4.8 The Mercantile System
The mercantile system "pretends" to enrich a nation by effecting the most advantageous balance of trade, to discourage or encourage trade among nations by restricting or encouraging the importation of some goods while restricting or encouraging the exportation of others.
Importation of Raw Goods
In particular, mercantilism seeks to retain manufacturing operations within a nation, manufacturing being the most efficient way to generate a profit on minimal capital investment. It encourages the import of cheap crude materials and encourages the export of more expensive manufactured goods.
Smith provides examples of bounties paid for the importation of goods from the American plantations:
- The encouragement of the import of naval stores: timber for masts, hemp for sails, tar, pitch, and turpentine. These bounties contributed to the development of the ship=building industry in England.
- A bounty on flax, for the production of linen
- A bounty on indigo, for cloth dying
- A bounty on wood, particularly "squared timber," for construction
- A bounty on raw silk (though it is noted that silk production requires significant labor, which was in short supply in America, so this bounty had little effect)
- A bounty on barrel staves and pipe, for the manufacture of barrels and transport of rum
In many instances, the bounties offered for commodities from America were not extended to the import of the same commodities from other sources, the interest of the American colonies being the same as those of the mother country - "Their wealth was considered our wealth" - and any revenue sent to the Americas would flow back to Britain in the balance of trade.
There are some exceptions to the notion of importing only the crudest of materials, in areas where manufacturing is unprofitable. The example given is of the import of thread and yarn, rather than raw wool or cotton, the spinning of yarn being a cottage industry and less profitable than the weaving of cloth.
Discouragement of Foreign Manufactures
Mercantilism likewise discourages the exportation of the materials of manufacture and instruments of trade, that manufacturing operations may not be undertaken in other markets, while meanwhile seeking the importation of the same in order to add to the productive capability within a nation.
British laws have been extremely defensive of the defense of the weaving of woolen cloth, not only by offering bounties for the import of raw wool, but by the absolute prohibition of the export of raw wool or woolen yarn to any other country, as well as a prohibition of the import of woolen cloth from any foreign nation.
Smith compares the legislation proponed by manufactures and merchants to be "like the laws of Draco, these laws may be said to be all written in blood." The exportation of sheep was punishable on the first offense by the seizure of all property, imprisonment for a year, and "to have his left hand cut off" and hung in the marketplace. The second instance was a capital offense. The exportation of wool was subject to the same laws, and penalties shortly thereafter. The master of any ship carrying wool forth from Britain would surrender not only his ship, but all goods and chattels, and be imprisoned for six months.
Meanwhile, any domestic producer of wool or yarn was also placed under "burdensome and oppressive restrictions." These materials could not be packaged in boxes, crates, or barrels but instead wrapped in leather or cloth, marked outside with the words "wool" or "yarn" in letters not less than three inches tall. It could only be carried by horse or cart during daylight hours Failure to do so resulted in forfeiture of any improperly packaged good, the horse and carriage on which it is hauled, and a fine of three shillings for every pound, or five years imprisonment if he was unable to pay the fine.
If was required for notice to be given in advance for carrying wool or yam within fifteen miles of the sea, and farms situated within that distance must also provide written account of his flock: the number of sheep, where they are lodged, then they will be sheared, etc.
Negative Consequences
To harm in any degree the interest of one order of citizens for the welfare of others is contrary to the notion of justice and equality. Legislations under the mercantile system is clearly in this nature, as it certainly hurts the interest of the growers of raw materials for no other purpose than to enrich the manufacturers and merchants.
In the specific instance of wool, the damage done to the producers was clearly evident in the rate at which wool ceased to be produced in the domestic market, the shepherds finding it more profitable to slaughter their herds, to sell as meat all at once, rather than to maintain them for the production of wool, which happened so frequently as to flood the British markets with a constant supply of cheap mutton, and shepherds turned to other lines of production, plowing their pastures for farming.
The decrease in the domestic production of wool led to scarcity, elevating the price of cloth as well as yarn and raw wool. Consequently, the trade in wool became so lucrative as to attract smuggling, to such a wide extent that all the rigor of law was helpless to prevent it. Whereas the legal export of wool generated the benefit of legitimate trade and tax revenue to the state, the illegal smuggling benefited none but the smugglers.
The extent of the problem was not limited to wool, but to a wide range of commodities, including leather and hides, dyes and white cloth, all metals precious and base, coal, the component parts of watches and clocks, etc.
Abridgement of Personal Liberty
Measures were also taken to restrict the movement of individuals who had knowledge or skill of manufacturing. It was expressly forbidden for any skilled manufacturer to travel aboard for the purpose of teaching his craft to foreigners. Any craftsman or artificer who wished to travel abroad for other reasons was required to provide security at the discretion of the court, and failure to return to the realm within six months time resulted in the revocation of citizenship and seizure of all property.
The state also supported the establishment of trade guilds, for the licensing of skilled craftsmen. While it was not the intention of law, it was in the interest of the manufacturers to require long periods of apprenticeship before a worker could command the wages of a master craftsmen, and to reduce the number of individuals who would be trained at all to create a scarcity of skilled labor.
Exploitation of the Consumer
The ostensible motive of mercantilism is to extend the manufacturing in a nation, not by making improvements that would enable manufacturers to be more efficient and produce cheaper goods, but by depriving other countries of the materials, equipment, and personnel to compete.
However, the support of the manufacturer and the trader was to the detriment of the consumer, who paid a higher price than necessary for the goods he needed or desired due to the restrictions that prevented goods from being imported from places where they can be manufactured most cheaply.
Consumption is the sole end and purpose of any production, so it follows that the interest of the producer is best served by the satisfaction of the needs of the consumer, and the greatest success of production is the satisfaction of the greatest number of consumers. However, mercantilism's goal was not the satisfaction of the consumer, but the generation of profit to the producer, which was often achieved not by providing goods in increasing quantity, but in creating scarcity that improved his profit margin.
There has been shown no evidence of any instance in which trade restrictions, in support of manufacturing or otherwise, provided a benefit to consumers, in increasing the quantity of goods, increasing the quality of goods, or decreasing the price of goods in the domestic market. One or more of the three are invariably sacrificed in the support of manufacture and trade.