, however, the interest of the public treasury is involved it may produce symptoms which can deceptively simulate mere fiscalism. In fact, it will be semi-fiscalism - which is quite compatible with corruption. The explanation of this curious phenomenon is that defalcations affected both the receipts and the issues of the exchequer. Tax and customs authorities were placed at the receiving end, military and court administration at the issuing end. Where spending was concerned, an artful surcharge was added to the cost of procurements, and this concealed difference divided up when payment had been made. As for receipts, here the income was fraudulently understated and the resulting difference split. The ministers of finance straddled both sides of the line: not only did they let out tax farms at undervaluations but they could also demand a discount before settling due payments or let the creditors wait.1 The issuing authorities depended for the extent of their defalcations on the amount available in the treasury, hence they exerted continuous pressure on the receipt. Apart from these officials there were also the courtiers who, by insinuating themselves into pensions and other favours, committed effective defalcation without offending against the letter of the law. Equilibrium was further affected by the need to perform at least some of the functions of government effectively if the state was to survive at all in the arena of nations. Under the ancien régime the equilibrium between these three forces was deliberately maintained. The machinery of government under the ancien régime cannot be regarded as completely hamstrung or rudderless, though it must be admitted that, compared to a modern state, direction was but fitfully maintained. There was a delicate equilibrium between, on the one hand, the departments, cohering but tenuously and operating each on its own account and, on the other, the needs of the treasury: this has been described excellently and in detail in R. H. Tawney's book about Lionel Cranfield, the lord treasurer of James I. It was his task to adjust the equilibrium in the treasury's favour because the Thirty Years' War required an increase in military preparedness. Cranfield developed a form of semi-fiscalism by making severe inroads into corruption on both sides of the exchequer; he dealt with the receipts by taking over tax and customs farms himself and with the issues by doing the same with procurements. This injured subordinate offices and officials, who became Cranfield's implacable enemies. With royal consent he also countermanded, as far as possible, surreptitiously acquired pensions. That this was far from genuine fiscalism, however, is made evident by the manner in which Cranfield managed to secure juicy morsels for his patron the Duke of Buckingham and himself. This, then, is semi-fiscalism but not genuine fiscalism, which is so defined as to exclude corruption. Of all the possible relationships between the three aspects of financial and economic policy, only that of mercantilism and corruption remains for examination. Corruption so curiously illuminates the manifestations sur- rounding not only fiscalism but also mercantilism that some of them may easily be mistaken for the genuine substance. The fisc renounced the maximization of its income in favour of the officials. One and the same bulk was

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68 divided between both, but the proportion falling to either share altered from time to time for extraneous reasons. What changes occurred then affected mainly the quantities. Mercantilism, however, is not quantitatively but qualitatively modified by corruption: corruption destroys it. We speak therefore of 'semi-fiscalism' but, on the other hand, of 'pseudo-mercantilism'. The pretences of pseudo-mercantilism are often the more easily accepted because people concentrate on the text of laws but lose sight of their execution, which is what really matters. This happens the more easily because the laws remain explicit in the sources, whereas reports of actual implementation are much rarer and often hard to interpret. Moreover, such reports in their original form are always highly suspect because they strive to conceal much and intentionally foster uncertainty. The reports of civil servants were really produced like 'une vaste comédie', as Chaunu found during his work on Spain. This is how he characterizes the official correspondence: ... relentless dialogue of the deaf. Nobody wants to get to the root of problems, everybody conceals his interests under considerations of a general kind. . . (I, 233) ... The wording is deliberately obscure and full of evasiveness... (V, 331 f.)... A comedy like everything there . . . nobody takes it seriously (V, 436). * * * This is not to say that the then generally prevalent corruption ruled out mercantilism altogether. It was quite feasible if only government were prepared to eliminate corruption, at least partly, so as to facilitate the execution of the required measures. This is best illustrated by reference to England under Elizabeth, where corruption was also a regular feature. The queen was determined to make her counter-attack effective. When the Merchant Adventurers were expelled from the Netherlands in 1563 she also stopped the interlopers from exporting there. To ensure that the prohibition would be observed she set the Merchant Adventurers to supervise the customs officials. At that time the success of mercantilist measures often depended on having them supervised by parties interested in their observance. Officials were probably inclined to be interested in circumvention of the rules; it was therefore much more difficult to compel them to do their duty. On the whole, the spirit of the age found corruption acceptable, so that such compulsion required special exertion. Diplomacy was concerned with national and dynastic interests, which were highly regarded: here the rulers were usually prepared to exert themselves as required, rather than in economic affairs which were allowed less importance. Thus Elizabeth could tolerate abuses of regulations for the grain trade and of supervision of the bakers by the very justices of the peace who were to control them. * * *

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70 Colbert was the first statesman who rigorously drew executed a comprehensive mercantilist customs tariff. The same Colbert also organized an honest administration in France in the service of Louis XIV. Adam Smith, who lived in the age of corruption and who presumably looked upon such honesty not as the norm but as an exception, wrote about Colbert: Mr Colbert, the famous minister of Louis XIV, was a man of probity, of great industry and knowledge of detail, of great experience and acuteness in the examination of public accounts, and of abilities in short, every way fitted for introducing method and good order into the collection and expenditure of the public revenue. This is the light in which we must examine mercantilism in France under Louis XIV and Colbert; it had one of its rare successes there and at that time, and was therefore justifiably described as 'Colbertism'. Three essential conditions had to be fulfilled for this: (1) the integrity of the ministers themselves; (2) the minute investigation of actual conditions of marketing and production to determine specific rates of duties; (3) the customs tariff, which was thus constructed to correspond to the general nexus of economic relationships between internal economy and foreign trade, must be observed without deviation by the customs officials. The whole success of the customs tariff depended on 'method and good order' in the actual levying of duties, because the customs schedule had been exactly designed to obey mercantilist principles and would have been distorted by corrupt execution. It is not sufficiently well acknowledged that official customs tariffs under the ancien régime did not normally mean very much. According to the law, customs duties were uniform in the republic of the United Netherlands. In reality, though, they differed profoundly, from one 'admiralty' to another and even between different offices of the same admiralty. Moreover, the tariff ordinances were deliberately left indeterminate so that merchants could not really know exactly what rates of duties applied to their goods. In Hamburg in the sixteenth century the book of rates was indeed deliberately kept secret. In sixteenth- and seventeenth-century Norway 'duties' payable for identical goods differed from one port to another. The categorization of goods and of classes of goods was also upset because the orientation of corruption differs completely from that of mercantilism. Customs duties are arranged in the mercantilist sense by referring them to the state of imports and exports and to the stage in manufacture of the goods; for corruption private gain is the sole criterion. Only by sheer accident would corrupt execution leave the effect of a customs tariff fundamentally unchanged: the extent of corrupt 'duties' depended only on the costs of by-passing the customs. Not even the superior officials knew how and to what extent customs were levied. In the conflict between superiors and their subordinates over the spoils of corruption the former employed the armoury of dismissal, transfer, and judicial proceedings, the latter simple secretiveness about their subterfuges. It was a general rule for subordinates to share their emoluments with their superiors, but uncertainty about the amount of the spoils produced much lasting suspiciousness and an underlying mood of conflict. The directors of the Casa de la Contratación did not know the tricks of their subordinates; when the Council of the Indies in Madrid demanded information on this subject they had to attempt very cautiously, 'con toda disimulación', to obtain some clues from the officials. R. H. Tawney found identical conditions in England during the time of James I.

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71 officials at least were interested in their receipts rather than in differences of nationality. In the republic of the United Netherlands foreigners who journeyed independently to the Amsterdam wholesale market were generally made to pay much more than the native firms of merchants not because they were foreign but because they were less well protected and could be squeezed more easily.1 In Spain the situation was reversed. The Spaniard sending his goods overland via Seville to Cadiz on an effectively controlled route paid many times more than the foreigners whose ships lay in the open roadstead of Cadiz: they, always with the connivance of the commanders of the Spanish ships, could trans-ship directly from their own vessels to those of the flota." Even if the customs tariff had been devised for mercantilist purposes, corruption would still have transformed it into anti mercantilism.

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73 At present mercantilism is being discussed in Sweden, Britain, and Holland, while in Germany Jacob van Klaveren has contributed to the discussion with his article 'Fiskalismus - Merkantilismus - Korruption'. What follows will be concerned only with propositions which deny that the theory of mercantilism also underlay the principles guiding economic activity. The proposition of the Englishman, D. C. Coleman, reduced to its most rigorous version, regards the concern of government for the economy as so obviously dominated by political purpose as to leave no room for anything that can properly be called economic policy. In other words, absolutism devours mercantilism. The second statement I want to discuss here is the thesis of Jacob van Klaveren. According to him, all striving after the common weal by the economic and political administration is overshadowed by general and dominant corruption. This degrades fiscalism to semi-fiscalism and, even more, mercantilism to pseudo-mercantilism. This would make 'somewhat one-sided' the attempt 'to find a period during the ancien régime which can be characterized as "mercantilism". Both these contentions deny mercantilism any reality; along- side them we may cite T. W. Hutchison's article on Keynes and the history of classical economics, where he wrote: 'It would certainly be a great advantage if it were possible to avoid the concept of "mercantilism" altogether: surely it is one of the worst and vaguest "isms" in the dictionary.' Hutchison maintains that despite all the discussion it has never become quite clear what exactly can be regarded as the central core of mercantilism, i.e. of mercantilist doctrine. Students of Anton Tautscher's writings, especially of his Staatswirtschaftslehre des Kameralismus, which appeared in 1947, would not agree with Hutchison. In a further book, Die öffentliche Wirtschaft (1953), Tautscher confessed that the teachings of cameralism meant more to him than a mere historical phenomenon. Tautscher's notions of economic policy may be accepted or rejected. Regardless of this, it remains his merit to have utilized a whole century's accretion of learning to disclose the rigorously logical structure of mercantilist economic policy. That Tautscher discusses cameralism and not mercantilism makes little difference. He sees cameralism as the specifically German variety of mercantilism: because of the federal structure of the empire, its theoreticians substantiated their propositions with experience garnered in the principalities, in their travels, as administrators or even as entrepreneurs. Well- known historians of doctrine have accepted as quite a matter of course that mercantilism and cameralism 'realize two phases of the same development and represent the same principle'. The central core of cameralist doctrine, sought in vain by Hutchison, is the common task which the German cameralists prescribed for themselves 'to reduce the different kinds of productive activity to a just equilibrium and due proportion one with another'. And Justi also tells us to what end the search for due proportion is intended. 'If commerce, manufactures, trades, and production together gain and flourish, and if countries are to become ever more populous, more must without fail flow into the coffers of the government.’ * * * The discussion about mercantilism was sparked off by the work of Eli F. Heckscher. His ideas owed less to the German cameralists Johann Joachim Becher, Philipp Wilhelm von Hörnigk and Wilhelm von Schröder than to Davenant, Mun and Child, and to the French practitioners. Consequently, participants in the discussion have also mainly drawn upon the English theorists and the French example. In contrast to the state of the German empire after the Thirty Years' War these

