CHAPTER XIV.

ON THE MERCANTILE SYSTEM.

THERE have been three epochs in the progress of the science of Exchange. Each of these has been marked by a theory of its own, of which the two earlier were radically incorrect, yet prepared the way for the third and true system. We have already sufficiently considered the first of these theories, which assumed that gold and silver are the only wealth, and, consequently, that the only way for a nation to grow rich was to foster the importation and prohibit the exportation of the precious metals. The second commercial theory was more refined and complicated; we have already spoken of it as the Mercantile System, and partially explained its fundamental principle. The principle was to preserve the balance of trade, to make the exports greater than the imports, so that the balance should come back in gold and silver. The whole system is based on the absurd supposition that a merchant will carry abroad goods worth at home a certain sum, merely that he may bring back goods and money worth as much. Why, on that principle, should he carry forth goods at all?

The nature of trade, as mutually advantageous, was not understood. After every fair mercantile transaction, both parties are richer than before. The

more genuine exchanges there are between two countries the better, because the motive for an exchange is always and everywhere the mutual interest of the parties. The benefit of the exchange is shared by both, otherwise there would be no exchange.

But the Mercantile System led each nation to suppose, that, by manœuvre and finesse, it could obtain more than its natural share of advantage. England, for example, in her trade with France, found that, by natural tendency, she bought as much of French wines and silks as she sold France of hardware and woollens. Instead of being satisfied with a legitimate and mutually advantageous trade, the English, under the promptings of the Mercantile System, say, "This will never do. This will never do.

There is no balance in our favor. We must sell to France more than we buy of her, or else we get no balance of trade." Accordingly restrictions are laid on some French goods. Their introduction is either prohibited, or heavy duties are levied on them, in order to lessen the quantity imported. This is done in the hope of selling to the French as much as before, but of buying less, this is, less French goods; so that the difference must be paid in gold and silver.

All that was mighty well! But unfortunately the gold and silver, even if they should get it, was no whit better than the French goods, and would probably go right back to France in the purchase of such goods. And unfortunately also the French were adepts in the Mercantile System; they wanted a favorable balance too. They must sell more than

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they buy. Their exports must exceed their imports. Why not? And accordingly they prohibit some species of English goods, or burden them with a heavy duty the English retaliate by new restrictions on the products of French industry, and are again in turn retaliated upon. Thus they go on tinkering and tormenting trade in the vain hope of some imaginary balance!

Because England and France are adjacent, and because their natural productions and acquired industry are so very diverse, they are naturally to an immense extent mutual buyers and sellers. France is gifted, perhaps as much as any country upon earth, in point of soil, climate, and natural productions. She produces with the greatest facility, and in the greatest abundance, wines and the cereal grains; and has unusual advantages also for the culture of the mulberry and the manufacture of silk.

England is not thus blessed by Nature; but she has freedom, and industry, and energy, and skill; these have made her for centuries the greatest manufacturing and commercial country in the world. She has always had those things to sell which France wanted to buy, and has always wanted to buy those things which France has had to sell. Exchanges between two such countries are natural and inevitable. If the governments undertake to forbid them, then the business will be done by smugglers,. though with hazard and loss.

Now, the Mercantile System disturbed and wellnigh destroyed this natural and profitable trade. To be sure, England could buy her wines of France

much cheaper and of better quality than of Portugal; but then, the balance of trade with France was supposed to be less favorable than with Portugal; and therefore the French wines were prohibited, and the monopoly of supplying the English market was given to the Portuguese. The English drank poorer wines at a greater expense. If this were all, it would not have been so bad; but the French, to retaliate and to restore the balance, prohibited English woollens. Thus the English were not only obliged to regale themselves on poor wine at a high price, but to lose an excellent market for woollen goods. The French lost not only the best market for their wines, but must purchase their woollens elsewhere at an enhanced cost. It was a dead loss all round-a gratuitous loss without any compensation whatever.

So far has this regulating mania been carried at times, that almost all legitimate commerce ceased between the two countries. Adam Smith tells us that, in his time, that is less than a hundred years ago, smugglers were the principal importers of British goods into France, and of French goods into Britain. So reluctant was England to buy of France, so fully were her statesmen under the influence of the prejudice that the prosperity of her neighbors was incompatible with her own, that Parliament, as late as William and Mary's time, decreed that the French trade was a nuisance.

(1.) This laying extraordinary restraints on the importation of goods from those countries with which the balance was supposed to be unfavorable, was one device of the Mercantile System to

increase the quantity of gold and silver. It was unfortunately not the only nor the worst one. The great idea was, you perceive, to discourage importation and to encourage exportation, in order that the country might grow rich by the stream of gold and silver which, it was supposed, would pour in to pay the balance between the large exports and the small imports.

(2.) An obvious expedient was to prohibit altogether, or to burden with very high duties, the introduction of all such goods as could be produced at home. If we can produce the articles at home, then we shall not have to import them, and that will help the balance. Under the influence of this feeling, England, damp and cold, in the very teeth of Nature's protests, undertook to rival France in the culture of silk. Heavy restraints were laid on foreign silks, and the monopoly of supplying the home market was given to her own manufacturers. Certainly, silk can be made in England, of a somewhat inferior quality and at a somewhat greater cost than in sunnier climes. To overcome these disadvantages, what was needed was the healthy stimulus of competition. If things had been left to take their natural course, and foreign silks had been admitted freely, the home manufacturers would have been put upon their mettle to discover improved processes, to invent machinery, to make up the disadvantages of Nature by expedients of Art. The plant never becomes hardy and strong that does not root itself amid the breezes of heaven; so neither does a branch of business grow up into self-sustaining and vigorous life without the stimulating breezes of