WEBVTT NOTE 7. Mercantilism: Serving the Absolute State 1 00:00:00.000 --> 00:00:15.960 Chapter 7 Mercantilism, Serving the Absolute State 2 00:00:15.960 --> 00:00:25.120 1. Mercantilism as the Economic Aspect of Absolutism 3 00:00:25.120 --> 00:00:30.720 By the beginning of the seventeenth century, royal absolutism had emerged victorious all 4 00:00:30.720 --> 00:00:32.480 over Europe. 5 00:00:32.480 --> 00:00:39.200 But a king, or in the case of the Italian city-states, some lesser prince or ruler, 6 00:00:39.200 --> 00:00:41.880 cannot rule all by himself. 7 00:00:41.880 --> 00:00:46.080 He must rule through a hierarchical bureaucracy. 8 00:00:46.080 --> 00:00:52.120 And so the rule of absolutism was created through a series of alliances between the 9 00:00:52.120 --> 00:00:59.200 The King, his nobles, who were mainly large feudal or post feudal landlords, and various 10 00:00:59.200 --> 00:01:04.760 segments of large scale merchants or traders. 11 00:01:04.760 --> 00:01:10.420 Mercantilism is the name given by late 19th century historians to the politico-economic 12 00:01:10.420 --> 00:01:18.840 system of the absolute state from approximately the 16th to the 18th centuries. 13 00:01:18.840 --> 00:01:26.080 System has been called by various historians or observers a system of power or state building, 14 00:01:26.080 --> 00:01:33.440 Eli Heckscher, a system of systematic state privilege, particularly in restricting imports 15 00:01:33.440 --> 00:01:42.520 or subsidizing exports, Adam Smith, or a faulty set of economic theories including protectionism 16 00:01:42.520 --> 00:01:48.120 and the alleged necessity for piling up bullion in a country. 17 00:01:48.120 --> 00:01:55.480 In fact, mercantilism was all of these things. It was a comprehensive system of state building, 18 00:01:55.480 --> 00:02:02.160 state privilege, and what might be called state monopoly capitalism. 19 00:02:02.160 --> 00:02:08.760 As the economic aspect of state absolutism, mercantilism was of necessity a system of 20 00:02:08.760 --> 00:02:16.780 state building, of big government, of heavy royal expenditure, of high taxes, of, especially 21 00:02:16.780 --> 00:02:24.520 after the late 17th century, inflation and deficit finance, of war, imperialism and the 22 00:02:24.520 --> 00:02:27.900 aggrandizing of the nation-state. 23 00:02:27.900 --> 00:02:34.380 In short, a politico-economic system very like that of the present day, with the unimportant 24 00:02:34.380 --> 00:02:41.120 exception that now large-scale industry, rather than mercantile commerce, is the main focus 25 00:02:41.120 --> 00:02:43.460 of the economy. 26 00:02:43.460 --> 00:02:50.140 But state absolutism means that the state must purchase and maintain allies among powerful 27 00:02:50.140 --> 00:02:57.220 groups in the economy, and it also provides a cockpit for lobbying for special privilege 28 00:02:57.220 --> 00:02:59.860 among such groups. 29 00:02:59.860 --> 00:03:03.360 Jacob Weiner put the case well. 30 00:03:03.360 --> 00:03:10.420 The laws and proclamations were not all, as some modern admirers of the virtues of mercantilism 31 00:03:10.420 --> 00:03:17.040 Some would have us believe the outcome of a noble zeal for a strong and glorious nation 32 00:03:17.040 --> 00:03:23.480 directed against the selfishness of the profit-seeking merchant, but were the product of conflicting 33 00:03:23.480 --> 00:03:28.300 interests of varying degrees of respectability. 34 00:03:28.300 --> 00:03:35.320 Each group, economic, social or religious, pressed constantly for legislation in conformity 35 00:03:35.320 --> 00:03:38.080 with its special interest. 36 00:03:38.080 --> 00:03:43.980 The fiscal needs of the Crown were always an important and generally a determining influence 37 00:03:43.980 --> 00:03:47.200 on the course of trade legislation. 38 00:03:47.200 --> 00:03:53.320 Diplomatic considerations also played their part in influencing legislation, as did the 39 00:03:53.320 --> 00:04:01.800 desire of the Crown to award special privileges, con amore, to its favorites, or to sell them, 40 00:04:01.800 --> 00:04:07.080 or to be bribed into giving them to the highest bidders. 41 00:04:07.080 --> 00:04:12.860 In the area of state absolutism, grants of special privilege included the creation by 42 00:04:12.860 --> 00:04:20.860 grant or sale of privileged monopolies, that is, the exclusive right granted by the Crown 43 00:04:20.860 --> 00:04:27.720 to produce or sell a given product or trade in a certain area. 44 00:04:27.720 --> 00:04:34.140 These patents of monopoly were either sold or granted to allies of the Crown, or to those 45 00:04:34.140 --> 00:04:39.700 and those groups of merchants who would assist the king in the collection of taxes. 46 00:04:39.700 --> 00:04:46.100 The grants were either for trade in a certain region, such as the various East India companies, 47 00:04:46.100 --> 00:04:52.380 which acquired the monopoly right in each country to trade with the Far East, or were 48 00:04:52.380 --> 00:04:58.660 internal, such as the grant of a monopoly to one person to manufacture playing cards 49 00:04:58.660 --> 00:05:00.600 in England. 50 00:05:00.600 --> 00:05:07.480 The result was to privilege one set of businessmen at the expense of their potential competitors 51 00:05:07.480 --> 00:05:15.000 and of the mass of English consumers, or the state would cartelize craft production and 52 00:05:15.000 --> 00:05:22.280 industry and cement alliances by compelling all producers to join and obey the orders 53 00:05:22.280 --> 00:05:26.120 of privileged urban guilds. 54 00:05:26.120 --> 00:05:32.120 It should be noted that the most prominent aspects of mercantilist policy, taxing or 55 00:05:32.120 --> 00:05:39.360 prohibiting imports or subsidizing exports, were part and parcel of this system of state 56 00:05:39.360 --> 00:05:42.320 monopoly privilege. 57 00:05:42.320 --> 00:05:48.760 Imports were subject to prohibition or protective tariff in order to confer privilege on domestic 58 00:05:48.760 --> 00:05:51.980 merchants or craftsmen. 59 00:05:51.980 --> 00:05:55.400 Exports were subsidized for similar reasons. 60 00:05:55.400 --> 00:06:01.120 The focus in examining mercantilist thinkers and writers should not be the fallacies of 61 00:06:01.120 --> 00:06:04.640 their alleged economic theories. 62 00:06:04.640 --> 00:06:08.480 Theory was the last consideration in their minds. 63 00:06:08.480 --> 00:06:15.000 They were, as Schumpeter called them, consultant administrators and pamphleteers, to which 64 00:06:15.000 --> 00:06:18.200 should be added lobbyists. 65 00:06:18.200 --> 00:06:24.080 Their theories were any propaganda arguments, however faulty or contradictory, that could 66 00:06:24.080 --> 00:06:28.600 Would Win Them a Slice of Bootle from the State Apparatus. 67 00:06:28.600 --> 00:06:35.020 As Weiner wrote, the mercantilist literature consisted in the main of writings by or on 68 00:06:35.020 --> 00:06:42.060 behalf of merchants or businessmen who had the usual capacity for identifying their own 69 00:06:42.060 --> 00:06:44.800 with the national welfare. 70 00:06:44.800 --> 00:06:51.480 The great bulk of the mercantilist literature consisted of tracts which were partly or wholly, 71 00:06:51.480 --> 00:07:00.360 Frankly or disguisedly, special pleas for special economic interests, freedom for themselves, 72 00:07:00.360 --> 00:07:06.920 restrictions for others, such was the essence of the usual program of legislation of the 73 00:07:06.920 --> 00:07:11.840 mercantilist tracts of merchant authorship. 74 00:07:11.840 --> 00:07:15.040 2. 75 00:07:15.040 --> 00:07:18.040 Mercantilism in Spain 76 00:07:18.040 --> 00:07:24.800 The seeming prosperity and glittering power of Spain in the 16th century proved a sham 77 00:07:24.800 --> 00:07:28.300 and an illusion in the long run. 78 00:07:28.300 --> 00:07:34.200 For it was fueled almost completely by the influx of silver and gold from the Spanish 79 00:07:34.200 --> 00:07:36.840 colonies in the New World. 80 00:07:36.840 --> 00:07:42.820 In the short run, the influx of bullion provided a means by which the Spanish could purchase 81 00:07:42.820 --> 00:07:47.780 and enjoy the products of the rest of Europe and Asia. 82 00:07:47.780 --> 00:07:53.700 But in the long run, price inflation wiped out this temporary advantage. 83 00:07:53.700 --> 00:07:59.620 The result was that when the influx of specie dried up in the seventeenth century, little 84 00:07:59.620 --> 00:08:02.260 or nothing remained. 85 00:08:02.260 --> 00:08:09.780 Not only that, the bullion prosperity induced people and resources to move to southern Spain, 86 00:08:09.780 --> 00:08:15.180 particularly the port of Seville, where the new specie entered Europe. 87 00:08:15.180 --> 00:08:21.540 The result was malinvestment in Seville and the south of Spain, offset by the crippling 88 00:08:21.540 --> 00:08:25.620 of potential economic growth in the north. 89 00:08:25.620 --> 00:08:27.740 But that was not all. 90 00:08:27.740 --> 00:08:33.940 At the end of the 15th century, the Spanish crown cartellized the developing and promising 91 00:08:33.940 --> 00:08:42.500 Castilian textile industry by passing over 100 laws designed to freeze the industry at 92 00:08:42.500 --> 00:08:45.620 and the current level of development. 