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74 thinkers and economic practitioners were familiar with flourishing national economies engaged in world-wide foreign trade distinguished by strongly active groups. In his Inquiry into the Nature and Causes of the Wealth of Nations, Adam Smith blamed the companies, the merchants, the entrepreneurs and their specific interests for the plethora of protectionist measures which characterized the 'mercantile system'. It was to be expected that directors of the East India Company, Thomas Mun and Josiah Child, should have formulated the balance- of-trade theory as the original English contribution to mercantilist theory. The German mercantilists, serving a less productive economy without a strong export trade, had to concentrate all their attention on the 'consumptio interna', the domestic market. They were faced by reality which demanded from them a closed system of national economics: the doctrine of political economy called cameralism * * * The mercantilists owed their insights to their observation of ordinary economic pro- cesses, and especially of the market. Their minds were un- encumbered by the assumptions associated with notions of harmony derived from natural law: it is not surprising that they were impressed by the disequilibrium of the real situation. They are therefore properly enlisted among the forebears of the Map of Germany aer the Peace of Westphalia in 1648 from H.F. Helmolt, History of the World, Volume VII, Dodd Mead 1902 Source: Wikimedia Commons

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75 new economics. Rudolf Gunzert only recently emphasized in his article 'Was ist Konzentration?' how, in mercantilist doctrines, one 'comes across problems which still retain their significance in the present. Awareness of these can save many a wrong turning.' They not merely pioneered a theory of types of market but they also adumbrated a theory of distribution. * * * A policy of economic management meeting the needs alike of the state and of the national economy': this we have by definition accepted as the meaning of mercantilism. It is the form in which it can be identified in the actions of its practitioners, to the letter in the German principalities and, modified by its federal structure, in the Empire too. On behalf of the elector of Brandenburg, the envoys of the principalities of Halberstadt, Kammin, Eastern Pomerania, and Gminden made the following representations to the imperial diet in 1675. The power and reputation of states are based on people and abundance of money. Of neither reputation nor temporal happiness is there enough in Germany. The best of our manhood is lured away by foreigners, and all Europe makes use of German soldiers, even against Germany. Money is sent away for numerous imported manufactures. 'Both of these evils might be cured at one stroke.' In Germany there are towns without people be- cause the manufactures do not flourish, craftsmen without work, and journeymen in their hundreds travelling about and collecting bread from door to door. They all explain that they could find no employment. If one could manufacture oneself all those things which there is now an opportunity to keep out of the Empire, then another hundred thousand people might be sustained in the country and the money saved to the Empire. All who valued things foreign ought to be willing to introduce, here in Germany and for the gain and benefit of the realm, whatever they thought of so highly in Italy, France, and other places. In 1680 Peter Philipp von Dernbach had read out before the imperial diet what 'great and noticeable benefits' he expected from 'the rejection and prohibition of foreign manufactures' because this would stimulate the imitation of foreign products. In 1677 Count Wilhelm Ludwig of Württemberg sent to consult Johann Joachim Becher in Nürnberg as to how the cloth industry of Calw might be promoted by excluding from the German market the foreign textiles, 'Cadis's and bolting cloth. When the emperor Leopold I married Claudia Felizitas in 1673 he boasted that he wore not a stitch on his person which had not been made in the lands of his inheritance. None of these sources lends itself to the conclusion that rulers and practitioners were without interest in the economy for its own sake. * * * The German principalities emerged from the Thirty Years' War not only with the formal jus superioritatis but with a second invaluable gain; this was a capable generation of princes and public servants equipped with an insight into the structure of the economy which became gradually more penetrating, and with a firm determination to employ this youthful discipline effectively. Many principalities, it may be suggested, turned themselves into proper states only as the result of such efforts. War and plague, high mortality and low birth rates had excessively diminished the labour force, and the first need was therefore the restoration of a reasonable ratio of labour to land. This was to be achieved by a suitable population policy, the Peuplierung (peopling); it was vigorously

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76 promoted by the diversion of ample public funds towards the individual peasant economy, partly as cash and partly as capital goods. This was intended to procure optimum productivity, within the limits of natural fertility and contemporary techniques which hardly advanced at all. Here is the explanation for the official preference for such commercial crops as tobacco or hops, madder, woad, and the like, which give a better return from labour and land. At least in grain-producing regions this was quite a new preference. Before the war there had been fierce opposition to any change which threatened to diminish the amount of arable under grain, even when a higher individual return could have been expected. The fisc relinquished momentary gain and smoothed the path to a happier future with gifts of wood, rebuilding subsidies, premiums, rent-free years, forgiven dues and moratoria: this played no small part in overcoming the dreadful consequences of the Thirty Years' War. Intimate contact with an economy which had to be re- constructed from miserable beginnings created in the ablest members of the civil service and of the academic bourgeoisie a common-sense belief in the validity of the reversible equation state power economic power. Thus the spirit of the mercantilist age was born. Admittedly, the birth of this new spirit had not yet decisively impinged upon the traditions of the fiscalist treasuries, of the princely financial authorities. But the question of how many disciples this new creed attracted, especially in the eighteenth century, is not one to be shirked. Cameralism was made a subject of systematic instruction in Germany alone; in 1727 chairs in it were founded at Halle and at Frankfurt-on-the-Oder, and henceforth the universities transmitted the doctrine to many generations of prospective civil servants. In the decades which immediately followed the Thirty Years' War, however, the mercantilists found it hard to prevail against the fiscalists in the German states. 'Government and revenue board guarded their rights jealously and well under- stood how to derive and buttress them with legal argument down to the last detail.' Hence the mercantilists agitated 'for the official institution of a purely economic policy'. 'It is the merit of the mercantilist, . . . trend alone that, from the last third of the seventeenth century, the new responsibilities of economic policy were ever more frequently delegated to newly founded commercial authorities." Originally they were derived from 'the welfare aspects of police jurisdiction', like the councils for the affairs of police and commerce instituted by Maximilian I of Bavaria between 1610 and 1640; they gradually developed into independent institutions. The great Johann Joachim Becher still chose a 'police ordinance' as the Maximillian I, Elector of Bavaria (1573-1651) by Joachim van Sandrart (1606-1688) Source: Kunsthistorisches Museum, Vienna

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77 vehicle for his economic plans in 1661 for electoral Mainz, and even in the spring of 1664 for the electoral Palatinate. In the summer of 1664 he was won over by the example of the Amsterdam Commercial College founded in 1663. At once he submitted a plan for a commercial college to the elector of Bavaria. The project failed, and Becher was invited to Vienna, where, after unceasing effort, the commercial college (Kommerz kollegium) was founded on 22 February 1666; it was the official buttress of the entire economic policy which he inspired, and especially of the five projected manufacturing and trading companies. He hoped thus to liberate the policy from fiscal influence. The notion of the college survived for more than a century, especially as Becher immortalized it in his famous and frequently republished Politischer Discurs. Most German principalities followed in the footsteps of the Habsburg dominions. Between 1710 and 1790 there were two false starts in Baden-Durlach, and the commercial council (Kommerzdeputation) for Baden-Durlach and Baden-Baden was active in Karlsruhe from 1790 to 1805. The appointment of the mercantilist Johann Georg Förderer Edler von Richtenfels in the year 1710 is closely linked with the foundation of Karlsruhe as a commercial city. At five different times between 1689 and 1788 colleges and councils were set up in Bavaria; Branden- burg-Prussia, simply among the central authorities, had eleven colleges, commissions, and councils from 1677 to 1796. Brunswick-Wolfenbüttel attempted three times between 1674 and 1714 to establish a consultative commission of economic practitioners which, in 1681, was intended to act as representation for the commercial interest. In Hessen-Kassel five authorities were being actively considered or founded between 1710 and 1782; so were three in the imperial town of Lübeck between 1740 and 1814, while nine projects were discarded during preliminary discussions. Electoral Mainz set up four commissions for the territory of Erfurt between 1687 and 1782, Austria established six central authorities between 1666 and 1765, to say nothing of the colleges for Silesia, Bohemia, Moravia, Trieste, Görz, etc. The Palatinate fits into this pattern of German principalities, with five councils, chambers, directorates and commissions between 1681 and 1768; and finally the kingdom of Saxony offers four foundations between 1711 and 1764. The rise and decline of all these authorities is a commentary on the embittered conflicts between the mercantilist spirit and an inflexible fiscalism. The disciples of the mercantilist spirit were not so much overwhelmed by pettifogging accountancy as depressed by the Empire's over-extension during half a century of war on two fronts between 1660 and 1715, yet they girded themselves to ever-renewed endeavour. They retained an audience because their spirit was the ferment in the economic consciousness of the age. * * * In German territory the age of mercantilism spans the period from the end of the Thirty Years' War to the end of the Napoleonic era. The responsible prince, the discipline of cameralism, and the initiators of economic policies, the councillors in governments and commercial colleges: all paid obeisance to one socio-economic ideal. It was the state made powerful by the 'populous nourishing community' (Becher); a 'populous nourishing community' made thus by the state's care. All who were economically active at the time, even the urban merchants, breathed this atmosphere, whether it helped or hindered.

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79 The belief that the state should, can, and must contrive to make its subjects wealthier, and that in part this can be done through its taxing powers, certainly is one of the most powerful concepts in modern times. Intuitively it seems that this belief must arise from important and strongly rooted developments starting far back in the history of Western thought and institutions. Economic historians concerned with the history of economic growth ought to be able to demonstrate which developments produced this belief, and when. But work on this highly interesting problem of origins has yet to be begun. The dimensions of the problem, at least, can be presented by sketching in the main developments for one country, France, over the whole period from a time when the concept of a beneficent national fisc obviously was still unborn to that point when it was alive and thriving. Viewed as an essay on the history of economic thought, this paper is a suggestion that some of the concepts concerning French mercantilism found in modern writings need to be improved. The questions to be raised are: At what point did influential persons in France begin to argue that by changing its tax policies the state could promote what we call economic growth? And when can we say that an important part of royal fiscal policy was aimed at promoting the wealth of the king's subjects? * * * Men of medieval and Renaissance France did not combine these ingredients of theory and observation into a concept that under certain conditions the royal tax system could improve the wealth of the king's subjects and that substantial improvements in national wealth could help the fisc. This is not to say that discussions of the relations between wealth and royal taxes were wholly lacking until the late Renaissance. But from the late thirteenth century until well into the Renaissance such discussion reflects the prevailing view that regular national taxing - that is, annual royal revenue beyond traditional domanial income and occasional emergency aid could have only bad effects on the economy. As late as Jean Bodin (around 1576), going theory held that as far as taxes were concerned the prince's gain had to be the people's loss. A favourite Renaissance metaphor was that the fisc was a parasite (le rat au corps), growing fat and sleek as its host grew thin and lifeless. The men of this era did not regard royal revenues as contributions by participants in a commonwealth to expenditures that would increase the well-being of the people. They thought of the fisc as a house- holding operation, intended to support the royal family in proper style and to provide a small surplus which, when husbanded as it should be, would provide funds for emergency military affairs. The prince's revenues, mainly, were not what we would call taxes but rather were rents, tolls, seigneurial dues, and a host of other items conceived of partly as the ruler's family property and partly as God's method of providing princes with what they needed to fulfil their proper functions. St Thomas Aquinas, as one would expect, had the definitive word here: 'Princes of the earth were instituted by God not to seek their own gain but to look after the common utility of the people.. For this reason the revenues of certain lands were established for princes, that, living on them, they might abstain from the despoiling of their subjects.' In an emergency, such as an invasion by enemies or the need to finance a crusade, the prince might approach his subjects and his vassals for a subsidy. But such aid had to be requested rather than forced, intended for 'common utility' rather than selfish schemes, and limited in time to the emergency that had called it up.

