10. Mercantilism and Freedom in England from the Tudors to the Civil War
1. Tudor and Stuart Absolutism
Dominant in English political thought from the early 16th to the early 17th century was a form of simplistic and militant absolutist thought that has been called the Correspondence Theory or the Political Theory of Order.
This royalist doctrine was fashioned for the Tudor-Stewart age, in which the king struggled
to establish his absolute power as against the international influence of the old religion,
Catholicism, and over the Calvinist Puritans, who had definite republican and populist tendencies.
In contrast, God was now supposed to be speaking through the English king, and therefore through
through the head of the Anglican Church.
The basic philosophic groundwork was the natural order, the great chain of being, which since
the Middle Ages had been seen as strictly hierarchical, with God at the head and man
as the highest of his material creatures.
But then came the fundamental methodology, flimsy analogy or argument by correspondence.
Just as God was sovereign and superior to various ranks of angels and, finally, to man and then other inferior earthly creatures in the macrocosm, so in the individual microcosm, within each person, the head must be sovereign over the body, and reason and will dominant over the appetites.
Similarly, the father is sovereign over his family. More specifically and pointedly in
the political realm, the king, the father of his people, must be sovereign over the
body politic.
This flimsy organicist analogy was pushed to great lengths. The head in the human body
was the king in the body politic. Health in the former constituted social well-being in
and the latter. The circulation of the blood was the same as circulation of money. Rule of the rational soul was royal sovereignty and so on.
The only argument was correspondence, that the governmental and social ranking alleged to exist in the heavenly sphere must be duplicated in earthly government and in social life.
One problem with the argument from correspondence is that freedom of the human will enters into
politics and social life but does not do so elsewhere. It is rare for the liver to rebel
against the head, and yet an important conclusion of this royalist political philosophy was
that political rebellion is as evil and anti-natural as such rebellion by the liver. Similarly,
Individual subjects must obey the divinely appointed monarch, else the divine order collapses
into anarchy and disorder, and corruption and decay then rule in human life.
While the liver has not often rebelled against the head, the royal absolutists did, of course,
have an analogy to fall back on in heavenly government.
Satan's Wicked Rebellion Against the Sovereignty of God.
Similarly, the great fact of human history was Adam's fall, brought on by rebelliousness
against divine authority and by overweening self-pride.
God and the King, Satan, Adam and rebellious subjects, these were the analogies and correspondences
The Royal Absolutists tried to drive home. Thus Anglican Church homilies on obedience
in 1547 and 1570 called obedience to the sovereign the very root of all virtues, while a wicked
boldness is the source of all sin and misery. As the homilies stated, all sins possible
It is the absolute duty of all inferiors always and only to obey, just as the body obeys the soul and as the universe obeys God.
In stark contrast to the scholastics, as well as to Calvinist or Lieger Monarcho-Mach thinkers,
the Anglican preachers of order stressed time and again that the subjects must obey the
king in any and all circumstances, whether or not the king or his actions were good or
evil.
There must be no resistance whatever, even to evil princes.
The King is the divinely mandated representative of God on earth by hereditary right. To question,
much less to disobey the King, therefore, was not only treason, but blasphemy. Disobeying
the King is disobeying God. As the influential Mirror for Magistrates, which went through
Through many editions from 1559 to 1587 maintained, God ordains all magistrates. Therefore, God
ordains good when he favoreth the people, and evil when he will punish them. In short,
good kings are a blessing sent to the people by God. Wicked kings are a punishment equally
sent by the Divinity.
In either case, the duty of the subject is absolute obedience to God's and the King's
commands.
And therefore, whosoever rebelleth against any ruler, either good or bad, rebelleth against
God, and shall be sure of a wretched end.
To the royalist thinkers, the rising claims of individual freedom and the natural rights
of each individual only led to mischief and destruction of God's rational order. Thus
Richard Hooker, circa 1554-1600, the leading Anglican theologian of the 16th century in
his famous Laws of Ecclesiastical Polity, 1594-1597, lashed out at any notion of individualism.
Although himself a moderate on royal absolutism, Hooker wrote that the idea of every man his
own commander, shaketh universally the fabric of government, tendeth to anarchy and mere
confusion, dissolveth families, dissipateth colleges, corporations, armies, overthroweth
kingdoms, churches, and whatsoever is now, through the providence of God, by authority
and Power Upheld
One of the most extreme royal absolutists in the Tudor-Stewart era was Edward Fawcett,
circa 1553 to 1630, a playwright, owner of the Manor of Tyburn, a Justice of the Peace
and Member of Parliament. Fawcett's magnum opus was a comparative discourse of the body's
His Natural and Political, 1606, whose very title reeks of the argument by correspondence
and the political philosophy of order.