93 00:08:45.620 --> 00:08:51.740 This freeze crippled the protected Castilian cloth industry and destroyed its efficiency 94 00:08:51.740 --> 00:08:57.700 in the long run, so that it could not become competitive in European markets. 95 00:08:57.700 --> 00:09:04.740 Furthermore, royal action also managed to destroy the flourishing Spanish silk industry, 96 00:09:04.740 --> 00:09:08.580 which centered in southern Spain at Granada. 97 00:09:08.580 --> 00:09:15.360 Unfortunately, Granada was still a center of Muslim or Moorish population and so a series 98 00:09:15.360 --> 00:09:22.660 of vindictive acts by the Spanish Crown brought the silk industry to its virtual demise. 99 00:09:22.660 --> 00:09:29.980 First, several edicts drastically limited the domestic use and consumption of silk. 100 00:09:29.980 --> 00:09:37.100 Second, silks in the 1550s were prohibited from being exported and a tremendous increase 101 00:09:37.100 --> 00:09:50.940 In the 16th century, Spanish agriculture was also crippled and laid waste by government 102 00:09:50.940 --> 00:09:52.680 intervention. 103 00:09:52.680 --> 00:09:59.900 The Castilian Crown had long made an alliance with the Mesta, the guild of sheep farmers, 104 00:09:59.900 --> 00:10:06.980 who received special privileges in return for heavy tax contributions to the monarchy. 105 00:10:06.980 --> 00:10:14.520 In the 1480s and 1490s, enclosures that had been made in previous years for grain farming 106 00:10:14.520 --> 00:10:22.180 were all disallowed, and sheep walks, canadas, were greatly expanded by government decree 107 00:10:22.180 --> 00:10:26.340 at the expense of the lands of grain farmers. 108 00:10:26.340 --> 00:10:32.240 The grain farmers were also hobbled by special legislation passed on behalf of the Carters 109 00:10:32.240 --> 00:10:40.320 and the Carters Guild, roads being in all countries special favorites for military purposes. 110 00:10:40.320 --> 00:10:46.900 Carters were specially allowed free passage on all local roads, and heavy taxes were levied 111 00:10:46.900 --> 00:10:53.900 on grain farmers to build and maintain the roads benefiting the carters. 112 00:10:53.900 --> 00:10:59.600 Grain prices rose throughout Europe beginning in the early 16th century. 113 00:10:59.600 --> 00:11:06.000 The Spanish Crown, worried that the rising prices might induce a shift of land from sheep 114 00:11:06.000 --> 00:11:13.680 to grain, levied maximum price control on grain, while landlords were allowed unilaterally 115 00:11:13.680 --> 00:11:19.200 to rescind leases and charge higher rates to grain farmers. 116 00:11:19.200 --> 00:11:27.320 The result of the consequent cost-price squeeze was massive farm bankruptcies, rural depopulation 117 00:11:27.320 --> 00:11:32.000 and the shift of farmers to the towns or the military. 118 00:11:32.000 --> 00:11:38.560 The bizarre result was that by the end of the 16th century, Castile suffered from periodic 119 00:11:38.560 --> 00:11:46.600 famines because imported Baltic grain could not easily be moved to the interior of Spain, 120 00:11:46.600 --> 00:11:54.400 while at the same time one-third of Castilian farmland had become uncultivated waste. 121 00:11:54.400 --> 00:12:07.400 Meanwhile, shepherding, so heavily privileged by the Spanish crown, flourished for the first half of the 16th century, but soon fell victim to financial and market dislocations. 122 00:12:07.400 --> 00:12:12.400 As a result, Spanish shepherding fell into a sharp decline. 123 00:12:12.400 --> 00:12:20.000 9. Heavy royal expenditures and taxes on the middle classes also crippled the Spanish economy 124 00:12:20.000 --> 00:12:27.800 as a whole, and huge deficits misallocated capital. Three massive defaults by the Spanish 125 00:12:27.800 --> 00:12:39.360 king Philip II in 1557, 1575 and 1596 destroyed capital and led to large-scale bankruptcies 126 00:12:39.360 --> 00:12:44.360 and Credit Stringencies in France and in Antwerp. 127 00:12:44.360 --> 00:12:51.240 The resulting failure to pay Spanish imperial troops in the Netherlands in 1575 led to 128 00:12:51.240 --> 00:12:58.400 a thoroughgoing sack of Antwerp by mutineering troops the following year in an orgy of looting 129 00:12:58.400 --> 00:13:02.600 and raping known as the Spanish Fury. 130 00:13:02.600 --> 00:13:08.220 The name stuck, even though these were largely German mercenaries. 131 00:13:08.220 --> 00:13:14.500 The once free and enormously prosperous city of Antwerp was brought to its knees by a series 132 00:13:14.500 --> 00:13:18.780 of statist measures during the late 16th century. 133 00:13:18.780 --> 00:13:24.980 In addition to the defaults, the major problem was a massive attempt by the Spanish king, 134 00:13:24.980 --> 00:13:30.980 Philip II, to hold on to the Netherlands and to stamp out the Protestant and Anabaptist 135 00:13:30.980 --> 00:13:32.940 heresies. 136 00:13:32.940 --> 00:13:40.420 In 1562, the Spanish king forcibly closed Antwerp to its chief import, English woolen 137 00:13:40.420 --> 00:13:47.180 broadcloths, and when the notorious Duke of Alva assumed the governorship of the Netherlands 138 00:13:47.180 --> 00:13:54.760 in 1567, he instituted repression in the form of a Council of Blood, which had the power 139 00:13:54.760 --> 00:14:00.600 to torture, kill and confiscate the property of heretics. 140 00:14:00.600 --> 00:14:07.960 The Netherlands also levied a heavy value-added tax of 10 percent, the Alcabala, which served 141 00:14:07.960 --> 00:14:13.640 to cripple the sophisticated and interrelated Netherlands economy. 142 00:14:13.640 --> 00:14:18.960 Many skilled woolen craftsmen fled to a hospitable home in England. 143 00:14:18.960 --> 00:14:26.600 Finally, the breakaway of the Dutch from Spain in the 1580s and another Spanish royal default 144 00:14:26.600 --> 00:14:34.240 in 1607 led to a treaty with the Dutch two years later, which finished Antwerp by cutting 145 00:14:34.240 --> 00:14:40.160 off its access to the sea and to the mouth of the river Scheldt, which was confirmed 146 00:14:40.160 --> 00:14:42.880 to be in Dutch hands. 147 00:14:42.880 --> 00:14:49.920 From then on, for the remainder of the 17th century, decentralized and free market Holland, 148 00:14:49.920 --> 00:14:56.580 and in particular the city of Amsterdam, replaced Flanders and Antwerp as the main commercial 149 00:14:56.580 --> 00:15:09.100 Federal and Financial Center in Europe, Mercantilism and Colberism in France 150 00:15:09.100 --> 00:15:15.900 In France, which was to become in the 17th century the home par excellence of the despotic 151 00:15:15.900 --> 00:15:22.740 nation state, the promising cloth trade and other commerce and industry in Lyon and the 152 00:15:22.740 --> 00:15:28.860 The Lenguidoc region in the south were crippled by the devastating religious wars in the last 153 00:15:28.860 --> 00:15:32.620 four decades of the 16th century. 154 00:15:32.620 --> 00:15:38.580 In addition to the devastation and the killing and emigration of skilled Huguenot craftsmen 155 00:15:38.580 --> 00:15:47.140 to England, high taxes to finance the war served to cripple French economic growth. 156 00:15:47.140 --> 00:15:53.580 Then the Politik Party, riding to power on the promise of ending religious strife, ushered 157 00:15:53.580 --> 00:15:58.820 in the unchecked reign of royal absolutism. 158 00:15:58.820 --> 00:16:04.380 Crippling regulation of French industry had begun in the late 15th century, when the king 159 00:16:04.380 --> 00:16:11.220 issued scores of guild charters, conferring the power to control and to set standards 160 00:16:11.220 --> 00:16:32.260 A major reason why Lyon had flourished during the 16th century was that it was granted a 161 00:16:32.260 --> 00:16:38.060 special exemption from guild rule and guild restrictions. 162 00:16:38.060 --> 00:16:43.500 By the end of the sixteenth century and the religious wars, the old regulations were still 163 00:16:43.500 --> 00:16:46.780 in place, ready to be enforced. 164 00:16:46.780 --> 00:16:51.660 The new absolute monarchy was ready to enforce them and carry them further. 165 00:16:51.660 --> 00:17:00.380 Thus, in 1581, King Henry III ordered all the artisans of France to join and group themselves 166 00:17:00.380 --> 00:17:05.220 into guilds, whose orders were to be enforced. 167 00:17:05.220 --> 00:17:11.660 All except Parisian and Lyonnais craftsmen were forced to confine their activity to their 168 00:17:11.660 --> 00:17:13.780 current towns. 169 00:17:13.780 --> 00:17:19.100 In that way, mobility in French industry was brought to an end. 170 00:17:19.100 --> 00:17:28.180 In 1597, Henry IV re-enacted and strengthened these laws and proceeded to enforce them thoroughly. 171 00:17:28.180 --> 00:17:34.220 The result of this network of restriction was the total crippling of economic and industrial 172 00:17:34.220 --> 00:17:36.660 Growth in France. 173 00:17:36.660 --> 00:17:43.380 The typical ploy of preserving standards of quality meant that competition was hobbled, 174 00:17:43.380 --> 00:17:48.440 production and imports limited, and prices kept high. 175 00:17:48.440 --> 00:17:54.300 It meant, in short, that consumers were not allowed the option of paying less money for 176 00:17:54.300 --> 00:17:57.260 lower quality products. 