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80 * * * The Middle Ages did permit the king certain functions we would call economic - supervising fairs, maintaining roads and proper weights and measures, protecting French merchants abroad, protecting the country against famine and against the loss of its precious metal, and so on. But these were regarded not as a separate economic branch of royal government but as part of la police, the law and order, which was in turn only part of the Crown's functions as the guardian of justice. This is why, when late thirteenth- and fourteenth- century kings were pushed by their higher expenditures to debasing the coinage and to imposing national taxes, they were scolded so often by being reminded of the good king Saint Louis - apart from his 'crusader tithes', this ruler was supposed to have managed very well on his traditional revenues alone. The belief that a well-French Medieval representaon of the Estates of the Realm, 13th Century Source: MS Sloane 2435, folio 85, Brish Library

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81 ordered state should be funded without taxing, therefore, was an important part of medieval political views before regular taxing became an important issue in the days of Philip the Fair (1285-1314). In the early stages of the Hundred Years' War the debate over royal taxing reached such a pitch that it played a major part in the struggles between the Crown and the French Estates-General in the 1350s and in the even more serious uprising of 1382. The debate was pushed into the background by Charles VII's success in driving out the English during the 1430s and 1440s - decades when royal taxing was being firmly tamped into a permanent place in the royal fiscal structure. But it flared up again during the Wars of Religion (1562-98), when both Huguenots and Catholic zealots (though at different times) condemned arbitrary royal taxing as a mortal error and a crime against society. * * * Another strand of hostility to the rising tax power of the Crown came from the 'feudalists', mainly legal experts working for great barons, who emphasized customary law for its importance in protecting each man in the fruits of his labour, his property, and his rights. For the feudalists a king's property had to be delineated sharply from that of his people; when the king needed funds beyond his traditional revenues he had to request them from the French, both those living in the royal domain and those in the remaining fiefs. What particularly galled many of the feudalists in this era was that while the tax burden was rising the Crown was absorbing the seigneuries of one French noble family after another. The royal domain lands just before the Hundred Years' War had spread to include virtually two-thirds of all France. Now, surely, the king could 'live of his own' - that is, from his huge numbers of domanial tolls, rents, and seigneurial dues and cease harassing the French with taxes. Even the lawyer-administrators (légistes) who worked for the king advanced only relatively radical propositions in favour of royal tax power: that in spite of canonical prohibitions the king did have the right to tax the Gallican Church; that in emergencies 'which know no law' individual and provincial liberties had to be subordinated temporarily to the Crown's responsibility for the défense et tuicion of all; and that in his law- making powers the prince was above feudal tradition and man- made law: princeps legibus solutus. Even the king's men did not claim the king could impose taxes at will or that when taxing was necessary any good would come of it. * * * By the reign of Francis I (1515-47) the French fisc was probably the largest and most complex governmental organ in the Western world. It was an 'absolutist' system in the sense that apart from a few provinces (and then only occasionally) the Crown did not consult popular representatives when new taxes or higher rates were imposed though sometimes, as during the meetings of the Estates-General in 1560-1, a national parliament was helpful in facilitating acceptance of a new source of funds. It was operated by an enormous group of royal officials who functioned at local and provincial levels as well as at the national level and who, from the first président of the Chambre des comptes down to the lowliest sergent of the salt taxes, were responsible to and appointed by the king - from whom they bought their offices, since these were all venal positions. The Crown could increase the number of these officials virtually as it saw fit or whenever the

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82 market would bear it; during the later Renaissance the Crown often ordered that the number of posts in a certain type of office be doubled, thus creating hundreds of additional venal positions to sell off. It is important to emphasize these characteristics of the sixteenth-century fiscal machine, since they help us understand that in the Renaissance era the term 'mercantilist' can in no useful way be applied to royal policy concerning relations between wealth and taxes. For purposes of this discussion perhaps we can sidestep the hopelessly complicated argument over what mercantilism was and whether there ever was such an animal. Let us simply identify it with Colbertism - that is, with royal economic and fiscal policy in the 1660s and 1670s plus the writings (either policy oriented or theoretical) that approved of such policies. If this is allowed we can express the essence of mercantilist fiscal beliefs as follows: (1) improvements in the structure of taxes, in fiscal administration, or in the burden of taxes can enhance the nation's wealth; (2) of all the devices for increasing royal revenues in the king's fiscal arsenal, the best by far, and the only one not self-defeating, is to improve trade and industry. It is my belief (and this is my second main point) that the most representative mercantilists caught a glimpse of a sort of fiscal-economic harmony, an identity of interests between the monarch and his subjects. For mercantilists (since the richer the subjects, the richer the king) the success of royal taxation depended on enhancing the people's wealth. Beyond a doubt this gives the essence of the vision on which Colbert based his fiscal reforms. But such a vision had no place in Renaissance fiscal policy. * * * The royal revenues were not regarded by the Crown as the fiscal facet of the nation's economy; at least until the era of Henry IV and Sully the king continued to treat his fiscal system as a domain to be exploited, as machinery for turning his multifarious rights and properties into cash, as ‘a field I can mow when I wish' (a statement attributed to Francis I). Scholars who find it difficult to believe in the primacy of revenue considerations for the Renaissance Crown are invited to look hard at venality of offices, a practice which was developed during the Renaissance and which put the needs of the treasury over the most basic considerations of efficiency, of justice, and even of the Crown's ability to control its own bureaucrats. We would do much better, then, to label the Crown's policies on wealth and taxes in the Renaissance as fiscalist rather than as mercantilist. To put it bluntly, the standard works in modern literature on mercantilism that see the policies of Colbert as an extension of those of the Renaissance are simply wrong. For example, we all know that Colbert did what he could to eliminate France's internal tariffs. But during the Renaissance the internal traites foraines were applied not only to additional commodities but also to additional provinces. One gets the impression the Renaissance kings felt that the more tolls and internal tariffs the better; they strongly resisted the efforts of tax farmers to unify the administration of these taxes (as well as those of the excises and some of the salt taxes), giving as justification that when associations of tax farmers were allowed to bid on grosses fermes they conspired to keep the bid price down, whereas when tax farms were small and not too ex- pensive more would-be farmers entered the market and forced up the bid price close to its real value. Again, a central tenet of mercantilism was economic

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83 unity; but the Valois kings acted as though they had a stake in the continuing disunification of the national economy. On examining import tariffs in the Renaissance we see that they were few and far between (until the end of this era) and that they appear to be devices to force merchants to buy import licences rather than part of projects to build up French industry. In matters of foreign trade Renaissance tax policy was concerned almost exclusively with export taxes, and it is only in the 1580s that import taxes become significant landmarks on the fiscal horizon. The famous mercantilist principle of the balance of trade and its connection with the nation's stock of money is nowhere to be found in Renaissance France - at least not as we see it in Colbert's time. And it was in the Renaissance that the restrictions on interprovincial salt trade (which might have made some sense in the age of medieval scarcity) were frozen into a rigid and harshly policed system in order to protect the grotesquely high gabelles the Crown could collect in north and central France. * * * As the sixteenth century wore on the flood of fiscal expedients increased, arousing the French to furious protests and a few serious tax revolts. Not content with the expedients which royal officials and the royal council could devise, the Crown more or less openly invited outsiders to suggest additional ways and means in return for a cut of the profits. Such men were known as traitants because they struck an agreement or trait with the Crown, usually to take the tax farm of the new revenue or for the new venal office. Unfortunately for France, the Renaissance fiscal system and the fiscalist policies built up about it were carried over largely intact into the seventeenth century. That mercantilist reformers managed to make some significant changes in this formidable edifice is the chief reason we should honour their memory, since this was a greater contribution to Western civilization than the additions they may have made to deductive economic reasoning. My third main point is that mercantilist proposals for fiscal change had to operate around and through not only what G. N. Clark, speaking of Louis XIV, calls the Crown's 'high flying contempt for merchants and their sordid affairs' but also the formidable and immensely well-entrenched fiscal system, rooted by innumerable ties to vested interests in every corner of France and hardened by almost two centuries of successful operation. In the area of fiscal policy and theory, if not on other subjects, mercantilism was not an extension of medieval views but a new departure, a real break with the past. * * * Perhaps the reason this feature of mercantilism has received little attention is that it is almost too obvious: what we mean by mercantilism, especially in its policy aspects, is fiscal-economic relations; as Colbert put it, almost offhand as though its obviousness made explanation unnecessary, 'Commerce is the source of finance, and finance is the sinews of war.' A bald statement of the main points in question, I believe, is sufficient to establish the reality of mercantilist fiscal policy. These points can be located in many sizeable mercantilist tracts, in preambles to royal ordinances, and in pronouncements by Councils of Commerce, Assemblies of Notables, and the like. But they do not have to be patched together from isolated statements or

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84 implicit references. They can be found quite explicitly and more or less complete in Colbert's most important single policy statement, his famous mémoire on finances of 1670. They can be expressed as follows: The object of economic statesmanship is to provide the monarch with the funds he needs for order and glory; to a large extent any increase in these funds must come from increases in the volume and circulation of cash, the only way to improve the tax-paying capacity of the population. Of course, non-fiscal devices can help to build up taxable wealth: colonies can be planted and nurtured, home manufacturing improved in quality, internal transportation strengthened, the shipping industry expanded, the idle forced to work, and so forth. And reforms entirely within the fiscal system must not be neglected: budgetary control must be put on a sound basis, the domanial revenues must be built up as much as possible, and the quality of the fiscal bureaucracy improved. But the heart of fiscal policy (and the heart of Colbertism generally) is the effort to increase royal revenues indirectly, through economic improvements. "The universal rule of finances,' according to Colbert, is so to control the economy and the fiscal system that a sufficient quantity of cash will circulate in every corner of the country, giving all the French the opportunity to make profits and pay taxes. The way to lighten the tax load is not to reduce taxes, even if we could, but to 'increase the cash available for general commerce [that is, all transactions] by attracting cash from other countries, keeping it inside the kingdom, and hindering its export, thus giving men the means to profit from it'. * * * Before the end of the Renaissance such views could never have survived in the suffocating atmosphere of royal fiscalism. Why seventeenth-century kings were willing to listen to mercantilist arguments on public finance is another problem: perhaps it was because in the days of Henry IV and Sully it was widely understood that new measures were needed to help the country recover from the disasters of the Wars of Religion; perhaps because the English and the Dutch were demonstrating that concern, for the economy paid off for the government; perhaps because of increasing Christian sensitivity to human suffering during these days of religious revival. Certainly the king was determined not to make wholesale changes in the 'French Peru'. But his financial needs were great; and he could be expected to pay attention to specific and limited proposals (and to the general arguments on which they were based) that promised to increase his revenues and lessen disaffection among his subjects through amelioration of the economy. We all know about Portrait of Maximilien de Béthune, Duke of Sully (1560-1641) by Frans Pourbus the Younger (1569-1622) Source: Collecon of the Chateau de Pau