At some points, Fawcett came close to saying that a monarch could never harm his people.
In other words, however evil his deeds may seem, they must really be good, virtually
by definition.
Indeed, at one point, Fawcett came close to the justification of a king's acts by mystery and power, as in the book of Job.
Thus, as Professor Greenleaf puts it in his discussion of Fawcett's doctrine, the seemingly evil acts of a ruler were only an appearance,
the real nature of which was misconstrued by the fallible minds of the citizens.
The strong implication, of course, is that the mind of the monarch, in contrast to that of the lowly citizen, is infallible.
Probably the most intelligent and surely the most influential of the absolutist order theorists in 17th century England was Sir Robert Filmer, 1588-1653.
Towards the end of his life, this obscure Kentish nobleman published a series of royal absolutist essays in the late 1640s and early 1650s.
Then, three decades later, a filmer revival took place, his collected essays being published in 1679,
and his most famous work, Patriarcha or The Natural Power of Kings, written in the late
1630s or early 1640s, was printed for the first time the following year.
Filmer immediately and posthumously became the leading defender of royal absolutism from
the older perspective of order theory.
Filmer angrily rejected the idea that by law of nature all men are born free as heathen doctrine.
Linking individualism and self-direction to sinful rebellion against God, Filmer warned
against the very desire for freedom which caused Adam's fall from grace.
Most notable in Filmer was his searching critique of the rising contractarian doctrine, which
which laid the foundation of, and therefore justified, the State in some original social contract.
Thomas Hobbes, 1588 to 1679, had spent all his life in service as a tutor, companion
and intellectual guide to the Cavendishes, who were related to the royal Stuart family.
Hobbes had worked out a contractarian justification for royal absolutism during the 1640s.
Filmer spotted crucial flaws in Hobbes' social contract theory, which were to apply just
as fully to John Locke's libertarian version four decades later.
Filmer asked how likely it was that all men would agree to a contract, as was necessary
before it could become universally binding. He wanted to know how and why a contract should
bind all subsequent generations. He suggested it was unreasonable to invoke the specious
notion of tacit consent.
Filmer also trenchantly criticized the growing classical liberal idea of grounding government
in the Consent of the Governed.
Governments, he pointed out, could not then be stable, for governments could sometimes
find that consent to be withdrawn.
Once concede the power of the people to consent as well as the natural law of equal freedom
from subjection, and the logical consequence must be anarchism.
For then, every petty company hath a right to make a kingdom by itself, and not only
May every city, but every village, and every family, nay, every particular man, a liberty
to choose himself to be his own king, if he please.
And he were a madman that, being by nature free, would choose any man but himself to
be his own governor.
Thus, to avoid the having but of one king of the whole world, we shall run into a liberty
of Having as Many Kings as There Be Men in the World, which upon the matter is to have
no king at all, but to leave all men to their natural liberty.
It should be noted that Filmer and other absolutists of the era found great inspiration in the
French theorist Jean Baudin, who has been called the political writer most favorably
The Honor, if that be the proper term, of being the first English mercantilist writer,
should have gone for four centuries to Sir Thomas Smith the Elder, 1513-1577.
Instead, his remarkable work, a discourse on the commonwealth of this realm of England, written in 1549 and published anonymously in 1581, was at first unidentified, and since its 1893 reprint has been incorrectly attributed to another Tudor official, John Hales, died 1571.
Thomas Smith was born into a poor family of small shepherds in the county of Essex.
Impoverished but brilliant, Smith managed to enter Cambridge, where his scholarly abilities were soon recognized.
There he rose to become Regis Professor of Civil Law and then Vice Chancellor of the University.
Smith was a notable orator and a learned and brilliant polymath,
Smith, who wrote books on Greek pronunciation and English spelling and was deeply interested
in mathematics, chemistry, linguistics and history.
Smith embarked on a career as politician and bureaucrat by becoming a secretary under the
protectorate of Lord Somerset from 1547 to 1549.
Though an Anglican, Smith was a moderate who cared little for religious matters, so he
He was able to serve as privy counselor under Catholic Queen Mary on the recommendation
of his old Cambridge colleague, the Catholic Bishop Stephen Gardner.
Under Queen Elizabeth, his influence continued through the powerful position at court of
his old Cambridge student, Sir William Cecil, later Lord Burghley.