177 00:17:57.260 --> 00:18:03.140 State-privileged monopolies grew as well, with similar effects, and upon the guilds 178 00:18:03.140 --> 00:18:09.360 and the monopolies the state levied increasing and stifling taxes. 179 00:18:09.360 --> 00:18:15.700 Growing inspection fees for quality also exacted a great burden on the French economy. 180 00:18:15.700 --> 00:18:22.820 Furthermore, luxury production was particularly subsidized and the profits of expanding industries 181 00:18:22.820 --> 00:18:26.580 diverted to subsidize the weak. 182 00:18:26.580 --> 00:18:32.300 Capital accumulation was thereby slowed and the growth of promising and strong industries 183 00:18:32.300 --> 00:18:39.120 is crippled. The subsidizing and privileging of luxury industries met a shift of resources 184 00:18:39.120 --> 00:18:46.120 away from cost-cutting innovations in new mass production industries and towards such 185 00:18:46.120 --> 00:18:54.300 areas of high-cost craftsmanship as glass and tapestries. The increasingly powerful 186 00:18:54.300 --> 00:19:00.980 French monarchy and aristocracy were large consumers of luxury goods and were therefore 187 00:19:00.980 --> 00:19:07.380 were particularly interested in fostering them and maintaining their quality. 188 00:19:07.380 --> 00:19:13.560 Price was no great object, since the monarchy and nobility lived off compulsory levies in 189 00:19:13.560 --> 00:19:14.880 any case. 190 00:19:14.880 --> 00:19:24.340 Thus, in May 1665, the king established monopoly privileges for a group of French lace manufacturers, 191 00:19:24.340 --> 00:19:30.960 using the transparently canting argument that this was done to prevent the export of money 192 00:19:30.960 --> 00:19:33.960 and to Give Employment to the People. 193 00:19:33.960 --> 00:19:40.960 Actually, the point was to prohibit anyone other than the privileged licensees from making 194 00:19:40.960 --> 00:19:46.520 lace, in return for hefty fees paid to the Crown. 195 00:19:46.520 --> 00:19:52.320 Domestic cartels are worthless if the consumer is allowed to buy cheaper substitutes from 196 00:19:52.320 --> 00:19:58.560 abroad, and so protective tariffs were levied on imported lace. 197 00:19:58.560 --> 00:20:06.560 and apparently smuggling abounded, and so in 1667 the government made enforcement easier 198 00:20:06.560 --> 00:20:14.640 by prohibiting all foreign lace whatsoever. In addition, to prevent unlicensed competition, 199 00:20:14.640 --> 00:20:22.160 it was necessary for the French Crown to prohibit any lacework at home, and to force all lacework 200 00:20:22.160 --> 00:20:30.280 to Occur at Fixed Visible Points of Manufacture Thus, as the Finance and Commerce Minister 201 00:20:30.280 --> 00:20:38.120 and General Economic Tsar Jean-Baptiste Colbert wrote to a government lace supervisor, I beg 202 00:20:38.120 --> 00:20:44.920 you to note with care that no girl must be allowed to work at the home of her parents, 203 00:20:44.920 --> 00:20:51.280 and that you must oblige them all to go to the house of the manufacturers. 204 00:20:51.280 --> 00:20:56.720 Perhaps the most important of the numerous mercantile restrictions on the French economy 205 00:20:56.720 --> 00:21:05.080 imposed in the 17th century was the enforcing of quality standards on production and trade. 206 00:21:05.080 --> 00:21:11.960 This tended to mean a freezing of the French economy at the level of the early or mid-17th 207 00:21:11.960 --> 00:21:13.600 century. 208 00:21:13.600 --> 00:21:20.600 That coerced freeze effectively hobbled or even prevented the innovation, new products, 209 00:21:20.600 --> 00:21:27.600 New technologies, new methods of handling production and exchange so necessary to economic 210 00:21:27.600 --> 00:21:30.560 and industrial development. 211 00:21:30.560 --> 00:21:37.000 One example was the loom, invented in the early 17th century, at first used principally 212 00:21:37.000 --> 00:21:41.760 for the production of the luxury item, silk stockings. 213 00:21:41.760 --> 00:21:48.520 When looms began to be applied to relatively mass consumption woolen and linen goods, 214 00:21:48.520 --> 00:21:56.020 The hand-knitters balked at the efficient competition, and persuaded Colbert, in 1680, 215 00:21:56.020 --> 00:22:01.340 to outlaw the use of the loom on any article except silk. 216 00:22:01.340 --> 00:22:07.480 Fortunately, in the case of the loom, the excluded woolen and linen manufacturers were 217 00:22:07.480 --> 00:22:14.520 politically powerful enough to get the prohibition repealed four years later, and to get themselves 218 00:22:14.520 --> 00:22:26.200 All these tendencies of French mercantilism reached a climax in the era of Jean-Baptiste 219 00:22:26.200 --> 00:22:36.460 Colbert, 1619-1683, so much so that he gave the name Colbertism to the most hypertrophied 220 00:22:36.460 --> 00:22:39.540 embodiment of mercantilism. 221 00:22:39.540 --> 00:22:46.940 The son of a merchant born at Reims, Colbert early in life joined the French central bureaucracy. 222 00:22:46.940 --> 00:22:54.900 By 1651 he had become a leading bureaucrat in the service of the Crown, and from 1661 223 00:22:54.900 --> 00:23:02.220 to his death, 22 years later, Colbert was the virtual economic czar, absorbing such 224 00:23:02.220 --> 00:23:08.660 Such Offices as Superintendent of Finance, of Commerce and Secretary of State, under 225 00:23:08.660 --> 00:23:16.460 the great Sun King, that epitome of absolutist despotism, Louis XIV. 226 00:23:16.460 --> 00:23:24.140 Colbert engaged in a virtual orgy of grants of monopoly, subsidies of luxury and cartelizing 227 00:23:24.140 --> 00:23:30.320 privilege, and built up a mighty system of central bureaucracy, of officials known as 228 00:23:30.320 --> 00:23:36.960 Atendance to enforce the network of controls and regulations. 229 00:23:36.960 --> 00:23:43.960 He also created a formidable system of inspections, marks and measurements to be able to identify 230 00:23:43.960 --> 00:23:49.840 all those straying from the detailed list of state regulations. 231 00:23:49.840 --> 00:23:57.140 The Atendance employed a network of spies and informers to ferret out all violations 232 00:23:57.140 --> 00:24:01.160 of the Cartel Restrictions and Regulations. 233 00:24:01.160 --> 00:24:08.660 In the classic mode of spies everywhere, they also spied on each other, including the entendants 234 00:24:08.660 --> 00:24:10.860 themselves. 235 00:24:10.860 --> 00:24:17.460 Penalties for violations ranged from confiscation and destruction of the inferior production 236 00:24:17.460 --> 00:24:24.680 to heavy fines, public mockery and deprivation of one's license to stay in business. 237 00:24:24.680 --> 00:24:31.120 As the major historian of mercantilism summed up French enforcement, no measure of control 238 00:24:31.120 --> 00:24:37.760 was considered too severe where it served to secure the greatest possible respect for 239 00:24:37.760 --> 00:24:40.640 the regulations. 240 00:24:40.640 --> 00:24:47.200 Two of the most extreme examples of the suppression of innovation in France occurred shortly after 241 00:24:47.200 --> 00:24:53.240 the death of Colbert during the lengthy reign of Louis XIV. 242 00:24:53.240 --> 00:24:59.480 Button-making in France had been controlled by various guilds, depending on the material 243 00:24:59.480 --> 00:25:05.860 used, the most important part belonging to the cord and button-makers guild, who made 244 00:25:05.860 --> 00:25:08.940 cord buttons by hand. 245 00:25:08.940 --> 00:25:15.440 By the 1690s, tailors and dealers launched the innovation of weaving buttons from the 246 00:25:15.440 --> 00:25:18.680 material used in the garment. 247 00:25:18.680 --> 00:25:25.720 The outrage of the inefficient hand button-makers brought the state leaping to their defense. 248 00:25:25.720 --> 00:25:32.600 In the late 1690s, fines were imposed on the production, sale and even the wearing of the 249 00:25:32.600 --> 00:25:37.640 new buttons, and the fines were continually increased. 250 00:25:37.640 --> 00:25:43.480 The local guild wardens even obtained the right to search people's houses and to arrest 251 00:25:43.480 --> 00:25:48.880 and anyone in the street who wore the evil and illegal buttons. 252 00:25:48.880 --> 00:25:54.280 In a few years, however, the state and the hand button makers had to give up the fight 253 00:25:54.280 --> 00:25:59.280 since everyone in France was using the new buttons. 254 00:25:59.280 --> 00:26:05.120 More important in stunting France's industrial growth was the disastrous prohibition of the 255 00:26:05.120 --> 00:26:09.840 popular new cloth, printed calicoes. 256 00:26:09.840 --> 00:26:16.840 Cotton textiles were not yet of supreme importance in this era, but cottons were to be the spark 257 00:26:16.840 --> 00:26:23.800 of the Industrial Revolution in 18th century England. France's strictly enforced policy 258 00:26:23.800 --> 00:26:29.160 made sure that cottons would not be flourishing there. 