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85 Henry IV's wish to see even his poorest subject with a chicken in the pot every Sunday; without wanting to detract from the warmth of his emotions, we can understand that the vertgalant realized quite well that the more chickens in the pot, the more sous in the tax-collectors' money chests. In his introduction to Vauban's great work Projet d'une dixme royale (1708) Emile Coonaert says Vauban 'wrote with his fixed on the king, imploring him prayerfully again and again'. But tracts aimed at the king or at one of his more powerful ministers were even more the rule during the heyday of Colbertism than when Vauban wrote. It was the mercantilist's mission not only to search out areas of mutual benefit to the treasury and the economy but to convince the king that the changes they proposed were indeed worthwhile. If France's Estates-General had not died ingloriously in 1614, or if the rebellions before Louis XIV had accomplished anything except strengthening the Crown's hand, perhaps the French could have obtained a fiscal system more responsive to their needs. But as matters stood in Colbert's time, reform had to come from the top. Viewing mercantilism as a programme to improve the treasury through the economy helps us understand much about the development of political economy in this period. Take for example the many agitated discussions on the dangers of royal war chests, a topic that is presented in a thoroughly confusing manner in Heckscher. War chests adequate to military emergencies had been a highly desired objective in both theory and policy during the middle ages and the Renaissance, when they were regarded as devices to allow the Crown to refrain as much as possible from laying down imposts. But the mercantilists pointed with alarm to the bad effects of storing up treasure, which like any form of hoarding - would reduce the circulation of cash, cut into consumption and production, and inevitably dry up the springs of treasury revenue. A king should be extremely careful not to lay up more treasure in any given period than the increase in precious metal entering the country. Again, the puzzling diversity of specific proposals for protecting domestic production is explained by the need for advocates of each reform to convince the Crown that losses in import tariffs would be more than made up by the increases in taxable transactions resulting from the growth of home industry. This emphasis on maximizing taxable transactions also helps us understand why mercantilists should have been so concerned with unemployment, how they justified public works on eco- nomic grounds as well as on la police, and why Colbert insisted that royal subsidies should flow towards provinces where revenues were greatest. Even the famous (and largely vain) campaigns to unify French weights and measures were justified in part by the hope that this would expedite the collection of excise taxes. What Colbert meant to concentrate his attention on, as he told an intendant, was 'exciting the industry of [the king's] subjects... in order to have them to earn back by these means what they are obliged to give him every year through the taille and other taxes'. Mercantilism in general, and mercantilist public finance in particular, remained the dominant framework of the French Crown's fiscal policies until after the middle of the eighteenth century. Following Colbert's death in 1683, there had been an interesting outpouring of criticism against his work, though often even the critics armed themselves for the attack with mercantilist-type arguments. While these 'anti-mercantilists' gained many, followers, including some of the king's own ministers, their programmes were rejected. Mercantilism continued, if not triumphant, at least firmly in command. Even the experiments of John Law, for our purposes, can be labelled 'paper-

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88 Introduction Perhaps the most fundamental question in all of economics is explaining why some countries are rich and others are poor. That was the central question posed by Adam Smith in the Wealth of Nations, justly regarded as the discipline’s foundational text. Smith’s answer is found in the first three chapters of Book I: a country’s income depends upon the productivity of its labor force, which in turn depends on specialization and the division of labor driven by exchange (trade) and limited by the extent of the market. But that explanation leads to another question: why are some countries able to take advantage of the division of labor and others not? Book III, “Of the different Progress of Opulence in different Nations,” promises an answer, but fails to deliver. By far the shortest of the five books in Smith’s treatise, Book III examines the symbiotic relationship between town and country, but does not give a clear answer to the question implicit in its title. Yet, ultimately, Smith does provide an answer to this second question: the security of property rights. Without the protection of property, the division of labor will be severely retarded. Secure property rights provide the necessary incentive to align effort and reward, to enable people to reap what they sow, and to allow individuals and firms to plan for the future and invest in economic improvements. The protection of private property makes economic progress possible and, consequently, in Smith’s view, it is the most important duty of government. In 1755, more than a decade before the publication of the Wealth of Nations, Smith wrote a single sentence that encapsulates much of his thinking about economic development: “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but

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89 peace, easy taxes, and a tolerable administration of justice; all the rest being brought about by the natural course of things.”39 Smith believed that a “tolerable administration of justice” required the establishment of a legal system to protect private property from encroachment and enforce contracts and the repayment of debts. The administration of justice – a term Smith used frequently – was more than just a means of enabling individuals to “secure the fruits of their own labor” and provide an incentive for productive effort, it was also a matter of peacefully adjudicating disputes and ensuring just relations between individuals. And such justice was absolutely essential for society to subsist at all; without the “administration of justice,” society itself would disintegrate and dissolve. The administration of justice did not have to be perfect, just tolerable, and an independent judiciary was critical, in Smith’s view, to ensuring that this would happen. Smith provides a compelling explanation as to why secure property is important to a country’s development and, in turn, why the judicial system is important in ensuring such security. He also provides several illustrations of the impact of secure versus insecure property rights on economic development, much in the way that economists working on comparative economic systems do today. Unfortunately, Smith’s discussion of these issues was scattered throughout the Wealth of Nations, the Theory of Moral Sentiments, and his Lectures on Jurisprudence. Perhaps because of this fragmentary treatment, Smith’s emphasis on the link between the administration of justice and the wealth of nations has never been fully appreciated.40 Smith’s analysis of these matters is worthy of study because only recently have economists returned to focus on the role of a country’s institutions, including the legal system and the security of property rights, in fostering economic development. These factors were neglected both by the classical economists (such as David Ricardo and Thomas Malthus) and by later neoclassical economists (such as Alfred Marshall), although 39 Smith connued: “All governments which thwart this natural course, which force things into another channel, or which endeavour to arrest the progress of society at a parcular point, are unnatural, and to support themselves are obliged to be oppressive and tyrannical” (EPS IV 25). This is taken from a short paper that Smith wrote to establish his priority in these ideas. Smith wrote the piece out of fear that his ideas, which were presented in lectures at the University of Glasgow, might be plagiarized. Dugald Stewart quotes from the manuscript in his memoir of Smith, but unfortunately the document was later destroyed. 40 Previous studies of Smith’s views on the importance of the legal system (Lieberman 2006) and on the role of government in economic development (Robertson 1983) touch on these maers, but only tangenally. Billet (1975) comes closest to making the same point as this paper.

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90 Jeremy Bentham and John Stuart Mill appreciated their importance. Not until the work of Douglass North and others drew renewed attention to the importance of institutions in economic development, and really only in the past decade has there been much research on the role of property rights (Besley and Ghatak 2011), political institutions (Acemoglu and Robinson 2012), and the legal system (La Porta, Lopez-de-Salinas, and Shleifer 2008) in fostering economic growth and development. In doing so, recent research has provided empirical support for many of the propositions that Smith advanced, including the importance of an independent judiciary for ensuring the protection of property and the sanctity of contracts. This paper attempts to provide a coherent account of Smith’s important but neglected views on the relationship between the administration of justice, the security of property, and the wealth of nations. After examining Smith’s views on the importance of The fabricaon of pins from Diderot’s Encyclopedie Source: Wikimedia Commons

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91 having a system of justice so that property rights can be protected, the paper sets out his case for why security of property provides an essential incentive for economic activity to take place. Smith describes the attributes of a system for the impartial administration of justice and proposes a positive theory for its emergence in Great Britain, but has less to say about how it can be established elsewhere. The paper then briefly examines why the classical economists neglected Smith’s views on this matter and how Bentham and Mill extended Smith’s discussion. Finally, the paper concludes by showing how recent empirical studies on “institutions” and the wealth of nations have provided support for the factors that Smith highlighted in his writings more than two centuries ago. Justice and the System of Natural Liberty In the Wealth of Nations, Adam Smith advocated a “system of natural liberty,” a system of free enterprise, as his preferred framework for organizing economic activity. In his view, such a system did not require the government to allocate resources, manage the economy, or direct business enterprises; instead, decentralized, competitive markets could be left to determine what goods and services would be produced.41 To create such a system, the government had to eliminate existing policies that prevented individuals from pursuing any economic activity that they saw fit. Government preferences for selected industries or classes of citizens, or regulations and monopoly privileges that prohibited entry into certain markets or occupations, were unjust, unwise, and should be abolished. As Smith put it: “All systems either of preference or of restraint, therefore, being thus completely taken away, the obvious and simple system of natural liberty establishes itself of its own accord. Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man, or order of men” (WN 41 “The sovereign is completely discharged from a duty, in the aempng to perform which he must always be exposed to innumerable delusions, and for the proper performance of which no human wisdom or knowledge could ever be sucient; the duty of superintending the industry of private people, and of direcng it towards the employments most suitable to the interest of the society” (WN 687).

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92 687).42 However, the caveat in the last sentence – the requirement that individuals “not violate the laws of justice” – suggests that Smith did not really mean that the system would simply “establish itself of its own accord” by having the government step out of the way. Instead, the government had a very important role to play in fostering the conditions under which the system of natural liberty could flourish. Smith believed that government had three main duties: providing for the national defense, “protecting, as far as possible, every member of the society from the injustice or oppression of every other member of it, or the duty of establishing an exact administration of justice,” and establishing and maintaining certain public works (WN 687). This second duty, the administration of justice, was a critical one. In his Lectures on Jurisprudence, Smith held that “the first and chief design of every system of government is to maintain justice; to prevent the members of a society from incroaching on one anothers property, or seizing what is not their own.” Indeed, the very purpose of government was “to give each one the secure and peacable possession of his own property” (LJ 5). Smith viewed the establishment of justice, meaning the protection of each individual’s person and property, as absolutely essential to the very existence of society.43 Smith made these points in the Theory of Moral Sentiments, where he argued that humans have an innate and instinctive reaction against injustice and injury to others.44 The sight of injustice or injury gives rise to resentment, which naturally leads to the desire for punishment or retaliation. This resentment, Smith believed, is “the safeguard of justice,” 42 Of course, Smith was not an advocate of “laissez faire” and acknowledged many excepons to simple system of natural liberty; see Hollander (2013). 43 Smith wrote that “few men have reected upon the necessity of jusce to the existence of society,” but it was a key concern to those wring in the Scosh enlightenment (TMS 89). Other major thinkers also considered the societal and economic importance of jusce and the security of property, but in a somewhat less systemac way (Pascal 1938, Stein 1970, Bowles 1985). 44 “Nature has implanted in the human breast that consciousness of ill-desert, those terrors of merited punishment which aend upon its violaon, as the great safe-guards of the associaon of mankind, to protect the weak, to curb the violent, and to chasse the guilty.” (TMS 86).

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93 while the desire for retribution “seems to be the great law which is dictated to us by Nature” (TMS 79, 82).45 But if there was no established means for punishing injustice, then resentment could not be kept in check because “there is no greater tormentor of the human breast than violent resentment which cannot be gratified” (TMS 119). If resentment at an unpunished injustice was not pacified in some way, individuals might take matters into their own hands and retaliate, possibly threatening the peace and order of society. This could lead to a breakdown in society because no society could function if everyone is injuring one another. As he put it: “Society . . . cannot subsist among those who are at all times ready to hurt and injure one another. The moment that injury begins, the moment that mutual resentment and animosity take place, all the bands of it are broken asunder, and the different members of which it consisted are, as it were, dissipated and scattered abroad by the violence and opposition of their discordant affections. If there is any society among robbers and murderers, they must at least, according to the trite observation, abstain from robbing and murdering one another” (TMS 86).46 In short, the absence of justice can lead to a breakdown of society. As he concluded, “society cannot subsist unless the laws of justice are tolerably observed, as no social intercourse can take place among men who do not generally abstain from injuring one another” (TMS 87). 45 “As mankind go along with, and approve of the violence employed to avenge the hurt which is done by injusce, so they much more go along with, and approve of, that which is employed to prevent and beat o the injury, and to restrain the oender from hurng his neighbors” (TMS 79). 46 Late, Smith also writes: “As the violaon of jusce is what men will never submit to from one another, the public magistrate is under a necessity of employing the power of the commonwealth to enforce the pracce of this virtue. Without this precauon, civil society would become a scene of bloodshed and disorder, every man revenging himself at his own hand whenever he fancied he was injured. To prevent the confusion which would aend upon every man's doing jusce to himself, the magistrate, in all governments that have acquired any considerable authority, undertakes to do jusce to all, and promises to hear and to redress every complaint of injury” (TMS 340).