Smith, however, was often out of power, a fate helped by his arrogant, boorish and feisty
Thomas Smith was a bitter critic of debasement, and he therefore became a vocal opponent of his mentor, Lord Somerset's policy of repeated debasement in order to acquire increased revenue for the crown.
Sent into exile from the court in 1549, Smith brooded and then did what was characteristic of him.
This penetrating lively work was written in the form of a dialogue among several characters, with The Doctor being the spokesman for the author's own views.
Later, Smith was to repeat the dialogue form in his book Dialogue on the Queen's Marriage, 1561.
The former work was not meant for publication, Smith noting in the tract that it is dangerous to meddle in the king's matters, as indeed it was.
The basic thrust of the discourse on the Commonwealth was an attack on debasement and its consequences in high prices, inflation and social unrest.
Debasement, and not the arbitrary decision of farmers or merchants, is responsible for higher prices.
The principal losers from this policy are people on fixed incomes.
The discourse was published after Sir Thomas' death by his nephew William.
Included are later passages, interpolated by Thomas during the 1570s,
Studies, attributing the Elizabethan inflation of the later 16th century to another factor,
the influx of newly mined species from the Western Hemisphere.
It is not known whether Smith was familiar with the similar Navaras analysis of 1556,
or the Baudin analysis of French inflation 12 years later, or whether this was Smith's
Independent Discovery as Price Inflation Moved from Spain Northwards into Europe.
In 1562, Smith returned to the debasement theme, in a lengthy work, still unpublished,
The Wages of a Roman Foot Soldier, or A Treatise on the Money of the Romans.
This treatise on Roman money and cleanage was written in answer to a question posed
by his friend and colleague Cecil, at this point, Queen Elizabeth's principal secretary.
Again, Smith returns to his attack on debasement as evidence of the decay of the state and as a cause of excessive prices.
In both the Discourse and the Treatise, Smith took the convenient, if fallacious, position
that the king himself is the greatest loser from the high prices caused by debasement.
Since debasement adds to the king's revenue immediately and before prices have had a chance
to rise, the king, on the contrary, is the prime beneficiary of debasement and other
measures of monetary inflation.
Smith's discourse is strikingly modern in frankly grounding its social analysis in the
Self-interest, Smith declared, is a natural fact of human life, to be channeled by constructive policy rather than thwarted by repressive legislation.
Not that Smith abandons nascent mercantilism for any sort of liberal or laissez-faire outlook.
Self-interest is not to be left alone within a property rights framework.
It is to be channeled and directed by government to a common goal set by the state.
But at least Smith was wise enough to point out that it is better for men to be provoked with lucre towards proper goals
than to have governments take this reward from them.
In short, government should work in tandem with the powerful incentive provided by individual self-interest.
Smith sees that economic incentives are always at work in the market to move economic resources
out of less profitable and into more profitable uses, and governments should work with such
incentives rather than against them.
Smith however was assuredly a mercantilist, as seen by his desire to foster the manufacture
John Hales came from a prominent Kentish family and was a friend and fellow tutor official
of Smith. Yet his economic and social philosophy was very different. In 1549, for example,
The year that Smith's discourse was written, and which included an attack on new taxes
on manufactured cloth, Hales was the very person responsible for instituting the tax.
Hales also disliked two favorite themes of the discourse, love for the civil law and
admiration for sheep farming.
Hales, furthermore, far from being indifferent to religion, was a deacon and a dedicated
and organizer of Bible readings.
Most important in any contrast between Hales and the author of the Discourse, Hales attributed
the high prices not to debasement but to three very different supply-side factors, scarcity
of cattle and poultry, speculation and excessively high taxes.
None of these factors, in truth, can account for any general price increase.
Finally, Hayles took the old-fashioned moral position of attributing all ills, including
high prices, to man's all-pervasive greed.
Why greed should have increased rapidly in recent years to account for high prices was,
of course, a problem that was not even addressed.
and the desire for profit were the great social evils.
The only cure for all this, opined Hales, was to purge man of self-love, to remove the
self-love that is in many men, to take away the inordinate desire of riches wherewith
many be cumbered, to expel and quench the insatiable thirst of ungodly greediness wherewith
Again, in his defense, written the same year as the discourse, John Hales expressly denies
It is that self-love can be in any sense the foundation of the public good.
It may not be lawful for every man to use his own as he listeth, but every man must
use that he hath to the most benefit of his country.
There must be something devised to quench the insatiable thirst of greediness of men.
Pevatus-ness must be weeded out by the roots, for it is the destruction of all good things.