259 00:26:29.160 --> 00:26:36.480 The new cloth, printed calicoes, began to be imported from India in the 1660s and became 260 00:26:36.480 --> 00:26:43.920 from highly popular, useful for an inexpensive mass market as well as for high fashion. 261 00:26:43.920 --> 00:26:51.720 As a result, calico printing was launched in France. By the 1680s, the indignant woolen, 262 00:26:51.720 --> 00:26:58.720 cloth, silk and linen industries all complained to the state of unfair competition by the 263 00:26:58.720 --> 00:27:18.720 was a highly popular upstart. The printed colors were readily outcompeting the older cloths, and so the French state responded in 1686 by total prohibition of printed calicoes, their import or their domestic production. 264 00:27:18.720 --> 00:27:27.320 In 1700, the French government went all the way, an absolute ban on every aspect of calicoes, 265 00:27:27.320 --> 00:27:31.160 including their use in consumption. 266 00:27:31.160 --> 00:27:37.640 Government spies had a hysterical field day, peering into coaches and private houses and 267 00:27:37.640 --> 00:27:43.600 reporting that the governess of the Marquis de Cormoy had been seen at her window clothed 268 00:27:43.600 --> 00:27:51.240 in Calico of a white background with big red flowers, almost new, or that the wife of a 269 00:27:51.240 --> 00:27:57.520 lemonade seller had been seen in her shop in a casquin of Calico. 270 00:27:57.520 --> 00:28:03.480 Literally thousands of Frenchmen died in the Calico struggles, either being executed for 271 00:28:03.480 --> 00:28:10.320 wearing Calicos or in armed raids against Calico users. 272 00:28:10.320 --> 00:28:16.200 Calicos were so popular, however, especially among French ladies, that the fight was eventually 273 00:28:16.200 --> 00:28:22.840 lost, even though the prohibition stayed on the books until the late 18th century. 274 00:28:22.840 --> 00:28:27.320 The smuggling of calicos simply could not be stopped. 275 00:28:27.320 --> 00:28:33.920 But it was, of course, easier to enforce the prohibition against domestic calico manufacture 276 00:28:33.920 --> 00:28:41.760 than against the entire French consuming population, and so the result of the near century of prohibition 277 00:28:41.760 --> 00:28:49.000 was to put a total stop to any domestic calico printing industry in France. 278 00:28:49.000 --> 00:28:56.120 The calico entrepreneurs and skilled craftsmen, many of them Huguenots oppressed by the French 279 00:28:56.120 --> 00:29:02.920 state, emigrated to Holland and England, strengthening the calico industry in those countries. 280 00:29:02.920 --> 00:29:15.920 Furthermore, pervasive maximum wage controls discouraged workers from moving or, in particular, entering industry, and tended to keep workers on the farm. 281 00:29:15.920 --> 00:29:25.920 Apprenticeship requirements of three or four years greatly restricted labor mobility and prevented entrance into crafts. 282 00:29:25.920 --> 00:29:33.920 Each master was limited to one or two apprentices, thereby preventing the growth of any single firm. 283 00:29:34.920 --> 00:29:44.920 Before Colbert, most French revenue came from taxation, but grants of monopoly proliferated so much during the Colbert regime 284 00:29:44.920 --> 00:29:54.920 to try to pay for swelling expenditures that monopoly grant revenue came to more than one half of all state income. 285 00:29:55.920 --> 00:30:02.520 Most onerous and strictly enforced was the government's salt monopoly. 286 00:30:02.520 --> 00:30:09.800 Salt producers were required to sell all salt produced to certain royal storehouses at fixed 287 00:30:09.800 --> 00:30:11.440 prices. 288 00:30:11.440 --> 00:30:18.360 The consumers were then forced to purchase salt and to expand state income and deprive 289 00:30:18.360 --> 00:30:45.320 The Land Tax was the single largest source of revenue for the state, and in the early 290 00:30:45.320 --> 00:30:52.400 In the early part of his regime, Colbert tried to expand the burden of the tale still further. 291 00:30:52.400 --> 00:31:00.080 But the tale was hampered by a network of exemptions, especially including all the nobility. 292 00:31:00.080 --> 00:31:07.120 Colbert tried his best to spy on the exempt, to ferret out false nobles, and to stop the 293 00:31:07.120 --> 00:31:10.880 network of bribes of the tax collectors. 294 00:31:10.880 --> 00:31:18.240 In an attempt to lower the tail slightly and greatly to increase the aides, indirect internal 295 00:31:18.240 --> 00:31:25.360 taxes at wholesale and retail, particularly on beverages, came a crapper on the bribery 296 00:31:25.360 --> 00:31:28.960 and corruption of the tax farmers. 297 00:31:28.960 --> 00:31:36.600 And then there was the gabel, tax on salt, revenue from which rose tenfold in real terms 298 00:31:36.600 --> 00:31:44.840 between the early 16th and mid-17th centuries. During the Colbert era, Gabel revenues rose 299 00:31:44.840 --> 00:31:50.720 not so much from an increase in tax rates as from the tightening of enforcement of the 300 00:31:50.720 --> 00:31:59.160 existing steep taxes. The land and consumption taxes fell heavily upon the poor and upon 301 00:31:59.160 --> 00:32:05.860 the middle class, gravely crippling saving and investment, especially as we have seen 302 00:32:05.860 --> 00:32:08.780 in the Mass Production Industries. 303 00:32:08.780 --> 00:32:15.380 The parlous state of the French economy may be seen by the fact that in 1640, just as 304 00:32:15.380 --> 00:32:23.220 King Charles I of England was facing a successful revolution largely brought about by his imposition 305 00:32:23.220 --> 00:32:31.260 of high taxes, the French Crown was collecting three to four times as much taxes per capita 306 00:32:31.260 --> 00:32:34.040 as did King Charles. 307 00:32:34.040 --> 00:32:40.400 As a result of all these factors, even though the population of France was six times that 308 00:32:40.400 --> 00:32:46.600 of England during the sixteenth century, and its early industrial development had seemed 309 00:32:46.600 --> 00:32:53.400 promising, French absolutism and strictly enforced mercantilism managed to put that 310 00:32:53.400 --> 00:33:01.040 country out of the running as a leading nation in industrial or economic growth. 311 00:33:01.040 --> 00:33:10.640 4. Mercantilism in England, Textiles and Monopolies 312 00:33:10.640 --> 00:33:16.920 It was in the 16th century that England began its meteoric rise to the top of the economic 313 00:33:16.920 --> 00:33:23.960 and industrial heap. The English Crown in effect tried its best to hobble this development 314 00:33:23.960 --> 00:33:30.360 by mercantilist laws and regulations, but was thwarted because, for various reasons, 315 00:33:30.360 --> 00:33:35.060 The interventionist edicts proved unenforceable. 316 00:33:35.060 --> 00:33:41.520 Raw wool had for several centuries been England's most important product and hence its most 317 00:33:41.520 --> 00:33:43.900 important export. 318 00:33:43.900 --> 00:33:50.380 Wool was shipped largely to Flanders and to Florence to be made into fine cloth. 319 00:33:50.380 --> 00:33:55.720 By the early 14th century, the flourishing wool trade had reached a height of an average 320 00:33:55.720 --> 00:34:00.400 Annual Export of 35,000 Sacks 321 00:34:00.400 --> 00:34:07.040 The State naturally then entered the picture, taxing, regulating and restricting. 322 00:34:07.040 --> 00:34:14.000 The principal fiscal weapon to build the nation-state in England was the poundage, a tax on the 323 00:34:14.000 --> 00:34:19.840 export of wool and a tariff on the import of woolen cloth. 324 00:34:19.840 --> 00:34:24.780 The poundage kept increasing to pay for continuing wars. 325 00:34:24.780 --> 00:34:31.100 In the 1340s, King Edward III granted the monopoly of wool exporting to small groups 326 00:34:31.100 --> 00:34:38.860 of merchants, in return for their agreeing to collect the wool taxes on the king's behalf. 327 00:34:38.860 --> 00:34:44.860 This monopoly grant served to put out of business Italian and other foreign merchants who had 328 00:34:44.860 --> 00:34:49.080 predominated in the wool export trade. 329 00:34:49.080 --> 00:34:55.840 By the 1350s, however, these monopoly merchants had gone bankrupt, and King Edward finally 330 00:34:55.840 --> 00:35:02.120 resolved the issue by widening the monopoly privilege and extending it to a group of several 331 00:35:02.120 --> 00:35:06.600 hundred, called the Merchants of the Staple. 332 00:35:06.600 --> 00:35:13.320 All wool exported had to go through a fixed town under the auspices of the Company of 333 00:35:13.320 --> 00:35:19.520 of the Staple, and he exported to a fixed point on the continent by the end of the fourteenth 334 00:35:19.520 --> 00:35:24.760 century at Calais, then under English control. 335 00:35:24.760 --> 00:35:30.860 The monopoly of the staple did not apply to Italy, but it did apply to Flanders, the major 336 00:35:30.860 --> 00:35:35.040 place of import for English wool. 337 00:35:35.040 --> 00:35:40.840 The merchants of the staple soon proceeded to use their privileged monopoly in the time-honored 338 00:35:40.840 --> 00:35:48.640 Manor of all monopolists, to force lower prices upon English wool growers and higher prices 339 00:35:48.640 --> 00:35:52.720 upon Calais and Flemish importers. 