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94 In this respect, justice plays a much more important role in holding society together than other virtues such as beneficence. Indeed, Smith seemed fond of drawing attention to the limited role that benevolence plays in society.47 In the Theory of Moral Sentiments, he argued that beneficence “is less essential to the existence of society than justice. Society may subsist, though not in the most comfortable state, without beneficence; but the prevalence of injustice must utterly destroy it” (TMS 86). Here Smith memorably compared society to a building, writing that beneficence is an “ornament which embellishes, not the foundation which supports the building,” but justice “is the main pillar that upholds the whole edifice. If it is removed, the great, the immense fabric of human society . . . must in a moment crumble into atoms” (TMS 86).48 What do individuals need to do to behave in a just manner? By Smith’s definition, it is not doing good deeds for others (beneficence), but simply refraining from directly harming them: “Mere justice is, upon most occasions, but a negative virtue, and only hinders us from hurting our neighbor” (TMS 82). Indeed, the “foundation of justice and humanity” is having a “sacred regard” for the life and property of others (TMS 153).49 For example, the poor cannot simply take from the rich, even if that redistribution would pass a utilitarian cost-benefit test, because such an act would inflict harm on others.50 If injustice 47 In the Wealth of Naons, he observed that self-interest, not benecence, is the driving force in a commercial society. As he famously wrote, “it is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but with regard to their own interest” (WN 26-7). 48 David Hume also pointed to jusce as the foundaon of society, arguing before Smith that it was “absolutely requisite to the well-being of mankind and existence of society” (EPM3:2:159) and that “without jusce society must immediately dissolve” (EPM 199).11 Similarly, rules about property that gave stability of possession are “not only useful, but even absolutely necessary to human society” (EPM 501). 49 Indeed, Smith ranked the severity of the infringement in descending order: a person’s life, their property, and their personal rights. “The most sacred laws of jusce, therefore, those whose violaon seems to call loudest for vengeance and punishment, are the laws which guard the life and person of our neighbor; the next are those which guard his property and possessions; and last of all come those which guard what are called his personal rights, or what is due to him from the promises of others” (TMS 84). 50 “One individual must never prefer himself so much even to any other individual, as to hurt or injure that other, in order to benet himself, though the benet to the one should be much greater than the hurt or injury to the other. The poor man must neither defraud nor steal from the rich, though the acquision might be much more benecial to the one than the loss could be hurul to the other.” Not only would that injury be “contrary to

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95 – harm to someone’s person or property or rights – naturally gives rise to the demand for retribution, what was needed to tame this potentially dangerous passion and prevent it from destroying society? The answer is to satisfy the demand for justice by punishing the unjust act by establishing a system for the administration of justice and the resolution of disputes. This would resolve the injustice peaceably and pacify those potentially destructive passions.51 Smith saw this as the original purpose of government, believing that “the object of Justice is the security from injury, and it is the foundation of civil government” (LJ 398). The institution of government arose for the protection of life and property: “The first and chief design of every system of government is to maintain justice; to prevent the members of a society from encroaching on one another’s property, or seizing what is not their own. The design here is to give each one the secure and peaceable possession of his own property . . . Law and government, too, seem to propose no other object but this, they secure the individual who has enlarged his property, that he may peaceably enjoy the fruits of it” (LJ 5).52 In Smith’s view, once individuals and groups began to accumulate property, they created an institution – government – for their protection against domestic and foreign encroachment. “The acquisition of valuable and extensive property, therefore, necessarily requires the establishment of civil government,” he wrote. “Where there is no property, or at least none that exceeds the value of two or three days labour, civil government is not so necessary.” Thus, “property and civil government very much depend on one another” (LJ 401). Of course, this means that government protects those who have property from those nature,” but any such infringement would deserve punishment “for having thus violated one of those sacred rules, upon the tolerable observaon of which depend the whole security and peace of human society” Why? “for one man to deprive another unjustly of anything, or unjustly to promote his own advantage by the loss or disadvantage of another, is more contrary to nature, than death, than poverty, than pain, than all the misfortunes which can aect him, either in his body, or in his external circumstances” (TMS 138). 51 This is another example of Rosenberg’s (1960) classic interpretaon of Smith as exploring the role of instuons in diverng destrucve passions into serving construcve goals. 52 In the Wealth of Naons, Smith repeated that “the duty of establishing an exact administraon of jusce” meant “protecng, as far as possible, every member of the society from the injusce or oppression of every other member of it” (WN 708-9).

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96 who do not.53 Smith admitted that “civil government, so far as it is instituted for the security of property, is in reality instituted for the defence of the rich against the poor, or of those who have some property against those who have none at all” (WN 715).54 Smith accepted that such a system led to and perpetuated inequality – “wherever there is great property there is great inequality” – and suggested that inequality was a natural condition that would always exist.55 Smith was unapologetic for the resulting inequality that came with the protection of property. The protection of property served the important purpose of preventing people from getting rich simply by taking from others. An economy simply could not function if some groups were constantly taking from others. “[I]t is next to impossible that any accumulation of stock can be made” where there is plundering, pillaging, and perpetual wars. “When people find themselves every moment in danger of being robbed of all they possess, they have no motive to be industrious,” he argued. “Nothing can be more an obstacle to the progress of opulence” (LJ 522).56 Consequently, the poor would enjoy much higher standard of living under a system in which property was kept secure than one in which property was left insecure. Security of possession was a precondition for 53 “Men may live together in society with some tolerable degree of security, though there is no civil magistrate to protect them from the injusce of those passions. But avarice and ambion in the rich, in the poor the hatred of labour and the love of present ease and enjoyment, are the passions which prompt [them] to invade property, passions much more steady in their operaon, and much more universal in their inuence .............................................................................................................................. The auence of the rich excites the indignaon of the poor, who are oen both driven by want, and prompted by envy, to invade his possessions. It is only under the shelter of the civil magistrate that the owner of that valuable property, which is acquired by the labour of many years, or perhaps of many successive generaons, can sleep a single night in security. He is at all mes surrounded by unknown enemies, whom, though he never provoked, he can never appease, and from whose injusce he can be protected only by the powerful arm of the civil magistrate connually held up to chasse it” (WN 709-10). 54 Therefore, “laws and government may be considered in this and indeed in every case as a combinaon of the rich to oppress the poor, and preserve to themselves the inequality of the goods which would otherwise be soon destroyed by the aacks of the poor, who if not hindered by the government would soon reduce the others to an equality with themselves by open violence” (LJ 208). 55 “By law and government all the dierent arts ourish, and that inequality of fortune to which they give occasion is suciently preserved” (LJ 213). 56 Smith was exposed to these ideas from his teacher, Francis Hutcheson. In his 1726 book An Inquiry into the Original of Our Ideas of Beauty and Virtue, Hutcheson (2004, 284-85) discusses the incenve eects of property.

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97 economic progress from which all groups could prosper.20 “The establishment of perfect justice, perfect liberty, and of perfect equality, is the very simple secret which most effectually secures the highest degree of prosperity” to all classes of citizen, he argued (WN 669). In this context, Smith examined the role of secure property rights in promoting the wealth of nations. Security and the Incentives for Economic Activity In the Wealth of Nations, Smith made this sweeping summary statement: “Commerce and manufactures can seldom flourish long in any state which does not enjoy a regular administration of justice, in which the people do not feel themselves secure in the possession of their property, in which the faith of contracts is not supported by law, Property Protected a la Francoise, cartoon by Charles Ancell ca. 1752- ca.1800 Source: The Library of Congress

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98 and in which the authority of the state is not supposed to be regularly employed in enforcing the payment of debts from all those who are able to pay. Commerce and manufactures, in short, can seldom flourish in any state in which there is not a certain degree of confidence in the justice of government” (WN 910). Note that Smith identifies three factors associated with the administration of justice: the security of possessions, the fulfillment of contracts, and the payment of debts. This is the closest that Smith actually comes to defining what we today call “property rights,” which he viewed as the security of possession (and presumably freedom of disposal) and the enforcement of promises (contracts and debts). Smith illustrated his statement by comparing countries where property was secure to countries where property was insecure. In places where property was secure, people would be willing to accumulate capital and put it to work; in places where property was insecure, people would lack the incentive to accumulate capital and would seek to move or hide what capital they possessed. By slowing capital accumulation, a key factor in the wealth of nations, the insecurity of property held back economic development. “In all countries where there is tolerable security, every man of common understanding will endeavour to employ whatever stock he can command in procuring either present enjoyment or future profit,” he wrote. “In those unfortunate countries, indeed, where men are continually afraid of the violence of their superiors, they frequently bury and conceal a great part of their stock, in order to have it always at hand to carry with them to some place of safety, in case of their being threatened with any of those disasters to which they consider themselves as at all times exposed” (WN 284-85). As examples of the latter he pointed to Turkey, India, and most governments in Asia. Differences in the security of property rights could even be found within countries. He contrasted the prosperity of cities, where the administration of justice and the enforcement of property rights was effective, with the country, where such enforcement was more tenuous: “Order and good government, and along with them the liberty and security of individuals, were . . . established in cities at a time when the occupiers of land in the country were exposed to every sort of violence. But men in this defenceless

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99 state naturally content themselves with their necessary subsistence, because to acquire more might only tempt the injustice of their oppressors. On the contrary, when they are secure of enjoying the fruits of their industry, they naturally exert it to better their condition, and to acquire not only the necessaries, but the conveniences and elegancies of life” (WN 405). Smith did not believe that the administration of justice had to be perfect, just as other government policies did not have to be perfect, to allow economic growth to occur. Instead, the administration of justice only had to be “tolerable.”21 The underlying, driving force that generated economic progress is the desire of individuals to improve their condition. As he put it, “the great purpose of human life” is to “better our condition” (TMS 50). This motive was powerful enough to overcome many obstacles put in its way, even an imperfect administration of justice. As Smith famously said, “The uniform, constant, and uninterrupted effort of every man to better his condition, the principle from which publick and national, as well as private opulence is originally derived, is frequently powerful enough to maintain the natural progress of things toward improvement, in spite both of the extravagance of government, and of the greatest errors of administration” (WN 343). Indeed, Smith criticized Francois Quesnay, the French physiocrat, for his belief that “the exact regimen of perfect liberty and perfect justice” was a prerequisite for economic progress: “He seems not to have considered that, in the political body, the natural effort which every man is continually making to better his own condition is a principle of preservation capable of preventing and correcting, in many respects, the bad effects of a political œconomy, in some degree, both partial and oppressive. Such a political œconomy, though it no doubt retards more or less, is not always capable of stopping altogether the natural progress of a nation towards wealth and prosperity, and still less of making it go backwards. If a nation could not prosper without the enjoyment of perfect liberty and perfect justice, there is not in the world a nation which could ever have prospered. In the political body, however, the wisdom of nature has fortunately made ample provision for remedying many of the bad effects of the folly and injustice of man, in the same manner as it has done in the natural