Sir Thomas Smith was responsible, rather than his associates Sir Thomas Gresham, circa 1519-1579,
for the first expression of Gresham's Law in England. Until recently it had been thought
that the well-known and anonymous Memorandum for the Understanding of the Exchange had
had been submitted by Gresham to Queen Elizabeth early in her reign in 1559.
It now turns out, however, that the memorandum was written by Smith early in Queen Mary's
reign in 1554.
The memorandum was certainly not a free market tract, advocating, as it did, various state
controls over the foreign exchange market.
It did, however, not only denounce debasement and call for a high-valued currency, but it
also enunciated Gresham's Law that the cause of a shortage of gold coin in England was
the legal undervaluation of gold.
Gresham, fiscal agent of the Crown in Antwerp, himself adhered to Gresham's Law, which was
was set forth by the Royal Commission of 1560 that he heavily influenced.
Gresham was also a full-fledged statist and architect of Tudor monopoly privilege.
A member of the monopoly wool cloth export company, the Merchant Adventurers, Gresham
was the chief architect of England's tightening of that monopoly during the 1550s and 1560s,
preventing Hanseatic merchants from exporting English cloth, increasing tariffs on foreign
cloth, and, finally, making the adventurers far more oligarchic and tightly controlled
from the top.
Influenced greatly by the memorandum, and echoing its Gresham's Law position, was the
and the younger Sir Richard Martin, 1534-1617, goldsmith, warden and master of the mint during all of Queen Elizabeth's reign.
Trained as a goldsmith from youth, Martin also served as prime warden of the worshipful company of goldsmiths,
alderman of London for many years, and was twice Lord Mayor.
In the Royal Commission of 1576 on Currency and the Exchanges, whose members were hand-picked by Sir Thomas Smith,
then Principal Secretary to the Queen, Gresham and Martin as well as Cecil were all included.
The Commission did not include Smith himself, who had fallen ill.
Their backing of Gresham's law was echoed a generation later by the Royal Commission of 1600,
in which Martin served and prepared the principal memoranda.
3. The Economic Liberalism of Sir Edward Cook
It used to be held that the famous anti-monopoly common law decisions of Chief Justice Sir
Edward Cook, 1552-1634, the eminent early 17th century jurist, were an expression of
and the alleged commitment of a rising class of Puritan merchants to economic liberalism
and laissez-faire. A particularly prominent advocate of this thesis is the prolific English
Marxist historian Christopher Hill, who needs this view to fit into the Marxian schema of
the English Civil War.
It turns out, however, that there are many grave flaws in this thesis. Cook himself was
is a moderate Anglican and not particularly concerned with religious issues. He was also
not in any sense a merchant or a spokesman for merchants. He was a country gentleman
from Norfolk, who successively married two heiresses and spent most of his career as
a government lawyer, successively attorney general and chief justice. Also, Cook showed
had no interest whatever in the new juristic concerns of merchants, such new branches of
the law as joint stock ownership, insurance bankruptcy, negotiable instruments and commercial
contracts.
More important, Cook never displayed any sympathy for laissez-faire.
As a member of parliament, Cook supported many mercantilist measures.
Furthermore, he had imbibed from his close associate, William Cecil, Lord Burghley, an
admiration for the elaborate tutor structure of state controls.
His approach to foreign trade was profoundly mercantilist.
Thus, in the 1621 session of Parliament, after he had broken with the Crown, Cook deplored
the economic effects of the alleged scarcity of coin.
He attacked the unfavorable balance of trade, deplored the fact that the East India Company
was allowed to export bullion, and attacked the import trade with France as introducing
into England immoral luxury items such as wines and lace and such like trifles.
Cook also called for outlawing the importation of tobacco from Spain.
Sir Edward Cooke also tried his best to cripple the new practice of exporting unfinished cloth
to the continent and then re-importing the finished cloth. He consistently advocated
prohibiting the importation of foreign cloths as well as the export of unfinished cloth
and also tried to outlaw the export of raw wool to be used by foreign manufacturers.
In general, Sir Edward Cook had no quarrel with government regulation and control of
trade, or with the creation of monopolies.
What he objected to was the King doing the regulating or monopolizing rather than Parliament.
Cook favored the detailed regulation and cartelization of industry, the wage controls
and Compulsory Employment imposed by the Statute of Artificers of 1563. He supported the laws
against forestalling and engrossing, which, under the guise of attacks on monopoly and
high prices, were actually price-raising and cartellizing devices prohibiting speculation
in food products and prohibiting sales outside officially designated local markets. Laws
Those against forestalling were lobbied for by privileged owners of local markets trying
to exclude competitors and to raise their own prices.