340 00:35:52.720 --> 00:35:57.940 In the short run, this system was quite pleasant for the staplers, who were able to more than 341 00:35:57.940 --> 00:36:01.160 recoup their payments to the king. 342 00:36:01.160 --> 00:36:06.840 But in the long run, the great English wool trade was crippled beyond repair. 343 00:36:06.840 --> 00:36:12.800 The artificial gap between domestic and foreign wool prices discouraged the production of 344 00:36:12.800 --> 00:36:18.640 English wool, while it also injured the demand for wool abroad. 345 00:36:18.640 --> 00:36:27.680 By the mid-15th century, average annual exports of wool had fallen greatly to only 8,000 sacks. 346 00:36:27.680 --> 00:36:34.660 The only benefit to Englishmen from this disastrous policy, apart from the joint short-term gains 347 00:36:34.660 --> 00:36:41.400 to King Edward and to the staplers was to give an unintended boost to the English production 348 00:36:41.400 --> 00:36:48.740 of woolen cloth. English clothmakers could now benefit from their artificially lower prices 349 00:36:48.740 --> 00:36:56.220 of wool in England, coupled with the artificially high prices of wool abroad. Once again the 350 00:36:56.220 --> 00:37:04.320 market managed to get a leg up in its unending zigzag struggle with power. By the mid-fifteenth 351 00:37:04.320 --> 00:37:10.240 During the mid-16th century, fine, expensive, broad cloth woolens were being produced abundantly 352 00:37:10.240 --> 00:37:16.200 in England, centering in the West Country, where swift rivers made water plentiful for 353 00:37:16.200 --> 00:37:22.440 fulling the woven cloth, and where Bristol could serve as the major port of export and 354 00:37:22.440 --> 00:37:24.580 entry. 355 00:37:24.580 --> 00:37:31.060 During the mid-16th century, a new form of woolen cloth manufacture sprang up in England, 356 00:37:31.060 --> 00:37:38.860 soon to become dominant in the textile industry. This was the new draperies, or worsteds, cheaper 357 00:37:38.860 --> 00:37:45.440 and lighter weight cloth that could be exported to warmer climates and far more suitable for 358 00:37:45.440 --> 00:37:53.460 dyeing and decoration, since each individual strand of yarn was now visible in the cloth. 359 00:37:53.460 --> 00:38:00.220 Since the worsted was not fulled, the draperies did not need to be situated near running water, 360 00:38:00.220 --> 00:38:07.980 And so new textile manufacturers and workshops sprang up in the countryside and in new towns 361 00:38:07.980 --> 00:38:12.300 such as Norwich and Rye all round London. 362 00:38:12.300 --> 00:38:19.040 London was the largest market for the cloths, so transportation costs were now cheaper, 363 00:38:19.040 --> 00:38:25.060 and furthermore the southeast was a center for sheep bearing the coarse, long-stapled 364 00:38:25.060 --> 00:38:29.940 wool particularly suitable for worsted production. 365 00:38:29.940 --> 00:38:36.860 The new rural firms around London were also able to hire skilled Protestant textile artisans 366 00:38:36.860 --> 00:38:42.300 who had fled the religious persecution in France and the Netherlands. 367 00:38:42.300 --> 00:38:48.420 Most important, going to the countryside or to new towns meant that the expanding and 368 00:38:48.420 --> 00:38:54.860 innovating textile industry could escape from the stifling guild restrictions and frozen 369 00:38:54.860 --> 00:38:58.520 technology of the old towns. 370 00:38:58.520 --> 00:39:04.960 Now that over one hundred thousand cloths were exported annually compared to a few thousand 371 00:39:04.960 --> 00:39:12.640 two centuries earlier, sophisticated production and marketing innovations took place. Establishing 372 00:39:12.640 --> 00:39:20.040 a putting-out system, merchants paid artisans by the piece to work on cloth owned by the 373 00:39:20.040 --> 00:39:27.680 former. In addition, marketing middlemen sprang up, yarn brokers serving as middlemen between 374 00:39:27.680 --> 00:39:33.880 Between Spinners and Weavers, and Drapers, specializing in selling the cloth at the end 375 00:39:33.880 --> 00:39:36.840 of the production chain. 376 00:39:36.840 --> 00:39:42.560 Seeing the rise of effective new competition, the older urban and abroad cloth artisans 377 00:39:42.560 --> 00:39:50.120 and manufacturers turned to the state apparatus to try to shackle the efficient upstarts. 378 00:39:50.120 --> 00:39:57.120 As Professor Miskeman puts it, as often happens during an evolutionary period, the older vested 379 00:39:57.120 --> 00:40:02.400 interested interests turned to the state for protection against the innovative elements 380 00:40:02.400 --> 00:40:09.400 within the industry and sought regulation that would preserve their traditional monopoly. 381 00:40:09.440 --> 00:40:16.200 In response, the English government passed the Weavers Act in 1555, which drastically 382 00:40:16.200 --> 00:40:23.200 limited the number of looms per establishment outside the towns to only one or two. Numerous 383 00:40:23.200 --> 00:40:41.200 Numerous exceptions, however, vitiated the effect of the Act, and other statutes placing maximum control on wages, restricting competition in order to preserve the old broadcloth industry, came to naught from systemic lack of enforcement. 384 00:40:41.200 --> 00:40:51.200 The English government then turned to the alternative of propping up and tightening the urban guild structure to exclude competition. 385 00:40:51.200 --> 00:41:00.200 These measures succeeded, however, only in isolating and hastening the decay of the old urban broadcloth firms. 386 00:41:00.200 --> 00:41:07.200 For the new rural firms, especially the new draperies, were beyond guild jurisdiction. 387 00:41:07.200 --> 00:41:14.200 Queen Elizabeth then went national with the Statute of Artificers in 1563, 388 00:41:14.200 --> 00:41:19.200 which placed the nation-state squarely behind guild power. 389 00:41:19.200 --> 00:41:35.200 The number of apprentices each master could employ was severely limited, a measure calculated to stifle the growth of any one firm and to decisively cartelize the wool industry and cripple competition. 390 00:41:35.200 --> 00:41:46.200 The number of years of apprenticeship before the apprentice could rise to become a master was universally extended by the statute to seven years, 391 00:41:46.200 --> 00:41:51.900 and maximum wage rates for apprenticeships were imposed throughout England. 392 00:41:51.900 --> 00:41:59.900 Beneficiaries of the Statute of Artificers were not only the old inefficient urban broadcloth guilds, 393 00:41:59.900 --> 00:42:08.200 but also the large landlords who had been losing rural workers to the new high-paying clothing industry. 394 00:42:08.200 --> 00:42:14.400 One announced aim of the Statute of Artificers was compulsory full employment, 395 00:42:14.400 --> 00:42:19.400 with labor directed to work according to a system of priorities. 396 00:42:19.400 --> 00:42:27.400 Top priority was accorded to the state, which attempted to force workers to remain in rural and farm work 397 00:42:27.400 --> 00:42:32.400 and not leave the farm for glittering opportunities elsewhere. 398 00:42:32.400 --> 00:42:40.400 To enter commercial or professional fields, on the other hand, required a graded series of qualifications 399 00:42:40.400 --> 00:43:04.280 If the statute of artificers had been strictly enforced, industrial growth might have been 400 00:43:04.280 --> 00:43:07.280 permanently arrested in England. 401 00:43:07.280 --> 00:43:13.400 Fortunately, England was far more anarchic than France, and the statute was not well 402 00:43:13.400 --> 00:43:20.920 enforced, particularly where it counted in the new and fast-growing worsted industry. 403 00:43:20.920 --> 00:43:26.240 Not only was the countryside beyond the grasp of the urban guilds and their nation-state 404 00:43:26.240 --> 00:43:33.080 ally, but so too was fast-growing London, where custom decreed that any guild member 405 00:43:33.080 --> 00:43:40.000 could engage in any sort of trade, and no guild could exercise restrictive control over 406 00:43:40.000 --> 00:43:42.520 any line of production. 407 00:43:42.520 --> 00:43:49.580 London, as the great export center for the new draperies, largely to Antwerp, partially 408 00:43:49.580 --> 00:43:55.520 accounted for the enormous growth of this city during the 16th century. 409 00:43:55.520 --> 00:44:01.800 London's population grew at three times the rate of England as a whole over the century, 410 00:44:01.800 --> 00:44:09.800 Specifically from 30,000 to 40,000 at the beginning of the 16th century to a quarter of a million early in the next. 411 00:44:10.800 --> 00:44:18.800 The London merchants were not, however, content with free market development and power began to move in on the market. 412 00:44:19.800 --> 00:44:23.800 Specifically, the London merchants began to reach for export monopoly. 413 00:44:23.800 --> 00:44:31.560 In 1486, the City of London created the Fellowship of the Merchant Adventurers of London, which 414 00:44:31.560 --> 00:44:37.420 claimed exclusive rights to the export of woolens to its members. 