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100 body for remedying those of his sloth and intemperance” (WN 674). The basis for Smith’s belief that the effort of every individual to better their condition could overcome the extravagance of government and the errors of administration was the historical experience of Great Britain. Though government policies had been far from perfect, Britain’s economic condition had steadily improved over time because individuals had been allowed to pursue their own interests within an institutional framework that protected property. The security of property through the administration of justice encouraged capital accumulation and allowed economic progress to take place more than bad government policies retarded that progress: “That security which the laws in Great Britain give to every man that he shall enjoy the fruits of his own labour is alone sufficient to make any country flourish, notwithstanding these and twenty other absurd regulations of commerce The natural effort of every individual to better his own condition, when suffered to exert itself with freedom and security, is so powerful a principle, that it is alone, and without any assistance, not only capable of carrying on the society to wealth and prosperity, but of surmounting a hundred impertinent obstructions with which the folly of human laws too often incumbers its operations; though the effect of these obstructions is always more or less either to encroach upon its freedom, or to diminish its security” (WN 540). Elsewhere he pointed out that “In the midst of all exactions of government, this capital has been silently and gradually accumulated by the private frugality and good conduct of individuals, by their universal, continual, and uninterrupted effort to better their own condition. It is this effort, protected by law and allowed by liberty to exert itself in the manner that is most advantageous, which has maintained the progress of England towards opulence and improvements in almost all former times, and which, it is to be hoped, will do so in all future times” (WN 345). Smith was famous for his critique of the monopolies and exclusive privileges that existed under the mercantile system, but at least, he observed, England allowed freedom of trade without government direction. That freedom to trade, along with the impartial

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101 administration of justice, made all the difference: “In England, . . . the natural good effects of the colony trade, assisted by other causes, have in a great measure conquered the bad effects of the monopoly. These causes seem to be: the general liberty of trade, which, notwithstanding some restraints, is at least equal, perhaps superior, to what it is in any other country; the liberty of exporting, duty free, almost all sorts of goods which are the produce of domestic industry to almost any foreign country; and what perhaps is of still greater importance, the unbounded liberty of transporting them from any one part of our own country to any other without being obliged to give any account to any public office, without being liable to question or examination of any kind; but above all, that equal and impartial administration of justice which renders the rights of the meanest British subject respectable to the greatest, and which, by securing to every man the fruits of his own industry, gives the greatest and most effectual encouragement to every sort of industry” (WN 610). In this regard, England stood apart from other European countries, such as Spain and Portugal, which had equally bad policies but which lacked both free internal trade and secure property rights. Consequently, “this bad policy is not in those countries counter-balanced by the general liberty and security of the people. Industry is there neither free nor secure, and the civil and ecclesiastical governments of both Spain and Portugal are such as would alone be sufficient to perpetuate their present state of poverty, even though their regulations of commerce were as wise as the greater part of them are absurd and foolish” (WN 541). As noted earlier, Smith did not limit the administration of justice to simply the security of possession, but also the enforcement of contracts and the ability to collect on debts, although he did not seem to emphasize these factors as much. With regard to contracts, Smith thought that “imperfections in the law with regard to contracts” was “another thing which greatly retarded commerce” in Europe after the fall of the Roman Empire (LJ 528).57 In explaining the relative poverty of Spain and Portugal, Smith pointed 57 Smith’s view that a central duty of the sovereign was the preservaon of property via a proper legal framework is also emphasized in the following: “When the law does not enforce the performance of

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102 to the inability to collect on sovereign debts. Those countries remained poor for various reasons, “but above all, that irregular and partial administration of justice, which often protects the rich and powerful debtor from the pursuit of his injured creditor, and which makes the industrious part of the nation afraid to prepare goods for the consumption of those haughty and great men to whom they dare not refuse to sell upon credit, and from they are altogether uncertain of repayment” (WN 610). Smith also pointed to China, where economic development was held back because the protection of property was unequal and uneven. He speculated that the country could be doing much better with a different set of laws and institutions. “China seems to have been long stationary, and had probably long ago acquired that full complement of riches which is consistent with the nature of its laws and contracts, it puts all borrowers nearly upon the same foong with bankrupts or people of doubul credit in beer regulated countries. The uncertainty of recovering his money makes the lender exact the same usurious interest which is usually required from bankrupts. Among the barbarous naons who over-ran the western provinces of the Roman Empire, the performance of contracts was le for many ages to the faith of the contracng pares. The courts of jusce of their kings seldom intermeddled in it. The high rate of interest, which took place in those ancient mes, may perhaps be partly accounted for from this cause” (WN 112). The economically stagnant port of Seville in the mid 18th Century Source: City Council of Seville

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103 institutions. But this complement may be much inferior to what, with other laws and institutions, the nature of its soil, climate, and situation might admit of. A country which neglects or despises foreign commerce, and which admits the vessels of foreign nations into one or two of its ports only, cannot transact the same quantity of business which it might do with different laws and institutions. In a country too, where, though the rich or the owners of large capitals enjoy a good deal of security, the poor or the owners of small capitals enjoy scarce any, but are liable, under the pretence of justice, to be pillaged and plundered at any time by the inferior mandarines, the quantity of stock employed in all the different branches of business transacted within it, can never be equal to what the nature and extent of that business might admit” (WN 112). Smith also believed that the administration of justice trumped the availability of natural resources as a factor in economic development. In 1779, when asked why Ireland remained poor and whether manufactures from the country might ever pose a threat to those in England, Smith replied that he doubted Ireland would develop extensive manufacturing because it lacked coal and wood. But he added that the lack of “order, police, and a regular administration of justice both to protect and to restrain the inferior ranks of people, [are] articles more essential to the progress of industry than both coal and wood put together” and that its absence would hold Ireland back “as long as it continues to be divided between two hostile nations, the oppressors and the oppressed, the protestants and the Papists” (Corr 243-44).58 Of course, the administration of justice was a valuable service that had to be paid for. For this reason, although he sympathized with the Americans in their brewing conflict with Britain, he also believed that they owed their economic success to British institutions and therefore they should pay taxes to defray the cost of protection provided by the crown. “It is not contrary to justice that both Ireland and America should contribute towards the discharge of the public debt of Great Britain. That debt has been contracted in support of the government established by the Revolution, a 58 Of course, he hastened to add that, should Ireland, “in consequence of freedom and Good Government,” develop industry equal to that of England, “so much the beer would it be” for both countries.

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104 government to which the Protestants of Ireland owe, not only the whole authority which they at present enjoy in their own country, but every security which they possess for their liberty, their property, and their religion; a government to which several of the colonies of America owe their present charters, and consequently their present constitution, and to which all the colonies of America owe the liberty, security, and property which they have ever since enjoyed. (WN 944). In sum, Smith believed that security of possession – protecting property from encroachment by others – and the enforcement of promises (contracts and debt) were key factors in providing an incentive for investment and economic growth. While Smith did not discuss the importance of the administration of justice in securing property rights in any single part of the Wealth of Nations, as he did with the division of labor, he referred to it repeatedly throughout his work. But did he offer any guidance as to how the tolerable administration of justice could be established? Establishing a Tolerable Administration of Justice Smith’s plan for a third book on “the general principles of law and government” never came to fruition, so he never went into detail on how the administration of justice was to be provided (TMS 3). But he does provide extensive hints about his views. In all his works, Smith argued that the “impartial” administration of justice required a judicial system that was independent of executive power. An independent judiciary was “the foundation of that greater Security which we now enjoy both with regard to Liberty, property, and Life” (LRBL 176). By contrast, if the judiciary was controlled by the executive, the administration of justice would be liable to corruption and abuse.59 As he put it: “When the judicial is united to the executive power, it is scarce possible that justice should not frequently be sacrificed to what is vulgarly called politics. The persons 59 “When the sovereign or chief exercised his judicial authority in his own person, how much soever he might abuse it, it must have been scarce possible to get any redress, because there could seldom be anybody powerful enough to call him to account” (WN 717).

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105 entrusted with the great interests of the state may, even without any corrupt views, sometimes imagine it necessary to sacrifice to those interests the rights of a private man. But upon the impartial administration of justice depends the liberty of every individual, the sense which he has of his own security. In order to make every individual feel himself perfectly secure in the possession of every right which belongs to him, it is not only necessary that the judicial should be separated from the executive power, but that it should be rendered as much as possible independent of that power” (WN 723). What could be done to ensure judicial independence so that it was not compromised by politics? Here Smith describes some of the characteristics of such a system without saying how it could be brought about. Specifically, judges “should not be liable to be removed from his office according to the caprice of that [executive] power.” And a judge’s salary should not be paid at the discretion of the executive or by those involved in the legal process.60 Instead, it should be paid out of ordinary revenue because a system of justice benefits everyone in society.61 Smith also praised juries as a valuable institution for ensuring the impartial administration of justice: “Nothing can be a greater security for life, liberty, and property than this institution,” he argued. “The law of England, always the friend of liberty, deserves praise in no instance more than in the carefull provision of impartial juries” (LJ 425). Although Smith did not give advice as to how to establish an independent judiciary, he provided an historical account of how they had arisen in England. As Smith had already explained, with the accumulation of property there came a demand for protective services. Property owners were willing to create an institution – government – to do so, or to pay the sovereign to protect their land and possessions and to levy fines on those found guilty of violating someone’s property. This tied revenue to the 60 “This scheme of making the administraon of jusce subservient to the purposes of revenue could scarce fail to be producve of several very gross abuses. The person who applied for jusce with a large present in his hand was likely to get something more than jusce; while he who applied for it with a small one was likely to get something less” (WN 716). 61 “The expence of the administraon of jusce, too, may, no doubt, be considered as laid out for the benet of the whole society. There is no impropriety, therefore, in its being defrayed by the general contribuon of the whole society” (WN 814).

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106 administration of justice. Speaking about the period after the fall of the Roman empire with regard to the Germans in Europe and the Tartars of Asia, Smith held that “the administration of justice not only afforded a certain revenue to the sovereign, but to procure this revenue seems to have been one of the principal advantages which he proposed to obtain by the administration of justice.” However, Smith noted, “[t]his scheme of making the administration of justice subservient to the purposes of revenue could scarce fail to be productive of several very gross abuses” and it led to corruption (WN 716).62 Indeed, in Europe during this period “the administration of justice appears for a long time to have been extremely corrupt; far from being quite equal and impartial even under the best monarchs, and altogether profl igate under the worst” (WN 717). “During the continuance of this state of things, therefore, the corruption of justice . . . scarce admitted of any effectual remedy” (WN 718). Smith offered two historical explanations for how judiciaries became independent from executives. One story is that the increasing threat of foreign invasion or conflict required the sovereign to shift attention to ensuring national defense against foreign attack. The higher expenses of maintaining national defense required a new set of taxes, rather than just collecting fees for the administration of justice. This separated revenue from the administration of justice and led to the delegation of the administration of justice to others rather than the person of the sovereign (WN 718). Elsewhere, Smith argues the separation was simply due to the growing number of tasks facing the executive and the need to take advantage of the division of labor. This division of labor also helped regularize the administration of justice (since lower authorities could not collect fees for themselves) making it less corrupt and insulating it from politics. As he put it: “The separation of the judicial from the executive power seems originally to have arisen from the increased business of the society, in consequence of its 62 “The person who applied for jusce with a large present in his hand was likely to get something more than jusce; while he who applied for it with a small one was likely to get something less. Jusce, too, might frequently be delayed in order that this present might be repeated. The amercement, besides, of the person complained of, might frequently suggest a very strong reason for nding him in the wrong, even when he had not really been so. That such abuses were far from being uncommon the ancient history of every country in Europe bears witness” (WN 716-17).