Most important, Cook's well-known opposition to government-granted monopolies was merely
an opposition to grants by the king rather than to grants by parliament.
Thus, in the famous Statute of Monopolies, passed in 1623, and drafted largely by Cook, Parliament abolished royal grants of monopoly privilege, but explicitly reserved to itself the right to grant such privileges, which it soon proceeded to do.
The statute also specifically exempted from abolition large categories of royal monopoly, including such industries as printing, gunpowder and saltpeter, the rights of corporations such as London to prevent non-Londoners from engaging in trade within the city limits, or monopoly corporations engaged in foreign trade.
Furthermore, Cooke personally favored the monopoly Russia, Virginia and East India companies.
Cooke's legal economic philosophy might be summed up in a phrase he used in Parliament in 1621,
that no commodity can be banished but by act of Parliament.
4. THE BULLYONIST ATTACK ON FOREIGN EXCHANGE AND ON THE EAST INDIA TRADE
Having survived the assaults of ignorant moralists before the Reformation, the foreign exchange
market was subjected, during the far more secular age of the late 16th century onwards,
to the assaults of regulators on behalf of the nation-state. Writers who have been misnamed
Bullionists adopted the ignorant view that an outflow of gold or silver bullion abroad
was iniquitous, and that this calamity was brought about by the machinations of evil
foreign exchange dealers who deliberately sought gain by depreciating the value of the
nation's currency.
Nowhere was there any insight that the outflow of bullion might have been performing an economic
function, or was the result of underlying supply and demand forces.
Despite their insights into Gresham's law and debasement, Thomas Smith and Gresham would
have to be placed in the bullionist category.
The policy conclusion of the bullionists was all too simple.
The state should outlaw the export of bullion and should severely regulate or even nationalize
the foreign exchange market.
The exchange dealers battled back with sensible and powerful arguments. Thus, in 1576, they
argued in a protest against the state control of exchange business that state intervention
would cause a drying up of commerce. On the low value of the English pound, they replied
that we can say nothing but that our exchanges are made with a mutual consent between merchant
and Merchant, and that abundance of the deliveries or of the takers make the exchange rise and
fall.
One prominent bullionist of the early 17th century was Thomas Mills, circa 1550 to circa
1627.
In a series of tracts from 1601 to 1611, Mills advances the old bullionist position.
In exchange transactions, Mills opined, were evil.
They were institutions with which private merchants and bankers, covetous persons whose
end is private gain, rule in the place of kings.
Something new, however, had been added.
For the powerful East India Company had been chartered in 1600 to monopolize all trade
with the Far East and the Indies.
The East India trade was unique in that Europeans purchased a great deal of valuable muslins
and spices, but the Indies in turn bought very little from Europe except gold and silver.
European nations, therefore, had an unfavorable balance of trade with the Far East, and the
India trade therefore quickly became a favorite target for mercantilist writers.
Not only were goods being imported from the East as against few exports, but specie, bullion,
seemed to flow eternally eastwards. Mills therefore took up the bullionist cudgels by
calling for restriction or prohibition of the Indies trade and attacking the activities
of the East India Company. Mills was also eager to intensify regulations against the
The Merchant Adventurers, The Governmentally Privileged Monopoly for the Export of Woolen
Cloth to the Netherlands. Instead, he craved a return to the old privileged raw wool export
monopoly of the merchant staple. In fact, Mills went so far as to call the old regulated
staple trade the first step towards heaven. It is certainly likely that Mills' eagerness
His choice to regulate and prohibit foreign trade and bullion flows was connected with
his own occupation as customs official.
The more regulation, the more work and power for Thomas Mills.
Stung to the quick, the Secretary of the Merchant-Adventurers, John Wheeler, circa 1553 to 1611, replied
to Mills' charges in his Treatise of Commerce in 1601.
Miller upheld the orderly competition of the 3,500 merchant members joined together in
the privileged monopoly as against the unorganized, dispersed, straggling and promiscuous trade
of free competition.
He also engaged in semantic trickery by asserting that monopoly by definition means only single-seller.
Merchants linked together into a privileged export company were able, after all, to act
virtually as one privileged firm.
In Wheeler's own words, these merchants were united and held together by their good government,
and by their politic and merchant-like orders, backed up, we must not forget, by the armed
might of the State.
Peering at the idea of free competition, Wheeler smugly opined that any merchant who loses
a little liberty will be better off being restrained in that estate than if he were
left to his own greedy appetite.
When John Cale, over a decade later in The Trade's Increase, 1615, protested that the
monopoly of the merchant adventurers would unjustly keep others out forever, his pamphlet
was suppressed by the Archbishop of Canterbury and he earned a stint in jail for his pains.
