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THE MERCANTILE SYSTEM
HOW THE NEWLY FOUNDED NATIONAL OR DYNASTIC STATES OF EUROPE TRIED TO MAKE THEMSELVES RICH AND WHAT WAS MEANT BY THE MERCANTILE SYSTEM
 WE have seen how, during the sixteenth and the seventeenth
centuries, the states of our modern world began to take shape.
Their origins were different in almost every case. Some had
been the result of the deliberate effort of a single king. Others
had happened by chance. Still others had been the result of
favourable natural geographic boundaries. But once they had
been founded, they had all of them tried to strengthen their
internal administration and to exert the greatest possible influence
upon foreign affairs. All this of course had cost a great
deal of money. The mediaeval state with its lack of centralised
power did not depend upon a rich treasury. The king got his
revenues from the crown domains and his civil service paid for
itself. The modern centralised state was a more complicated
affair. The old knights disappeared and hired government
officials or bureaucrats took their place. Army, navy, and
internal administration demanded millions. The question then
became where was this money to be found?
Gold and silver had been a rare commodity in the middle
ages. The average man, as I have told you, never saw a gold
piece as long as he lived. Only the inhabitants of the large
 cities were familiar with silver coin. The discovery of America
and the exploitation of the Peruvian mines changed all this.
The centre of trade was transferred from the Mediterranean to
the Atlantic seaboard. The old "commercial cities" of Italy lost
their financial importance. New "commercial nations" took
their place and gold and silver were no longer a curiosity.
Through Spain and Portugal and Holland and England,
precious metals began to find their way to Europe. The sixteenth
century had its own writers on the subject of political
economy and they evolved a theory of national wealth which
seemed to them entirely sound and of the greatest possible
benefit to their respective countries. They reasoned that both
gold and silver were actual wealth. Therefore they believed
that the country with the largest supply of actual cash in the
vaults of its treasury and its banks was at the same time the
richest country. And since money meant armies, it followed
that the richest country was also the most powerful and could
rule the rest of the world.
THE VOYAGE OF THE PILGRIMS
We call this system the "mercantile system," and it was
accepted with the same unquestioning faith with which the
early Christians believed in Miracles and many of the
present-day American business men believe in the Tariff. In practice,
the Mercantile system worked out as follows: To get the
largest surplus of precious metals a country must have a
favourable balance of export trade. If you can export more to
your neighbour than he exports to your own country, he will
owe you money and will be obliged to send you some of his
gold. Hence you gain and he loses. As a result of this creed,
the economic program of almost every seventeenth century
state was as follows:
1. Try to get possession of as many precious metals
as you can.
2. Encourage foreign trade in preference to domestic
3. Encourage those industries which change raw materials
into exportable finished products.
 4. Encourage a large population, for you will need workmen
for your factories and an agricultural community
does not raise enough workmen.
5. Let the State watch this process and interfere whenever
it is necessary to do so.
Instead of regarding International Trade as something
akin to a force of nature which would always obey certain natural
laws regardless of man's interference, the people of the
sixteenth and seventeenth centuries tried to regulate their
commerce by the help of official decrees and royal laws and financial
help on the part of the government.
In the sixteenth century Charles V adopted this Mercantile
System (which was then something entirely new) and introduced
it into his many possessions. Elizabeth of England
flattered him by her imitation. The Bourbons, especially King
Louis XIV, were fanatical adherents of this doctrine and Colbert,
his great minister of finance, became the prophet of Mercantilism
to whom all Europe looked for guidance.
The entire foreign policy of Cromwell was a practical
application of the Mercantile System. It was invariably directed
against the rich rival Republic of Holland. For the Dutch
shippers, as the common-carriers of the merchandise of Europe,
had certain leanings towards free-trade and therefore had
to be destroyed at all cost.
HOW EUROPE CONQUERED THE WORLD
It will be easily understood how such a system must affect
the colonies. A colony under the Mercantile System became
merely a reservoir of gold and silver and spices, which was
to be tapped for the benefit of the home country. The Asiatic,
American and African supply of precious metals and the raw
materials of these tropical countries became a monopoly of
the state which happened to own that particular colony. No
outsider was ever allowed within the precincts and no native
was permitted to trade with a merchant whose ship flew a
Undoubtedly the Mercantile System encouraged the development
of young industries in certain countries where there
never had been any manufacturing before. It built roads
 and dug canals and made for better means of transportation.
It demanded greater skill among the workmen and gave the
merchant a better social position, while it weakened the power
of the landed aristocracy.
On the other hand, it caused very great misery. It made
the natives in the colonies the victims of a most shameless
exploitation. It exposed the citizens of the home country to an
even more terrible fate. It helped in a great measure to turn
every land into an armed camp and divided the world into little
bits of territory, each working for its own direct benefit,
while striving at all times to destroy the power of its neighbours
and get hold of their treasures. It laid so much stress
upon the importance of owning wealth that "being rich" came
to be regarded as the sole virtue of the average citizen. Economic
systems come and go like the fashions in surgery and
in the clothes of women, and during the nineteenth century the
Mercantile System was discarded in favor of a system of free
and open competition. At least, so I have been told.