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107 increasing improvement. The administration of justice became so laborious and so complicated a duty as to require the undivided attention of the persons to whom it was entrusted” and so the task was delegated. (WN 722). In either case, whether it was an external threat that led to more revenue demands or the eventual division of labor within government, judicial independence was introduced “by chance”: “This Separation of the province of distributing Justice between man and man from that of conducting publick affairs and leading Armies is the great advantage which modern times have over antient, and the foundation of that greater Security which we now enjoy both with regard to Liberty, property and Life. It was introduced only by chance and to ease the Supreme Magistrate of this the most Laborious and least Glorious part of his Power, and has never taken place untill the increase of Refinement and the Growth of Society have multiplied business immensely” (LRBL 176). Thus, Smith describes a well-functioning, independent judicial system, but does not have much to say on how it can be established. He did praise the British system, with the House of Commons and an independent judiciary, for having “government properly restrained” and ensuring something close to “a perfect security to liberty and property” (LJ 422).63 But he does not elaborate on how other societies could develop those institutional checks on executive power. 63 Smith pointed to the North American colonies as having instuons that limited the power of the execuve. “In everything, except their foreign trade, the liberty of the English colonists to manage their own aairs their own way is complete. It is in every respect equal to that of their fellow-cizens at home, and is secured in the same manner, by an assembly of the representaves of the people, who claim the sole right of imposing taxes for the support of the colony government. The authority of this assembly over-awes the execuve power, and neither the meanest nor the most obnoxious colonist, as long as he obeys the law, has anything to fear from the resentment, either of the governor or of any other civil or military ocer in the province” (WN 584-85).

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108 Lost Lessons: From Political Economy and Economics Most of the English classical economists writing in the early nineteenth century did not elaborate on the importance of property rights for promoting economic development. David Ricardo, Thomas Malthus, Nassau Senior, Robert Torrens, and others, were more interested in questions of rent, value, and population than in identifying the underlying prerequisites for economic development, which were largely satisfied in Britain.64 Most of the classical economists did not completely ignore the importance of property rights, but only mentioned it in a paragraph or two without much analysis.65 They also followed Senior in dismissing such questions as being in the realm of politics rather than political economy.66 They did not feel the need to consider the political system that would best provide for the security of possession, but rather began shifting the debate from political 64 Ricardo (1951, 204) does dissent from Adam Smith’s view on land taxes by saying “Rent oen belongs to those who, aer many years of toil, have realized their gains, and expended their fortunes in the purchase of land or houses; and it certainly would be an infringement of that principle which should ever be held sacred, the security of property, to subject it to unequal taxaon.” 65 For example, Malthus (1820, 346, 251) noted that “No people can be much accustomed to form plans for the future, who do not feel assured that their industrious exerons, while fair and honourable, will be allowed to have free scope; that that the property which they either poses, or may acquire, will be secured to them by a known code of just laws imparally administered.” But this was a maer of polics: “Security of property, without a certain degree of which, there can be no encouragement to individual industry, depends mainly upon the polical constuon, the excellence of its laws, and the manner in which they are administered.” Other less notable authors, such as Richard Whately (1831, 144), also called brief aenon to the importance of such security for ensuring that the division of labor would take place: “Let a Naon, though sll in a rude state, possess the knowledge of some of the simplest and most essenal arts—a certain degree of division of labour—and above all a recognion, and tolerable security, of property; and it will not fail, unless very grievously harassed by wars, inundaons, or some such calamies, to increase its wealth, and to advance, more or less, in civilizaon. I have spoken of security of property as the most essenal point, because, though no progress can be made without a division of labour, this could neither exist without security of property, nor could fail to arise with it. No man, it is plain, could subsist by devong himself either wholly or parally to the producon of one kind of commodity, trusng to the supply of his other wants by exchanging part of that commodity with his neighbours, unless he were allowed to keep it, and to dispose of it, as his own. On the other hand, let property be but established and secured, and the division of labour would be the infallible result; because the advantages of it to each individual, in each parcular instance, would catch the aenon of every one who possessed but a moderate degree of forethought.” 66 “To explain what are the causes of the relave increase of subsistence and populaon is rather the business of a writer on polics than of a Polical Economist. At present we will only say that knowledge, security of property, freedom of internal and external exchange, and equal admissibility to rank and power, are the principal causes which at the same me promote the increase of subsistence, and, by elevang the character of the people, lead them to keep at a slower rate the increase of their numbers” (Senior 1850, 49).

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109 economy to more technical questions of economics. Because the security of property rights was a significant theme in Adam Smith’s work, and that of the Scottish enlightenment more broadly, it may not come as a surprise that the classical economist who stressed its importance most was from Scotland, John Ramsay McCulloch. In the first edition of his Principles of Political Economy, McCulloch (1825, 73-4) argued that security of property, trade and exchange, and capital accumulation were the three “circumstances, without whose conjoint existence and co-operation” countries would never move from poverty to affluence. Of these, “security of property is the first and most indispensable requisite to the production of wealth.” Like his Scottish predecessors, he held that secure property is “the foundation on which almost all the other institutions of society rest,” but he avoided speculation about the origins of property. By the fourth and final edition of his book, McCulloch (1849) expanded his discussion of “the utility, or rather necessity, of making some general regulations, that should secure to every individual the peaceable enjoyment of the produce he had raised, and of the ground he had cultivated and improved.” McCulloch strongly rejected the idea that securing property rights helped the rich at the expense of the poor, holding that all classes benefit from the system that allowed a country to grow in wealth. Property, he insisted, was not the cause of poverty but the source of wealth.67 McCulloch mentioned the incentive effects of aligning effort and reward and allowing individuals to enjoy the fruits of their labor.68 But he also recognized that it may sometimes be in the interest of society to appropriate private property for a public purpose, although he warned that property “should never be wantonly taken for such purposes” until it had been reviewed by a competent tribunal and “full compensation” paid to the property owners (89). 67 McCulloch (1849, 82) stated that “where property is not publicly guaranteed, men must look on each other as enemies rather than as friends. The idle and improvident are always desirous of seizing on the wealth of the laborious and frugal; and, were they not restrained by the strong arm of the law from prosecung their aacks, they would, by generang a feeling of insecurity, eectually check both industry and accumulaon, and sink all classes to the same level of hopeless misery as themselves.” 68 “If A climb a tree and bring down fruit, which, as soon as he comes to the ground, is taken from him by others, he will not again engage in any similar undertakings, ll he be well assures that he shall be permied exclusively to the prot by what has been obtained through his sole exerons; nor will others engage in any such undertaking without a similar assurance” (McCulloch 1849, 80).

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110 Finally, McCulloch argued that economic development was nearly impossible when governments did not respect property rights: “The finest soil, the finest climate, and the finest intellectual powers, can prevent no people from becoming barbarous, poor, and miserable, if they have the misfortune to be subjected to a government which does not respect and maintain the right of property. This is the greatest of calamities. The ravages of civil war, pestilence, and famine, may be repaired; but nothing can enable a nation to contend against the deadly influence of an established system of violence and rapine.”69 “Let us not, therefore, deceive ourselves,” he concluded, “by supposing that it is possible for any people to emerge from barbarism, or to become wealthy, prosperous, and civilized, without the security of property.” Because of their broader interest in law and government, in addition to economics, Jeremy Bentham and John Stuart Mill showed a much greater interest in exploring the role of property rights, although in different ways. Bentham, of course, put enormous stress on the important of laws, legislation, and the legal system as a foundation of government and the economy. In Principles of the Civil Code, Bentham (1843, 307, 311) argued that the objective of law is security, which is “the foundation of life, of subsistence, of abundance, of happiness; everything depends on it.” Law helps establish security and all the benefits that follow; “Without law there is no security; and consequently no abundance, nor even certain subsistence.” 69 McCulloch (1849, 84) pointed to contemporary examples of this, saying that “the want of security, or of any lively and well-founded expectaon among the inhabitants of their being permied freely to dispose of the fruits of their industry, is the principal cause of the present wretched state of the Ooman dominions.”

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111 Bentham (1843, 308) argued that law is essential because “property is entirely the creature of law”. By protecting property, law provides security, aligns effort and reward, and provides the incentive for work and investment: “The Law does not say to a man, ‘Work and I will reward you;’ but it says to him, ‘Work, and by stopping the hand that would take them from you, I will ensure to you the fruits of your labor, its natural and sufficient reward, which, without me, you could not preserve.’ If industry creates, it is the law which preserves: if, at the first moment, we owe everything to labour, at the second, and every succeeding moment, we owe everything to the law.” The assurance that investment today will be protected against confiscation tomorrow gives everyone an expectation about one’s property in the future. “If I despair of enjoying the fruits of my labour, I shall only think of living from day to day: I shall not undertake labours which will only benefit my enemies” (310). Bentham also believed that an oppressive government could prove to be a major obstacle in this regard. A temporary or passing calamity that destroys one’s possessions or The ‘auto icon’ of Jeremy Bentham (1748-1832) at University College, London Source: UCL Libraries

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112 productive capital, he argued, does not destroy the spirit of industry and the adverse effects would only be temporary. By contrast, “nothing less is requisite for freezing up industry, than the operation of a permanent domestic cause, such as a tyrannical government,” which can cause lasting damage. Yet, unlike Smith, Bentham opposed having an independent judiciary that was not accountable to the legislature or the public. He was also skeptical of lawyers and the jury system. Instead, Bentham placed his faith in a legislature that was accountable to the people to ensure secure property rights. John Stuart Mill agreed with many but dissented from several of Bentham’s conclusions. For Mill as well, the administration of justice was the basis of civilization.70 In his Principles of Political Economy, Mill described the primary reasons why productivity differences existed across countries (including natural advantages such as the fertility of land and the skill and knowledge of the workforce) and the secondary reasons. Of the secondary reasons, Mill ranked “security” against predation as the most important. Once again, such security was necessary to align reward with effort. As Mill (1909 [1848], 115) put it, “the efficiency of industry may be expected to be great, in proportion as the fruits of industry are insured to the person exerting it: and that all social arrangements are conducive to useful exertion, according as they provide that the reward of every one for his labour shall be proportioned as much as possible to the benefit which it produces.”71 When such security is not provided, “it means uncertainty whether they who sow shall reap, whether they who produce shall consume, and they who spare today shall enjoy tomorrow. It means not only that labour and frugality are not the road to acquisition, but that violence is. When person and property are to a certain degree insecure, all the possessions of the weak are at the mercy 70 “In savage life there is lile or no law, or administraon of jusce; not systemac employment of the collecve strength of society, to protect individuals against injury from one another We accordingly call a people civilized, where the arrangements of society, for protecng the persons and property of its members, are suciently perfect to maintain peace among them” (Mill 1963, 28: 120). 71 In his Consideraons upon Representave Government, Mill argued that “The greater security of property is one of the main condions and causes of greater producon, which is progress in its more familiar and vulgarest aspect.” (386, Consideraons.) Mill also believed that “the security of person and property are the rst social interests not only of the rich but of the poor, is obvious to common sense” (CW-JSM, 18: 80).