Later, in the 1650s, Thomas Violet had a Mills-type motive for special pleading in his call for
prohibition of the export of bullion. Violet had been a professional searcher and government
informer seeking out violations of the law prohibiting the export of bullion. Now, in
A True Discovery to the Commons of England, 1651, he sought to reinstate that good old
law, and he accompanied his call for reinstatement of bullion prohibition with a request that
he himself be employed once again to seek out violators. To the embarrassing fact that
he, Violet, had himself been convicted and punished for violating these very provisions,
He countered with a ready quip. An old deersteler is the best keeper of a park.
The most distinguished bullionist of the early seventeenth century was Gerard de Malin, died
1641. Malin was a Fleming born in Antwerp to the prominent Van Mechelen family, probably
changing his name to Malin when he emigrated to London in the 1580s, perhaps in response
to the Spanish persecution of Protestants in the Netherlands in that era.
Malin was listed as an alien in the records of that period and as a member of the Dutch
Protestant Church.
He is also depicted in the records as a merchant stranger, that is, as a merchant from abroad.
Malin turned out to be a speculator and an unscrupulous, even crooked businessman, embezzling
and Money from his Dutch business associates. He was often on the verge of bankruptcy, and
his partner and father-in-law, the Antwerp-born Willem Vermeiden, died in debtor's prison.
Malin, nonetheless, was a linguist and highly educated scholar, deeply interested in literature,
the Latin language, mathematics and classical Greek philosophy. He was also well versed
in Scholastic Doctrine.
A member of a royal commission of 1600 to study economic problems, Moline began his
bullionist writings in 1601, in particular, a treatise on the canker of England's Commonwealth,
and published many tracts on into the 1620s.
Like Gresham and the 16th century bullionists, Moline fulminated against the foreign exchange
Exchange Dealers, asserting superficially and incorrectly that exchange rates were set
by willful conspiracies of exchange dealers.
Malin was more rigorous than previous bullionists.
Instead of institutions to control exchange dealings, he advocated a government bank,
which would enjoy a monopoly on all foreign exchange transactions.
Intertwined with his star-crossed business career was Moline's service in government,
becoming at various times a top bureaucrat at the royal mint and a financial adviser
to the crown. Moline also had a personal stake in the revival of rigorous exchange control,
for he himself eagerly anticipated filling the resurrected post of royal exchanger.
To Malin, there was a just exchange rate at the legal par, and the government's task was
to enforce it.
In an earlier tract in 1601, St. George for England allegorically described, Malin, harking
back to an old theme, denounced foreign exchange dealings as usury, and expressed the hope
that by tight control this usury could die a gradual death.
To advocate rigorous exchange control, Moline, of course, had to deny that the foreign exchange
market could in any way equilibrate or regulate itself, or that exchange rates were set by
supply and demand forces.
To Moline goes the dubious credit for the emergence of the spurious and pernicious terms
Terms of Trade Fallacy
This doctrine argues that a balance of trade deficit and export of bullion will not regulate
itself, for higher foreign exchange rates and cheaper domestic currency will not, as
one might believe, spur exports and retard imports.
Instead, the unfavorable terms of trade of, say, the pound in terms of foreign currency
will lead to even more imports and fewer exports, thus driving more bullion out of the country.
Even if a cheaper pound will bring in less foreign exchange revenue, a highly unlikely
event seen more often in armchair speculation than in practice, one wonders where the English
would continue to find either foreign currency or specie to pay for the higher-priced foreign
and Products. Surely the specie would eventually run out, and for that reason alone, some market
mechanism would have to come into play to restrict foreign imports or the export of
specie. Thus, Moline managed to take the absurd position that whatever happens in the foreign
exchange market, specie will keep flowing out of England. Flowing out if the pound should
should be expensive since this will restrict exports and encourage imports, a correct insight,
but also flowing out if the reverse happens because of the terms of trade argument.
The specie outflow was therefore blamed on the metaphysical malevolence of the exchange
dealers and it could only be cured by severe government control, including prohibition
of the export of bullion.
and also advocated control of the exchange rate at the legal mint par, which would mean
in the context of the time a substantial appreciation or higher value of the pound sterling.
Yet continuing in the faulty terms of trade mode, Moline saw no problem of specie outflow
from such a marked appreciation of the currency.
In fact, he hailed the higher domestic prices that would supposedly draw more specie into
the country.
In a similar bizarre twist, Malin, correctly noting that the inflationary influx of specie
from the New World had hit the other countries of Western Europe before coming into England,
yet concluded this was a terrible event for England.