415 00:44:37.420 --> 00:44:44.160 For provincial merchants outside of London to join required a stiff fee. 416 00:44:44.160 --> 00:44:49.480 Eleven years later, the King and Parliament decreed that any merchant exporting to the 417 00:44:49.480 --> 00:44:57.600 The Netherlands had to pay a fee to the merchant adventurers and obey its restrictionist regulations. 418 00:44:57.600 --> 00:45:03.980 The States tightened the monopoly of the merchant adventurers in the mid-sixteenth century. 419 00:45:03.980 --> 00:45:10.900 First in 1552, the Hanseatic merchants were deprived of their ancient rights to export 420 00:45:10.900 --> 00:45:13.640 cloth to the Netherlands. 421 00:45:13.640 --> 00:45:19.960 Five years later, customs duties were raised on the import of cloth, thereby conferring 422 00:45:19.960 --> 00:45:26.520 more special privileges on the domestic cloth trade, and increasing the financial ties of 423 00:45:26.520 --> 00:45:29.880 the crown to the cloth merchants. 424 00:45:29.880 --> 00:45:37.120 And finally, in 1564, in Queen Elizabeth's reign, the merchant adventurers were reconstituted 425 00:45:37.120 --> 00:45:41.940 under tighter and more oligarchic control. 426 00:45:41.940 --> 00:45:48.000 In the late 16th century, however, the mighty merchant adventurers began to decline. 427 00:45:48.000 --> 00:45:53.520 The English war with Spain and the Spanish Netherlands lost the adventurers the city 428 00:45:53.520 --> 00:46:00.940 of Antwerp, and at the turn of the 17th century they were formally expelled from Germany. 429 00:46:00.940 --> 00:46:06.760 The English monopoly of woolen exports to the Netherlands and the German coast was finally 430 00:46:06.760 --> 00:46:11.860 abolished after the revolution of 1688. 431 00:46:11.860 --> 00:46:17.840 It is instructive to note what happened to printed calico in England as compared to the 432 00:46:17.840 --> 00:46:21.360 suppression of the industry in France. 433 00:46:21.360 --> 00:46:27.820 The powerful woolen industry managed to get the importation of calicos banned from England 434 00:46:27.820 --> 00:46:32.780 in 1700, a decade or so after France. 435 00:46:32.780 --> 00:46:37.100 But in this case, domestic manufacture was still permitted. 436 00:46:37.100 --> 00:46:43.700 As a result, domestic manufacturers of calico spurted ahead, and when the woolen interests 437 00:46:43.700 --> 00:46:52.820 managed to get a prohibition of Calico Consumption Act passed in 1720, the Calico Act, the domestic 438 00:46:52.820 --> 00:47:00.060 calico industry was already powerful and could continue to export its wares. 439 00:47:00.060 --> 00:47:07.020 In the meanwhile, calico smuggling continued, as did domestic use, all stimulated by the 440 00:47:07.020 --> 00:47:14.360 The fact that prohibition was not enforced nearly as strictly in England as in France. 441 00:47:14.360 --> 00:47:20.940 Then in 1735, the English cotton industry won an exemption for the domestic printing 442 00:47:20.940 --> 00:47:28.240 and use of fustions, a mixed cotton and linen cloth, which were the most popular form of 443 00:47:28.240 --> 00:47:31.620 calico in England in any case. 444 00:47:31.620 --> 00:47:38.700 As a result, the domestic cotton textile industry was able to grow and flourish in England throughout 445 00:47:38.700 --> 00:47:42.200 the 18th century. 446 00:47:42.200 --> 00:47:47.240 Prominent in English mercantilism was the pervasive creation by the crown of grants 447 00:47:47.240 --> 00:47:54.220 of monopoly privilege, exclusive power to produce and sell in domestic and in foreign 448 00:47:54.220 --> 00:47:56.060 trade. 449 00:47:56.060 --> 00:48:04.540 The creation of monopolies reached its climax in the reign of Queen Elizabeth, 1558-1603, 450 00:48:04.540 --> 00:48:11.720 in the latter half of the 16th century. In the words of historian Professor S. T. Bindorf, 451 00:48:11.720 --> 00:48:18.500 the restrictive principle had, like some giant squid, fastened its embracing tentacles round 452 00:48:18.500 --> 00:48:23.260 and many branches of domestic trade and manufacture. 453 00:48:23.260 --> 00:48:30.740 And in the last decade of Elizabeth's reign, scarcely an article in common use, coal, soap, 454 00:48:30.740 --> 00:48:39.700 starch, iron, leather, books, wine, fruit, was unaffected by patents of monopoly. 455 00:48:39.700 --> 00:48:46.820 In sparkling prose, Bindorf writes how lobbyists, using the lure of monetary gain, obtained 456 00:48:46.820 --> 00:48:52.700 and Royal Courtiers to sponsor their petitions for grants of monopoly. 457 00:48:52.700 --> 00:48:58.940 Their sponsorship was usually a mere episode in the great game of place-and-fortune hunting 458 00:48:58.940 --> 00:49:04.740 which swayed and swirled incessantly around the steps of the throne. 459 00:49:04.740 --> 00:49:10.580 Once granted their privileges, the monopolists got themselves armed by the State with powers 460 00:49:10.580 --> 00:49:17.700 of Search and Seizure to root out all instances of now illegal competition. 461 00:49:17.700 --> 00:49:25.100 As Bindorf writes, The saltpeter men of the gunpowder contract dug in every man's house 462 00:49:25.100 --> 00:49:29.780 for the nitrate-laden soil which was their raw material. 463 00:49:29.780 --> 00:49:36.420 The minions of the playing-card monopoly invaded shops in search of cards lacking its seal 464 00:49:36.420 --> 00:49:42.540 and browbeat their owners, under threat of summons to a distant court, into compounding 465 00:49:42.540 --> 00:49:44.820 for their offenses. 466 00:49:44.820 --> 00:49:50.400 The search warrant was, indeed, indispensable to the monopolist, if he were to eliminate 467 00:49:50.400 --> 00:49:56.920 competition and leave himself free to fix the price of his wares. 468 00:49:56.920 --> 00:50:03.140 The result of this expulsion of competition, as we might expect, was the lowering of quality 469 00:50:03.140 --> 00:50:10.700 and the Raising of Price, sometimes by as much as 400%. 470 00:50:10.700 --> 00:50:16.460 England was preeminently the home of foreign trade companies receiving grants of monopoly 471 00:50:16.460 --> 00:50:20.020 for trade with portions of the globe. 472 00:50:20.020 --> 00:50:25.740 The granddaddy of the English foreign trade companies was the Muscovy Company, chartered 473 00:50:25.740 --> 00:50:33.340 in 1553 and granted a monopoly of all English trade with Russia and Asia through the White 474 00:50:33.340 --> 00:50:36.460 Seaport of Archangel. 475 00:50:36.460 --> 00:50:42.900 In the late 1570s and early 1580s, Queen Elizabeth granted trading privileges to a 476 00:50:42.900 --> 00:50:50.140 spate of new monopoly companies, including the Barbary, Eastland and Levant companies. 477 00:50:50.140 --> 00:50:56.500 A small group of politically powerful men, centered originally in the Muscovy Company, 478 00:50:56.500 --> 00:51:01.140 was at the core of every one of these monopoly companies. 479 00:51:01.140 --> 00:51:08.820 The Muscovy Company for a while held a monopoly on all exploration and trade with North America. 480 00:51:08.820 --> 00:51:15.900 Further, when in the 1580s the Muscovy Company's trade with Russia was severely injured by 481 00:51:15.900 --> 00:51:22.660 By the Cossacks' disruption of the Volga trade route from Asia, Muscovy Company leaders formed 482 00:51:22.660 --> 00:51:30.180 both the Turkey Company and the Venice Company in 1581 for trading with India. 483 00:51:30.180 --> 00:51:37.560 The two companies merged in 1592 into the Levant Company, which enjoyed a monopoly-grant 484 00:51:37.560 --> 00:51:42.380 trade with India through the Levant and Persia. 485 00:51:42.380 --> 00:51:48.180 Standing like a powerful thread through all these interlocking monopoly companies was 486 00:51:48.180 --> 00:51:58.620 the person and the family of Sir Thomas Smith, 1558-1625. Smith's grandfather, Andrew Judd, 487 00:51:58.620 --> 00:52:07.140 was a principal founder of the Muscovy Company. His father, Sir Thomas Smith Sr., 1514-1577, 488 00:52:07.140 --> 00:52:15.380 1777, attorney, had been an architect of the Tudor system of royal absolutism, high taxation 489 00:52:15.380 --> 00:52:18.220 and economic restriction. 490 00:52:18.220 --> 00:52:24.900 By the 1590s, the junior smith was the governor, the head of literally every single monopoly 491 00:52:24.900 --> 00:52:30.100 company concerned with foreign trade and colonization. 492 00:52:30.100 --> 00:52:35.260 These included the Muscovy Company, which held the monopoly charter for the colonization 493 00:52:35.260 --> 00:52:37.100 of Virginia. 494 00:52:37.100 --> 00:52:43.380 But the climax of Smith's career came when, to all his other posts, was added governor 495 00:52:43.380 --> 00:52:50.660 of the mighty East India Company, chartered in 1600 with a monopoly of all trading to 496 00:52:50.660 --> 00:52:53.780 the East Indies. 497 00:52:53.780 --> 00:52:56.580 5. 498 00:52:56.580 --> 00:53:00.420 Insurfdom in Eastern Europe 499 00:53:00.420 --> 00:53:05.540 What happened in Eastern Europe was even worse than mercantilism. 500 00:53:05.540 --> 00:53:12.020 There, absolutism by the kings and the feudal nobility was so rampant and unchecked that 501 00:53:12.020 --> 00:53:16.420 they decided to crush nascent capitalism. 