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113 of the strong” (Mill 1909 [1848], 881). Mill believed that providing security was an important function of government and that “person and property cannot be considered secure where the administration of justice is imperfect.” However, like Smith, Mill did not believe that the administration of justice had to be absolutely perfect. Mill argued that “in attaching to this great requisite, security of person and property, the importance which is justly due to it, we must not forget that even for economical purposes there are other things quite as indispensable, the presence of which will often make up for the very considerable degree of imperfection in the protective arrangements of government” (882). For example, he pointed out that the domestic unrest afflicting Flanders and the Hanseatic League had not been an insurmountable obstacle to economic progress. Even though government failed to provide adequate protection for property in these cases, individuals could still get a “tolerable means of self-protection.” More than Adam Smith had, Mill stressed that government itself was often the problem, not just because its provision of security was inadequate but because it was a source of insecurity. Mill distinguished between security as protection against others by the government and security from the government itself, judging the latter as more important. “Where a person known to possess anything worth taking away, can expect nothing but to have it torn from him, with every circumstance of tyrannical violence, by the agents of a rapacious government, it is not likely that many will exert themselves to produce much more than necessaries” (Mill 1909 [1848], 113). Like McCulloch and Bentham, Mill believed that government predation was much more harmful than private predation. “The only insecurity which is altogether paralyzing to the active energies of producers is that arising from the government or from persons invested with authority. Against all other depredators there is a hope of defending oneself” (113-14). He elaborated on this point this way: “Insecurity paralyzes only when it is such in nature and in degree that no energy of which mankind in general are capable affords any tolerable means of self-protection. And this is a main reason why oppression by the government, whose power is generally irresistible by any efforts that can be made by individuals, has so much more baneful an effect on the springs of national prosperity, than almost any degree of lawlessness and turbulence under free institutions. Nations have acquired

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114 some wealth, and made some progress in improvement, in states of social union so imperfect as to border on anarchy: but no countries in which the people were exposed without limit to arbitrary exactions from the officers of government every yet continued to have industry or wealth. A few generations of such a government never fail to extinguish both” (882). He concluded that “difficulties and hardships are often but an incentive to exertion: what is fatal to it, is the belief that it will not be suffered to produce its fruits” (883). And that was the problem with government acting as a taker of property. Unlike Bentham, Mill did not place great emphasis on law as securing property rights. “Much of the security of person and property in modern nations is the effect of manners and opinion rather than law,” Mill argued. For example, much of “the security of property in England is owing (except as regards open violence) to opinion, and the fear of exposure, much more than to the direct operation of the law and the courts of justice” (115). In particular, Mill also pointed to two problems with the law. First, the legal system was costly and slow and could even “make it preferable to submit to any endurable amount of the evils which they are designed to remedy.” Second, the laws themselves could be either defective in protecting “idleness and prodigality against their natural consequences” or unjust in protecting inequitable institutions such as slavery. Mill did not elaborate on these matters as much as he could have. The economic effects of security, property, law and customs were all important, but unfortunately Mill (1909, 888) said that “these considerations introduce considerations so much larger and deeper than those of political economy, that I only advert to them in order not to pass wholly unnoticed things superior in importance to those of which I treat.”72 72 Mill stood apart from his predecessors (with the excepon of Malthus) on one crical issue that was overlooked by most of his predecessors: he was willing to ask hard quesons about the origin of the exisng distribuon of property ownership. Whereas many of his predecessors seemed to take that distribuon as given, Mill (1909, 208) quesoned the fairness of that distribuon. “The social arrangements of modern Europe commenced from a distribuon of property which was the result, not of just paron, or acquision by industry, but of conquest and violence: and notwithstanding what industry has been doing for many centuries to modify the work of force, the system sll retains many and large traces of its origin. The laws of property have never yet conformed to the principles on which the juscaon of private property rests ..............................................They have not held the balance fairly between human beings, but have heaped impediments upon some, to give advantage to others; they have purposely fostered inequalies, and prevented all from starng fair in the race.” For that reason, Mill was will to consider policies to oset those inequalies, such as land reform and limits on inheritances. For the

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115 However, Mill was the last major political economist to discuss these issues. By the late nineteenth century, with the marginal revolution of W. Stanley Jevons and Philip Wicksteed, and the emergence of neoclassical economics and Alfred Marshall, interest in property rights and the wealth of nations largely faded away. Empirical Evidence on Smith’s Interpretation For decades after Adam Smith and John Stuart Mill pointed to the importance of secure property rights for economic growth and development, most economists chose to focus on other matters. Not until Douglass North and others began writing about the importance of institutions, and the incentives that they create, as shaping economic growth did the economics profession return to this set of issues.73 Since then, however, there have been innumerable empirical and historical studies on the role of property rights in shaping economic outcomes, including the wealth of nations.74 This section will focus on two aspects of this large literature as it relates to Adam Smith’s views. The first is an economic question: will a country providing greater security to property rights enjoy a higher per capita income, other things being equal? The second is a political question: is an independent judiciary the key political institution necessary to ensure greater security to property rights? The demonstration of statistical causality between property rights – to the extent that such rights can be measured – and a country’s per capita income has been elusive. An early paper by Scully (1988) showed that countries with open political institutions that enormous contemporary debate in Britain on the relaonship between property and poverty, see Horne 1990. 73 See, for example, North and Thomas (1973) and North (1991). Weingast (1993, 1997) has also focused on the crical queson of the structure of polics that is required to ensure that government does not become predatory and infringe on property rights. Adam Smith seems to have agreed with the contenon by North and Weingast (1989) that the Glorious Revoluon of 1688 gave the country beer polical instuons for economic acvity, marking a break-point in Britain’s economic development. Smith menoned that the revoluon “perfected” the legal security for individuals to enjoy the fruits of their labor. “That security which the laws in Great Britain give to every man that he shall enjoy the fruits of his own labour is alone sucient to make any country ourish, notwithstanding these and twenty other absurd regulaons of commerce; and this security was perfected by the revoluon” (WN 540). 74 Besley and Ghatak (2010) and Haggard, MacIntyre, and Tiede (2008) provide surveys of recent research on the economics and polics of property rights in economic development, respecvely.

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116 respected private property, enjoyed the rule of law, and allowed markets to allocate resources enjoyed higher productivity and more rapid growth than other countries. However, by taking those “institutions” as exogenous, this approach was unable to determine if good institutions were responsible for higher incomes or if higher incomes led to good institutions.75 Subsequent research sought to find institutional variation across countries that is random, exogenous, or independent of income. Acemoglu, Johnson, and Robinson (2001) argue that the mortality rates of colonial settlers can be used to identify the causal relationship between institutional quality and income levels. They find that institutional quality has a persistent and positive effect on a country’s income.76 Similarly, after also accounting for the endogeneity of institutions (using settler mortality and the fraction of people speaking English as instruments), Rodrik, Subramanian, and Trebbi (2004) examined whether institutions, geography, or openness was the most important determinant of a country’s income. They found that measures of property rights and the rule of law always trumped geography and economic integration in determining income and concluded that the presence of clear property rights for investors is a key, if not the key, element of the institutional environment that shapes economic performance.77 Acemoglu and Robinson (2005) also sought to determine which institutions were most important for a country’s income. They considered two aspects of property rights: protection against expropriation and security of contracts. They found that countries with greater constraints on politicians and more protection against expropriation had substantially higher income, investment rates, and use of credit than others. However, 75 Similarly, De Long and Shleifer (1993) showed that, in medieval mes, absolust governments were associated with low economic growth, as measured by city growth, compared to other regimes. 76 In their view, seler mortality aected the type of instuons that were built in areas colonized by European powers. Where the colonizers encountered relavely few health hazards, European selers established instuons to protect property rights and enforce the rule of law. In areas unsuitable for selement, the colonists mainly sought to extract resources and showed lile interest in establishing high-quality instuons. 77 Glaeser, La Porta, López-de-Silanes, and Shleifer (2004) note that property rights can be secured in authoritarian regimes (poor polical instuons in the sense of the rule of law), but that the economic development that occurs as a result of those property rights can lead to demands for changes in polical instuons.

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117 after controlling for these property rights institutions, contracting institutions have little economic effect. They conclude that an economy can function reasonably well with weak contracting institutions, but not with the presence of a significant expropriation risk. Private non-legal, non-governmental institutions can emerge to help enforce contracts (Dixit 2009), but this is not something that Smith examined in detail. A related literature has focused more directly on financial development under different legal regimes. La Porta, López-de-Silanes, and Shleifer (2008) argue that common law countries provide greater legal protection of property rights and prevent expropriate of possessions and financial rights than in civil law countries.78 Mahoney (2001) also finds that common‐law countries experienced faster economic growth than civil‐law countries during the period 1960– 92 and then presented instrumental variables results suggesting that the common law produces faster growth through greater security of property and contract rights. The question then becomes: what aspect of common law countries gives rise to the greater security of property rights? La Porta, Lopez-de-Silanes, Pop-Eleches, and Shleifer (2004) argue that judicial independence accounts for some, though not all, of the beneficial effects of common law on economic freedom. Voigt and Gutmann (2013) also find that judicial independence is required to establish a credible commitment that the political system will respect property rights. There also appears to be strong support for Smith’s view that the protection of property rights gives individuals an incentive to undertake investments (in the case of land ownership, see the survey of Galiani and Schargrodsky 2011). Many recent papers have focused on the difference between Bentham and Mill on formal law versus informal rules regarding the security of property rights. A regular finding is that informal norms are more important than formal rules in protecting property, implying that Mill was right in that non-state governance arrangements are of key importance (Dixit 2009, Williamson 2009, Williamson and Kerekes 2011, Bubb 2013). At the same time, political scientists have pointed out the difficulty of providing any precise definition of “property rights” and the 78 Djankov, La Porta, Lopez-de-Silanes and Shleifer (2003) nd that procedural formalism of dispute resoluon is systemacally greater in civil than in common law countries. Furthermore, procedural formalism is associated with higher expected duraon of judicial proceedings, more corrupon, less consistency, less honesty, less fairness in judicial decisions, and inferior access to jusce. Observing that a country’s legal system, whether it be common law developed in England or civil law developed in France, is oen determined exogenously by history (Glaeser and Shleifer 2003), they nd contracng rights are beer established in common law than in civil law countries and hence experience deeper nancial development.

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118 “rule of law” (Hadfield and Weingast 2014) and have argued that the many empirical indicators of these concepts may deliver different empirical results (Haggard and Tiede 2010). Others have pointed out that democracy is a necessary but insufficient condition for judicial independence and that judicial independence is not synonymous with the rule of law (Helmke and Rosenbluth 2009). Furthermore, Rios-Figueroa and Staton (2114) find important differences between de facto and de jure measures of judicial independence. Despite the vagaries of determining the precise meaning of these terms, recent research provides broad supports for the ideas that Adam Smith was proposing nearly 250 years ago, that “institutions” to protect property rights are critical for economic development, and that they include the administration of justice and judicial independence. Conclusion In his writings, Adam Smith emphasized the importance of secure property rights both for reasons of justice and for its effect on economic development. Smith did not believe that government had to be proactive in generating economic progress. Rather, he heralded “the establishment of a government which afforded to industry, the only encouragement which it requires, some tolerable security that it shall enjoy the fruits of its own labour” (WN 256). Smith explored this theme at length throughout his work, but in no single place, which might account for its relative neglect. While the importance of property and security was accepted by participants of the Scottish Enlightenment, this tradition was lost when the classical economists shifted the focus of inquiry to the determinants of the distribution of income (wages, rent, and profits) within a system that took such security for granted. Only over the past decade or so have many economists finally turned their attention back to the institutional framework of economic activity (property rights, legal system, non-legal norms, etc.) and its role in fostering or retarding economic development. In doing so, they have found ample support for many of the propositions that Smith advanced long ago.