For instead of realizing that lower prices made English goods more competitive abroad,
Moline concluded that these unfavorable terms of trade put England into a poor competitive
position and led to a permanent outflow of specie.
In view of his record in propounding tissues of egregious fallacies, it is curious that
But Malin has had a good press among historians of economic thought, even among those who
disagree with his basic outlook.
They seem to laud him for recognizing that prices vary directly with the quantity of
money, so that a country losing gold will find its prices falling, whereas a country
accumulating gold will see its prices rise.
But Malin, eager to indict the workings of international prices and exchanges, rather
than explain how they work, was scarcely willing to develop the full implication of his occasional
insights.
Furthermore, considering that this quantity theory had long been known, and developed
and integrated for centuries, by the Spanish scholastics, Baudin and others, Malin's achievements
seem dubious at best.
5. The East India Apologists Strike Back
England suffered a severe recession in the early 1620s and Gerard Moline returned to
the attack, publishing a series of tracts repeating his well-known views and calling
for Stringent Measures to Curb the Merchant-Adventurers and especially the East India Company, as
well as any other traders who dared to export bullion from the Kingdom. His influence was
bolstered by having been a member of the Royal Commission on the Exchanges in 1621.
Taking up the torch in defense of the Merchant-Adventurers was one of its members. Edward Misseldon
died 1654. In a tract entitled Free Trade or the Means to Make Trade Flourish, 1622,
following service on a Privy Council Committee of Inquiry on the Depression of Trade, Misseldon
advanced somewhat beyond Moline's analysis. He acknowledged that bullion was exported
from England, not due to the machinations of wicked exchange dealers, but from imports
Exceeding Exports, from what would later be called an unfavorable balance of trade.
Miseldon then was not concerned with regulating the exchanges, but he did want the state to
force a favorable balance into being by subsidizing exports, restricting or prohibiting imports
and cracking down on the export of bullion.
In short, he called for the usual set of mercantilist measures.
Misseldon was largely concerned to defend his merchant adventurers.
Like Wheeler, a generation earlier, he maintained that his company was not at all a monopolist,
but simply the organization of orderly and structured competition.
Besides, wrote Misseldon, his merchant adventurers exported cloth to Europe and therefore fitted
in with the interests of England.
The truly evil firm was the privileged East India Company, which had a decidedly unfavorable
balance of trade of its own with the Indies, and which continually exported bullion abroad.
Misseldon now entered into a series of angry pamphlet debates with Moline, who replied
in the same year with the maintenance of free trade.
Neither party, of course, had the slightest interest in what would now be called free
trade.
In 1623, Misselden accepted a post as Deputy Governor of the Merchant Adventurers in Holland,
perhaps as a reward for his stirring defense of the company and the public prince.
But in addition, the East India Company, seeing in Misselden an effective champion and a troublesome
and Faux, made him a member, and one of their commissioners in Holland during the same year.
As a result, when his second pamphlet, The Circle of Commerce, was published in 1623,
Misseldon displayed a miraculous change of heart, for the East India Company had been
suddenly transformed from villain to hero.
Misseldon, quite sensibly, now pointed out that while the East India Company did export
The outstanding defender of the East India Company in the early 17th century was one
of its prominent directors, Sir Thomas Munn, 1571-1641.
Munn was early engaged as a merchant in the Mediterranean trade, especially with Italy
and the Middle East. In 1615, Munn was elected a director of the East India Company, and
after that he spent his life in actively promoting its interests. He entered the lists on behalf
of the Company in 1621 with his tract, A Discourse of Trade from England unto the East Indies.
The following year he and Misseldon were both members of the Privy Council Committee of
of Inquiry.
Munn's second and major work, England's Treasure by Foreign Trade or The Balance of Foreign
Trade is the Rule of Our Treasure, taking a broader view of the economy, was written
about 1630 and published posthumously by Munn's son John in 1664.
When published it carried the stamp of approval of Henry Bennet, Secretary of State in the
The Restoration Government, and also an architect of England's mercantilist policy against The
Dutch.
The pamphlet was highly influential and was reprinted in several editions, the last being
published in 1986.
Thomas Munn set forth what would become the standard mercantilist line.
He pointed out that there was nothing particularly evil about the East India Company trade.
The company imported valuable drugs, spices, dyes and cloth from the Indies, and it re-exported
most of these products to other countries. Overall, in fact, the company had actually
imported more specie than it had exported. In any case, the focus of English policy should
not be on the specific trade of one company or with one country, but on the overall or
for General Balance of Trade. There it must make sure that the country exports more than
it purchases from abroad, thereby also increasing the wealth of the nation. As Munn succinctly
put it at the beginning of England's treasure, the ordinary means to increase our wealth
and treasure is by foreign trade, wherein we must ever observe this rule, to sell more
were to strangers yearly than we consume of theirs in value.