502 00:53:16.420 --> 00:53:23.140 Former serfs, now free, had been moving from the rural lands to the towns and cities, there 503 00:53:23.140 --> 00:53:30.420 to work for higher wages and better opportunities in emerging capitalist production and industry. 504 00:53:30.420 --> 00:53:37.660 By the beginning of the 15th century, Eastern Europe, specifically Prussia, Poland and Lithuania, 505 00:53:37.660 --> 00:53:40.580 had a freed peasantry. 506 00:53:40.580 --> 00:53:47.820 Towns and monetary exchange flourished, and cloth-making and manufacturing grew and prospered. 507 00:53:47.820 --> 00:53:53.620 In the 16th century, however, the state and the nobility of Eastern Europe reasserted 508 00:53:53.620 --> 00:53:58.100 themselves and reinsurfed the peasantry. 509 00:53:58.100 --> 00:54:05.620 In particular, a rise in the price of grain, mainly rye, in Europe in the early 16th century, 510 00:54:05.620 --> 00:54:11.620 made grain farming more profitable, spurring the socializing of cheap labor in service 511 00:54:11.620 --> 00:54:14.520 of the noble landlords. 512 00:54:14.520 --> 00:54:20.820 The peasants were forced back onto the land and compelled to remain there, and were also 513 00:54:20.820 --> 00:54:27.180 coerced into corvées, periodic forced labor for the nobility. 514 00:54:27.180 --> 00:54:33.740 The peasants were forced into large, manorial estates owned by the nobles, since large estates 515 00:54:33.740 --> 00:54:41.380 meant cheaper costs of supervising and coercing peasant labor on the part of the nobility. 516 00:54:41.380 --> 00:54:48.180 In addition, in Poland, the nobles induced the state to pass further laws, severely restricting 517 00:54:48.180 --> 00:54:51.300 the activities of urban merchants. 518 00:54:51.300 --> 00:54:57.260 Polish merchants now had to pay higher tolls for shipping produce on the Vistula River 519 00:54:57.260 --> 00:55:03.940 than did landlords, and Polish merchants were prohibited from exporting domestic products. 520 00:55:03.940 --> 00:55:10.780 Moreover, the repression of the formerly free peasantry greatly lowered their money income 521 00:55:10.780 --> 00:55:13.480 for purchasing goods. 522 00:55:13.480 --> 00:55:19.740 These policies combined to destroy the Polish towns, the urban economy and the internal 523 00:55:19.740 --> 00:55:26.740 In Hungary, a similar process of reinsertment occurred, but in the service of the Polish 524 00:55:49.740 --> 00:55:55.260 of cattle raising and wine growing, rather than rye production. 525 00:55:55.260 --> 00:56:01.400 In the later Middle Ages, rents by the peasantry had been converted from payments in kind to 526 00:56:01.400 --> 00:56:03.220 monetary payments. 527 00:56:03.220 --> 00:56:10.260 Now, in the 16th century, the nobles markedly increased the rents and re-converted them 528 00:56:10.260 --> 00:56:13.380 into payments in kind. 529 00:56:13.380 --> 00:56:19.400 Taxes on peasants were raised substantially, and the burden of forced corvée labor was 530 00:56:19.400 --> 00:56:27.680 Landlords increased greatly in one area nine-fold, from seven days per year to sixty. The lords 531 00:56:27.680 --> 00:56:33.740 got themselves granted a tight monopoly of wine sales, as well as exemptions from heavy 532 00:56:33.740 --> 00:56:40.840 export taxes on cattle payable by merchants. In that way the landlords gained themselves 533 00:56:40.840 --> 00:56:47.360 privileged monopolies of buying and selling for the vital wine and cattle trades. 534 00:56:49.400 --> 00:56:55.320 6. Mercantilism and Inflation 535 00:56:55.320 --> 00:57:02.000 The post-medieval state acquired most of its eagerly sought revenues by taxation, but the 536 00:57:02.000 --> 00:57:08.920 state has always been attracted by the idea of creating its own money in addition to plundering 537 00:57:08.920 --> 00:57:15.360 directly the wealth of its subjects. Before the invention of paper money, however, the 538 00:57:15.360 --> 00:57:21.520 State was limited in money creation to occasional debasements of the coinage, of which it had 539 00:57:21.520 --> 00:57:26.120 long managed to secure a compulsory monopoly. 540 00:57:26.120 --> 00:57:32.000 For debasement was a one-shot process and could not be used, as the state would always 541 00:57:32.000 --> 00:57:38.720 like, to create money continually and feed it into state coffers for use in building 542 00:57:38.720 --> 00:57:52.900 The Highly Inflationary Instrument of Government Paper Money was first discovered in the Western 543 00:57:52.900 --> 00:57:57.320 World in French Quebec in 1685. 544 00:57:57.320 --> 00:58:05.020 Monsieur Mule, the governing entendant of Quebec, pressed as usual for funds, decided 545 00:58:05.020 --> 00:58:12.260 to augment them by dividing some playing cards into quarters, marking them with various denominations 546 00:58:12.260 --> 00:58:20.220 of French currency and then using them to pay for wages and materials. This card money, 547 00:58:20.220 --> 00:58:28.060 later redeemed in actual specie, soon became repeatedly issued paper tickets. 548 00:58:28.060 --> 00:58:34.940 The first more familiar form of government paper began five years later, in 1690, in 549 00:58:34.940 --> 00:58:38.820 the British colony of Massachusetts. 550 00:58:38.820 --> 00:58:43.320 Massachusetts had sent soldiers on one of their customary plunder expeditions against 551 00:58:43.320 --> 00:58:48.840 prosperous French Quebec, but this time had been beaten back. 552 00:58:48.840 --> 00:58:54.100 The disgruntled Massachusetts soldiery was even more irritated by the fact that their 553 00:58:54.100 --> 00:59:01.380 Pay had always come out of their individual shares of French booty sold at auction, but 554 00:59:01.380 --> 00:59:08.300 that now there was no money for them to collect. The Massachusetts government, beset by demands 555 00:59:08.300 --> 00:59:13.760 for payment of their salary by a mutinous soldiery, was not able to borrow the money 556 00:59:13.760 --> 00:59:21.300 from Boston merchants, who shrewdly considered its credit rating unworthy. Finally, Massachusetts 557 00:59:21.300 --> 00:59:28.920 This hit upon the expedient of issuing 7,000 pounds in paper notes, supposed to be redeemable 558 00:59:28.920 --> 00:59:31.520 in specie in a few years. 559 00:59:31.520 --> 00:59:38.140 Inevitably, the few years began to stretch out on the horizon, and the government, delighted 560 00:59:38.140 --> 00:59:45.140 with this newfound way of acquiring seemingly costless revenue, poured on the printing presses 561 00:59:45.140 --> 00:59:49.860 and quickly issued 40,000 more paper pounds. 562 00:59:49.860 --> 00:59:54.340 Fatefully, paper money had been born. 563 00:59:54.340 --> 00:59:59.740 It was to be two decades before the French government, under the influence of the fanatically 564 00:59:59.740 --> 01:00:06.380 inflationist Scottish theoretician John Law, turned on the taps of paper money inflation 565 01:00:06.380 --> 01:00:08.260 at home. 566 01:00:08.260 --> 01:00:13.700 The English government turned instead to a more subtle device for accomplishing the same 567 01:00:13.700 --> 01:00:21.020 Objective, The Creation of a New Institution in History, A Central Bank 568 01:00:21.020 --> 01:00:27.300 The key to English history in the 17th and 18th centuries is the perpetual wars in which 569 01:00:27.300 --> 01:00:32.100 the English state was continually engaged. 570 01:00:32.100 --> 01:00:37.020 Wars meant gigantic financial requirements for the crown. 571 01:00:37.020 --> 01:00:42.340 Before the advent of the central bank and government paper, any government not willing 572 01:00:42.340 --> 01:00:50.300 to tax the country for the full cost of war relied on an ever more extensive public debt. 573 01:00:50.300 --> 01:00:56.260 But if the public debt continues to rise and taxes are not increased, something has to 574 01:00:56.260 --> 01:01:00.440 give and the piper must be paid. 575 01:01:00.440 --> 01:01:06.500 Before the 17th century, loans were generally made by banks, and banks were institutions 576 01:01:06.500 --> 01:01:11.260 in which capitalists lent out funds that they had saved. 577 01:01:11.260 --> 01:01:16.900 There was no deposit banking. Merchants who wanted a safe place to keep their surplus 578 01:01:16.900 --> 01:01:23.700 gold deposited them in the King's Mint in the Tower of London, an institution accustomed 579 01:01:23.700 --> 01:01:31.340 to storing gold. This habit, however, proved highly costly, for King Charles I, needing 580 01:01:31.340 --> 01:01:38.980 money shortly before the outbreak of the Civil War in 1638, simply confiscated the huge sum 581 01:01:38.980 --> 01:01:48.060 of 200,000 pounds in gold stored at the mint, announcing it to be a loan from the depositors. 582 01:01:48.060 --> 01:01:53.660 Understandably shaken by their experience, merchants began depositing their gold in the 583 01:01:53.660 --> 01:01:59.540 coffers of private goldsmiths, who were also accustomed to the storing and safekeeping 584 01:01:59.540 --> 01:02:01.460 of precious metals. 