To that end, Munn advocated sumptuary laws banning consumption of imported goods, protective
tariffs and subsidies and directives to consume domestic manufacturers.
Munn, on the other hand, opposed any direct restrictions on the export of bullion, such
as conducted by the East India Company.
Men was wise enough in combating the fallacies of Moline and Misseldon.
Against Moline he pointed out that the movements of the exchange rate reflect not the manipulations
of bankers and dealers, but the supply and demand of currencies.
That which causes an under or overvaluing of monies by exchange is the plenty or scarcity
thereof.
Misselden had advocated debasement of the currency as a means of increasing the price
level.
Such increase, Misselden had argued in pre-Keynesian fashion, will be abundantly recompensed unto
all in the plenty of money and quickening of trade in every man's hand.
As a leader of the merchant adventurers, Misselden was undoubtedly highly interested in the spur
that debasement would give to exports.
But Munn denounced debasement, first as bringing confusion by changing the measure of value,
and second by increasing prices all around.
If the common measure be changed, our lands, leases, wares both foreign and domestic must
alter in proportion.
Neither did Munn bend his energies towards an export surplus because he was enamored
Part of the idea of accumulating specie in England.
Adhering to the quantity theory of money, Munn realized that such accumulation would
simply drive prices up, which would not only be to no avail, but would discourage exports.
Munn wanted to accumulate specie not for its own sake, not to drive up prices at home,
to drive trade, to increase foreign trade still further.
An expansion of foreign trade per se seems to be Thomas Munn's main objective, and this
overriding goal is not very puzzling from a leader of the great East India Company.
Furthermore, foreign trade, for Thomas Munn fully as much as for Montaigne, increased
the National Power as well as the power of English traders at the expense of other nations.
England and her inhabitants only wax great at the expense of foreigners.
As Munn put it succinctly, in trade, one man's necessity becomes another man's opportunity,
and one man's loss is another man's gain.
In an odd prefigurement of the Keynesian view that national debt held at home is immaterial
because we only owe it to ourselves, Munn and his fellow mercantilists considered internal
trade unimportant because there we only transfer wealth among ourselves.
The export balance in foreign trade then becomes of crucial importance, so that the export
Merchant becomes by far the most productive occupation in the economy.
That Mun was far from being a primitive inflationist is seen by the scorn he properly and contemptuously
heaped upon the common plea and favorite mercantilist complaint that business and the economy were
suffering from a scarcity of money.
The conclusion invariably drawn from such analysis is that the government was duty bound to do
something quickly to augment the money stock.
Munn wittily reposted in his Discourse of Trade, Concerning the evil or want of silver,
I think it hath been and is a general disease of all nations, and so will continue until
the end of the world.
For poor and rich complain they never have enough.
But it seems that the malady is grown mortal here with us, and therefore it cries out for
remedy.
Well, I hope it is but imagination maketh us sick when all our parts be sound and strong.
Thomas Munn may have been the most prominent and sophisticated of the early seventeenth-century
mercantilists in England.
Yet, as Schumpeter points out, these were all pamphleteers, not particularly interested
and Analysis of the Economy, Special Pleaders rather than Aspiring Scientists.
Perhaps the best economic analyst of all in this period was Rice Vaughan, whose A Discourse
of Coin and Coinage, though published in 1675, was written in the mid-1620s.
Vaughan, in the first place, held that the disappearance of silver during this period
Gold was the effect of what we now call Gresham's Law, the bimetallic undervaluation by the
English government of silver as against gold. Since silver, rather than gold, was the money
for most transactions, this undervaluation had a certain deflationary effect. In the
course of his tract, von pointed out that an export surplus will not have the desired
Von was also astute enough to recognize that prices do not all move together when the value
The value of money changes. For example, that domestic prices usually lag behind the debasement or devaluation of money standards.
Most importantly, Rice Vaughan remarkably harked back to the scholastic, continental, subjective utility and scarcity tradition in the determination of the values and prices of goods.
Von concisely pointed out that the value of a good is dependent on its subjective utility, and hence demand by consumers.
Use and delight, or the opinion of them, are the true causes why all things have a value and price set upon them.
While the actual price is determined by the interaction of this subjective utility with the relative scarcity of the good,
The proportion of that value and price is wholly governed by rarity and abundance.