585 01:02:01.460 --> 01:02:08.540 Soon, goldsmiths' notes began to function as private bank notes, the product of deposit 586 01:02:08.540 --> 01:02:15.700 Banking. The restoration government soon needed to raise a great deal of money for wars with 587 01:02:15.700 --> 01:02:23.860 the Dutch. Taxes were greatly increased, and the crown borrowed extensively from the goldsmiths. 588 01:02:23.860 --> 01:02:30.500 In late 1671, King Charles IIivid asked the bankers for further large loans to finance 589 01:02:30.500 --> 01:02:32.260 A New Fleet 590 01:02:32.260 --> 01:02:42.020 Upon the goldsmith's refusal, the king proclaimed on 5 January 1672 a stop of the exchequer, 591 01:02:42.020 --> 01:02:49.140 that is, a willful refusal to pay any interest or principle on much of the outstanding public 592 01:02:49.140 --> 01:02:50.940 debt. 593 01:02:50.940 --> 01:02:57.020 Some of the stopped debt was owed by the government to suppliers and pensioners, but the vast 594 01:02:57.020 --> 01:03:13.020 and Bulk was held by the victimized goldsmiths. Indeed, of the total stopped debt of £1.21 million, £1.17 million was owned by the goldsmiths. 595 01:03:13.020 --> 01:03:21.020 Five years later, in 1677, the Crown grudgingly began paying interest on the stopped debt. 596 01:03:21.020 --> 01:03:32.220 that by the time of the eviction of James II in 1688, only a little over six years of interest had been paid out of the twelve years' debt. 597 01:03:32.220 --> 01:03:46.100 Furthermore, the interest was paid at the arbitrary rate of six percent, even though the king had originally contracted to pay interest at rates ranging from eight to ten percent. 598 01:03:46.100 --> 01:03:50.980 The goldsmiths were even more intensively thwarted by the new government of William 599 01:03:50.980 --> 01:03:56.860 and Mary, ushered in by the glorious revolution of 1688. 600 01:03:56.860 --> 01:04:03.580 The new regime simply refused to pay any interest or principle on the stop debt. 601 01:04:03.580 --> 01:04:09.500 The hapless creditors took the case to court, but while the judges agreed in principle with 602 01:04:09.500 --> 01:04:15.500 of the Creditor's Case, their decision was overruled by the Lord Keeper, who candidly 603 01:04:15.500 --> 01:04:21.660 argued that the government's financial problems must take precedence over justice and property 604 01:04:21.660 --> 01:04:23.740 right. 605 01:04:23.740 --> 01:04:30.900 The upshot of the stop was that the House of Commons settled the affair in 1701, decreeing 606 01:04:30.900 --> 01:04:36.980 that half of the capital sum of the debt be simply wiped out, and that interest on the 607 01:04:36.980 --> 01:04:43.980 The consequences of this declaration of bankruptcy by the king were as could be predicted. Public credit was severely impaired, and financial disaster struck for the goldsmiths, whose notes were no longer acceptable to the public. 608 01:05:06.980 --> 01:05:10.180 Ludwig and for their depositors. 609 01:05:10.180 --> 01:05:16.260 Most of the leading goldsmith creditors went bankrupt by the 1680s and many ended their 610 01:05:16.260 --> 01:05:19.260 lives in debtors' prison. 611 01:05:19.260 --> 01:05:25.140 Private deposit banking had received a crippling blow, a blow which would only be overcome 612 01:05:25.140 --> 01:05:29.340 by the creation of a central bank. 613 01:05:29.340 --> 01:05:35.580 The stop of the Exchequer then, coming only two decades after the confiscation of the 614 01:05:35.580 --> 01:05:42.740 at the Mint, managed virtually to destroy at one blow private deposit banking and the 615 01:05:42.740 --> 01:05:49.480 government's credit. But endless wars with France were now looming, and where would government 616 01:05:49.480 --> 01:05:53.020 get the money to finance them? 617 01:05:53.020 --> 01:06:00.080 Salvation came in the form of a group of promoters, headed by the Scot, William Patterson. Patterson 618 01:06:00.080 --> 01:06:06.280 Patterson approached a special committee of the House of Commons formed in early 1693 619 01:06:06.280 --> 01:06:12.600 to study the problem of raising funds, and proposed a remarkable new scheme. 620 01:06:12.600 --> 01:06:18.960 In return for a set of important special privileges from the State, Patterson and his group would 621 01:06:18.960 --> 01:06:25.240 form the Bank of England, which would issue new notes, most of which would be used to 622 01:06:25.240 --> 01:06:28.240 finance the government's deficit. 623 01:06:28.240 --> 01:06:34.320 In short, since there were not enough private savers willing to finance the deficit, Patterson 624 01:06:34.320 --> 01:06:40.480 and Company were graciously willing to buy interest-bearing government bonds to be paid 625 01:06:40.480 --> 01:06:47.880 for by newly created banknotes carrying a raft of special privileges with them. 626 01:06:47.880 --> 01:06:55.220 As soon as Parliament duly chartered the Bank of England in 1694, King William himself and 627 01:06:55.220 --> 01:07:20.220 William Paterson urged the English government to grant Bank of England notes legal tender power, but this was going too far, even for the British Crown, but Parliament did give the bank the advantage of holding deposits of all government funds. 628 01:07:20.220 --> 01:07:28.220 The new institution of government-privileged central banking soon demonstrated its inflationary power. 629 01:07:28.220 --> 01:07:35.220 The Bank of England quickly issued the enormous sum of £760,000, 630 01:07:35.220 --> 01:07:39.220 most of which were used to buy government debt. 631 01:07:39.220 --> 01:07:44.220 This issue had an immediate and substantial inflationary impact, 632 01:07:44.220 --> 01:08:03.220 And in two short years, the Bank of England was insolvent after a bank run, an insolvency gleefully abetted by its competitors, the private goldsmiths, who were happy to return to it the swollen Bank of England notes for redemption of specie. 633 01:08:03.220 --> 01:08:07.220 At this point, the English government made a fateful decision. 634 01:08:07.220 --> 01:08:16.320 In May 1696 it simply allowed the bank to suspend specie payment. In short, it allowed 635 01:08:16.320 --> 01:08:23.500 the bank to refuse indefinitely to pay its contractual obligations to redeem its notes 636 01:08:23.500 --> 01:08:31.340 in gold, while at the same time continuing blithely in operation, issuing notes and enforcing 637 01:08:31.340 --> 01:08:34.980 Banking Payments upon its own debtors. 638 01:08:34.980 --> 01:08:41.220 The bank resumed specie payments two years later, but this act set a precedent for British 639 01:08:41.220 --> 01:08:44.860 and American banking from that point on. 640 01:08:44.860 --> 01:08:50.600 Whenever the bank inflated itself into financial trouble, the government stood ready to allow 641 01:08:50.600 --> 01:08:54.380 it to suspend specie payments. 642 01:08:54.380 --> 01:09:00.180 During the last wars with France in the late 18th and early 19th century, the bank was 643 01:09:00.180 --> 01:09:05.020 was allowed to suspend payments for two decades. 644 01:09:05.020 --> 01:09:13.460 The same year, 1696, the Bank of England had another scare, the specter of competition. 645 01:09:13.460 --> 01:09:20.660 A Tory financial group tried to establish a national land bank to compete with the Whig-dominated 646 01:09:20.660 --> 01:09:22.660 central bank. 647 01:09:22.660 --> 01:09:29.940 The attempt failed, but the Bank of England moved quickly to induce Parliament in 1697 648 01:09:29.940 --> 01:09:37.380 to pass a law prohibiting any new corporate bank from being established in England. 649 01:09:37.380 --> 01:09:44.280 Any new bank would have to be either proprietary or owned by a partnership, thereby severely 650 01:09:44.280 --> 01:09:48.340 limiting the extent of competition with the bank. 651 01:09:48.340 --> 01:09:55.620 Furthermore, counterfeiting the Bank of England notes was now made punishable by death. 652 01:09:55.620 --> 01:10:02.240 In 1708, Parliament followed up this set of privileges by another crucial one. It now 653 01:10:02.240 --> 01:10:09.080 became unlawful for any corporate bank other than the Bank of England, and for any bank 654 01:10:09.080 --> 01:10:16.960 partnership over six persons, to issue notes. And moreover, incorporated banks and partnerships 655 01:10:16.960 --> 01:10:24.560 over six were also prohibited from making any short-term loans. The Bank of England 656 01:10:24.560 --> 01:10:32.520 now only had to compete with tiny banks. Thus, by the end of the 17th century, the states 657 01:10:32.520 --> 01:10:39.440 of Western Europe, particularly England and France, had discovered a grand new route towards 658 01:10:39.440 --> 01:10:47.000 the aggrandizement of state power, revenue through inflationary creation of paper money, 659 01:10:47.000 --> 01:10:54.280 either by government or, more subtly, by a privileged monopolistic central bank. 660 01:10:54.280 --> 01:11:00.000 In England, private banks of deposit were inspired to proliferate, especially checking 661 01:11:00.000 --> 01:11:06.800 accounts under this umbrella, and the government was at last able to expand the public debt 662 01:11:06.800 --> 01:11:09.880 to fight its endless wars. 663 01:11:09.880 --> 01:11:18.100 During the French War of 1702 to 1713, for example, it was able to finance 31% of its 664 01:11:18.100 --> 01:11:20.320 budget via public debt.